☒ 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~~statements of the Company or its senior management should be considered in light of those factors. Such factors may include adverse developments in the financial services industry; the effects of any government shutdown; loan losses may be greater than anticipated; our ability to ensure that sufficient cash flow and liquid assets are available to satisfy current and future financial obligations; 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 risk ~~factors described in Part I, Item 1A~~that internal controls and procedures might fail or be circumvented; the impact of changing tax laws on the Company’s ~~Annual Report on Form 10-K as~~financial results; the potential impact of climate change and ~~for~~related legislative and regulatory initiatives; the ~~year ended December 31, 2016. Specifically, with respect to statements relating to loan demand, growth~~possibility that acquisitions may not produce anticipated results and ~~earnings potential, geographic expansion and the adequacy of the allowance for loan losses for the Company, these factors include, but are not limited to,~~result in unforeseen integration difficulties; the rate of growth (or lack thereof) in the economy generally and in the Company’s service ~~areas,~~areas; the ~~availability~~volatility of ~~quality loans~~our stock price and our dependence on the soundness of other financial institutions; 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 ~~operates~~are both headquartered in Birmingham, Alabama. As of September 30, 2023, the Bank operated a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). ~~Management has~~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. Through the third quarter of 2023, ALC continued to service its remaining portfolio of loans from its headquarters in Mobile, Alabama. Effective October 1, 2023, all of ALC’s remaining loans were sold to the Bank in an intercompany transaction. Due to this transaction, management determined that ~~the Bank and~~ ALC ~~comprise Bancshares’ two~~was no longer a separate reportable operating ~~segments.~~segment. The Bank intends to manage the remaining portfolio through final resolution. All significant intercompany transactions and accounts have been eliminated.

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.~~nature, except for the adoption of Accounting Standards Codification (“ASC”) 326, Measurement of Credit Losses on Financial Instruments, as discussed below. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, ~~2017~~.2023. 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.~~2022 (the "Company's 2022 Form 10-K").

BASIS OF PRESENTATION

Reclassification

2.	~~BASIS OF PRESENTATION~~

Certain amounts in the prior period consolidated financial statements and the notes to the prior period consolidated financial statements have been reclassified to conform to the 2023 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.

Summary of Significant Accounting Policies

Certain significant accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s ~~Annual Report~~2022 Form 10-K.

Adoption of ASC 326

On January 1, 2023, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as subsequently updated for certain clarifications, targeted relief and codification improvements. ASC 326 replaces the previous "incurred loss" model for measuring credit losses, which required allowances for current known and inherent losses within the loan portfolio, with an "expected loss" model. The newly adopted current expected credit loss ("CECL") model requires the measurement of all expected credit losses for financial assets measured at amortized cost and certain off-balance-sheet credit exposures based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 also requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization's portfolio. In addition, ASC 326 includes certain changes to the accounting for available-for-sale securities including the requirement to present credit losses as an allowance rather than as a direct write-down.

The Company adopted ASC 326 using the modified retrospective method for financial assets measured at amortized cost and off-balance-sheet credit exposures. Upon adoption, the Company recognized an increase in the allowance for credit losses (including both loans and unfunded lending commitments) of $2.4 million, which included an after-tax cumulative effect decrease to retained earnings totaling $1.8 million. Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in Note 2 of the Company's 2022 Form ~~10-K~~10-K. In connection with the adoption of ASC 326, the Company revised certain accounting policies and implemented certain accounting policy elections. The revised accounting policies are described below.

Loans and Leases Held for Investment

Loans and leases held for investment (“loans”) represent financial instruments that the Company has the intent and the ability to hold for the foreseeable future or until maturity or payoff. Loans are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, as well as deferred loan fees and costs. Accrued interest receivable on loans and leases is reported separately on the Company’s consolidated balance sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.

At the time a loan is 90 days delinquent, it is placed on nonaccrual status unless it is well-secured and in process of collection. Interest income is discontinued on all loans on nonaccrual status. Past-due status is based on the contractual terms of the loan. In all cases, loans are moved to nonaccrual status, or charged off at an earlier date, if collection of principal and interest is considered doubtful.

All interest accrued but not received on loans on nonaccrual status is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery methods, until qualifying for return to accrual. Under the cash-basis method, interest income is recorded when the payment is received in cash. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all of the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Credit Losses – Loans and Leases

The allowance for credit losses is a contra-asset valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off. The allowance for credit losses on loans and leases is adjusted through the provision for (recovery of) credit losses.

Management estimates the allowance balance by using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses. Adjustments to historical loss information are made for differences in loan-specific risk characteristics such as changes in economic and business conditions, underwriting standards, portfolio mix, and delinquency level. Considerations related to environmental conditions include reasonable and supportable current and forecasted data related to economic factors such as inflation, unemployment levels, and interest rates.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty as of the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for estimated selling costs as appropriate.

Expected credit losses are estimated over the ~~year ended December 31, 2016.~~contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company, or management has a reasonable expectation at the reporting date that a loan modification will be made to a borrower experiencing financial difficulty.

Additional information related to the factors considered in evaluating credit losses on loans and leases is included in Note 4.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The following categories of off-balance sheet credit exposures have been identified: unfunded loan commitments, standby letters of credit, and financial guarantees (collectively, “unfunded lending commitments”). The allowance for credit losses on unfunded lending commitments is adjusted through the provision for (recovery of) credit losses. The estimate may include consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, as well as reasonable practical expedients or industry practices to assist in the evaluation of estimated funding amounts.

Additional information related to the factors considered in evaluating credit losses on unfunded lending commitments is included in Note 4.

Allowance for Credit Losses – Investment Securities Held-to-Maturity

Expected credit losses on held-to-maturity debt securities are measured on a collective basis by major security type. Accrued interest receivable on held-to-maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The allowance for credit losses on investment securities held-to-maturity is adjusted through the provision for (recovery of) credit losses.

Additional information related to the factors considered in evaluating credit losses in the held-to-maturity investment portfolio is included in Note 3.

Allowance for Credit Losses – Investment Securities Available-for-Sale

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes in the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded in the provision for (recovery of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities is excluded from the estimate of credit losses.

Additional information related to the factors considered in evaluating credit losses in the available-for-sale investment portfolio is included in Note 3.

Net Income Per Share ~~and Comprehensive Income~~

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding ~~during the period.~~("basic shares"). Included in basic shares are ~~certain~~stock equivalent shares that have been accrued as of the balance sheet date as deferred ~~compensation~~compensation for members of Bancshares’ Board of ~~Directors.~~Directors under the Non-Employee Directors' Deferred Compensation Plan (as defined below and discussed further in Note 9). Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, ~~during the period,~~ adjusted for the effect of potentially dilutive stock awards outstanding during the ~~period.~~period ("dilutive shares"). The dilutive shares consist of unexercised nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to ~~Bancshares’ 2013~~the Company's Incentive Plan ~~(the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders.~~ (as defined below and discussed further in Note 10).

The following table reflects the weighted average shares used to calculate basic and diluted net income per share for the periods presented.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended				Nine Months Ended
	2017		2016		2017		2016		September 30,				September 30,
									2023		2022		2023		2022
Weighted average shares outstanding										5,874,769		5,839,658		5,858,812		6,016,770
Weighted average director stock equivalent shares										109,793		111,608		113,142		114,853
Basic shares		6,176,381		6,151,701		6,170,892		6,147,325		5,984,562		5,951,266		5,971,954		6,131,623
Dilutive shares		320,501		272,550		320,501		272,550		419,650		419,650		419,650		419,650
Diluted shares		6,496,882		6,424,251		6,491,393		6,419,875		6,404,212		6,370,916		6,391,604		6,551,273

Three Months Ended

      Nine Months Ended

September 30,

      September 30,

2017

2016

  2017

2016

(Dollars in Thousands, Except Per Share Data)

Net income

$
635

$
550

$
1,455

$
1,329

Basic net income per share

$
0.10

$
0.09

$
0.24

$
0.22

Diluted net income per share

$
0.10

$
0.09

$
0.22

$
0.21


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(Dollars in Thousands, Except Per Share Data)
Net income	$	2,113	$	1,860	$	6,208	$	4,636
Basic net income per share	$	0.35	$	0.31	$	1.04	$	0.76
Diluted net income per share	$	0.33	$	0.29	$	0.97	$	0.71

Comprehensive Income

Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the ~~Company’~~sCompany’s available-for-sale securities portfolio and the effective portion of cash flow hedge derivatives. In the calculation of comprehensive income, reclassification adjustments are made for gains or losses realized in the statement of operations associated with the sale of available-for-sale securities or ~~changes~~settlement of derivative contracts.

Recently Adopted Accounting Guidance

Reference Rate Reform

ASU 2020-04 and ASU 2021-01, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." These ASUs provide temporary relief, in the form of optional expedients and exceptions, for applying GAAP to modifications of contracts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. Historically, the Company utilized LIBOR, among other indexes, as a reference rate for underwriting certain variable rate loans and interest rate hedging instruments. Since the issuance of this guidance, cessation of U.S. dollar LIBOR was extended to June 30, 2023. Accordingly, in December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which deferred the sunset date of ASC Topic 848 from December 31, 2022 to December 31, 2024. The amendments in this update provide optional expedients designed to provide relief from accounting analysis and the impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. The optional expedients provided by the update include guidance related to modifications of contracts within the scope of ASC Topics 310, Receivables, and 470, Debt, that indicates the modifications should be accounted for by prospectively adjusting the effective interest rate. As of September 30, 2023, the Company’s contracts referencing LIBOR were limited to certain variable-rate loan agreements for which the pricing reset date has not yet occurred. Management has implemented a process to convert the agreements to another reference rate at the next applicable pricing reset date. Due to the prospective nature of the implementation of the revised guidance, the adoption did not have a material impact on the Company’s consolidated financial statements.

Portfolio Layer Hedging Method

ASU 2022-01, "Fair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 815)." In March 2022, the FASB issued ASU 2022-01. The amendments in this standard expand the current last-of-layer method of hedge accounting to allow multiple hedged layers of a single closed portfolio. The Company adopted ASU 2022-01 on January 1, 2023. Due to the prospective nature of the implementation of this revised guidance, the adoption of this standard update did not have a material impact on the Company's consolidated financial statements.

Intangibles and Goodwill

ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Issued in January 2017, ASU 2017-04 simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. In computing the implied fair value of goodwill under Step 2, an entity, prior to the amendments in ASU 2017-04, had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities, including unrecognized assets and liabilities, in accordance with the procedure that would be required in determining the fair value of ~~cash flow derivatives.~~assets acquired and liabilities assumed in a business combination. However, under the amendments in ASU 2017-04, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, ASU 2017-04 removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. As originally issued, ASU 2017-04 was effective prospectively for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. On October 16, 2019, the FASB approved a delay in the implementation of ASU 2017-04 by three years for smaller reporting companies, including the Company. The ASU became effective for the Company on January 1, 2023. The adoption of this standard update did not have a material effect on the Company’s consolidated financial statements.

Current Expected Credit Loss Accounting ~~Policies Recently Adopted and Pending Accounting Pronouncements~~Guidance

~~Accounting Standards Update (“~~~~ASU”)~~ASU 2016-13, "Financial Instruments -– Credit ~~Losses:~~Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.”" Issued in June 2016, ASU 2016-13 ~~removes~~removed the thresholds that ~~companies apply~~entities previously applied to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity debt securities. ~~Under current U.S. GAAP, companies generally recognize credit losses when it is probable that~~Known as the ~~loss has been incurred. The~~Current Expected Credit Loss (CECL) model, the revised guidance ~~will remove~~removed all ~~current~~ recognition thresholds under previously used incurred loss models and ~~will require companies~~required entities to recognize an allowance for lifetime expected credit losses. ~~Credit~~The standard also added disclosure requirements intended to enable users of the financial statements to understand credit risk in the portfolio and how management monitors credit quality, management’s estimate of expected credit losses, and changes in the estimate of credit losses during the period. In addition, the standard made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be ~~immediately recognized through net income; the amount recognized will be based on the current estimate of contractual cash flows not expected~~required to ~~be collected over the financial asset’s contractual term.~~sell. As originally issued, ASU 2016-13 ~~also amends the credit loss measurement guidance for available-for-sale debt securities. For public business entities, ASU 2016-13 is~~was effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, ~~2019. Institutions will be~~2019, with institutions required to apply the changes through a cumulative-effect adjustment to their retained earnings balance as of the beginning of the first reporting period in which the guidance is effective. ~~Management is currently evaluating~~On October 16, 2019, the ~~impact that this~~FASB approved a delay in the implementation of ASU ~~will have on~~2016-13 by three years for smaller reporting companies, including the ~~Company’s consolidated financial statements.~~

Company. The ASU ~~2016-09, “Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.”~~ Issued in March 2016, ASU 2016-09 seeks to reduce complexity in accounting standards by simplifying several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes; (6) the practical expedient for estimating the expected term; and (7) intrinsic value. ASU 2016-09 became effective for the Company on January 1, ~~2017.~~2023, and the Company recorded a cumulative-effect adjustment that increased the allowance for credit losses by approximately $2.1 million. In addition, the Company recorded a cumulative-effect adjustment that increased other liabilities by $0.3 million as an allowance for credit losses for unfunded commitments. In accordance with transition accounting guidance, the transition adjustments were recorded directly to retained earnings (net of tax) during the first quarter of 2023 and did not impact then-current period earnings.

Troubled Debt Restructurings and Vintage Disclosures

ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings (“TDRs��) and Vintage Disclosures.” Issued in March 2022, ASU 2022-02 sought to improve the decision usefulness of information provided to investors concerning certain loan refinancings, restructurings and write-offs. The ASU eliminated the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL accounting model and enhanced the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The Company adopted the amendments of ASU 2022-02 on January 1, 2023, concurrent with the adoption of the CECL accounting model. The amendments of ASU 2022-02 include only changes to certain financial statement disclosures; and, therefore, adoption of ASU ~~2016-09~~2022-02 did not have a material impact on the Company’s consolidated financial statements.

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~~2023 and December 31, ~~2016~~2022 were as follows:


	Available-for-Sale									Available-for-Sale
	September 30, 2017									September 30, 2023
			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	$	41,071	$	—	$	(4,071	)	$	37,000
Commercial		67,781		62		(705	)		67,138		10,020		1		(521	)		9,500
Obligations of U.S. government-sponsored agencies											11,851		—		(919	)		10,932
Obligations of states and political subdivisions		5,424		231		—			5,655		1,633		—		(90	)		1,543
Obligations of U.S. government-sponsored agencies		2,000		2		—			2,002
Corporate notes											17,772		—		(3,091	)		14,681
U.S. Treasury securities		80		—		—			80		56,988		—		(4,093	)		52,895
Total	$	158,676	$	772	$	(1,023	)	$	158,425	$	139,335	$	1	$	(12,785	)	$	126,551

Held-to-Maturity

September 30, 2017

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

(Dollars in Thousands)

Mortgage-backed securities:

Commercial
$ 15,976 $ 18 $
(61
)
$ 15,933
Obligations of U.S. government-sponsored agencies
9,458 25 (79
)
9,404
Obligations of states and political subdivisions
1,943 26 (3
)
1,966
Total
$ 27,377 $ 69 $ (143
)
$ 27,303

Available-for-Sale

December 31, 2016

Gross

Gross

Estimated

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

(Dollars in Thousands)

Mortgage-backed securities:

Residential
$ 99,922 $ 490 $ (2,003
)
$ 98,409
Commercial
71,761 56 (1,287
)
70,530
Obligations of states and political subdivisions
9,759 390 (7
)
10,142
Obligations of U.S. government-sponsored agencies
2,000 — (7
)
1,993
Corporate notes
756 — — 756
U.S. Treasury securities
80 — — 80
Total
$ 184,278 $ 936 $ (3,304
)
$ 181,910

Held-to-Maturity

December 31, 2016

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

(Dollars in Thousands)

Mortgage-backed securities:

Commercial
$ 14,684 $ 5 $ (148
)
$ 14,541
Obligations of U.S. government-sponsored agencies
9,129 13 (222
)
8,920
Obligations of states and political subdivisions
2,091 2 (46
)
2,047
Total
$ 25,904 $ 20 $ (416
)
$ 25,508


	Held-to-Maturity
	September 30, 2023
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	704	$	—	$	(30	)	$	674
Obligations of U.S. government-sponsored agencies		502		—		(49	)		453
Obligations of states and political subdivisions		66		—		(10	)		56
Total	$	1,272	$	—	$	(89	)	$	1,183


	Available-for-Sale
	December 31, 2022
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	47,659	$	2	$	(3,704	)	$	43,957
Commercial		12,169		4		(480	)		11,693
Obligations of U.S. government-sponsored agencies		5,116		—		(846	)		4,270
Obligations of states and political subdivisions		2,166		—		(94	)		2,072
Corporate notes		17,817		2		(1,898	)		15,921
U.S. Treasury securities		56,956		—		(4,074	)		52,882
Total	$	141,883	$	8	$	(11,096	)	$	130,795


	Held-to-Maturity
	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	1,167	$	—	$	(41	)	$	1,126
Obligations of U.S. government-sponsored agencies		610		—		(40	)		570
Obligations of states and political subdivisions		85		—		(12	)		73
Total	$	1,862	$	—	$	(93	)	$	1,769

The scheduled maturities of investment securities available-for-sale and held-to-maturity as of September 30,~~, 2017~~ 2023 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	$	12,988	$	12,783	$	—	$	—
Maturing after one to five years		53,676		49,249		324		308
Maturing after five to ten years		60,121		52,780		738		686
Maturing after ten years		12,550		11,739		210		189
Total	$	139,335	$	126,551	$	1,272	$	1,183

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 for securities for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of September 30, 2023.


	Available-for-Sale
	September 30, 2023
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	105	$	(5	)	$	36,860	$	(4,066	)
Commercial		1,532		(13	)		7,934		(508	)
Obligations of U.S. government-sponsored agencies		—		—			4,176		(919	)
Obligations of states and political subdivisions		—		—			1,543		(90	)
Corporate notes		802		(198	)		13,879		(2,893	)
U.S. Treasury securities		—		—			52,895		(4,093	)
Total	$	2,439	$	(216	)	$	117,287	$	(12,569	)


	Held-to-Maturity
	September 30, 2023
	Less than 12 Months				12 Months or More
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	—	$	—	$	674	$	(30	)
Obligations of U.S. government-sponsored agencies		—		—		453		(49	)
Obligations of states and political subdivisions		—		—		56		(10	)
Total	$	—	$	—	$	1,183	$	(89	)

The following 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 and~~ December 31, ~~2016.~~2022. No determination was made concerning the need for an allowance for credit losses as this table reflects information prior to the adoption of ASC 326.


	Available-for-Sale										Available-for-Sale
	September 30, 2017										December 31, 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	)	$	19,876	$	(952	)	$	23,903	$	(2,752	)
Commercial		19,576		(145	)		37,291		(560	)		9,720		(357	)		1,247		(123	)
Obligations of U.S. government-sponsored agencies												—		—			4,270		(846	)
Obligations of states and political subdivisions												1,559		(41	)		513		(53	)
Corporate notes												6,845		(898	)		8,075		(1,000	)
U.S. Treasury securities		80		—			—		—			21,240		(698	)		31,642		(3,376	)
Total	$	58,440	$	(260	)	$	51,641	$	(763	)	$	59,240	$	(2,946	)	$	69,650	$	(8,150	)

Held-to-Maturity

September 30, 2017

Less than 12 Months

12 Months or More

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(Dollars in Thousands)

Mortgage-backed securities:
Commercial
$ 9,643 $ (58 ) $
423
$
(3
)
Obligations of U.S. government-sponsored agencies 3,217 (27 ) 4,345 (52 )
Obligations of states and political subdivisions
— —

543

(3
)
Total
$ 12,860 $ (85
)
$
5,311
$
(58
)

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
)
$ — $ —

~~Management evaluates~~16


	Held-to-Maturity
	December 31, 2022
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	1,126	$	(41	)	$	—	$	—
Obligations of U.S. government-sponsored agencies		214		(7	)		356		(33	)
Obligations of states and political subdivisions		73		(12	)		—		—
Total	$	1,413	$	(60	)	$	356	$	(33	)

Available-for-Sale Considerations

For any 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, (ii) the financial condition and near-term prospectsclassified as available-for-sale that are in an unrealized loss position as of the ~~issuer, (iii)~~balance sheet date, the Company assesses whether ~~the Company~~or not it intends to sell ~~securities, and (iv) whether it is more likely than not that~~ the ~~Company~~security, or more-likely-than-not will be required to sell the ~~securities~~security, before recovery of ~~their~~its amortized cost ~~bases.~~basis which would require a write-down to fair value through net income.

As of September 30, ~~2017, 46~~2023, 109 available-for-sale debt securities had been in a loss position for more than 12 months, and 75six available-for-sale debt securities had been in a loss position for less than 12 months. As of December 31, ~~2016, 13~~2022, 37 available-for-sale debt securities had been in a loss position for more than 12 months, and ~~130~~75 available-for-sale 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 for greater than 12 months was due to the sustained higher interest rate environment during the nine months ended September 30, 2023. As of ~~both~~ September 30, ~~2017~~2023, the Company had the current intent and ~~December 31, 2016,~~ability to retain its investments for a period of time that management believes to be sufficient to allow for any anticipated recovery of fair value. As of September 30, 2023, the losses for all available-for-sale 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~~Accordingly, no allowance for credit losses was considered necessary related 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 recognize any other-than-temporary impairmentsavailable-for-sale securities as of September 30, ~~2017~~2023.

Held-to-Maturity Considerations

Effective January 1, 2023, the Company adopted the CECL accounting model to evaluate credit losses in the held-to-maturity investment portfolio. Each quarter, management evaluates the portfolio on a collective basis by major security type to determine whether an allowance for credit losses is needed. Qualitative factors are used in the Company’s credit loss assessments, including current and ~~December 31, 2016.~~forecasted economic conditions, the characteristics of the debt issuer, and the historic ability of the issuer to make contractual principal and interest payments. Based on these evaluations, no allowance for credit losses was recorded by the Company for the held-to-maturity investment portfolio upon adoption of the CECL accounting model or as of September 30, 2023.

Pledged Securities

Investment securities ~~available-for-sale~~ with a carrying value of ~~$87.1~~$42.3 million and ~~$87.7~~$54.7 million as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively, were pledged to secure public deposits and for other purposes.

LOANS AND ALLOWANCE FOR CREDIT 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 previously 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 consumer – 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~~2023 and December 31, ~~2016,~~2022, the composition of the loan portfolio by ~~reporting segment and~~ portfolio segment was as follows:

	September 30, 2017
	Bank		ALC		Total
	(Dollars in Thousands)						September 30, 2023		December 31, 2022
Real estate loans:
Construction, land development and other land loans	$	20,213	$	—	$	20,213	$	90,051	$	53,914
Secured by 1-4 family residential properties		35,125		11,490		46,615		83,876		87,995
Secured by multi-family residential properties		16,498		—		16,498		56,506		67,852
Secured by non-farm, non-residential properties		107,679		—		107,679		199,116		200,156
Other		223		—		223
Commercial and industrial loans		66,320		—		66,320
Commercial and industrial loans and leases (1)								59,369		73,546
Consumer loans:
Consumer		5,431		35,650		41,081
Indirect sales		—		50,553		50,553
Direct								6,544		9,851
Branch retail								9,648		13,992
Indirect								310,190		266,567
Total loans		251,489		97,693		349,182		815,300		773,873
Less: Unearned interest, fees and deferred cost		367		5,981		6,348
Allowance for loan losses		2,422		2,386		4,808
Allowance for credit losses								11,380		9,422
Net loans	$	248,700	$	89,326	$	338,026	$	803,920	$	764,451

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

(1)

Includes equipment financing leases, which totaled $10.2 million and $10.3 million as of September 30, 2023 and December 31, 2022, respectively.

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54~~.8%~~52.7% and ~~56.6%~~53.0% 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~~2023 and December 31, ~~2016,~~2022, respectively.

Loans with a carrying value of $100.8 million and $100.2 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of September 30, 2023 and December 31, 2022, respectively. In addition, loans with a carrying value of $282.6 million were pledged to secure borrowings with the Federal Reserve Bank ("FRB") as of September 30, 2023. No loans were pledged to the FRB as of December 31, 2022. Measures were undertaken by management in 2023 to pledge loans to the FRB in order to provide additional borrowing capacity to the Company in response to heightened liquidity concerns in the banking industry.

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 $1.4 million and $0.2 million as of September 30, ~~2017~~2023 and December 31, ~~2016 were $0.5 million and $2.7 million,~~2022, respectively. During the nine months ended September 30, ~~2017,~~2023, there was one new loan to these parties and no repayments made. During the year ended December 31, 2022, there were no new loans to these parties, and repayments by active related parties totaled $0.1 million.

Allowances for Credit Losses

Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases held for investment, as well as off-balance sheet credit exposures including unfunded lending commitments. In accordance with the CECL accounting guidance, the Company recorded a cumulative-effect adjustment totaling $2.4 million, of which $1.8 million (net of tax) was recorded through retained earnings upon adoption of the model. This amount included estimates for credit losses associated with both loan and lease receivables, as well as unfunded lending commitments. Prospectively, following the date of adoption, all adjustments for credit losses are required to be recorded as a provision for (recovery of) credit losses in the Company’s consolidated statement of operations.

Allowance for Credit Losses - Loans and Leases

Determining the appropriateness of the allowance for credit losses is complex and requires judgment by management about the effects of matters that are inherently uncertain. In future periods, evaluations of the overall loan portfolio, or particular segments of the portfolio, in the context of factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods. The level of the allowance is influenced by loan volumes and mix, historical credit loss experience, average remaining life of portfolio segments, asset quality characteristics, delinquency status, and other conditions including reasonable and supportable forecasts of economic conditions and qualitative adjustment factors based on management’s understanding of various attributes that could impact life-of-loan losses as of the balance sheet date. The methodology to estimate losses includes two basic components: (1) an asset-specific component for individual loans that do not share similar risk characteristics with other loans, and (2) a pooled component for estimated expected credit losses for loans that share similar risk characteristics.

Loans that do not share risk characteristics with other loans are evaluated on an individual basis. The process for determining whether a loan should be evaluated on an individual basis begins with a determination of credit rating. All loans graded substandard or worse with a total commitment of $0.5 million or more are evaluated on an individual basis. At management's discretion, other loans may be evaluated, including loans less than $0.5 million, if management determines that the loans exhibit unique risk characteristics. For loans individually evaluated, the allowance is based primarily on the fair value of the underlying collateral, utilizing independent third-party appraisals, and assessment of borrower guarantees.

For estimating the component of the allowance for credit losses that share similar risk characteristics, loans are segregated into loan segments or categories that share risk characteristics. Loans are designated into pooled segments based on product types, business lines, collateral, and other risk characteristics. For all pooled loan categories, the Company uses a loss-rate methodology to calculate estimated life-of-loan and lease credit losses. This methodology focuses on historical credit loss rates applied over the estimated weighted average remaining life of each loan segment, adjusted by qualitative factors, to estimate life-of-loan losses for each pooled segment. The qualitative factors utilized include, among others, reasonable and supportable forecasts of economic data, including inflation and unemployment levels, as well as interest rates.

The Company’s cumulative-effect adjustment upon the adoption of CECL increased the Company’s allowance for credit losses on loans and leases by $2.1 million. Subsequent to January 1, 2023, the Company recorded additional increases to the allowance for credit losses on loans and leases totaling $0.5 million which were ~~$7 thousand. In addition,~~included in the provision for credit losses in the Company’s consolidated statement of operations 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, there was one new loan to a related party, and repayments by active related parties totaled $0.1 million.2023.

~~Allowance for Loan Losses~~

The following tables present changes in the allowance for credit losses on loans and leases during the nine months ended September 30, 2023 and 2022:


	As of and for the Nine Months Ended September 30, 2023
	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 Consumer			Total
	(Dollars in Thousands)
Allowance for credit losses:
Beginning balance	$	517		$	832		$	646		$	1,970		$	919		$	866		$	518		$	3,154		$	9,422
Impact of adopting CECL accounting guidance		(94	)		(39	)		(85	)		(147	)		(20	)		47			628			1,833			2,123
Charge-offs		—			(96	)		—			—			—			(521	)		(359	)		(500	)		(1,476	)
Recoveries		—			39			—			—			—			499			195			40			773
Provision for (recovery of) credit losses		157			18			(156	)		(201	)		(369	)		(404	)		(147	)		1,640			538
Ending balance	$	580		$	754		$	405		$	1,622		$	530		$	487		$	835		$	6,167		$	11,380


	As of and for the Nine Months Ended September 30, 2022
	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 Consumer			Total
	(Dollars in Thousands)
Allowance for loan and lease losses:
Beginning balance	$	628		$	690		$	437	$	1,958	$	860	$	1,004		$	304		$	2,439		$	8,320
Charge-offs		—			(10	)		—		—		—		(1,604	)		(423	)		(238	)		(2,275	)
Recoveries		2			23			—		4		—		387			97			34			547
Provision for (recovery of) loan and lease losses		(246	)		89			210		30		244		1,161			445			848			2,781
Ending balance	$	384		$	792		$	647	$	1,992	$	1,104	$	948		$	423		$	3,083		$	9,373

The following table details the allowance for loan and lease losses and ~~the related loan balances~~recorded investment in loans by loan ~~portfolio segment~~classification and ~~loan type~~by impairment evaluation as of ~~September~~ ~~30, 2017 and~~ December 31, ~~2016.~~2022, as determined in accordance with ASC 310, Receivables, prior to the adoption of ASC 326:

	Bank
	Nine Months Ended September 30, 2017																								As of the Year Ended December 31, 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 Consumer		Total
	(Dollars in Thousands)																								(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	535		$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409
Charge-offs		—			—			—		—			—		(16	)		(63	)		—		(79	)
Recoveries		—			85			—		69			—		16			52			—		222
Provision		(328	)		(141	)		27		(142	)		—		440			14			—		(130	)
Ending balance	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	62		$	5		$	—	$	55		$	—	$	72		$	—		$	—	$	194		$	—	$	7	$	—	$	—	$	252	$	—	$	—	$	—	$	259
Collectively evaluated for impairment		145			243			115		775			2		895			53			—		2,228			517		825		646		1,970		667		886		518		3,154	$	9,183
Total allowance for loan losses	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422
Total allowance for loan and lease losses																									$	517	$	832	$	646	$	1,970	$	919	$	886	$	518	$	3,154	$	9,442
Ending balance of loans receivable:
Individually evaluated for impairment	$	86		$	189		$	—	$	535		$	—	$	70		$	—		$	—	$	880		$	—	$	582	$	—	$	2,492	$	2,429	$	18	$	—	$	—	$	5,521
Collectively evaluated for impairment		20,127			34,936			16,498		107,144			223		66,250			5,431			—		250,609			53,914		87,413		67,852		197,664		71,117		9,833		13,992		266,567		768,352
Total loans receivable	$	20,213		$	35,125		$	16,498	$	107,679		$	223	$	66,320		$	5,431		$	—	$	251,489		$	53,914	$	87,995	$	67,852	$	200,156	$	73,546	$	9,851	$	13,992	$	266,567	$	773,873

Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection.

The Company’s cumulative-effect adjustment upon the adoption of CECL included a reserve for unfunded commitments of $0.3 million. Subsequent to January 1, 2023, the Company recorded additional increases to the reserve for unfunded commitments totaling $0.2 million which were included in the provision for credit losses in the Company's consolidated statement of operations during the nine months ended September 30, 2023. As of September 30, 2023, the reserve, which is recorded in other liabilities on the Company’s consolidated balance sheets, totaled $0.5 million. No reserve for unfunded commitments was recorded by the Company as of December 31, 2022.

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.

~~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 and leases by credit quality indicator and year of origination as of September 30, ~~2017.~~2023:

Bank

Pass
1-5

Special
Mention
6

Substandard
7

Doubtful
8

Total

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$ 19,939 $
—
$ 274 $
—
$ 20,213
Secured by 1-4 family residential properties
34,069 201 855
—
35,125
Secured by multi-family residential properties
16,498
—

—

—
16,498
Secured by non-farm, non-residential properties
102,264 4,884 531
—
107,679
Other
223
—

—

—
223
Commercial and industrial loans
63,995 2,105 220
—
66,320
Consumer loans
5,366
—

65

—
5,431
Total
$ 242,354 $ 7,190 $ 1,945 $
—
$ 251,489


		September 30, 2023
		Loans at Amortized Cost Basis by Origination Year
		2023		2022		2021		2020		2019		Prior		Total
		(Dollars in Thousands)
Commercial:

Construction, land development and other land loans	Pass	$	3,716	$	38,961	$	40,404	$	6,377	$	—	$	593	$	90,051
	Special Mention		—		—		—		—		—		—		—
	Substandard		—		—		—		—		—		—		—
	Doubtful		—		—		—		—		—		—		—
	Loss		—		—		—		—		—		—		—
	Subtotal	$	3,716	$	38,961	$	40,404	$	6,377	$	—	$	593	$	90,051

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Secured by multi-family residential properties	Pass	$	383	$	28,513	$	5,991	$	686	$	7,151	$	13,782	$	56,506
	Special Mention		—		—		—		—		—		—		—
	Substandard		—		—		—		—		—		—		—
	Doubtful		—		—		—		—		—		—		—
	Loss		—		—		—		—		—		—		—
	Subtotal	$	383	$	28,513	$	5,991	$	686	$	7,151	$	13,782	$	56,506

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Secured by non-farm, non-residential properties	Pass	$	8,683	$	35,499	$	25,519	$	56,913	$	18,618	$	47,516	$	192,748
	Special Mention		—		536		1,295		347		—		1,690		3,868
	Substandard		—		—		—		152		—		2,348		2,500
	Doubtful		—		—		—		—		—		—		—
	Loss		—		—		—		—		—		—		—
	Subtotal	$	8,683	$	36,035	$	26,814	$	57,412	$	18,618	$	51,554	$	199,116

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial loans and leases	Pass	$	7,435	$	7,401	$	15,424	$	2,494	$	3,802	$	20,643	$	57,199
	Special Mention		—		170		899		199		57		—		1,325
	Substandard		—		44		209		25		305		262		845
	Doubtful		—		—		—		—		—		—		—
	Loss		—		—		—		—		—		—		—
	Subtotal	$	7,435	$	7,615	$	16,532	$	2,718	$	4,164	$	20,905	$	59,369

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total commercial	Pass	$	20,217	$	110,374	$	87,338	$	66,470	$	29,571	$	82,534	$	396,504
	Special Mention		—		706		2,194		546		57		1,690		5,193
	Substandard		—		44		209		177		305		2,610		3,345
	Doubtful		—		—		—		—		—		—		—
	Loss		—		—		—		—		—		—		—
		$	20,217	$	111,124	$	89,741	$	67,193	$	29,933	$	86,834	$	405,042

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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, 2023
		Loans at Amortized Cost Basis by Origination Year
		2023		2022		2021		2020		2019		Prior		Total
		(Dollars in Thousands)
Consumer:

Secured by 1-4 family residential properties	Performing	$	4,282	$	21,592	$	14,886	$	12,028	$	9,323	$	20,917	$	83,028
	Non-performing		—		—		—		—		—		848		848
	Subtotal	$	4,282	$	21,592	$	14,886	$	12,028	$	9,323	$	21,765	$	83,876

	Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	96	$	96

Direct	Performing	$	2,052	$	1,379	$	1,961	$	739	$	288	$	125	$	6,544
	Non-performing		—		—		—		—		—		—		—
	Subtotal	$	2,052	$	1,379	$	1,961	$	739	$	288	$	125	$	6,544

	Current period gross charge-offs	$	—	$	5	$	274	$	115	$	39	$	88	$	521

Branch retail	Performing	$	—	$	—	$	2,405	$	2,990	$	1,794	$	2,459	$	9,648
	Non-performing		—		—		—		—		—		—		—
	Subtotal	$	—	$	—	$	2,405	$	2,990	$	1,794	$	2,459	$	9,648

	Current period gross charge-offs	$	—	$	—	$	84	$	127	$	28	$	120	$	359

Indirect	Performing	$	82,347	$	92,898	$	69,122	$	53,564	$	5,878	$	6,239	$	310,048
	Non-performing		—		34		—		108		—		—		142
	Subtotal	$	82,347	$	92,932	$	69,122	$	53,672	$	5,878	$	6,239	$	310,190

	Current period gross charge-offs	$	—	$	128	$	171	$	153	$	13	$	35	$	500

Total consumer	Performing	$	88,681	$	115,869	$	88,374	$	69,321	$	17,283	$	29,740	$	409,268
	Non-performing		—		34		—		108		—		848		990
		$	88,681	$	115,903	$	88,374	$	69,429	$	17,283	$	30,588	$	410,258

	Current period gross charge-offs	$	—	$	133	$	529	$	395	$	80	$	339	$	1,476

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, ~~2016.~~2022:


	Bank										December 31, 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	$	22,240	$	—	$	1,532	$	—	$	23,772	$	53,914		$	—		$	—		$	53,914
Secured by 1-4 family residential properties		31,995		213		747		—		32,955
Secured by multi-family residential properties		16,627		—		—		—		16,627		67,852			—			—			67,852
Secured by non-farm, non-residential properties		99,082		2,315		715		—		102,112		197,004			651			2,501			200,156
Other		234		—		—		—		234
Commercial and industrial loans		55,481		2,227		255		—		57,963		70,500			—			3,046			73,546
Consumer loans		6,126		—		80		—		6,206
Total	$	231,785	$	4,755	$	3,329	$	—	$	239,869	$	389,270		$	651		$	5,547		$	395,468
As a percentage of total loans												98.43	%		0.17	%		1.40	%		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, 2022
	Performing			Nonperforming			Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	86,871		$	1,124		$	87,995
Consumer loans:
Direct		9,805			46			9,851
Branch retail		13,960			32			13,992
Indirect		266,496			71			266,567
Total	$	377,132		$	1,273		$	378,405
As a percentage of total loans		99.66	%		0.34	%		100.00	%

The table below presents the amortized cost of loans on nonaccrual status and loans past due 90 days or more and still accruing interest as of September 30, 2023. Also presented is the balance of loans on nonaccrual status at September 30, 2023 for which there was no related allowance for credit losses recorded.

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


	Loans on Non-Accrual Status
	December 31, 2022
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—
Secured by 1-4 family residential properties		914
Secured by multi-family residential properties		—
Secured by non-farm, non-residential properties		—
Commercial and industrial loans		605
Consumer loans:
Direct		29
Branch retail		32
Indirect		71
Total loans	$	1,651

The following table presents the amortized cost basis of collateral dependent loans as of September 30, 2023, which loans are individually evaluated to determine credit losses:

Loans on Non-Accrual Status

September 30,
2017

December 31,
2016

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$ — $ 86
Secured by 1-4 family residential properties
418 570
Secured by multi-family residential properties

—
—
Secured by non-farm, non-residential properties
33 53
Commercial and industrial loans

14
32
Consumer loans:
Consumer 1,106 1,676
Indirect sales
385 —
Total loans
$ 1,956 $ 2,417


	September 30, 2023
	Real Estate		Other		Total
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		498		—		498
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,353		—		2,353
Commercial and industrial		—		126		126
Direct consumer		—		—		—
Total loans individually evaluated	$	2,851	$	126	$	2,977

~~Impaired Loans~~26

~~A loan is considered~~The following table presents impaired ~~when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments~~loans as of ~~principal or interest when due according~~December 31, 2022 as determined under ASC 310 prior to the ~~contractual terms~~adoption of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the loan~~’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral at the Bank. At management’s discretion, additional~~ASC 326. Impaired loans ~~may~~generally include nonaccrual loans and other loans deemed to 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 conditionsbut that ~~may affect a borrower’s ability~~continue to ~~pay. At ALC, all real estate loans of $0.1 million or more~~accrue interest. Presented are identified for impairment analysis. There are currently no loans 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. Impaired loans, or portions thereof, are charged off when deemed uncollectable.

~~As of September~~ ~~30, 2017,~~ the carrying amount, unpaid principal balance and related allowance of impaired loans ~~consisted~~as of December 31, 2022 by portfolio segment:


	December 31, 2022
	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Impaired loans with no related allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		568		568		—
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,492		2,492		—
Commercial and industrial		2,076		2,076		—
Direct consumer		18		18		—
Total impaired loans with no related allowance recorded	$	5,154	$	5,154	$	—
Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		14		14		7
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		—		—		—
Commercial and industrial		353		353		252
Direct consumer		—		—		—
Total impaired loans with an allowance recorded	$	367	$	367	$	259
Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		582		582		7
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,492		2,492		—
Commercial and industrial		2,429		2,429		252
Direct consumer		18		18		—
Total impaired loans	$	5,521	$	5,521	$	259

The following table details the ~~following:~~

September 30, 2017

Impaired loans with no related allowance recorded

Carrying
Amount

Unpaid
Principal
Balance

Related
Allowances

(Dollars in Thousands)

Loans secured by real estate

Construction, land development and other land loans
$ — $ — $ —
Secured by 1-4 family residential properties
— — —
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
— — —
Commercial and industrial
— — —
Total loans with no related allowance recorded
$ — $ — $ —

Impaired loans with an allowance recorded

Loans secured by real estate

Construction, land development and other land loans
$ 86 $ 86 $ 62
Secured by 1-4 family residential properties
189 189 5
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
535 535 55
Commercial and industrial
70 70 72
Total loans with an allowance recorded
$ 880 $ 880 $ 194

Total impaired loans

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
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
535 535 55
Commercial and industrial
70 70 72
Total impaired loans
$ 880 $ 880 $ 194

~~As of December~~ ~~31, 2016,~~average recorded investment and the ~~carrying~~ amount of ~~impaired loans consisted of the following:~~

December 31, 2016

Impaired loans with no related allowance recorded

Carrying
Amount

Unpaid
Principal
Balance

Related
Allowances

(Dollars in Thousands)

Loans secured by real estate

Construction, land development and other land loans
$ — $ — $ —
Secured by 1-4 family residential properties
— — —
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
— — —
Commercial and industrial
— — —
Total loans with no related allowance recorded
$ — $ — $ —

Impaired loans with an allowance recorded

Loans secured by real estate

Construction, land development and other land loans
$ 1,361 $ 1,361 $ 423
Secured by 1-4 family residential properties
193 193 5
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
549 549 107
Commercial and industrial
— — —
Total loans with an allowance recorded
$ 2,103 $ 2,103 $ 535

Total impaired loans

Loans secured by real estate

Construction, land development and other land loans
$ 1,361 $ 1,361 $ 423
Secured by 1-4 family residential properties
193 193 5
Secured by multi-family residential properties
— — —
Secured by non-farm, non-residential properties
549 549 107
Commercial and industrial
— — —
Total impaired loans
$ 2,103 $ 2,103 $ 535

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

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

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~~ million and $2.4 million as of September 30, 2017 and December 31, 2016, respectively. If interest on those loans had been accrued, there would have been $5 thousand and $35 thousand of interest accrued for the periods ended September 30, 2017 and December 31, 2016, respectively. Interest income2022, respectively, related to ~~these~~impaired loans as ~~of September 30, 2017 and December 31, 2016 was $3 thousand and $4 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, modifications 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 ended September 30, 2017. 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 performancedetermined under ~~the modified loan terms (generally a minimum of six months). However, performance~~ASC 310 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~~adoption of ASC 326:


	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

During the nine months ended September 30, ~~2017,~~2023, the Company ~~had~~did not modify any loans to borrowers experiencing financial difficulty, and there were no payment defaults on 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 the number of loans~~ ~~remaining in each loan category as of September 30, 2017 and December 31, 2016 that the Bank had previously~~ modified in ~~a troubled debt restructuring, as well as~~ the ~~pre- and post-modification principal balance as of each date.~~previous twelve months.

OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS

Other Real Estate Owned

~~As of September 30, 2017 and December 31, 2016, 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~~’s allowance for loan losses resulting from the modifications.~~

All loans with a principal balance of $0.5 million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan losses. This evaluation resulted in an allowance for loan losses attributable to such restructured loans of ~~$3 thousand as of September 30, 2017 and $15 thousand as of December 31, 2016.~~

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~~2023 and ~~2016.~~2022:

	September 30, 2017
	Bank			ALC			Total			September 30, 2023			September 30, 2022
	(Dollars in Thousands)									(Dollars in Thousands)
Beginning balance	$	4,353		$	505		$	4,858		$	686		$	2,149
Transfers from loans		—			87			87
Additions											—			411
Sales proceeds		(649	)		(199	)		(848	)		—			(2,215	)
Gross gains		14			—			14			—			369
Gross losses		(20	)		(101	)		(121	)		—			(27	)
Net gains (losses)		(6	)		(101	)		(107	)
Net gains											—			342
Impairment		(171	)		—			(171	)		(69	)		(1	)
Ending balance	$	3,527		$	292		$	3,819		$	617		$	686

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~~$20 thousand and ~~$1.1 million~~zero as of September 30, ~~2017~~2023 and ~~2016,~~September 30, 2022, respectively. In addition, the Company held ~~$20~~zero and $19 thousand ~~and $0.1 million~~ in consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of September 30, ~~2017~~2023 and ~~2016,~~2022, respectively.

Repossessed Assets

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, 2023 and 2022:


	September 30, 2023			September 30, 2022
	(Dollars in Thousands)
Beginning balance	$	83		$	154
Transfers from loans		1,178			635
Sales proceeds		(453	)		(331	)
Gross gains		—			—
Gross losses		(535	)		(292	)
Net losses		(535	)		(292	)
Impairment		—			—
Ending balance	$	273		$	166

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

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~~2023 and December 31, ~~2016.~~2022. Goodwill impairment was neither indicated nor recorded during the nine months ended September 30, 2023 or the year ended December 31, 2022.

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, 2023 and December 31, 2022 were as follows:


	September 30, 2023			December 31, 2022
	(Dollars in Thousands)
Goodwill	$	7,435		$	7,435
Core deposit intangible:
Gross carrying amount		2,048			2,048
Accumulated amortization		(1,841	)		(1,682	)
Core deposit intangible, net		207			366
Total	$	7,642		$	7,801

The Company’s estimated remaining amortization expense on intangible assets as of September 30, 2023 was as follows:


	Amortization Expense
	(Dollars in Thousands)
2023	$	36
2024		122
2025		49
Total	$	207

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.

INCOME TAXES

The provision for income taxes was $~~0.4~~2.0 million and $1.4 million for ~~both of~~ the ~~nine-month periods~~nine months ended September 30, ~~2017~~2023 and ~~2016.~~2022, respectively. The Company’s effective tax rate was ~~23.0%~~24.4% and ~~23.4%~~23.7%, 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~~$6.3 million and ~~$8.7~~$5.2 million as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively. The ~~reduction in the~~ net deferred tax asset, ~~resulted primarily from~~which is included on the ~~impact of~~interim condensed consolidated 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, changes in the allowance for credit losses, and other book-to-tax temporary differences. The net deferred tax asset increased by $0.6 million as a result of the cumulative effect adjustment to adopt ASC 326, effective January 1, 2023.

DEFERRED COMPENSATION PLANS

~~10.~~

~~DEFERRED COMPENSATION PLANS~~

Supplemental Retirement Benefits

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~~$3.0 million and ~~$3.5~~$3.1 million as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, respectively.

Non-Employee Directors' Deferred Compensation Plan

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.~~stock, as applicable. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, a total of ~~100,990~~111,340 and ~~114,547~~114,190 shares of Bancshares common stock, respectively, were ~~deferred~~being held as stock equivalents in connection with the Deferral Plan. All deferred fees ~~whether in the form~~and shares 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.~~as additional paid-in capital. The Company ~~uses~~may use issued shares or shares of treasury stock to satisfy these obligations when due.

10.

STOCK AWARDS

~~11.~~

~~STOCK AWARDS~~

In 2013, Bancshares’ shareholders authorized the Company, under the direction of the Compensation Committee of the Board of Directors, to provide share-based compensation awards to eligible employees, directors and consultants of the Company and its affiliates pursuant to the 2013 Incentive Plan. Available award types included stock options, stock appreciation rights, restricted stock and restricted stock units, and performance share awards. The 2013 Incentive Plan, as amended in 2019, expired in March 2023. In April 2023, Bancshares’ shareholders approved the 2023 Incentive Plan, which authorizes the Compensation Committee to grant substantially the same types of share-based awards to eligible employees, directors and consultants. Collectively, the 2013 Incentive Plan and the 2023 Incentive Plan are herein referred to as the Company’s “Incentive Plan.” In accordance with the ~~2013~~ Incentive Plan, ~~stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares~~shares of common stock available for ~~distribution~~issuance pursuant 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~~Since the origination of the Incentive Plan, through September 30, 2023, only stock options and restricted stock have been granted. For the nine months ended September 30, 2023, stock-based compensation expense related to stock awards totaled ~~$0.2~~$0.4 million, ~~and $0.1~~compared to $0.3 million for the ~~nine-month periods~~nine months ended September 30, ~~2017 and 2016, respectively.~~2022.

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, 2023 or 2022.

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, 2023				September 30, 2022
	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		419,650	$	9.79		420,250	$	9.79
Granted		70,600		13.84		97,000		8.30		—		—		—		—
Exercised		19,316		8.15		—		—		—		—		—		—
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		419,650	$	9.79
Options exercisable, end of period		208,633	$	8.20		175,550	$	8.17		419,650	$	9.79		416,249	$	9.77

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~~$0.1 million and ~~$0.4 million~~zero as of September 30, ~~2017~~2023 and ~~2016,~~2022, 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.~~2023 and 2022, 57,300 shares and 45,938 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.

11.

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 six 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 also 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 income and expense, as well as the reporting location in the interim condensed consolidated statements of operations, for the three and nine months ended September 30, 2023 and 2022:


	Location in the Condensed	Three Months Ended				Nine Months Ended
	Consolidated Statements of Operations	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
		(Dollars in Thousands)				(Dollars in Thousands)
Operating lease income (1)	Lease income	$	241	$	210	$	707	$	635
Operating lease expense (2)	Net occupancy and equipment	$	108	$	108	$	324	$	326

(1)

Operating lease income includes rental income from owned properties

(2)

Includes short-term lease costs. For the three and nine months ended September 30, 2023 and 2022, short-term lease costs were nominal in amount.

The following table provides supplemental lease information for operating leases on the interim condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022:


	Location in the Condensed
	Consolidated Balance Sheet	September 30, 2023			December 31, 2022
		(Dollars in Thousands)
Operating lease right-of-use assets	Other assets	$	1,605		$	1,883
Operating lease liabilities	Other liabilities	$	1,684		$	1,961
Weighted-average remaining lease term (in years)			4.28			5.03
Weighted-average discount rate			3.30	%		3.30	%

The following table provides supplemental lease information for the interim condensed consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended
	September 30, 2023		September 30, 2022
	(Dollars in Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	323	$	320

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, 2023:


	Minimum Rental Payments
	(Dollars in Thousands)
2023	$	109
2024		438
2025		339
2026		346
2027		353
2028 and thereafter		238
Total future minimum lease payments		1,823
Less: Imputed interest		139
Total operating lease liabilities	$	1,684

13.

OTHER OPERATING INCOME AND EXPENSE

Other Operating Income

Other operating income ~~totaled $0.2 million as of both~~for the three and nine months ended September 30, ~~2017~~2023 and ~~December 31, 2016.~~2022 consisted of the following:

~~13.~~

~~SEGMENT REPORTING~~


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	(Dollars in Thousands)
Bank-owned life insurance	$	119	$	112	$	348	$	335
ATM fee income		93		125		315		403
Gain on sales of premises and equipment and other assets		18		278		18		301
Other income		64		52		208		195
Total	$	294	$	567	$	889	$	1,234

~~Under~~ ~~ASC Topic 280,~~~~Segment Reporting~~~~, certain information is disclosed~~Other Operating Expense

Other operating expense for the ~~two reportable operating segments of Bancshares: the Bank~~three and ~~ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’~~nine months ended September 30, 2023 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,”~~2022 consisted 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. 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.following:

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 )
—


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2023		2022			2023		2022
	(Dollars in Thousands)
Postage, stationery and supplies	$	151	$	164		$	472	$	469
Telephone/data communication		128		159			479		518
Collection and recoveries		71		57			252		176
Directors fees		94		98			284		301
Software amortization		86		133			313		331
Other real estate/foreclosure expense, net		9		(5	)		30		(320	)
Other expense		545		568			1,769		1,629
Total	$	1,084	$	1,174		$	3,599	$	3,104

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:

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~~2023 and December 31, ~~2016,~~2022, 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~~In accordance with the adoption of ASC 326 on January 1, 2023, the Company recorded a reserve for ~~delayed delivery require~~unfunded commitments of $0.3 million. The reserve, which is included in other liabilities in 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. AsCompany’s balance sheet, totaled $0.5 million as of ~~both~~ September 30, ~~2017 and December 31, 2016, there were no outstanding~~2023. Additional discussion related to the calculation of the reserve for unfunded commitments ~~to purchase securities for delayed delivery and no outstanding commitments to sell securities for delayed delivery.~~is included in Note 4.

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~~a 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, 2023 and December 31, 2022. 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.

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.

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.

~~Loans that~~Collateral dependent loans 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’s original effective rate as the discount rate, the loan’s observable market price, or~~at the fair value of the collateral securing the loan less estimated selling ~~cost if the loan is collateral-dependent. For the Company, the~~costs. The fair value of ~~impaired loans~~real estate collateral is ~~primarily measured~~determined based on ~~the~~real estate appraisals, which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral value is based on various sources, including third party asset valuations and internally determined values based on cost, adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified as Level 3 of the ~~collateral securing~~valuation hierarchy due to the ~~loans (typically real estate). The Company determines the~~unobservable inputs used in determining their fair value, ~~of the~~such as 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~~borrower's underlying financial condition.

OREO 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.~~Other Assets Held-for-Sale

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.

~~Included~~As of September 30, 2023 and December 31, 2022, 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~~2023 and December 31, ~~2016.~~2022:

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, 2023 Using
	Totals At September 30, 2023		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)
Collateral dependent loans	$	62	$	—	$	—	$	62
OREO and other assets held-for-sale		617		—		—		617


	Fair Value Measurements as of December 31, 2022 Using
	Totals At December 31, 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	$	108	$	—	$	—	$	108
OREO and other assets held-for-sale		686		—		—		686

The following table presents information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of September 30, ~~2017.~~2023. 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~~2023 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, 2023

Valuation Technique

Unobservable Input

Quantitative Range
of Unobservable
Inputs
(Weighted Average)

(Dollars in Thousands)

Non-recurring fair value measurements:

Collateral dependent loans

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

Appraisal comparability
adjustment (discount)

9%-10%

(9.5%)

OREO and other assets held-for-sale

617

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~~Collateral dependent 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 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.

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.

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~~2023 and December 31, ~~2016~~2022 were as follows:


	September 30, 2017										September 30, 2023
	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	$	—	$	—	$	66,129	$	66,129	$	66,129	$	—	$	—
Investment securities available-for-sale		158,425		158,425		—		158,425		—		126,551		126,551		52,895		73,656		—
Investment securities held-to-maturity		27,377		27,303		—		27,303		—		1,272		1,183		—		1,183		—
Federal funds sold												1,143		1,143		—		1,143		—
Federal Home Loan Bank stock		1,396		1,396		—		—		1,396		2,151		2,151		—		—		2,151
Loans, net of allowance for loan losses		338,026		327,251		—		—		327,251
Loans, net of allowance for credit losses												803,920		769,466		—		—		769,466
Other assets - derivatives		291		291		—		291		—		537		537		—		537		—
Liabilities:
Deposits		508,385		507,298		—		507,298		—		927,038		829,435		—		829,435		—
Short-term borrowings		10,635		10,634		—		10,634		—		30,000		30,000		—		30,000		—
Long-term debt		10,000		10,000		—		10,000		—
Long-term borrowings												10,781		9,226		—		9,226		—

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, 2022
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	30,152	$	30,152	$	30,152	$	—	$	—
Investment securities available-for-sale		130,795		130,795		52,882		76,913		1,000
Investment securities held-to-maturity		1,862		1,769		—		1,769		—
Federal funds sold		1,768		1,768		—		1,768		—
Federal Home Loan Bank stock		1,359		1,359		—		—		1,359
Loans, net of allowance for loan and lease losses		764,451		730,961		—		—		730,961
Other assets - derivatives		2,306		2,306		—		2,306		—
Liabilities:
Deposits		870,025		788,161		—		788,161		—
Short-term borrowings		20,038		20,038		—		20,038		—
Long-term borrowings		10,726		9,702				9,702

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,~~2023, 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 17 states, including Alabama, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Nebraska, 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.~~

~~The Bank provides a wide range~~Mississippi to the public. Through the third quarter of ~~commercial banking services~~2023, ALC continued 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 subsidiary~~service its remaining portfolio of ~~the Bank (“FUSB Reinsurance”), reinsures or “underwrites” credit life and credit accident and health insurance policies~~loans from its headquarters. Effective October 1, 2023, all of ALC’s remaining loans were 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~~Bank in an intercompany transaction. The Bank intends to ~~a specified maximum amount, and a third-party insurer retains~~manage the remaining ~~risk. The third-party insurer is also responsible for performing most of the administrative functions of FUSB Reinsurance on a contract basis.~~portfolio through final resolution.

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~~156 full-time equivalent employees (as of September 30, 2023), 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~~credit 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~~the Company's 2022 Form 10-K, as amended in 2023 by the adoption of ASC 326, Measurement of Credit Losses on Financial Instruments, as discussed in Note 2, “Basis of Presentation,” in the Notes to the Interim Consolidated Financial Statements included in this Quarterly Report on Form ~~10-K as of and for the year ended December 31, 2016.~~10-Q.

The emphasis of this discussion is a comparison of assets, liabilities and ~~shareholders~~’shareholders’ equity as of September 30, ~~2017~~2023 to December 31, ~~2016,~~2022, while comparing income and expense for the ~~three- and nine-month periods~~nine months ended September 30, ~~2017~~2023 and ~~2016.~~

2022. 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 interim 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~~the Company's 2022 Form ~~10-K as of and for the year ended December 31, 2016.~~10-K. 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, 2023 the banking industry saw a significant level of volatility due to notable banking failures that began during the first quarter of 2023, as well as ongoing increases in interest rates that have generally led to contraction of net interest margin throughout the industry. While year-over-year inflation levels have eased from 40-year highs that were reached during 2022, inflation remains elevated over the Federal Reserve Bank's ("FRB") long run target. In its ongoing effort to reduce inflation levels, the FRB has continued to raise the target federal funds rate, with four additional increases of 25 basis points during the first nine months of 2023. As of September 30, 2023, the target federal funds rate was a range of 5.25% to 5.50%.

As interest rates have increased, competitive pressures have also increased, particularly related to deposit pricing. Due primarily to the rising cost of funding, net interest margin compressed significantly throughout the banking industry during the nine months ended September 30, 2023. The substantial pace and magnitude of changes in interest rates introduced a higher level of uncertainty throughout the industry, and the impact that such change will have on the Company’s future operating results cannot be predicted with certainty. During this still-ongoing and still-volatile transition period, the yield curve has become significantly inverted at times, indicating substantial economic uncertainty, including the possibility of economic recession. The unusual yield curve effects, including inversion, may continue. Further, if the rate of inflation remains elevated or 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

Strategic Focus and Impact on Asset Quality

During the third quarter of 2021, the Company executed strategic initiatives that were designed to improve operating efficiency, focus the Company’s loan growth activities, and fortify asset quality. The most significant component of these initiatives was the cessation of new business at ALC. This initiative, which included the closure of ALC’s branch lending locations in September 2021, served to significantly decrease the Company’s non-interest expense, and has led to substantial improvement in the Company’s consumer lending asset quality as ALC’s remaining loans pay down. Historically, ALC’s loans have produced significantly higher levels of charge-offs than the Bank’s other loan portfolios.

As of September 30, 2023, remaining loans at ALC totaled $12.1 million, compared to $20.2 million as of December 31, 2022. In 2023, as ALC’s loans have continued to decrease, the Company has realized substantially lower levels of net charge-offs on the portfolio compared to prior periods. Net charge-offs on ALC loans totaled $0.3 million, or 2.09% of average loans, during the nine months ended September 30, 2023, compared to $1.5 million, or 6.38% of average loans, during the nine months ended September 30, 2022. As of September 30, 2023, $0.2 million, or 1.3% of ALC's loans, were past due, compared to $0.8 million, or 3.8%, as of December 31, 2022.

Effective October 1, 2023, the Company sold all of ALC’s remaining loans to the Bank in an intercompany transaction. The Bank will continue to manage the remaining loans in the portfolio through final resolution. It is expected that all other assets and liabilities of ALC will be transferred to the Bank via an intercompany transaction by the end 2023.

Financial Highlights

The Company earned net income of ~~$0.10~~$2.1 million, or $0.33 per diluted common share, during the three months ended September 30, ~~2017,~~2023, compared to ~~$0.09~~$1.9 million, or $0.29 per diluted common share, ~~during~~for the ~~corresponding three-month period of 2016.~~three months ended September 30, 2022. For the nine months ended September 30, ~~2017,~~2023, net income totaled ~~$0.22~~$6.2 million, or $0.97 per diluted common share, compared to ~~$0.21~~$4.6 million, or $0.71 per diluted common share, for the ~~corresponding nine-month period of 2016.~~

~~The composition of earnings changed significantly during both the three- and nine-month periods~~nine months ended September 30, ~~2017,~~2022.

Summarized condensed consolidated statements of operations are included below for the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
	(Dollars in Thousands, Except Per Share Data)
Interest income	$	13,902	$	10,670	$	38,861	$	29,576
Interest expense		4,419		1,155		10,621		2,526
Net interest income		9,483		9,515		28,240		27,050
Provision for credit losses		184		1,165		753		2,781
Net interest income after provision for credit losses		9,299		8,350		27,487		24,269
Non-interest income		837		1,088		2,465		2,773
Non-interest expense		7,319		7,032		21,740		20,966
Income before income taxes		2,817		2,406		8,212		6,076
Provision for income taxes		704		546		2,004		1,440
Net income	$	2,113	$	1,860	$	6,208	$	4,636
Basic net income per share	$	0.35	$	0.31	$	1.04	$	0.76
Diluted net income per share	$	0.33	$	0.29	$	0.97	$	0.71
Dividends per share	$	0.05	$	0.03	$	0.15	$	0.09

The discussion that follows summarizes the most significant activity that drove changes in the Company’s net income during the nine months ended September 30, 2023, as compared to the ~~corresponding periods of the previous year.~~ ~~The 2017 results were positively impacted by increased net~~nine months ended September 30, 2022.

Net Interest Income and Margin

Net interest income ~~as a result of~~increased by $1.2 million, or 4.4%, comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022. The increase was primarily attributable to growth in ~~net~~ loans which averaged $795.0 million during the nine months ended September 30, 2023, compared to $713.0 million during the nine months ended September 30, 2022. The average rate on earning assets totaled 5.41% for the nine months ended September 30, 2023, compared to 4.37% for the nine months ended September 30, 2022.

While yields on earning assets increased significantly in 2023, rates on interest-bearing liabilities increased at a faster pace, causing margin compression. Net interest margin was 3.93% for the nine months ended September 30, 2023, compared to 4.00% for the nine months ended September 30, 2022. The Company’s total funding costs, including the cost of interest and non-interest deposits, as well as ~~decreases~~borrowings, increased to 1.53% during the nine months ended September 30, 2023, compared to 0.39% during the nine months ended September 30, 2022.

Provision for Credit Losses

The provision for credit losses was $0.8 million during the nine months ended September 30, 2023, compared to $2.8 million during the nine months ended September 30, 2022. The reduction resulted primarily from reduced charge-off levels comparing the two periods, mostly related to ALC’s loans which continued to reduce following implementation of the cessation of business strategy. The Company’s net charge-offs totaled $0.7 million during the nine months ended September 30, 2023, compared to $1.7 million during the nine months ended September 30, 2022. The reduction included a decrease of $1.3 million in ~~non-interest expenses, including regulatory assessments, insurance expense and occupancy and equipment expense. By contrast,~~net charge-offs associated with ALC’s portfolio, partially offset by an increase in net charge-offs associated with the ~~2016 results were bolstered by higher~~indirect consumer portfolio totaling $0.3 million. The Company’s net charge-offs as a percentage of average loans totaled 0.12% during the nine months ended September 30, 2023, compared to 0.24% during the nine months ended September 30, 2022.

Non-interest Income

Non-interest income totaled $2.5 million for the nine months ended September 30, 2023, compared to $2.8 million for the nine months ended September 30, 2022. The reduction resulted primarily from gains on the sale of ~~securities than were experienced in 2017.~~

~~As of September 30, 2017, the Company’s net loans totaled $338.0 million, an increase of $15.3 million~~premises and ~~$20.9 million compared to December 31, 2016 and September 30, 2016, respectively. The majority of loan growth~~equipment that occurred in the Bank’s commercial loan portfolio and was concentrated 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, during the third quarter of ~~2017,~~2022, but were not repeated in 2023.

Non-interest Expense

Non-interest expense totaled $21.7 million for the ~~Bank completed initial~~nine months ended September 30, 2023, compared to $21.0 million for the nine months ended September 30, 2022. The increase resulted primarily from nonrecurring gains on the sale of OREO properties that offset non-interest expense in 2022, but were not repeated in 2023.

Balance Sheet Levels

As of September 30, 2023, the Company’s assets totaled $1,065.2 million, compared to $994.7 million as of December 31, 2022, an increase of 7.1%.

Loans

Total loans increased by $41.4 million, or 5.4%, as of September 30, 2023, compared to December 31, 2022. Loan volume increases during the first nine months of 2023 were driven primarily by growth in indirect consumer and commercial construction loans. Growth in indirect consumer lending was consistent with continued demand for the products collateralized through the Company's indirect program, including recreational vehicles, campers, boats, horse trailers and cargo trailers. Indirect loan growth tends to be seasonal due to its emphasis on outdoor recreational products, with growth typically more pronounced in the spring and early summer months. The increase in commercial construction (construction, land development and other land loans) was primarily attributable to continued growth in construction fundings on multi-family residential projects. The loan growth during the first nine months of ~~an office complex along U.S. Highway 280~~2023 was partially offset by decreases in ~~Birmingham. The office complex houses a retail branch of~~ the ~~Bank,~~residential real estate (including 1-4 family and multi-family) and commercial and industrial categories, as well as the ~~Birmingham commercial lending team~~direct consumer and ~~certain members~~branch retail consumer categories. Loans in direct consumer and branch retail were expected to decrease as they comprise the majority of ~~the Bank’s executive management team. At the end~~ALC’s remaining loan balances.

Deposit Growth

Deposits totaled $927.0 million as of ~~the third quarter, the headquarters~~September 30, 2023, compared to $870.0 million as of ~~both Bancshares and the Bank were relocated~~December 31, 2022. The year-to-date growth included an increase of $69.2 million in interest-bearing deposits, partially offset by a decrease of $12.2 million in noninterest-bearing deposits. The year-to-date shift to ~~the newly completed office complex.~~

~~Additional financial results~~interest-bearing deposits is consistent with deposit holders seeking to maximize interest earnings on their accounts. In addition, deposit growth for the first nine months of ~~2017 are summarized below.~~2023 included growth of $30.2 million in wholesale brokered deposits that were acquired in order to further enhance the Company’s liquidity position following the bank failures that began during the first quarter of 2023. As of September 30, 2023, core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, totaled $786.8 million, or 84.9% of total deposits, compared to $778.1 million, or 89.4% of total deposits, as of December 31, 2022.

●

~~For~~

Deployment of Funds

Management seeks to deploy earning assets in an efficient manner to maximize net interest income while maintaining appropriate levels of liquidity to protect the safety and soundness of the organization. Management’s decisions during the first nine months of 2023, particularly following the bank failures that occurred, were focused on maintaining the Company’s strong liquidity position. As part of this focus, management elected to hold higher levels of cash and cash equivalents. Cash and cash equivalents totaled $66.1 million as of September 30, 2023, compared to $30.2 million as of December 31, 2022. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $127.8 million as of September 30, 2023, compared to $132.7 million as of December 31, 2022. The expected average life of securities in the investment portfolio was 3.9 years as of September 30, 2023, compared to 3.5 years as of December 31, 2022. Management will continue to evaluate opportunities to invest excess cash balances within the context of anticipated loan and deposit growth and current liquidity needs.

Shareholders’ Equity

Shareholders’ equity increased by $2.3 million, or 2.7%, as of September 30, 2023, compared to December 31, 2022. The increase in shareholders’ equity resulted from earnings, net of dividends paid, partially offset by the CECL transition adjustment which reduced retained earnings by $1.8 million, net of tax, as well as a net increase in accumulated other comprehensive loss of $1.7 million associated with fair value declines in the available-for-sale investment portfolio and reclassification adjustments associated with terminated interest rate swaps.

Cash Dividends

The Company declared cash dividends totaling $0.15 per share on its common stock during the nine months ended September 30, 2023, compared to cash dividends totaling $0.09 per share on its common stock during the nine months ended September 30, 2022.

Regulatory Capital

During the nine months ended September 30, 2023, 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, 2023, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 10.81%. Its total capital ratio was 12.06%, and its Tier 1 leverage ratio was 9.09%.

Liquidity

As of September 30, 2023, 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.

●

~~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.

~~The Company continues~~ to maintain excess funding capacity sufficient to provide adequate liquidity for loan growth, capital expenditures and ongoing operations. The Company benefits from a strong core 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”)~~FHLB advances and brokered deposits. ~~Management believes~~In addition, the Company has access to the FRB's discount window and its Bank Term Funding Program (BTFP), the latter of which was established in response to the recent liquidity events that ~~continued success~~have occurred in ~~loan growth~~the banking industry. Both the discount window and the BTFP allow borrowing on pledged collateral that includes eligible investment securities and, in certain circumstances, eligible loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, ~~at both~~during the ~~Bank and ALC, combined with adherence to established credit underwriting standards, will strengthen both~~third quarter of 2023, the ~~diversity and credit quality~~Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio ~~while improving interest and fee income~~as collateral. Due to these efforts, the Company’s immediate borrowing capacity based on ~~loans.~~collateral pledged through the discount window increased to $146.6 million as of September 30, 2023, compared to $1.2 million as of December 31, 2022.

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~~2023 and ~~2016.~~2022. 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, 2023							September 30, 2022
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
ASSETS
Interest-earning assets:
Total loans (Note A)	$	821,294	$	12,584		6.08	%	$	743,145	$	9,750		5.21	%
Taxable investment securities		123,290		682		2.19	%		148,964		748		1.99	%
Tax-exempt investment securities		1,037		3		1.15	%		2,322		8		1.37	%
Federal Home Loan Bank stock		1,001		21		8.32	%		1,808		17		3.73	%
Federal funds sold		1,069		14		5.20	%		1,984		11		2.20	%
Interest-bearing deposits in banks		44,379		598		5.35	%		23,166		136		2.33	%
Total interest-earning assets		992,070		13,902		5.56	%		921,389		10,670		4.59	%

Noninterest-earning assets		61,235							64,593
Total	$	1,053,305						$	985,982

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits:
Demand deposits	$	206,540	$	176		0.34	%	$	243,131	$	182		0.30	%
Savings deposits		244,932		1,570		2.54	%		211,724		342		0.64	%
Time deposits		323,824		2,476		3.03	%		209,361		340		0.64	%
Total interest-bearing deposits		775,296		4,222		2.16	%		664,216		864		0.52	%
Noninterest-bearing demand deposits		161,381		—		—			183,612		—		—
Total deposits		936,677		4,222		1.79	%		847,828		864		0.40	%
Borrowings		19,468		197		4.01	%		45,427		291		2.54	%
Total funding costs		956,145		4,419		1.83	%		893,255		1,155		0.51	%

Other noninterest-bearing liabilities		10,263							8,642
Shareholders’ equity		86,897							84,085
Total	$	1,053,305						$	985,982

Net interest income (Note B)			$	9,483						$	9,515
Net interest margin						3.79	%						4.10	%


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~~$2.0 million and ~~$0.9~~$1.7 million for the three months ended September 30, ~~2017~~2023 and ~~2016,~~2022, 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 for both of the ~~three-month periods~~three months ended September 30, ~~2017~~2023 and ~~2016. At ALC, loan fees totaled $0.5 million and $0.7 million for the respective periods presented.~~2022.

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, 2023							September 30, 2022
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
ASSETS
Interest-earning assets:
Total loans (Note A)	$	795,033	$	35,330		5.94	%	$	713,015	$	27,339		5.13	%
Taxable investment securities		126,341		2,033		2.15	%		142,425		1,896		1.78	%
Tax-exempt investment securities		1,048		10		1.28	%		2,543		31		1.63	%
Federal Home Loan Bank stock		1,347		75		7.44	%		1,165		33		3.79	%
Federal funds sold		1,415		51		4.82	%		853		12		1.88	%
Interest-bearing deposits in banks		35,437		1,362		5.14	%		45,133		265		0.79	%
Total interest-earning assets		960,621		38,861		5.41	%		905,134		29,576		4.37	%

Noninterest-earning assets		61,484							65,379
Total	$	1,022,105						$	970,513

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing deposits:
Demand deposits	$	216,445	$	557		0.34	%	$	249,183	$	438		0.24	%
Savings deposits		221,293		3,279		1.98	%		206,294		693		0.45	%
Time deposits		297,708		5,845		2.62	%		208,621		833		0.53	%
Total interest-bearing deposits		735,446		9,681		1.76	%		664,098		1,964		0.40	%
Noninterest-bearing demand deposits		162,084		—		—			182,862		—		—
Total deposits		897,530		9,681		1.44	%		846,960		1,964		0.31	%
Borrowings		29,375		940		4.28	%		27,994		562		2.68	%
Total funding costs		926,905		10,621		1.53	%		874,954		2,526		0.39	%

Other noninterest-bearing liabilities		9,722							8,833
Shareholders’ equity		85,478							86,726
Total	$	1,022,105						$	970,513

Net interest income (Note B)			$	28,240						$	27,050
Net interest margin						3.93	%						4.00	%


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~~$1.5 million and ~~$1.2~~$1.8 million for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, 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 for both of the ~~nine-month periods~~nine months ended September 30, ~~2017~~2023 and ~~2016. At ALC, loan fees totaled $1.6 million and $2.1 million for the respective periods presented.~~2022.

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, 2023									Nine Months Ended September 30, 2023
	Compared to									Compared to
	Three Months Ended September 30, 2022									Nine Months Ended September 30, 2022
	Increase (Decrease)									Increase (Decrease)
	Due to Change In:									Due to Change In:
	Volume			Average Yield/Rate			Net			Volume			Average Yield/Rate			Net
	(Dollars in Thousands)
Interest earned on:
Total loans	$	1,025		$	1,809		$	2,834		$	3,145		$	4,846		$	7,991
Taxable investment securities		(129	)		63			(66	)		(214	)		351			137
Tax-exempt investment securities		(4	)		(1	)		(5	)		(18	)		(3	)		(21	)
Federal Home Loan Bank stock		(8	)		12			4			5			37			42
Federal funds sold		(5	)		8			3			8			31			39
Interest-bearing deposits in banks		125			337			462			(57	)		1,154			1,097
Total interest-earning assets		1,004			2,228			3,232			2,869			6,416			9,285
Interest expense on:
Demand deposits		(27	)		21			(6	)		(58	)		177			119
Savings deposits		54			1,174			1,228			50			2,536			2,586
Time deposits		186			1,950			2,136			356			4,656			5,012
Borrowings		(166	)		72			(94	)		28			350			378
Total interest-bearing liabilities		47			3,217			3,264			376			7,719			8,095
Increase (decrease) in net interest income	$	957		$	(989	)	$	(32	)	$	2,493		$	(1,303	)	$	1,190

Interest income ~~earned on loans at~~increased by $9.3 million, comparing the ~~Bank increased in both the three- and nine- month periods~~nine months ended September 30, ~~2017 compared~~2023 to the ~~corresponding periods of~~nine months ended September 30, 2022. Of the ~~previous year as a result of~~increase, $6.4 million was attributable to higher average yields on interest-earning assets, while $2.9 million was attributable to growth in average loan ~~volume.~~ ~~At ALC, despite~~volume comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022 and has continued ~~growth~~ in ~~loan volume,~~2023. The increase in interest income decreased during both 2017 periods compared to the corresponding periods of 2016 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 ALC’s portfolio,associated 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 strategywas attributable 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 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, as well as modest increases in rate commensurate w~~ith the interest rate environment experienced~~ during the nine months ended September 30, ~~2017.~~2023 of $41.4 million, or 5.4%.

~~We expect that continued~~The increase in interest income was partially offset by an increase in interest expense of $8.1 million, comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022. Of the increase, $7.7 million was attributable to the rise in market interest rates, while $0.4 million was attributable to growth in interest-bearing liabilities, primarily time deposits and borrowings. During the latter half of 2022 and through the first nine months of 2023, the Company has focused a portion of its deposit marketing efforts on growth in time deposits of various maturities in an effort to increase the predictability of funding cash flows. Additionally, the Company has utilized wholesale brokered deposits and short-term FHLB borrowings to a larger extent, particularly during the nine months ended September 30, 2023, in order to enhance the Company’s on-balance sheet liquidity position. Efforts to enhance the Company’s on-balance sheet liquidity were taken primarily as precautionary measures in the wake of liquidity events that impacted the banking industry during 2023.

The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through September 30, 2023, the FRB raised the federal funds rate by a total of 525 basis points. Statements by FRB officials have indicated that further interest rate increases are possible to address ongoing inflationary pressures. While the Company has generally been positioned to benefit from the rising interest rate environment that has occurred, the Company’s net ~~loan volume~~interest margin began to decline during the nine months ended September 30, 2023 as the cost of interest-bearing liabilities increased at ~~both~~a faster pace than interest-earning assets. Further, in connection with the ~~Bank and ALC~~liquidity events that have occurred in the banking industry, competition for deposits has intensified significantly. This increased competition, coupled with ~~loans~~the volatility of ~~sufficient credit quality will enhance~~the industry, has introduced additional uncertainty into the market. Should market interest rates continue to rise or reduce at significant levels, the Company’s 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~~be negatively impacted.

Provision for ~~quality loan opportunities, lower reinvestment yields and fewer opportunities to reduce future funding costs.~~Credit Losses

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

The provision for ~~loan~~credit losses ~~is an expense used~~was $0.8 million during the nine months ended September 30, 2023, compared to ~~establish~~$2.8 million during the nine months ended September 30, 2022. The year-to-date decrease in 2023 compared to 2022 was primarily the result of the cessation of business strategy at ALC, which has led to significantly reduced net charge-offs as ALC’s loans have paid down. Net charge-offs on ALC loans totaled $0.3 million, or 2.09% of average loans, during the nine months ended September 30, 2023, compared to $1.5 million, or 6.38% of average loans, during the nine months ended September 30, 2022.

While the Company experienced improved charge-off metrics during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, the timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.

Effective January 1, 2023, the Company adopted the CECL model to account for credit losses on financial instruments, including loans and leases, unfunded commitments and held-to-maturity securities. The adoption of the CECL model resulted in a transition adjustment totaling $2.4 million, increasing the Company’s allowance for credit losses on loans and leases by $2.1 million, and establishing a reserve for unfunded commitments of $0.3 million. As of September 30, 2023, the Company’s allowance for credit losses totaled 1.40% of total loans, compared to 1.22% as of December 31, 2022. While management believes that the allowance for ~~loan losses. Actual loan~~credit losses ~~net of recoveries, are charged directly to~~on loans and leases, as well as the ~~allowance~~reserve 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~~unfunded commitments, was sufficient to absorb life-of-loan credit losses ~~inherent in the portfolio~~based on circumstances existing as of the balance sheet ~~date.~~ ~~The following table presents the provision (reduction in reserve) for loan losses for the Bank and ALC for 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

~~At 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,~~date, combined with ~~continued net recoveries, enabled the Bank to reduce the allowance for loan losses by $0.1 million during the third quarter.~~ ~~The Bank’s allowance for loan losses as a percentage of loans totaled 0.96% as of September 30, 2017, compared to 1.01% as of December 31, 2016.~~

~~At ALC, the provision for loan losses decreased during both the three-~~reasonable 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 the Company, 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 insupportable forecasts, the determination of the allowance is complex and requires judgment by management about the effects of matters that are ~~adequate, our conclusions are based on estimates and~~inherently uncertain. Changing economic circumstances or forecasts, or changes in management’s judgments and ~~are, therefore, approximate and imprecise. Factors beyond our control, such as changes~~estimates, could result in ~~economic conditions impacting the national economy or the local service areas~~additional credit loss expense 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.future periods.

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~~income for the periods indicated:


	Three Months Ended September 30,										Nine Months Ended September 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
	(Dollars in Thousands)										(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	302	$	311	$	(9	)		(2.9	)%	$	869	$	904	$	(35	)		(3.9	)%
Bank-owned life insurance		119		112		7			6.3	%		348		335		13			3.9	%
Gain on sales of premises and equipment and other assets		18		278		(260	)		(93.5	)%		18		301		(283	)		(94.0	)%
Lease income		241		210		31			14.8	%		707		635		72			11.3	%
ATM fee income		93		125		(32	)		(25.6	)%		315		403		(88	)		(21.8	)%
Other income		64		52		12			23.1	%		208		195		13			6.7	%
Total non-interest income	$	837	$	1,088	$	(251	)		(23.1	)%	$	2,465	$	2,773	$	(308	)		(11.1	)%

The Company’s non-interest income ~~items and fluctuations is provided below~~decreased by $0.3 million comparing 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 ended September 30, ~~2017 compared~~2023 to the ~~three and~~ nine months ended September 30, ~~2016 resulted~~2022 due primarily to gains on the sale of premises and equipment that occurred during the third quarter of 2022, but were not repeated in 2023. In recent periods, the Company’s sources of non-interest revenue have not fluctuated significantly, with the exception of nonrecurring increases or decreases that have occurred from ~~increased fees generated~~time to time due to gains or losses on sales of assets or other nonrecurring sources. The majority of the Company’s sources of non-interest income are relatively stable and are not expected to change significantly in the near term. However, non-interest revenues earned from service charges and other fees on deposit ~~accounts.~~ ~~Periodically, management evaluates the fee structure on the Bank’s deposit~~ accounts have generally declined in ~~order to ensure that fees charged are competitive in the current~~recent years for a number of reasons, including a changing regulatory environment ~~and compliant~~associated with ~~regulatory guidance. In addition, management~~these types of revenues. Management continues to evaluate opportunities ~~for deposit~~to add non-interest revenue streams or grow existing streams; however, significant 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, 2017 compared to the corresponding periods of 2016 resulted primarily from a focus by ALC management on product lines that do~~is not ~~facilitate the generation of these types of sales.~~ Although revenues in this category decreased during the three and nine months ended September 30, 2017 compared to 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. Management continues to seek opportunities to grow revenues 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 categoryexpected in the ~~future.~~near term.

~~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 in the future.

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 of certain significant~~indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,
	2023		2022			$ Change			% Change			2023		2022			$ Change			% Change
	(Dollars in Thousands)											(Dollars in Thousands)
Salaries and employee benefits	$	4,120	$	4,007		$	113			2.8	%	$	12,310	$	12,389		$	(79	)		(0.6	)%
Net occupancy and equipment		897		861			36			4.2	%		2,625		2,468			157			6.4	%
Computer services		464		417			47			11.3	%		1,315		1,224			91			7.4	%
Insurance expense and assessments		423		310			113			36.5	%		1,156		970			186			19.2	%
Fees for professional services		331		263			68			25.9	%		735		811			(76	)		(9.4	)%
Postage, stationery and supplies		151		164			(13	)		(7.9	)%		472		469			3			0.6	%
Telephone/data communications		128		159			(31	)		(19.5	)%		479		518			(39	)		(7.5	)%
Collection and recoveries		71		57			14			24.6	%		252		176			76			43.2	%
Directors fees		94		98			(4	)		(4.1	)%		284		301			(17	)		(5.6	)%
Software amortization		86		133			(47	)		(35.3	)%		313		331			(18	)		(5.4	)%
Other real estate/foreclosure expense, net		9		(5	)		14			(280.0	)%		30		(320	)		350			(109.4	)%
Other expense		545		568			(23	)		(4.0	)%		1,769		1,629			140			8.6	%
Total non-interest expense	$	7,319	$	7,032		$	287			4.1	%	$	21,740	$	20,966		$	774			3.7	%

The Company’s non-interest expense ~~items 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)
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, the largest category of non-interest expense, totaled $3.0~~ million at the Bank and $1.4 million at ALC for the third quarter of 2017, compared to $2.9 million at the Bank and $1.4 million at ALC during the third quarter of 2016. For the nine-month period ended September 30, 2017, salaries and benefits expense totaled $8.7 million at the Bank and $4.3 million at ALC, compared to $8.3 million at the Bank and $4.4 million at ALC for the nine-month period ended September 30, 2016. The expense amounts for the Bank are inclusive of salaries and benefits paid to certain members of management and employees for work performed on behalf of Bancshares, as well as current and deferred fees paid to members of the Bank’s and Bancshares’ Boards 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 expense at the Bank. Occupancy and equipment expense is expected to increase over time 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, 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 the headquarters of 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 utilizedincreased 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 ALC utilize different core processors. The increase in expense in this category3.7% comparing the nine months ended September 30, ~~2017~~2023 to the nine months ended September 30, ~~2016 was associated with additional information technology services provided by~~2022. The majority of the ~~Bank’s core processor~~increase resulted from nonrecurring gains on the sale of properties that ~~significantly enhanced~~reduced other real/estate expense in 2022, but were not repeated in 2023. In addition, the ~~Bank’s technology platform, including increased protections against data security risk and enhanced disaster recovery planning. Given the rapid pace of technological change,~~Company has experienced 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~~categories commensurate with the inflationary environment. Increases in certain categories of non-interest expense ~~includes the cost of corporate insurance maintained~~were partially offset by ~~the Company, as well as FDIC insurance~~decreases in other categories, most notably salaries 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~~employee benefits which decreased by ~~regulatory examinations. The decrease in this expense category~~0.6% comparing the ~~three and~~ nine months ended September 30, ~~2017~~2023 to the ~~three and~~ nine months ended September 30, ~~2016~~2022. The reduction in salaries and benefits expense resulted ~~primarily~~ from ~~reductions in FDIC assessments. In~~ the ~~near term, based on current regulatory guidelines, this category~~impact of ~~expense is expected to decline. However, over a longer-term time horizon, management expects this category of expenses to increase based on growth~~the strategic initiatives undertaken by the Company beginning in the ~~Company’s balance sheet and expansion~~third quarter of 2021 to, among other things, improve the Company’s ~~activities.~~

~~Fees for Professional Services~~

~~Fees for professional services include fees associated with legal, accounting~~operating efficiency. These initiatives reduced the Company’s expense profile significantly in 2022 and, ~~auditing, compliance~~in some expense areas such as salaries and ~~other consulting services. The decrease in these expenses for~~benefits, continued to benefit the ~~three and~~Company during the nine months ended September 30, ~~2017 compared~~2023. However, the current inflationary environment is expected to ~~the same periods~~continue to put upward pressure on non-interest expenses. Accordingly, management will remain focused on efforts to streamline business processes in 2016 resulted primarily from a decrease in professional fees associated with collections and other legal matters, which 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 withan effort to continue to improve the Company’s ~~growth and development.~~overall efficiency levels.

~~Postage, Stationery and Supplies~~

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 efforts are expected to create long-term benefits in improved efficiency and technical capabilities that will benefit both 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 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 in the level of OREO at both 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 cannot be expected with any level of certainty. Furthermore, if the national or local economy weakens, or if real estate values decline further in the Company’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 expected to be offset in future quarters; however, management continues to maintain vigilance in efforts to reduce these costs where opportunities to do so exist.

Provision for Income Taxes

The provision for income taxes was ~~$0.2~~$2.0 million ~~for both of the three-month periods ended September 30, 2017~~ and ~~2016. The Company’s effective tax rate was 21.4%~~$1.4 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~~2023 and ~~2016,~~2022, respectively, and the Company’s effective tax rate was ~~23.0%~~24.4% and ~~23.4%~~23.7%, ~~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~~3.9 years and ~~3.1~~3.5 years as of September 30, ~~2017~~2023 and December 31, ~~2016,~~2022, 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,~~loss, a separate component of shareholders’ equity. As of September 30, ~~2017,~~2023, available-for-sale securities totaled ~~$158.4~~$126.6 million, or ~~85.3%~~99.0% of the total investment portfolio, compared to ~~$181.9~~$130.8 million, or ~~87.5%~~98.6% of the total investment portfolio, as of December 31, ~~2016.~~2022. 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,~~2023, held-to-maturity securities totaled ~~$27.4~~$1.3 million, or ~~14.7%~~1.0% of the total investment portfolio, compared to ~~$25.9~~$1.9 million, or ~~12.5%~~1.4% of the total investment portfolio, as of December 31, ~~2016.~~2022. 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, 2023, gross unrealized losses increased, particularly within the Company’s available-for-sale portfolio. Gross unrealized losses in the available-for-sale portfolio totaled $12.8 million as of September 30, 2023, compared to $11.1 million as of December 31, 2022. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

As of September 30, 2023, the Company evaluated both the available-for-sale and held-to-maturity portfolios for credit loss in accordance with the revised accounting guidance of ASC 326. Based on these evaluations, management concluded that no credit losses were included in either portfolio and that the unrealized losses in both portfolios resulted from the prevailing interest rate environment.

Loans and Allowance for ~~Loan~~Credit Losses

The Company’s total loan portfolio increased by $41.4 million, or 5.4%, as of September 30, 2023, compared to December 31, 2022. 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~~well as the allowance for ~~loan~~credit losses, atas of the end of each of the most recent five quarters as of September 30, ~~2017 at both~~2023:


	Quarter Ended
	2023						2022
	September 30,		June 30,		March 31,		December 31,		September 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	90,051	$	91,231	$	69,398	$	53,914	$	36,230
Secured by 1-4 family residential properties		83,876		85,101		86,622		87,995		84,452
Secured by multi-family residential properties		56,506		54,719		63,368		67,852		72,377
Secured by non-farm, non-residential properties		199,116		204,270		198,266		200,156		200,707
Commercial and industrial loans		59,369		60,568		65,708		73,546		65,935
Consumer loans:
Direct		6,544		7,593		8,435		9,851		11,950
Branch retail		9,648		10,830		12,222		13,992		15,878
Indirect		310,190		300,182		271,870		266,567		262,742
Total loans	$	815,300	$	814,494	$	775,889	$	773,873	$	750,271
Allowance for credit losses		11,380		11,536		11,599		9,422		9,373
Net loans	$	803,920	$	802,958	$	764,290	$	764,451	$	740,898

The tables below summarize changes in the ~~Bank~~allowance for credit losses on loans and ~~ALC.~~leases for each of the most recent five quarters as of September 30, 2023:


	Bank															Quarter Ended
	2017										2016					2023									2022
	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		$	11,536		$	11,599		$	9,422		$	9,373		$	8,751
Charge-offs:
Real estate loans:
Construction, land development and other land loans		—			—			—			—			—			—			—			—			—			—
Secured by 1-4 family residential properties		—			—			—			(56	)		(3	)		(41	)		(47	)		(8	)		(30	)		(3	)
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																	—			—			—			—			—
Consumer loans:
Direct																	(109	)		(197	)		(215	)		(451	)		(417	)
Branch retail																	(93	)		(111	)		(155	)		(111	)		(200	)
Indirect																	(198	)		(146	)		(156	)		(144	)		(136	)
Total charge-offs		(1	)		(76	)		(2	)		(70	)		(47	)		(441	)		(501	)		(534	)		(736	)		(756	)
Recoveries		27			81			114			28			25			225			228			319			258			213
Net recoveries (charge-offs)		26			5			112			(42	)		(22	)
Provision (reduction in reserve) for loan losses		(130	)		—			—			1,235			100
Net charge-offs																	(216	)		(273	)		(215	)		(478	)		(543	)
Impact of adopting CECL																	—			—			2,123			—			—
Provision for credit losses																	60			210			269			527			1,165
Ending balance	$	2,422		$	2,526		$	2,521		$	2,409		$	1,216		$	11,380		$	11,536		$	11,599		$	9,422		$	9,373
as a percentage of loans		0.96	%		1.03	%		1.07	%		1.01	%		0.52	%
Ending balance as a percentage of loans																	1.40	%		1.42	%		1.49	%		1.22	%		1.25	%
Net charge-offs as a percentage of average loans																	0.10	%		0.14	%		0.11	%		0.25	%		0.29	%

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
%

The adoption of CECL was most impactful on the Company’s consumer indirect loan portfolio due primarily to the extension of the loss estimate period to the estimated life of loans in this category. As of January 1, 2023, the estimated average remaining life of the indirect portfolio was between four and five years. As of September 30, 2023, the estimated average remaining life of the indirect portfolio was between five and six years. The branch retail portfolio, which represents indirect lending conducted by ALC, was similarly impacted by the transition to CECL. In addition, the Company’s consumer portfolios were impacted by current economic forecasts using data provided by the Federal Reserve on inflation, unemployment, and the forecasted movement of interest rates.

Reserve for Unfunded Lending Commitments

In connection with the adoption of the CECL accounting model, the Company also reserved approximately $0.3 million in other liabilities for unfunded lending commitments. Unfunded lending commitments are off-balance sheet arrangements that represent unconditional commitments of the Company to lend to a borrower that are unfunded as of the balance sheet date. These may include unfunded loan commitments, standby letters of credit, and financial guarantees. The CECL accounting guidance requires that an estimate of expected credit loss be measured on commitments in which an entity is exposed to credit risk via a present contractual obligation to extend credit unless the obligation is unconditionally cancellable by the issuer. For the Company, unconditional lending commitments generally include unfunded term loan agreements, home equity lines of credit, lines of credit, and demand deposit account overdraft protection. As of September 30, 2023, the Company’s reserve for unfunded commitments, which is recorded in other liabilities in the Company’s consolidated balance sheets, totaled $0.5 million. No reserve for unfunded commitments was recorded by the Company as of December 31, 2022.

Nonperforming Assets

Nonperforming assets at the end of the five most recent quarters as of September 30, ~~2017~~2023 were as follows:


	Consolidated															Quarter Ended
	2017										2016					2023									2022
	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		$	2,432		$	979		$	1,214		$	1,651		$	2,077
Other real estate owned		3,819			4,351			4,587			4,858			5,391			617			617			617			686			686
Total	$	5,775		$	6,198		$	6,792		$	7,275		$	7,657		$	3,049		$	1,596		$	1,831		$	2,337		$	2,763
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	%		0.29	%		0.15	%		0.18	%		0.24	%		0.28	%

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 increase in nonperforming assets during the third quarter of 2023 resulted primarily from one commercial real estate loan that moved into non-accrual status during the quarter.

~~Deposits~~Allocation of Allowance for Credit Losses

While no portion of the allowance for credit 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 credit losses as of September 30, 2023 and December 31, 2022:


	September 30, 2023								December 31, 2022
	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	$	580		5.1	%		11.0	%	$	517		5.5	%		7.0	%
Secured by 1-4 family residential properties		754		6.6	%		10.3	%		832		8.8	%		11.4	%
Secured by multi-family residential properties		405		3.6	%		6.9	%		646		6.9	%		8.8	%
Secured by non-farm, non-residential properties		1,622		14.3	%		24.4	%		1,970		20.9	%		25.8	%
Commercial and industrial loans		530		4.7	%		7.3	%		919		9.8	%		9.5	%
Consumer loans:
Direct		487		4.3	%		0.8	%		866		9.2	%		1.3	%
Branch retail		835		7.3	%		1.3	%		518		5.5	%		1.8	%
Indirect		6,167		54.1	%		38.0	%		3,154		33.4	%		34.4	%
Total allowance for credit losses	$	11,380		100.0	%		100.0	%	$	9,422		100.0	%		100.0	%

Deposits

Total deposits increased ~~by 2.2%~~ to ~~$508.4~~$927.0 million as of September 30, ~~2017,~~2023, from ~~$497.6~~$870.0 million as of December 31, ~~2016.~~2022, an increase of 6.6%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled ~~$479.7~~$786.8 million, or ~~94.4%~~84.9% of total deposits, as of September 30, ~~2017,~~2023, compared to ~~$461.8~~$778.1 million, or ~~92.8%~~89.4% of total deposits, as of December 31, ~~2016.~~2022.

~~Deposits,~~ ~~in particular core~~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~~FRB 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~~As of ~~2017, these borrowings represented 4.5%~~September 30, 2023, other interest-bearing liabilities totaled 5.0% of ~~average~~total interest-bearing liabilities, compared to ~~2.6% in the third quarter~~4.2% as of ~~2016.~~December 31, 2022.

Shareholders’ Equity

~~Shareholders’ Equity~~

~~The~~ ~~Company has historically placed great emphasis on maintaining its strong capital base.~~ As of September 30, ~~2017,~~2023, shareholders’ equity totaled ~~$78.9~~$87.4 million, or ~~12.8%~~8.2% of total assets, compared to ~~$76.2~~$85.1 million, or ~~12.6%~~8.6% 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.~~2022. The increase in shareholders’ equity ~~during the period ended September 30, 2017~~ resulted from ~~increases~~earnings, net of dividends paid, partially offset by the CECL transition adjustment which reduced retained earnings by $1.8 million, net of tax, as well as a net increase in accumulated other comprehensive ~~income related to changes~~loss of $1.7 million associated with fair value declines in the ~~fair value of~~available-for-sale investment ~~securities available-for-sale. The fair value of~~portfolio and reclassification adjustments associated with terminated interest rate swaps.

During the ~~available-for-sale portfolio fluctuates based primarily on changes~~nine months ended September 30, 2023, the Company declared dividends totaling $0.15 per common share, or approximately $0.9 million in ~~interest rates. Accordingly, the net unrealized gains~~aggregate amount, compared to $0.09 per common share, or approximately $0.5 million in aggregate amount, during the ~~third quarter of 2017 are not necessarily indicative of future performance of the portfolio.~~

~~Bancshares~~’nine months ended September 30, 2022. 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~~$227.8 million as of September 30, ~~2017~~2023 and ~~$127.3~~$212.5 million as of December 31, ~~2016.~~2022. Investment securities forecasted to mature or reprice in one year or less were estimated to be ~~$10.5~~$20.5 million and $7.1 million of the investment portfolio as of September 30, ~~2017.~~2023 and December 31, 2022, 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~~3.9 years and ~~approximately 86.33%~~3.5 years as of ~~the portfolio (including both available-for-sale~~September 30, 2023 and ~~held-to-maturity investments) was expected to be repaid within five years.~~December 31, 2022, 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 $30.0 million and $20.0 million ~~and $25.0 million, respectively, in~~of outstanding borrowings under FHLB ~~advances.~~ advances as of September 30, 2023 and December 31, 2022, 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 $10.8 million and $10.7 million as of September 30, 2023 and December 31, 2022, respectively.

The Company had up to ~~$164.8~~$260.3 million and ~~$155.0~~$246.8 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~~2023 and December 31, ~~2016,~~2022, respectively. In addition, the Company had ~~$18.8~~$48.0 million and $45.0 million in unused established federal funds lines as of September 30, 2023 and December 31, 2022, respectively.

The Company also has access to the FRB’s discount window and its Bank Term Funding Program (BTFP), the latter of which was established in response to the recent liquidity events that have occurred in the banking industry. Both the discount window and the BTFP allow borrowing on pledged collateral that includes eligible investment securities and, in certain circumstances, eligible loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Due to these efforts, the Company’s immediate borrowing capacity based on collateral pledged through the discount window increased to $146.6 million as of September 30, 2023, compared to $1.2 million as of December 31, 2022.

RESPONSE TO RECENT LIQUIDITY EVENTS

In response to heightened liquidity concerns for the banking industry during 2023, management undertook measures designed to enhance the Company’s liquidity position, including holding higher levels of on-balance sheet cash and enhancing the Company’s off-balance sheet borrowing capacity through both secured and unsecured sources. Although the liquidity events that have occurred in 2023 have strained the banking industry as a whole, the Company’s management remains confident in the stability of the Company’s core deposit base which has served as the Company’s primary funding source for many years. Excluding wholesale brokered deposits, as of September 30, 2023, the Company had over 29 thousand deposit accounts with an average balance of approximately $28.9 thousand per account. Estimated uninsured/uncollateralized deposits (calculated as deposit amounts per deposit holder in excess of $250 thousand, the maximum amount of federal deposit insurance, and excluding deposits secured by pledged assets) totaled $173.0 million, or 18.7% of total deposits, as of September 30, 2023, compared to $148.3 million, or 17.1% of total deposits, as of December 31, 2022.

The table below provides information on the Company’s on-balance sheet liquidity, as well as readily available off-balance sheet sources of liquidity as of both September 30, ~~2017~~2023 and December 31, ~~2016.~~2022.


	September 30, 2023			December 31, 2022
	(Dollars in Thousands)
	(Unaudited)			(Unaudited)
Liquidity from cash and federal funds sold:
Cash and cash equivalents	$	66,129		$	30,152
Federal funds sold		1,143			1,768
Liquidity from cash and federal funds sold		67,272			31,920
Liquidity from pledgeable investment securities:
Investment securities available-for sale, at fair value		126,551			130,795
Investment securities held-to-maturity, at amortized cost		1,272			1,862
Less: securities pledged		(42,340	)		(54,717	)
Less: estimated collateral value discounts		(10,943	)		(7,833	)
Liquidity from pledgeable investment securities		74,540			70,107
Liquidity from unused lendable collateral (loans) at FHLB		6,676			18,215
Liquidity from unused lendable collateral (loans and securities) at FRB		146,613			1,198
Unsecured lines of credit with banks		48,000			45,000
Total readily available liquidity	$	343,101		$	166,440

The table calculates readily available sources of liquidity, including cash and cash equivalents, federal funds sold, and other liquidity sources. Certain of the measures have not been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”); however, management believes that the non-GAAP measures are beneficial to the reader as they enhance the overall understanding of the Company’s liquidity position and can be used as a supplement to GAAP-based measures of liquidity. Specifically, liquidity from pledgeable investment securities and total readily available liquidity are non-GAAP measures used by management and regulators to analyze a portion of the Company's liquidity. Pledgeable investment securities are considered by management as a readily available source of liquidity since the Company has the ability to pledge the securities with the FHLB or FRB to obtain immediate funding. Both available-for-sale and held-for-maturity securities may be pledged at fair value with the FHLB and through the FRB discount window. The amounts shown as liquidity from pledgeable investment securities represents total investment securities as recorded on the balance sheet, less reductions for securities already pledged and discounts expected to be taken by the lender to determine collateral value. The calculations are intended to reflect minimum levels of liquidity readily available to the Company through the pledging of investment securities, and do not contemplate the additional available liquidity that could be available from the FRB through the BTFP. The non-GAAP financial measures that are discussed in this Quarterly Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

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. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.

~~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~~quarterly 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~~2023, pre-tax net interest margin and net interest income are forecasted to change over timeframes of one year and two years under the six 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~~


	1 Year			2 Years
+1%		11			10
+2%		19			17
+3%		23			19
-1%		(13	)		(11	)
-2%		(28	)		(26	)
-3%		(44	)		(41	)

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


	1 Year			2 Years
+1%	$	1,149		$	2,119
+2%		2,047			3,646
+3%		2,461			4,119
-1%		(1,378	)		(2,468	)
-2%		(3,056	)		(5,592	)
-3%		(4,736	)		(8,842	)

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,~~2023, 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,~~2023, 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~~2023 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 the other information set forth in this report, you should carefully consider the~~A list of factors ~~discussed in Part I, Item 1A, “Risk Factors,” in 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 and/or ~~future results. The risks described~~operating results is included in ~~Bancshares’ Annual Report on~~Part I, Item 1A, “Risk Factors” in the Company's 2022 Form ~~10-K are not the only risks facing the Company.~~10-K. There have been no material changes to such risk factors, except as set forth below. 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~~

Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations.

Recent events relating to the failures of certain banking entities in March and April 2023, including Silicon Valley Bank, Signature Bank and First Republic Bank, have caused general uncertainty and concern regarding the liquidity adequacy of the banking sector as a whole. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different counterparties, and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, banks, investment banks, mutual funds, and other institutional entities. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. Any such losses could be material and could materially and adversely affect our business, financial condition and results of operations. In addition, we anticipate increased regulatory scrutiny and new regulations directed towards regional banks, and potentially community banks of similar size to us, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. In addition, the cost of resolving recent bank failures may prompt the FDIC to increase its premium above the recently increased levels or to issue additional special assessments.

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.~~2023:

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		1,181	$	8.62		—		596,813
August 1 – August 31		110	$	8.93		—		596,813
September 1 – September 30		110	$	8.80		—		596,813
Total		1,401	$	8.65		—		596,813

(1)

1,401 shares were purchased in open-market transactions by an independent trustee for Bancshares’ 401(k) Plan during the third quarter of 2023.

(2)

No shares were repurchased during the third quarter pursuant to Bancshares’ publicly announced share repurchase program, which was initially approved by the Board of Directors on January 19, 2006 and authorized the repurchase of up to 642,785 shares of common stock. On each of December 18, 2019 and April 28, 2021, the Board approved the repurchase of additional shares of common stock under the share repurchase program, and the Board has periodically extended the expiration date of the program, most recently to December 31, 2023. As of September 30, 2023, Bancshares was authorized to repurchase up to 596,813 shares of common stock under the share repurchase program.

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~~
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 Current Report on Form 8-K (File No. 000-14549), filed on October 11, 2016).

3.2		Amended and Restated Bylaws of First US Bancshares, Inc., effective as of November 16, ~~2016,~~2022 (incorporated by reference to Exhibit 3.1 to the ~~Board~~Current Report on Form 8-K (File No. 000-14549), filed on November 16, 2022).

10.1		First US Bancshares, Inc. Non-Employee Directors' Deferred Compensation Plan

31.1*		Certification of ~~Directors extended the share repurchase program previously approved by the Board on January 19, 2006. Under the repurchase program, Bancshares is authorized~~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~~2023, 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, 2023, 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~~ 2023


~~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~~63

~~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~~ 6, 2023
Common Stock, $0.01 par value	~~6,077,354~~5,874,781 shares


		September 30,			December 31,				September 30,			December 31,
		2017			2016				2023			2022
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Cash and due from banks		$	8,705		$	7,018			$	10,311		$	11,844
Interest-bearing deposits in banks			23,849			16,512				55,818			18,308
Total cash and cash equivalents			32,554			23,530				66,129			30,152
Federal funds sold										1,143			1,768
Investment securities available-for-sale, at fair value			158,425			181,910				126,551			130,795
Investment securities held-to-maturity, at amortized cost			27,377			25,904				1,272			1,862
Federal Home Loan Bank stock, at cost			1,396			1,581				2,151			1,359
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 and leases held for investment										815,300			773,873
Less allowance for credit losses										11,380			9,422
Net loans and leases held for investment										803,920			764,451
Premises and equipment, net of accumulated depreciation										24,259			24,439
Cash surrender value of bank-owned life insurance			14,843			14,603				16,622			16,399
Accrued interest receivable			1,877			1,987				3,522			3,011
Goodwill and core deposit intangible, net										7,642			7,801
Other real estate owned			3,819			4,858				617			686
Other assets			10,040			11,407				11,411			11,944
Total assets		$	614,599		$	606,892			$	1,065,239		$	994,667
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits		$	508,385		$	497,556
LIABILITIES AND SHAREHOLDERS’ EQUITY								LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing									$	157,652		$	169,822
Interest-bearing										769,386			700,203
Total deposits										927,038			870,025
Accrued interest expense			281			241				1,864			607
Other liabilities			6,444			7,735				8,148			8,136
Short-term borrowings			10,635			10,119				30,000			20,038
Long-term debt			10,000			15,000
Long-term borrowings										10,781			10,726
Total liabilities			535,745			530,651				977,831			909,532
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; 7,738,156 and 7,680,856 shares issued, respectively; 5,874,781 and 5,812,258 shares outstanding, respectively										75			75
Additional paid-in capital										14,824			14,510
Accumulated other comprehensive loss, net of tax										(8,907	)		(7,241	)
Retained earnings			88,525			87,434				107,976			104,460
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: 1,863,375 and 1,868,598 shares at cost, respectively										(26,560	)		(26,669	)
Total shareholders’ equity										87,408			85,135
Total liabilities and shareholders’ equity									$	1,065,239		$	994,667

	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~~2023 (Unaudited) and December 31, ~~2016~~2022		4

Interim C~~ondensed~~Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022 (Unaudited)		5

Interim C~~ondensed~~Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022 (Unaudited)		6

Interim C~~ondensed~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)		7

Interim Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022 (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
		59
~~ITEM~~ 4.
ITEM 4. CONTROLS AND PROCEDURES	51

	~~PART II. OTHER INFORMATION~~60	52

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

~~ITEM~~ ~~1A.~~PART II. OTHER INFORMATION	~~RISK FACTORS~~	52
		61
~~ITEM~~ 2.
ITEM 1. LEGAL PROCEEDINGS		61

ITEM 1A. RISK FACTORS		61

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52
		61
~~ITEM~~ 6.	~~EXHIBITS~~	52

~~Signature Page~~ITEM 6. EXHIBITS	53	62

Signature Page		63


	Common Stock Shares Outstanding			Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock, at Cost			Total Shareholders’ Equity
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
Impact of common stock share repurchases		(64,000	)		—		—		—			—			(653	)		(653	)
Balance, September 30, 2022		5,812,258		$	75	$	14,386	$	(7,212	)	$	102,523		$	(26,669	)	$	83,103

Balance, June 30, 2023		5,874,765		$	75	$	14,675	$	(8,622	)	$	106,157		$	(26,560	)	$	85,725
Net income		—			—		—		—			2,113			—			2,113
Net change in fair value of securities available-for-sale, net of tax		—			—		—		(167	)		—			—			(167	)
Net change in fair value of derivative instruments, net of tax		—			—		—		(118	)		—			—			(118	)
Dividends declared: $.05 per share		—			—		—		—			(294	)		—			(294	)
Impact of stock-based compensation plans, net		—			—		149		—			—			—			149
Reissuance of treasury stock as compensation		16			—		—		—			—			—			—
Balance, September 30, 2023		5,874,781		$	75	$	14,824	$	(8,907	)	$	107,976		$	(26,560	)	$	87,408

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

	Available-for-Sale
	December 31, 2016
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	99,922	$	490	$	(2,003	)	$	98,409
Commercial		71,761		56		(1,287	)		70,530
Obligations of states and political subdivisions		9,759		390		(7	)		10,142
Obligations of U.S. government-sponsored agencies		2,000		—		(7	)		1,993
Corporate notes		756		—		—			756
U.S. Treasury securities		80		—		—			80
Total	$	184,278	$	936	$	(3,304	)	$	181,910

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

	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

	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	$	—	$	107		$	—	$	—	$	—	$	—	$	1,717		$	623		$	2,447
Charge-offs		—		(27	)		—		—		—		—		(1,721	)		(445	)		(2,193	)
Recoveries		—		28			—		—		—		—		435			75			538
Provision		—		(5	)		—		—		—		—		1,134			465			1,594
Ending balance	$	—	$	103		$	—	$	—	$	—	$	—	$	1,565		$	718		$	2,386

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		103			—		—		—		—		1,565			718			2,386
Total allowance for loan losses	$	—	$	103		$	—	$	—	$	—	$	—	$	1,565		$	718		$	2,386
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Collectively evaluated for impairment		—		11,490			—		—		—		—		35,650			50,553			97,693
Total loans receivable	$	—	$	11,490		$	—	$	—	$	—	$	—	$	35,650		$	50,553		$	97,693

	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	$	—


	As of September 30, 2023
	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	$	—		$	—		$	—		$	—		$	90,051		$	90,051		$	—
Secured by 1-4 family residential properties		93			36			—			129			83,747			83,876			—
Secured by multi-family residential properties		—			—			—			—			56,506			56,506			—
Secured by non-farm, non-residential properties		1,314			—			—			1,314			197,802			199,116			—
Commercial and industrial loans		22			—			62			84			59,285			59,369			—
Consumer loans:								—
Direct		52			—			—			52			6,492			6,544			—
Branch retail		100			—			—			100			9,548			9,648			—
Indirect		335			171			142			648			309,542			310,190			—
Total	$	1,916		$	207		$	204		$	2,327		$	812,973		$	815,300		$	—
As a percentage of total loans		0.24	%		0.02	%		0.03	%		0.29	%		99.71	%		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	$	—

	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, 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	$	—		$	—		$	—		$	—		$	53,914		$	53,914		$	—
Secured by 1-4 family residential properties		801			87			78			966			87,029			87,995			—
Secured by multi-family residential properties		—			—			—			—			67,852			67,852			—
Secured by non-farm, non-residential properties		137			—			—			137			200,019			200,156			—
Commercial and industrial loans		61			—			300			361			73,185			73,546			—
Consumer loans:
Direct		251			50			30			330			9,521			9,851			—
Branch retail		258			85			32			375			13,617			13,992			—
Indirect		186			55			71			312			266,255			266,567			—
Total	$	1,694		$	277		$	511		$	2,481		$	771,392		$	773,873		$	—
As a percentage of total loans		0.21	%		0.04	%		0.07	%		0.32	%		99.68	%		100.00	%

	Loans on Non-Accrual Status
	September 30, 2017		December 31, 2016
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	86
Secured by 1-4 family residential properties		418		570
Secured by multi-family residential properties		—		—
Secured by non-farm, non-residential properties		33		53
Commercial and industrial loans		14		32
Consumer loans:
Consumer		1,106		1,676
Indirect sales		385		—
Total loans	$	1,956	$	2,417

	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


Available Unused Lines of Credit	Collateral Requirements	September 30, 2023	December 31, 2022
Correspondent banks	None	$48.0 million	$45.0 million
FHLB advances (1)	Subject to collateral	$260.3 million	$246.8 million
FRB (2)	Subject to collateral	$146.6 million	$1.2 million

	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	%


	As of September 30, 2023				As of December 31, 2022
	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	$	1,101
Interest rate swaps related to fixed rate indirect consumer loans		30,000		537		—		—
Total fair value hedges				537				1,101
Cash flow hedges:
Interest rate swaps related to variable-rate money market deposit accounts		—		—		20,000		1,205
Interest rate swaps related to FHLB advances		—		—		—		—
Total cash flow hedges				—				1,205
Total hedges designated as hedging instruments, net			$	537			$	2,306

						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, 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	)		—


	September 30, 2017		December 31, 2016		September 30, 2023		December 31, 2022
	(Dollars in Thousands)				(Dollars in Thousands)
Standby letters of credit	$	180	$	183	$	—	$	—
Standby performance letters of credit					$	664	$	556
Commitments to extend credit	$	53,231	$	41,267	$	155,614	$	186,169


	Fair Value Measurements as of September 30, 2017 Using								Fair Value Measurements as of September 30, 2023 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, 2023		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	$	—	$	37,000	$	—	$	37,000	$	—
Commercial		67,138		—		67,138		—		9,500		—		9,500		—
Obligations of U.S. government-sponsored agencies										10,932		—		10,932		—
Obligations of states and political subdivisions		5,655		—		5,655		—		1,543		—		1,543		—
Obligations of U.S. government-sponsored agencies		2,002		—		2,002		—
Corporate notes										14,681		—		14,681		—
U.S. Treasury securities		80		—		80		—		52,895		52,895		—		—
Other assets - derivatives		291		—		291		—		537		—		537		—


	Fair Value Measurements as of December 31, 2016 Using								Fair Value Measurements as of December 31, 2022 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, 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	$	98,409	$	—	$	98,409	$	—	$	43,957	$	—	$	43,957	$	—
Commercial		70,530		—		70,530		—		11,693		—		11,693		—
Obligations of U.S. government-sponsored agencies										4,270		—		4,270
Obligations of states and political subdivisions		10,142		—		10,142		—		2,072		—		2,072		—
Obligations of U.S. government-sponsored agencies		1,993		—		1,993		—
Corporate notes		756		—		756		—		15,921				14,921		1,000
U.S. Treasury securities		80		—		80		—		52,882		52,882		—		—
Other assets - derivatives		346		—		346		—		2,306		—		2,306		—

	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

	Level 3 Significant Unobservable Input Assumptions
	Fair Value September 30, 2017		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%)

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%)

	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	)	%