(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 every Interactive Data File required to be submitted pursuant to Rule 405 of 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 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” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if 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’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, performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “continues” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based on current information and involve a number of risks and ~~uncertainties,~~uncertainties. Certain factors that could affect the accuracy of such forward-looking statements and ~~various factors could~~ cause actual results to differ materially from those ~~contemplated by~~projected in such forward-looking ~~statements. Such factors could include those~~statements are identified ~~from time to time~~ in the Company’s filings with the Securities and Exchange Commission (“SEC”) ~~filings~~, and forward-looking statements contained herein or in other public ~~announcements, including the risk factors described in Part I, Item 1A~~statements of the ~~Company’s Annual Report on Form 10-K as~~Company or its senior management should be considered in light of and for the year ended December 31, 2020. Specifically, with respect to statements relating to the sufficiency of the allowance for loan and lease losses, loan demand, cash flows, interest costs, growth and earnings potential, expansion and the Company’s positioning to handle the challenges presented by COVID-19, thesethose factors. Such factors may include ~~but are not limited to,~~ the rate of growth (or lack thereof) in the economy generally and in the Company’s service areas; ~~market conditions and investment returns; changes in interest rates;~~ the impact of the current COVID-19 pandemic on the Company’s business, the Company’s customers, the communities that the Company serves and the United States economy, including the impact of actions taken by governmental authorities to try to contain the virus and protect against it, through vaccinations and otherwise, or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security (CARES) Act and subsequent federal legislation) and the resulting effect on the Company’s operations, liquidity and capital position and on the financial condition of the Company’s borrowers and other customers; the impact of changing accounting standards and tax laws on the Company’s allowance for loan losses and financial results; the impact of national and local market conditions on the Company’s business and operations; strong competition in the banking industry; the impact of changes in interest rates and monetary policy on the Company’s performance and financial condition; the pending discontinuation of LIBOR as an interest rate benchmark; the ~~availability~~impact of ~~quality loans~~technological changes in the banking and financial service industries and potential information system failures; cybersecurity and data privacy threats; the costs of complying with extensive governmental regulation; the possibility that acquisitions may not produce anticipated results and result in unforeseen integration difficulties; and other risk factors described from time to time in the Company’s ~~service areas; the relative strength and weakness in the consumer and commercial credit sectors and in the real estate markets; collateral values; cybersecurity threats; and risks related~~public filings, including, but not limited to, the ~~Paycheck Protection Program. There can~~Company’s most recent Annual Report on Form 10-K. Relative to the Company’s dividend policy, the payment of cash dividends is subject to the discretion of the Board of Directors and will be ~~no assurance that such factors or~~determined in light of then-current conditions, including the Company’s earnings, leverage, operations, financial conditions, capital requirements and other factors ~~will not affect~~deemed relevant by the ~~accuracy~~Board of ~~such forward-looking statements.~~Directors. In the future, the Board of Directors may change the Company’s dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

		June 30,			December 31,				March 31,			December 31,
		2021			2020				2022			2021
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Cash and due from banks		$	13,952		$	12,235			$	12,537		$	10,843
Interest-bearing deposits in banks			67,871			82,180				85,302			50,401
Total cash and cash equivalents			81,823			94,415				97,839			61,244
Federal funds sold			83			85				81			82
Investment securities available-for-sale, at fair value			118,735			84,993				135,018			130,883
Investment securities held-to-maturity, at amortized cost			4,848			6,429				2,718			3,436
Federal Home Loan Bank stock, at cost			870			1,135				934			870
Loans, net of allowance for loan and lease losses of $7,726 and $7,470, respectively			677,756			638,374
Premises and equipment, net of accumulated depreciation of $24,370 and $23,774, respectively			27,959			28,206
Loans, net of allowance for loan and lease losses of $8,484 and $8,320, respectively										669,846			700,030
Premises and equipment, net of accumulated depreciation of $22,204 and $21,916, respectively										24,881			25,123
Cash surrender value of bank-owned life insurance			15,992			15,846				16,213			16,141
Accrued interest receivable			2,579			2,807				2,450			2,556
Goodwill and core deposit intangible, net			8,227			8,410				7,996			8,069
Other real estate owned			846			949				874			2,149
Other assets			7,228			8,862				9,796			7,719
Total assets		$	946,946		$	890,511			$	968,646		$	958,302
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing		$	174,691		$	151,935			$	183,536		$	174,501
Interest-bearing			663,194			630,277				669,581			663,625
Total deposits			837,885			782,212				853,117			838,126
Accrued interest expense			223			292				305			224
Other liabilities			10,043			11,312				6,684			9,189
Short-term borrowings			10,017			10,017				10,062			10,046
Long-term borrowings										10,671			10,653
Total liabilities			858,168			803,833				880,839			868,238
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,634,281 and 7,596,351 shares issued, respectively; 6,214,809 and 6,176,556 shares outstanding, respectively			75			75
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,679,659 and 7,634,918 shares issued, respectively; 6,129,519 and 6,172,378 shares outstanding, respectively										75			75
Additional paid-in capital			13,981			13,786				14,278			14,163
Accumulated other comprehensive income (loss), net of tax			312			(52	)
Accumulated other comprehensive loss, net of tax										(2,866	)		(276	)
Retained earnings			96,252			94,722				99,604			98,428
Less treasury stock: 1,419,472 and 1,419,795 shares at cost, respectively			(21,842	)		(21,853	)
Less treasury stock: 1,550,140 and 1,462,540 shares at cost, respectively										(23,284	)		(22,326	)
Total shareholders’ equity			88,778			86,678				87,807			90,064
Total liabilities and shareholders’ equity		$	946,946		$	890,511			$	968,646		$	958,302

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

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2021		2020		2021		2020		2022		2021
	(Unaudited)				(Unaudited)				(Unaudited)
Interest income:
Interest and fees on loans	$	9,668	$	9,237	$	19,158	$	18,876	$	8,847	$	9,490
Interest on investment securities		391		543		746		1,301		534		355
Total interest income		10,059		9,780		19,904		20,177		9,381		9,845
Interest expense:
Interest on deposits		705		1,131		1,448		2,606		516		743
Interest on borrowings		42		26		80		62
Interest on short-term borrowings										35		38
Interest on long-term borrowings										121		—
Total interest expense		747		1,157		1,528		2,668		672		781
Net interest income		9,312		8,623		18,376		17,509		8,709		9,064
Provision for loan and lease losses		498		850		899		1,430		721		401
Net interest income after provision for loan and lease losses		8,814		7,773		17,477		16,079		7,988		8,663
Non-interest income:
Service and other charges on deposit accounts		240		263		506		697		299		266
Net gain on sales and prepayments of investment securities		22		326		22		326
Mortgage fees from secondary market		—		176		23		303
Lease income		202		212		411		424		214		209
Other income, net		345		353		798		877		316		476
Total non-interest income		809		1,330		1,760		2,627		829		951
Non-interest expense:
Salaries and employee benefits		4,992		5,193		9,906		10,329		4,330		4,914
Net occupancy and equipment		1,020		995		2,059		1,996		766		1,039
Computer services		485		424		950		841		377		465
Fees for professional services		354		401		711		679		268		357
Other expense		1,548		1,568		3,169		3,230		1,315		1,621
Total non-interest expense		8,399		8,581		16,795		17,075		7,056		8,396

Income before income taxes		1,224		522		2,442		1,631		1,761		1,218
Provision for income taxes		271		118		539		380		400		268
Net income	$	953	$	404	$	1,903	$	1,251	$	1,361	$	950
Basic net income per share	$	0.15	$	0.07	$	0.30	$	0.20	$	0.22	$	0.15
Diluted net income per share	$	0.14	$	0.06	$	0.28	$	0.19	$	0.20	$	0.14
Dividends per share	$	0.03	$	0.03	$	0.06	$	0.06	$	0.03	$	0.03

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

For the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)

Common
Stock
Shares
Outstanding

Common
Stock

Additional
Paid-in Capital

Accumulated
Other
Comprehensive
Income
(Loss)

Retained
Earnings

Treasury
Stock,
at Cost

Total
Shareholders’
Equity

Balance, March 31, 2020

6,143,286

$
75

$
13,904

$
(763
)

$
93,418

$
(22,302
)

$
84,332

Net income

—

—

—

—

404

—

404

Net change in fair value of
   securities available-for-sale,
   net of tax

—

—

—

786

—

—

786

Net change in fair value of
   derivative instruments, net
   of tax

—

—

—

(168
)

—

—

(168
)
Dividends declared: $.03 per
   share

—

—

—

—

(186
)

—

(186
)
Impact of stock-based
   compensation plans, net

4,300

—

113

—

—

—

113

Reissuance of treasury stock as
   compensation

28,847

—

(444
)

—

—

444

—

Balance, June 30, 2020

6,176,433

$
75

$
13,573

$
(145
)

$
93,636

$
(21,858
)

$
85,281

Balance, March 31, 2021

6,213,641

75

13,889

327

95,486

(21,860
)

$
87,917

Net income

—

—

—

—

953

—

953

Net change in fair value of
   securities available-for-sale,
   net of tax

—

—

—

(14
)

—

—

(14
)
Net change in fair value of
   derivative instruments, net
   of tax

—

—

—

(1
)

—

—

(1
)
Dividends declared: $.03 per
   share

—

—

—

—

(187
)

—

(187
)
Impact of stock-based
   compensation plans, net

—

—

110

—

—

—

110

Reissuance of treasury stock as
   compensation

1,168

—

(18
)

—

—

18

—

Balance, June 30, 2021

6,214,809

$
75

$
13,981

$
312

$
96,252

$
(21,842
)

$
88,778

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

Common
Stock
Shares
Outstanding

Common
Stock

Additional
Paid-in Capital

Accumulated
Other
Comprehensive
Income
(Loss)

Retained
Earnings

Treasury
Stock,
at Cost

Total
Shareholders’
Equity

Balance, January 1, 2020

6,157,692

$
75

$
13,814

$
(46
)

$
92,755

$
(21,850
)

$
84,748

Net income

—

—

—

—

1,251

—

1,251

Net change in fair value of
   securities available-for-sale,
   net of tax

—

—

—

1,408

—

—

1,408

Net change in fair value of
   derivative instruments,
   net of tax

—

—

—

(1,507
)

—

—

(1,507
)
Dividends declared: $.06 per
   share

—

—

—

—

(370
)

—

(370
)
Impact of stock-based
   compensation plans, net

28,498

—

203

—

—

—

203

Reissuance of treasury stock as
   compensation

28,847

—

(444
)

—

—

444

—

Treasury stock repurchases

(38,604
)

—

—

—

—

(452
)

(452
)
Balance, June 30, 2020

6,176,433

$
75

$
13,573

$
(145
)

$
93,636

$
(21,858
)

$
85,281

Balance, January 1, 2021

6,176,556

$
75

$
13,786

$
(52
)

$
94,722

$
(21,853
)

$
86,678

Net income

—

—

—

—

1,903

—

1,903

Net change in fair value of
   securities available-for-sale,
   net of tax

—

—

—

(120
)

—

—

(120
)
Net change in fair value of
   derivative instruments,
   net of tax

—

—

—

484

—

—

484

Dividends declared: $.06 per
   share

—

—

—

—

(373
)

—

(373
)
Impact of stock-based
   compensation plans, net

37,085

—

213

—

—

—

213

Reissuance of treasury stock as
   compensation

1,168

—

(18
)

—

—

18

—

Treasury stock repurchases

—

—

—

—

—

(7
)

(7
)
Balance, June 30, 2021

6,214,809

$
75

$
13,981

$
312

$
96,252

$
(21,842
)

$
88,778

	Common Stock Shares Outstanding			Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock, at Cost			Total Shareholders’ Equity
Balance, December 31, 2020		6,176,556		$	75	$	13,786	$	(52	)	$	94,722		$	(21,853	)	$	86,678
Net income		—			—		—		—			950			—			950
Net change in fair value of securities available-for-sale, net of tax		—			—		—		(106	)		—			—			(106	)
Net change in fair value of derivative instruments, net of tax		—			—		—		485			—			—			485
Dividends declared: $.03 per share		—			—		—		—			(186	)		—			(186	)
Impact of stock-based compensation plans, net		37,085			—		103		—			—			(7	)		96
Balance, March 31, 2021		6,213,641		$	75	$	13,889	$	327		$	95,486		$	(21,860	)	$	87,917

Balance, December 31, 2021		6,172,378		$	75	$	14,163	$	(276	)	$	98,428		$	(22,326	)	$	90,064
Net income		—			—		—		—			1,361			—			1,361
Net change in fair value of securities available-for-sale, net of tax		—			—		—		(3,527	)		—			—			(3,527	)
Net change in fair value of derivative instruments, net of tax		—			—		—		937			—			—			937
Dividends declared: $.03 per share		—			—		—		—			(185	)		—			(185	)
Impact of stock-based compensation plans, net		44,741			—		115		—			—			—			115
Treasury stock repurchases		(87,600	)												(958	)		(958	)
Balance, March 31, 2022		6,129,519		$	75	$	14,278	$	(2,866	)	$	99,604		$	(23,284	)	$	87,807

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

	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2021			2020			2022			2021
	(Unaudited)						(Unaudited)
Cash flows from operating activities:
Net income	$	1,903		$	1,251		$	1,361		$	950
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		878			806			387			445
Provision for loan and lease losses		899			1,430			721			401
Deferred income tax provision		111			366			269			29
Net gain on sale and prepayment of investment securities		(22	)		(326	)
Stock-based compensation expense		213			203			115			103
Net amortization of securities		152			170			88			72
Amortization of intangible assets		183			220			73			91
Net loss on premises and equipment and other real estate		15			288
Net (gain) loss on premises and equipment and other real estate								(131	)		39
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable		228			(652	)
Decrease in other assets		1,020			28
Decrease in accrued interest expense		(69	)		(99	)
Decrease in accrued interest receivable								106			214
Increase in other assets								(494	)		(321	)
Increase (decrease) in accrued interest expense								81			(50	)
Decrease in other liabilities		(317	)		(1,278	)		(1,730	)		(86	)
Net cash provided by operating activities		5,194			2,407			846			1,887
Cash flows from investing activities:
Net decrease in federal funds sold		2			10,000			1			1
Purchases of investment securities, available-for-sale		(59,962	)		(26,296	)		(14,291	)		(3,512	)
Proceeds from sale of investment securities, available-for-sale		—			12,203
Proceeds from maturities and prepayments of investment securities, available-for-sale		25,952			15,513			5,369			18,199
Proceeds from maturities and prepayments of investment securities, held-to-maturity		1,559			5,005			714			738
Net decrease in Federal Home Loan Bank stock		265			2
Net (increase) decrease in Federal Home Loan Bank stock								(64	)		265
Proceeds from the sale of premises and equipment and other real estate		747			646			1,550			279
Net increase in loans		(41,103	)		(21,896	)
Net decrease (increase) in loans								28,706			(21,921	)
Purchases of premises and equipment		(539	)		(461	)		(118	)		(122	)
Net cash used in investing activities		(73,079	)		(5,284	)
Net cash provided by (used in) investing activities								21,867			(6,073	)
Cash flows from financing activities:
Net increase in deposits		55,673			54,628			14,991			35,831
Net increase in short-term borrowings		—			309
Net increase in borrowings								34			—
Net share-based compensation transactions		(7	)		—			—			(7	)
Treasury stock repurchases		—			(452	)		(958	)		—
Dividends paid		(373	)		(370	)		(185	)		(186	)
Net cash provided by financing activities		55,293			54,115			13,882			35,638
Net increase (decrease) in cash and cash equivalents		(12,592	)		51,238
Net increase in cash and cash equivalents								36,595			31,452
Cash and cash equivalents, beginning of period		94,415			57,030			61,244			94,415
Cash and cash equivalents, end of period	$	81,823		$	108,268		$	97,839		$	125,867
Supplemental disclosures:
Cash paid for:
Interest	$	1,597		$	2,767		$	591		$	830
Income taxes		578			185			1,071			—
Non-cash transactions:
Assets acquired in settlement of loans		515			854			51			400
Reissuance of treasury stock as compensation		18			444

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

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 Bank operates a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management has determined that the Bank and ALC comprise Bancshares’ 2 reportable operating segments. All significant intercompany transactions and accounts have been eliminated. During the third quarter of 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public.

The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, ~~2021.~~2022. While certain information and ~~footnote~~ disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2020.~~

The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity and other economic activities have had, are currently having, and may for some time continue to have a destabilizing effect on financial markets and economic activity. The extent of the impact of COVID-19 on the Company’s operational and financial performance is currently uncertain, cannot be predicted and will depend on certain developments, including, among others, the spread of COVID-19 and its variants, vaccination efforts, the duration of the pandemic, its impact on our customers, employees and vendors, and the continued governmental, regulatory and private sector responses, which may be precautionary, to COVID-19.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Company’s borrowers to repay their loans, the value of collateral underlying those loans, and demand for loans and other products and services that the Company offers, which are highly dependent on the business environment in the Company’s primary markets and the United States economy as a whole.

In light of the changing economic outlook as a result of COVID-19, in March 2020, the Federal Reserve reduced the target federal funds rate by 150 basis points. The reduction in interest rates and other economic uncertainties that have arisen as a result primarily of the COVID-19 pandemic have negatively impacted net interest income, provisions for loan losses and noninterest income. Additional negative financial impacts could occur; however, the ultimate potential impact is not known at this time.2021.

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 on Form 10-K as of and for the year ended December 31, ~~2020.~~2021.

Certain amounts and disclosures in the notes to the prior period consolidated financial statements have been reclassified to conform to the ~~2021~~2022 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding (basic shares). Included in basic shares are certain shares that have been accrued as of the balance sheet date as deferred compensation for members of Bancshares’ Board of Directors, as well as shares of restricted stock that have been granted pursuant to Bancshares’ 2013 Incentive Plan (as amended, the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders. Diluted net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period (dilutive shares). The dilutive shares consist of nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to the 2013 Incentive Plan. The following table reflects weighted average shares used to calculate basic and diluted net income per share for the periods presented.

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2021		2020		2021		2020		2022		2021
Basic shares		6,328,794		6,276,001		6,316,598		6,279,079		6,275,784		6,307,227
Dilutive shares		421,000		422,000		421,000		422,000		420,250		421,000
Diluted shares		6,749,794		6,698,001		6,737,598		6,701,079		6,696,034		6,728,227

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2021		2020		2021		2020		2022		2021
	(Dollars in Thousands, Except Per Share Data)								(Dollars in Thousands, Except Per Share Data)
Net income	$	953	$	404	$	1,903	$	1,251	$	1,361	$	950
Basic net income per share	$	0.15	$	0.07	$	0.30	$	0.20	$	0.22	$	0.15
Diluted net income per share	$	0.14	$	0.06	$	0.28	$	0.19	$	0.20	$	0.14

Comprehensive income consists of net income, as well as unrealized holding gains and losses that arise during the period associated with the Company’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, settlement of derivative contracts or changes in the fair value of cash flow derivatives.

ASU ~~2019-12,~~ ~~“Income Taxes~~2020-04 and ASU 2021-01, Reference Rate Reform (Topic ~~740): Simplifying~~848) - Facilitation of the ~~Accounting~~Effects of Reference Rate Reform on Financial Reporting. These ASUs provide optional and temporary relief, in the form of optional expedients and exceptions, for ~~Income Taxes.”~~ ~~Issued in December 2019,~~applying GAAP to modifications of contacts, hedging relationships and other transactions affected by reference rate (e.g. LIBOR) reforms. ASU 2019-12 seeks to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also simplify GAAP for other areas of Topic 740 by clarifying2020-04 and ~~amending existing guidance.~~ ASU ~~2019-12 became~~2021-01 are effective for the Company ~~on January 1, 2021.~~immediately and through December 31, 2022. The ~~adoption~~Company utilizes LIBOR, among other indexes, as a reference rate for underwriting certain variable rate loans and interest rate hedging instruments. Management has identified all contracts referencing LIBOR and will continue to monitor risks associated with the discontinuance of ~~ASU 2019-12 did~~LIBOR until remediation of such contracts is complete. Reference rate reform has not had, nor does the Company expect it to have, a material ~~impact~~effect on the Company’s consolidated ~~financial statements.~~balance sheet, operations or cash flows.

ASU ~~2021-01,~~ ~~“Reference Rate Reform~~2022-02 - Financial Instruments - Credit Losses (Topic ~~848)~~326): ~~Scope.”~~ Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. The ASU addresses and amends areas identified by the FASB as part of its post-implementation review of the accounting standard that introduced the current expected credit losses model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses model and enhance 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. As the Company has not yet adopted the amendments in ASU 2016-13, ASU 2022-02 becomes effective in the first quarter of 2023. Management is assessing the impact that adoption of this standard will have on the Company’s financial condition and results of operations in conjunction with its assessment of the impact of ASU 2016-13. The Company expects to adopt the guidance for our fiscal year beginning January ~~2021,~~1, 2023.

ASU 2022-01 - Fair Value Hedging - Portfolio Layer Method - Derivatives and Hedging (Topic 815). In March 2022, the FASB issued ASU ~~2021-01, which is in response to stakeholder concerns related to reference rate reform.~~2022-01. The amendments in ~~ASU 2021-01 are elective and apply~~this standard update expand the current last-of-layer method of hedge accounting that permits only one hedged layer to ~~all entities~~allow multiple hedged layers of a single closed portfolio. This standard update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted on any date on or after the issuance of this update for any entity that have derivative instruments that use an interest rate for managing, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments in ASU 2021-01 are effective immediately for all entities. The Company is currently reviewinghas adopted the amendments in ASU ~~2021-01 but does~~2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption. The adoption of this standard update is not ~~expect this guidance~~expected to have a material impact on ~~its~~the Company's consolidated financial ~~statements.~~

~~ASU~~ ~~2020-04,~~ ~~“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”~~ Issued in March 2020, ASU 2020-04 seeks to provide guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU 2020-04 was issued in response to concerns about the structural risks of interbank offered rates, and specifically, the risk that the London Interbank Offer Rate (LIBOR) will no longer be used. Regulators have begun reference rate reform initiatives to identify alternative reference rates that are more observable or transaction-based and less susceptible to manipulation. ASU 2020-04 provides temporary optional expedients to GAAP guidance on contract modifications, hedge accounting, and other transactions that reference LIBOR or another reference rate expected to be discontinued. As the guidance in ASU 2020-04 is intended to assist entities during the global market-wide reference rate transition period, it is in effect for a limited time, from March 12, 2020 through December 31, 2022. Management is currently evaluatingstatements; however, the impact ~~of the potential discontinuance of LIBOR, and a determination cannot~~will be ~~made at this time as to the impact that the amendments of ASU 2020-04 or the reference rate reform will have~~dependent on ~~the Company’s consolidated financial statements.~~future hedging activity.

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 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. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

ASU 2016-13, "Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial ~~Instruments~~Instruments.”.” Issued in June 2016, ASU 2016-13 removes the thresholds that companies apply 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 the loss has been incurred. The revised guidance removes all current recognition thresholds and requires companies to recognize an allowance for lifetime expected credit losses. Credit losses will be immediately recognized through net income; the amount recognized will be based on the current estimate of contractual cash flows not expected to be collected over the financial asset’s contractual term. ASU 2016-13 also amends the credit loss measurement guidance for available-for-sale debt securities. The standard will add new disclosures related to factors that influenced management’s estimate, including current expected credit losses, the changes in those factors and reasons for the changes, as well as the method applied to revert to historical credit loss experience. As originally issued, ASU 2016-13 was effective for financial

statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, 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. On October 16, 2019, the FASB approved a delay in the implementation of ASU 2016-13 by three years for smaller reporting companies, including the Company. Management ~~has been~~is in the process of developing a revised model to calculate the allowance for loan and lease losses upon implementation of ASU 2016-13 in order to determine the impact on the Company’s consolidated financial statements and, at this time, expects to recognize a one-time cumulative effect adjustment to the allowance for loan and lease losses as of the beginning of the first reporting period in which the new standard is effective. The magnitude of any such one-time adjustment is not yet known.

On September 3, 2021, the Company announced that, effective immediately, ALC would cease new business development and permanently close its 20 branch lending locations in Alabama and Mississippi to the public. The closure of ALC’s branches eliminated the majority of ALC’s full-time employment positions during the third quarter of 2021. ALC continues to service its remaining portfolio of loans from its headquarters in Mobile, Alabama. The cessation of new business and closure of ALC’s branch locations were undertaken by the Company as part of a long-term strategy to reduce expenses, fortify asset quality, and focus the Company’s loan growth efforts in other areas, including the Bank’s commercial lending and consumer indirect lending efforts.

Total restructuring charges incurred during the three months ended March 31, 2022 and the year ended December 31, 2021 consisted of the following:

As of March 31, 2022, the majority of restructuring charges associated with the closure of ALC’s branches have been incurred.

Details of investment securities available-for-sale and held-to-maturity as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:

	Available-for-Sale									Available-for-Sale
	June 30, 2021									March 31, 2022
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	47,269	$	757	$	(4	)	$	48,022	$	46,121	$	81	$	(1,620	)	$	44,582
Commercial		31,688		652		(61	)		32,279		22,089		195		(148	)		22,136
Obligations of U.S. government-sponsored agencies											5,158		—		(357	)		4,801
Obligations of states and political subdivisions		3,711		117		—			3,828		4,228		20		(66	)		4,182
Corporate notes		4,321		34		—			4,355		19,875		46		(526	)		19,395
U.S. Treasury securities		30,202		71		(22	)		30,251		42,043		—		(2,121	)		39,922
Total	$	117,191	$	1,631	$	(87	)	$	118,735	$	139,514	$	342	$	(4,838	)	$	135,018

	Held-to-Maturity								Held-to-Maturity
	June 30, 2021								March 31, 2022
			Gross		Gross		Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)								(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	2,964	$	65	$	—	$	3,029	$	1,821	$	—	$	(9	)	$	1,812
Obligations of U.S. government-sponsored agencies		928		21		—		949		758		—		(19	)		739
Obligations of states and political subdivisions		956		9		—		965		139		—		(4	)		135
Total	$	4,848	$	95	$	—	$	4,943	$	2,718	$	—	$	(32	)	$	2,686

	Available-for-Sale									Available-for-Sale
	December 31, 2020									December 31, 2021
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	24,680	$	865	$	(8	)	$	25,537	$	46,020	$	450	$	(242	)	$	46,228
Commercial		40,849		780		(142	)		41,487		24,647		371		(47	)		24,971
Obligations of U.S. government-sponsored agencies											5,207		—		(15	)		5,192
Obligations of states and political subdivisions		4,971		137		—			5,108		4,247		80		(10	)		4,317
Corporate notes		2,711		73		—			2,784		15,458		76		(52	)		15,482
U.S. Treasury securities		10,078		—		(1	)		10,077		35,097		—		(404	)		34,693
Total	$	83,289	$	1,855	$	(151	)	$	84,993	$	130,676	$	977	$	(770	)	$	130,883

	Held-to-Maturity								Held-to-Maturity
	December 31, 2020								December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(Dollars in Thousands)								(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	4,302	$	75	$	—	$	4,377	$	2,115	$	29	$	—	$	2,144
Obligations of U.S. government-sponsored agencies		1,120		34		—		1,154		768		10		—		778
Obligations of states and political subdivisions		1,007		21		—		1,028		553		2		—		555
Total	$	6,429	$	130	$	—	$	6,559	$	3,436	$	41	$	—	$	3,477

The scheduled maturities of investment securities available-for-sale and held-to-maturity as of ~~June 30, 2021~~March 31, 2022 are presented in the following table:

	Available-for-Sale				Held-to-Maturity				Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)								(Dollars in Thousands)
Maturing within one year	$	84	$	84	$	402	$	407	$	2,592	$	2,600	$	—	$	—
Maturing after one to five years		21,185		21,369		360		361		38,838		37,355		—		—
Maturing after five to ten years		64,499		65,480		2,447		2,505		77,858		75,029		1,553		1,546
Maturing after ten years		31,423		31,802		1,639		1,670		20,226		20,034		1,165		1,140
Total	$	117,191	$	118,735	$	4,848	$	4,943	$	139,514	$	135,018	$	2,718	$	2,686

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 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

	Held-to-Maturity								Available-for-Sale
	June 30, 2021								March 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									$	35,249	$	(1,617	)	$	230	$	(3	)
Commercial	$	48	$	—	$	—	$	—		8,724		(146	)		2,897		(2	)
Obligations of U.S. government-sponsored agencies										4,645		(356	)		145		(1	)
Obligations of states and political subdivisions										2,705		(66	)		—		—
Corporate notes										15,394		(526	)		—		—
U.S. Treasury securities										39,921		(2,121	)		—		—
Total	$	48	$	—	$	—	$	—	$	106,638	$	(4,832	)	$	3,272	$	(6	)

	Available-for-Sale										Held-to-Maturity
	December 31, 2020										March 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	$	2,334	$	(1	)	$	1,019	$	(7	)
Commercial		2,630		(1	)		3,327		(141	)	$	1,285	$	(9	)	$	—	$	—
U.S. Treasury securities		10,077		(1	)		—		—
Obligations of U.S. government-sponsored agencies											$	739	$	(19	)	$	—	$	—
Obligations of states and political subdivisions											$	135	$	(4	)	$	—
Total	$	15,041	$	(3	)	$	4,346	$	(148	)	$	2,159	$	(32	)	$	—	$	—

	Held-to-Maturity								Available-for-Sale
	December 31, 2020								December 31, 2021
	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									$	31,346	$	(240	)	$	253	$	(2	)
Commercial	$	412	$	—	$	—	$	—		2,245		(12	)		2,970		(35	)
Obligations of U.S. government-sponsored agencies										4,987		(13	)		194		(2	)
Obligations of states and political subdivisions										561		(10	)		—		—
Corporate notes										9,092		(52	)		—		—
U.S. Treasury securities										34,692		(404	)		—		—
Total	$	412	$	—	$	—	$	—	$	82,923	$	(731	)	$	3,417	$	(39	)

There were 0 held-to-maturity securities in an unrealized loss position as of December 31, 2021.

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

As of ~~June 30, 2021,~~March 31, 2022, 10 debt securities had been in a loss position for more than 12 months, and 681 debt securities had been in a loss position for less than 12 months. As of December 31, ~~2020, 9~~2021, 10 debt securities had been in a loss position for more than 12 months, and 1132 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 of less than 12 months resulted from the rising interest rate environment during the three months ended March 31, 2022. As of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the losses for all securities were considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and were not related to the creditworthiness of the issuers. There was a substantial decrease in interest rates during the year ended December 31, 2020, including a 150-basis point reduction in the federal funds rate in March 2020. This resulted in significant increases in the fair value of debt securities and a corresponding decline in the number of securities in a loss position during 2020 and the first half of 2021. Most of the securities in an unrealized loss position as of both June 30, 2021 and December 31, 2020 were residential or commercial mortgage-backed securities that

~~are either direct obligations of the U.S. government or government-sponsored entities and, accordingly, have little associated credit risk.~~ Further, the Company has the current intent and

ability to retain its investments ~~in the issuers~~ for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did 0t recognize any other-than-temporary impairments as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

Investment securities with a carrying value of ~~$57.1~~$60.2 million and ~~$72.9~~$52.2 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure public deposits and for other purposes.

The Company has divided the loan portfolio into the following portfolio segments based on risk 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, loans for the purchase and improvement of raw 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 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.

Commercial and industrial loans and leases – This portfolio segment includes loans and leases to commercial customers for use in the normal course of business. These credits may be loans, lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.

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.

Branch retail – This portfolio segment includes loans secured by collateral purchased by consumers at retail stores with whom ALC ~~has~~had an established relationship through its branch network to provide financing for the retail products sold if applicable underwriting standards ~~are~~were met. The collateral securing these loans generally includes personal property items such as furniture, ATVs and home appliances.

Indirect ~~sales~~ – 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:

	June 30, 2021							March 31, 2022
	Bank			ALC		Total		Bank			ALC		Total
	(Dollars in Thousands)							(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	53,425		$	—	$	53,425	$	52,817		$	—	$	52,817
Secured by 1-4 family residential properties		75,968			2,847		78,815		67,705			2,055		69,760
Secured by multi-family residential properties		53,811			—		53,811		50,796			—		50,796
Secured by non-farm, non-residential properties		191,398			—		191,398		177,752			—		177,752
Commercial and industrial loans ⁽¹⁾		77,359			—		77,359
Commercial and industrial loans and leases ⁽¹⁾									68,098			—		68,098
Consumer loans:
Direct consumer		6,347			20,590		26,937		6,191			11,832		18,023
Branch retail		—			31,688		31,688		—			21,891		21,891
Indirect sales		176,116			—		176,116
Indirect									220,931			—		220,931
Total loans		634,424			55,125		689,549		644,290			35,778		680,068
Less: Unearned interest, fees and deferred cost		(290	)		4,357		4,067		(213	)		1,951		1,738
Allowance for loan and lease losses		6,464			1,262		7,726		6,894			1,590		8,484
Net loans	$	628,250		$	49,506	$	677,756	$	637,609		$	32,237	$	669,846

	December 31, 2020							December 31, 2021
	Bank			ALC		Total		Bank			ALC		Total
	(Dollars in Thousands)							(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	37,282		$	—	$	37,282	$	67,048		$	—	$	67,048
Secured by 1-4 family residential properties		85,271			3,585		88,856		70,439			2,288		72,727
Secured by multi-family residential properties		54,326			—		54,326		46,000			—		46,000
Secured by non-farm, non-residential properties		184,528			—		184,528		197,901			—		197,901
Commercial and industrial loans ⁽¹⁾		81,735			—		81,735
Commercial and industrial loans and leases ⁽¹⁾									73,947			—		73,947
Consumer loans:
Direct consumer		6,344			23,444		29,788		5,972			15,717		21,689
Branch retail		—			32,094		32,094		—			25,692		25,692
Indirect sales		141,514			—		141,514
Indirect									205,940			—		205,940
Total loans		591,000			59,123		650,123		667,247			43,697		710,944
Less: Unearned interest, fees and deferred cost		(213	)		4,492		4,279		(324	)		2,918		2,594
Allowance for loan and lease losses		5,917			1,553		7,470		7,038			1,282		8,320
Net loans	$	585,296		$	53,078	$	638,374	$	660,533		$	39,497	$	700,030

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, ~~54.7%~~51.6% and ~~56.1%~~54.0% of the portfolio was concentrated in loans secured by real estate as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Loans with a carrying value of ~~$58.6~~$69.3 million and ~~$36.1~~$66.6 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with unrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments were $0.3 million ~~and $0.4 million~~ as of ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021. During the ~~six~~three months ended ~~June 30,~~March 31, 2022, there were 0 new loans to these parties, and repayments by active related parties were $2 thousand. During the year ended December 31, 2021, there were 0 new loans to these parties, and repayments by active related parties were $0.1 million. ~~During the year ended December 31, 2020, there were 0 new loans to these parties, and repayments by active related parties were $0.5 million.~~

The following tables present changes in the allowance for loan and lease losses during the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ and the related loan balances by loan type as of ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

	As of and for the Six Months Ended June 30, 2021																										As of and for the Three Months Ended March 31, 2022
	Construction, Land Development, and Other			1-4 Family			Real Estate Multi- Family			Non- Farm Non- Residential		Commercial and Industrial			Direct Consumer			Branch Retail			Indirect Sales			Total			Construction, Land Development, and Other			1-4 Family			Real Estate Multi- Family		Non- Farm Non- Residential			Commercial and Industrial		Direct Consumer			Branch Retail			Indirect			Total
	(Dollars in Thousands)																										(Dollars in Thousands)
Allowance for loan and lease losses:
Beginning balance	$	393		$	639		$	577		$	1,566	$	1,008		$	1,202		$	373		$	1,712		$	7,470		$	628		$	690		$	437	$	1,958		$	860	$	1,004		$	304		$	2,439		$	8,320
Charge-offs		(22	)		(5	)		—			—		—			(626	)		(222	)		(310	)		(1,185	)		—			(2	)		—		—			—		(601	)		(101	)		(25	)		(729	)
Recoveries		21			6			—			3		9			369			107			27			542			1			8			—		1			—		128			23			11			172
Provision		80			112			(66	)		346		(324	)		14			66			671			899			(142	)		(12	)		47		(185	)		29		533			295			156			721
Ending balance	$	472		$	752		$	511		$	1,915	$	693		$	959		$	324		$	2,100		$	7,726		$	487		$	684		$	484	$	1,774		$	889	$	1,064		$	521		$	2,581		$	8,484
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—		$	11		$	—		$	—	$	59		$	—		$	—		$	—		$	70		$	—		$	9		$	—	$	—		$	56	$	—		$	—		$	—		$	65
Collectively evaluated for impairment		472			741			511			1,915		634			959			324			2,100			7,656			487			675			484		1,774			833		1,064			521			2,581			8,419
Total allowance for loan and lease losses	$	472		$	752		$	511		$	1,915	$	693		$	959		$	324		$	2,100		$	7,726		$	487		$	684		$	484	$	1,774		$	889	$	1,064		$	521		$	2,581		$	8,484
Ending balance of loans receivable:
Individually evaluated for impairment	$	—		$	687		$	—		$	1,056	$	58		$	22		$	—		$	—		$	1,823		$	—		$	637		$	—	$	1,039		$	670	$	20		$	—		$	—		$	2,366
Collectively evaluated for impairment		53,425			78,120			53,811			190,342		77,301			26,915			31,688			176,116			687,718			52,817			69,123			50,796		176,713			67,428		18,003			21,891			220,931			677,702
Loans acquired with deteriorated credit quality		—			8			—			—		—			—			—			—			8			—						—		—			—		—						—			—
Total loans receivable	$	53,425		$	78,815		$	53,811		$	191,398	$	77,359		$	26,937		$	31,688		$	176,116		$	689,549		$	52,817		$	69,760		$	50,796	$	177,752		$	68,098	$	18,023		$	21,891		$	220,931		$	680,068

	As of and for the Six Months Ended June 30, 2020																								As of and for the Three Months Ended March 31, 2021
	Construction, Land Development, and Other		1-4 Family			Real Estate Multi- Family		Non- Farm Non- Residential		Commercial and Industrial			Direct Consumer			Branch Retail			Indirect Sales			Total			Construction, Land Development, and Other			1-4 Family			Real Estate Multi- Family			Non- Farm Non- Residential		Commercial and Industrial			Direct Consumer			Branch Retail			Indirect			Total
	(Dollars in Thousands)																								(Dollars in Thousands)
Allowance for loan and lease losses:
Beginning balance	$	197	$	466		$	422	$	964	$	1,377		$	1,625		$	395		$	316		$	5,762		$	393		$	639		$	577		$	1,566	$	1,008		$	1,202		$	373		$	1,712		$	7,470
Charge-offs		—		(42	)		—		—		—			(962	)		(221	)		(38	)		(1,263	)		(21	)		(9	)		—			—		—			(348	)		(130	)		(117	)		(625	)
Recoveries		—		14			—		8		—			381			90			1			494			2			3			—			1		—			170			42			11			229
Provision		72		84			70		272		(448	)		373			211			796			1,430			70			112			(36	)		437		(412	)		13			72			145			401
Ending balance	$	269	$	522		$	492	$	1,244	$	929		$	1,417		$	475		$	1,075		$	6,423		$	444		$	745		$	541		$	2,004	$	596		$	1,037		$	357		$	1,751		$	7,475
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	13		$	—	$	—	$	62		$	3		$	—		$	—		$	78		$	—		$	11		$	—		$	—	$	60		$	1		$	—		$	—		$	72
Collectively evaluated for impairment		269		509			492		1,244		867			1,414			475			1,075			6,345			444			734			541			2,004		536			1,036			357			1,751			7,403
Total allowance for loan and lease losses	$	269	$	522		$	492	$	1,244	$	929		$	1,417		$	475		$	1,075		$	6,423		$	444		$	745		$	541		$	2,004	$	596		$	1,037		$	357		$	1,751		$	7,475
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	785		$	—	$	2,748	$	62		$	25		$	—		$	—		$	3,620		$	—		$	720		$	—		$	4,237	$	567		$	23		$	—		$	—		$	5,547
Collectively evaluated for impairment		31,384		92,058			48,807		157,935		87,709			33,274			33,000			89,932			574,099			48,491			81,468			54,180			189,389		79,271			26,975			31,075			153,940			664,789
Loans acquired with deteriorated credit quality		—		167			—		—		—			—			—			—			167			—			161			—			—		—			—			—			—			161
Total loans receivable	$	31,384	$	93,010		$	48,807	$	160,683	$	87,771		$	33,299		$	33,000		$	89,932		$	577,886		$	48,491		$	82,349		$	54,180		$	193,626	$	79,838		$	26,998		$	31,075		$	153,940		$	670,497

The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, 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.

Because residential real estate and consumer loans are more uniform in nature, each loan is categorized into one of two risk grades, depending on whether the loan is considered to be performing or nonperforming. Performing loans are loans that are paying principal and interest in accordance with a contractual agreement. Nonperforming loans are loans that have demonstrated characteristics that indicate a probability of loss.

The tables below illustrate the carrying amount of loans by credit quality indicator as of ~~June 30, 2021:~~March 31, 2022:

	June 30, 2021												March 31, 2022
	Pass 1-5			Special Mention 6			Substandard 7			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	$	51,303		$	2,120		$	2		$	53,425		$	52,815		$	—		$	2		$	52,817
Secured by multi-family residential properties		51,270			2,541			—			53,811			50,796			—			—			50,796
Secured by non-farm, non-residential properties		178,582			11,777			1,039			191,398			173,661			3,069			1,022			177,752
Commercial and industrial loans		76,212			480			667			77,359			66,872			—			1,226			68,098
Total	$	357,367		$	16,918		$	1,708		$	375,993		$	344,144		$	3,069		$	2,250		$	349,463
As a percentage of total loans		95.05	%		4.50	%		0.45	%		100.00	%		98.48	%		0.88	%		0.64	%		100.00	%

	June 30, 2021									March 31, 2022
	Performing			Nonperforming			Total			Performing			Nonperforming			Total
	(Dollars in Thousands)									(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	77,428		$	1,387		$	78,815		$	68,585		$	1,175		$	69,760
Consumer loans:
Direct consumer		26,913			24			26,937			17,280			743			18,023
Branch retail		31,688			—			31,688			21,572			319			21,891
Indirect sales		176,116			—			176,116
Indirect											220,931			—			220,931
Total	$	312,145		$	1,411		$	313,556		$	328,368		$	2,237		$	330,605
As a percentage of total loans		99.55	%		0.45	%		100.00	%		99.32	%		0.68	%		100.00	%

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, ~~2020:~~2021:

	December 31, 2020												December 31, 2021
	Pass 1-5			Special Mention 6			Substandard 7			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	$	36,719		$	558		$	5		$	37,282		$	67,046		$	—		$	2		$	67,048
Secured by multi-family residential properties		54,326			—			—			54,326			43,472			2,528			—			46,000
Secured by non-farm, non-residential properties		170,338			8,572			5,618			184,528			189,425			7,442			1,034			197,901
Commercial and industrial loans		79,754			542			1,439			81,735			72,116			333			1,498			73,947
Total	$	341,137		$	9,672		$	7,062		$	357,871		$	372,059		$	10,303		$	2,534		$	384,896
As a percentage of total loans		95.33	%		2.70	%		1.97	%		100.00	%		96.66	%		2.68	%		0.66	%		100.00	%

	December 31, 2020									December 31, 2021
	Performing			Nonperforming			Total			Performing			Nonperforming			Total
	(Dollars in Thousands)									(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	86,665		$	2,191		$	88,856		$	71,526		$	1,201		$	72,727
Consumer loans:
Direct consumer		29,679			109			29,788			20,939			750			21,689
Branch retail		31,816			278			32,094			25,486			206			25,692
Indirect sales		141,514			—			141,514
Indirect											205,940			—			205,940
Total	$	289,674		$	2,578		$	292,252		$	323,891		$	2,157		$	326,048
As a percentage of total loans		99.12	%		0.88	%		100.00	%		99.34	%		0.66	%		100.00	%

The following table provides an aging analysis of past due loans by class as of ~~June 30, 2021:~~March 31, 2022:

	As of June 30, 2021																				As of March 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		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)																				(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—		$	—		$	—		$	—		$	53,425		$	53,425		$	—	$	—		$	—		$	—		$	—		$	52,817		$	52,817		$	—
Secured by 1-4 family residential properties		196			14			79			289			78,526			78,815			—		334			24			164		$	522			69,238			69,760			—
Secured by multi-family residential properties		—			—			—			—			53,811			53,811			—		—			—			—		$	—			50,796			50,796			—
Secured by non-farm, non-residential properties		12			—			—			12			191,386			191,398			—		3			—			—		$	3			177,749			177,752			—
Commercial and industrial loans		24			6			284			314			77,045			77,359			—		21			—			234		$	255			67,843			68,098			—
Consumer loans:
Direct consumer		161			90			64			315			26,622			26,937			—		438			226			723		$	1,387			16,636			18,023			—
Branch retail		101			27			67			195			31,493			31,688			—		220			189			319		$	728			21,163			21,891			—
Indirect sales		112			36			55			203			175,913			176,116			—
Indirect																						21			—			—		$	21			220,910			220,931			—
Total	$	606		$	173		$	549		$	1,328		$	688,221		$	689,549		$	—	$	1,037		$	439		$	1,440		$	2,916		$	677,152		$	680,068		$	—
As a percentage of total loans		0.09	%		0.03	%		0.08	%		0.19	%		99.81	%		100.00	%				0.16	%		0.06	%		0.21	%		0.43	%		99.57	%		100.00	%

The following table provides an aging analysis of past due loans by class as of December 31, ~~2020:~~2021:

	As of December 31, 2020																				As of December 31, 2021
	30-59 Days Past Due			60-89 Days Past Due			90 Days Or Greater			Total Past Due			Current			Total Loans			Recorded Investment > 90 Days And Accruing		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)																				(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—		$	—		$	—		$	—		$	37,282		$	37,282		$	—	$	—		$	—		$	—		$	—		$	67,048		$	67,048		$	—
Secured by 1-4 family residential properties		799			244			72			1,115			87,741			88,856			—		349			23			20			392			72,335			72,727			—
Secured by multi-family residential properties		—			—			—			—			54,326			54,326			—		—			—			—			—			46,000			46,000			—
Secured by non-farm, non-residential properties		287			—			1,337			1,624			182,904			184,528			—		403			—			—			403			197,498			197,901			—
Commercial and industrial loans		683			561			—			1,244			80,491			81,735			—		54			—			234			288			73,659			73,947			—
Consumer loans:
Direct consumer		257			191			214			662			29,126			29,788			—		652			589			730			1,971			19,718			21,689			—
Branch retail		176			61			144			381			31,713			32,094			—		377			182			206			765			24,927			25,692			—
Indirect sales		234			39			49			322			141,192			141,514			—
Indirect																						43			14			—			57			205,883			205,940			—
Total	$	2,436		$	1,096		$	1,816		$	5,348		$	644,775		$	650,123		$	—	$	1,878		$	808		$	1,190		$	3,876		$	707,068		$	710,944		$	—
As a percentage of total loans		0.37	%		0.17	%		0.28	%		0.82	%		99.18	%		100.00	%				0.27	%		0.11	%		0.17	%		0.55	%		99.45	%		100.00	%

The following table provides an analysis of non-accruing loans by class as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

	Loans on Non-Accrual Status				Loans on Non-Accrual Status
	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
	(Dollars in Thousands)				(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	2	$	12	$	2	$	2
Secured by 1-4 family residential properties		780		1,248		899		780
Secured by multi-family residential properties		—		—		—		—
Secured by non-farm, non-residential properties		—		1,340		—		—
Commercial and industrial loans		310		74		274		277
Consumer loans:
Direct consumer		65		219		734		743
Branch retail		67		144		319		206
Indirect sales		55		49
Indirect						—		—
Total loans	$	1,279	$	3,086	$	2,228	$	2,008

In accordance with section 4013 of the Coronavirus Aid, Relief and Economic Security (CARES) Act and interpretive guidance from banking regulators, in 2020 the Company implemented initiatives to provide short-term payment relief to borrowers who were negatively impacted by COVID-19. As of June 30, 2021, loans that continued to be in pandemic-related deferment totaled $0.6 million, compared to $8.1 million as of December 31, 2020.

In addition, at the onset of the pandemic, management identified certain categories of loans that it believed to be at “high-risk” of potential default or credit loss due to the COVID-19 pandemic. The “high-risk” category, which includes loans collateralized by hotels/motels and dine-in restaurants, decreased to $12.0 million, or 1.7% of the loan portfolio, as of June 30, 2021, compared to $13.5 million, or 2.1% of the loan portfolio, as of December 31, 2020.

The spread of COVID-19 has created a global public health crisis that has resulted in widespread volatility and deterioration in household, business, economic and market conditions. Although loans in deferment status and loans in the “high-risk” category have decreased, the Company will continue to closely monitor the impact of changing economic circumstances on the Company’s loan portfolio.

Sections 1102 and 1106 of the CARES Act added a new loan program administered by the Small Business Administration (“SBA”) entitled the Paycheck Protection Program (“PPP”). The PPP is intended to provide economic relief to small businesses throughout the United States that have been adversely impacted by COVID-19. PPP loans are 100% guaranteed by the SBA and are forgivable in whole or in part if the proceeds are used by the borrower for payroll and other permitted purposes in accordance with the requirements of the PPP (as discussed in greater detail below). If not forgiven in whole or in part, the loans carry a fixed interest rate of 1.00% per annum with payments deferred for 24 weeks from the date of the loan, plus another 10 months after the 24-week period. As compensation for originating a PPP loan, the Company receives lender processing fees from the SBA ranging from 1% to 5% of the original loan balance, depending on the size of the loan. Processing fees, net of origination costs, are deferred and amortized over the contractual life of the loan as interest income. Upon forgiveness of a loan by the SBA, any unrecognized net deferred fees will be recognized as interest income in that period.

PPP loans were initially originated for a term of two years; however, a June 5, 2020 amendment to the CARES Act (i) provided for a five-year minimum loan term for loans originated after that date and (ii) permitted lenders and borrowers to amend loans previously issued under two-year terms to provide for terms of five to ten years if mutually agreed upon by both the lender and the borrower. As of June 30, 2021, 151 PPP loans with an aggregate principal balance of $11.6 million remained outstanding. Of this amount, $5.8 million of the loans were originated under two-year terms, and $5.8 million of the loans were originated under five-year terms.

A borrower is eligible for forgiveness of principal and accrued interest on its PPP loan to the extent that the proceeds were used to cover eligible payroll costs, interest costs, rent and utility costs over a period of between eight and twenty-four weeks after the loan is made, as long as the borrower retains its employees and their compensation levels. The SBA began processing forgiveness payments during the fourth quarter of 2020. As of June 30, 2021, 120 of the Company’s borrowers had received PPP loan forgiveness. Amortized PPP loan fees, which are recognized in interest and fees on loans, totaled approximately $242 thousand for the six months ended June 30, 2021 and $161 thousand for the year ended December 31, 2020. As of June 30, 2021, the Company had approximately $344 thousand in remaining net deferred SBA PPP loan fees.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the collateral. At the Bank, all loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. At management’s discretion, additional loans may be impaired based on homogeneous factors such as changes in the nature and volume of the portfolio, portfolio quality, adequacy of the underlying collateral value, loan concentrations, historical charge-off trends and economic conditions that may affect the borrower’s ability to pay. At ALC, all loans of $50 thousand or more that are 90 days or more past due are identified for impairment analysis. As of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were $0.1 million of impaired loans with no related allowance recorded at ALC. Impaired loans, or portions thereof, are charged off when deemed uncollectable.

As of ~~June 30, 2021,~~March 31, 2022, the carrying amount of the Company’s impaired loans consisted of the following:

	June 30, 2021						March 31, 2022
	Carrying Amount		Unpaid Principal Balance		Related Allowances		Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)						(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		678		678		—		621		621		—
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		1,056		1,056		—		1,039		1,039		—
Commercial and industrial		—		—		—		614		614		—
Direct consumer		22		22		—		20		20		—
Total loans with no related allowance recorded	$	1,756	$	1,756	$	—	$	2,294	$	2,294	$	—
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		17		17		11		16		16		9
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—
Commercial and industrial		58		58		59		56		56		56
Direct consumer		—		—		—		—		—		—
Total loans with an allowance recorded	$	75	$	75	$	70	$	72	$	72	$	65
Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		695		695		11		637		637		9
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		1,056		1,056		—		1,039		1,039		—
Commercial and industrial		58		58		59		670		670		56
Direct consumer		22		22		—		20		20		—
Total impaired loans	$	1,831	$	1,831	$	70	$	2,366	$	2,366	$	65

As of December 31, ~~2020,~~2021, the carrying amount of the Company’s impaired loans consisted of the following:

	December 31, 2020						December 31, 2021
	Carrying Amount		Unpaid Principal Balance		Related Allowances		Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)						(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		885		885		—		630		630		—
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		5,594		5,594		—		1,051		1,051		—
Commercial and industrial		530		530		—		823		823		—
Direct consumer		—		—		—		21		21		—
Total loans with no related allowance recorded	$	7,009	$	7,009	$	—	$	2,525	$	2,525	$	—
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		18		18		12		16		16		10
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—
Commercial and industrial		60		60		61		57		57		57
Direct consumer		24		24		1		—		—		—
Total loans with an allowance recorded	$	102	$	102	$	74	$	73	$	73	$	67
Total impaired loans
Loans secured by real estate	.						.
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		903		903		12		646		646		10
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		5,594		5,594		—		1,051		1,051		—
Commercial and industrial		590		590		61		880		880		57
Direct consumer		24		24		1		21		21		—
Total impaired loans	$	7,111	$	7,111	$	74	$	2,598	$	2,598	$	67

The average net investment in impaired loans and interest income recognized and received on impaired loans during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020~~2021 were as follows:

	Six Months Ended June 30, 2021						Three Months Ended March 31, 2022
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)						(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		868		25		25		642		2		1
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		3,700		115		83		1,043		13		15
Commercial and industrial		433		19		17		739		5		5
Direct consumer		23		1		2		20		—		1
Total	$	5,024	$	160	$	127	$	2,444	$	20	$	22

	Year Ended December 31, 2020						Year Ended December 31, 2021
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)						(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		923		10		10		773		31		31
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		2,467		28		28		2,377		140		108
Commercial and industrial		118		7		7		637		61		40
Direct consumer		25		1		2		22		9		2
Total	$	3,533	$	46	$	47	$	3,809	$	241	$	181

Loans on which the accrual of interest has been discontinued amounted to ~~$1.3~~$2.2 million and ~~$3.1~~$2.0 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. If interest on those loans had been accrued, there would have been ~~$39~~$18 thousand and ~~$161~~$52 thousand of interest accrued for the periods ended ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Interest income related to these loans for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020~~2021 was ~~$17~~$6 thousand and ~~$42~~$30 thousand, respectively.

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 20 loans ~~with balances totaling $6.5 million~~ modified with concessions granted during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and 02 loans with balances totaling $0.6 million modified with concessions granted during the year ended December 31, ~~2020.~~2021. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, then the loan remains on non-accrual. The Company did not have any non-accruing loans that were previously restructured and that remained on non-accrual status as of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. For both the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020,~~2021, the Company had 0 loans that were restored to accrual status based on a sustained period of repayment performance.

The following table provides, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the number of loans remaining in each loan category that the Company had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.

	June 30, 2021						December 31, 2020						March 31, 2022						December 31, 2021
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		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)												(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		1	$	107	$	—		1	$	107	$	—		1	$	107	$	—		1	$	107	$	—
Secured by 1-4 family residential properties		2		59		12		2		59		12		2		59		12		2		59		12
Secured by non-farm, non-residential properties		2		621		621		—		—		—		2		621		615		2		621		617
Commercial loans		2		116		35		2		116		39		2		116		29		2		116		31
Total		7	$	903	$	668		5	$	282	$	51		7	$	903	$	656		7	$	903	$	660

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 0 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 and lease 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 and lease losses. This evaluation resulted in an allowance for loan and lease losses attributable to such restructured loans of $7 thousand ~~and $1 thousand~~ as of ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021.

Other real estate and certain other assets acquired in foreclosure are reported at the net realizable value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity as of the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

	June 30, 2021			June 30, 2020			March 31, 2022			March 31, 2021
	(Dollars in Thousands)						(Dollars in Thousands)
Beginning balance	$	949		$	1,078		$	2,149		$	949
Additions ⁽¹⁾		—			293
Sales proceeds		(142	)		(358	)		(1,431	)		—
Gross gains		56			38			183			—
Gross losses		—			(38	)		(27	)		—
Net gains		56			—			156			—
Impairment		(17	)		(10	)		—			(7	)
Ending balance	$	846		$	1,003		$	874		$	942

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. Net realizable value less estimated costs to sell of foreclosed residential real estate held by the Company was ~~0 and $0.1~~$0.2 million as of ~~June 30, 2021~~both March 31, 2022 and ~~2020, respectively.~~December 31, 2021. In addition, the Company held $0.3 million of consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of March 31, 2022. The Company did 0t hold any consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of ~~both June 30, 2021 and 2020.~~December 31, 2021.

In addition to the other real estate and other assets acquired in foreclosure, the Company also acquires assets through the repossession of the underlying collateral of loans in default. The following table summarizes repossessed asset activity as of the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

	June 30, 2021			June 30, 2020			March 31, 2022			March 31, 2021
	(Dollars in Thousands)						(Dollars in Thousands)
Beginning balance	$	245		$	256		$	154		$	245
Transfers from loans		515			561			51			400
Sales proceeds		(588	)		(270	)		(100	)		(262	)
Gross gains		—			—
Gross losses		(67	)		(286	)		(44	)		(45	)
Net losses		(67	)		(286	)		(44	)		(45	)
Impairment		—			—			—			—
Ending balance	$	105		$	261		$	61		$	338

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

The Company recorded $7.4 million of goodwill as a result of its acquisition of The Peoples Bank (“TPB”) in 2018. Goodwill impairment was neither indicated nor recorded during the three months ended ~~June 30, 2021~~March 31, 2022 or the year ended December 31, ~~2020.~~2021.

Goodwill is tested for impairment annually, or more often if circumstances warrant. If, as a result of impairment testing, it is determined that the implied fair value of goodwill is lower than its carrying amount, impairment is indicated, and goodwill must be written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements. Goodwill totaled $7.4 million as of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

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 ~~June 30, 2021~~March 31, 2022 were as follows:

	June 30, 2021			March 31, 2022			December 31, 2021
	(Dollars in Thousands)			(Dollars in Thousands)
Goodwill	$	7,435		$	7,435		$	7,435
Core deposit intangible:
Gross carrying amount		2,048			2,048			2,048
Accumulated amortization		(1,256	)		(1,487	)		(1,414	)
Core deposit intangible, net		792			561			634
Total	$	8,227		$	7,996		$	8,069

The Company’s estimated remaining amortization expense on ~~intangibles~~intangible assets as of ~~June 30, 2021~~March 31, 2022 was as follows:

	Amortization Expense		Amortization Expense
	(Dollars in Thousands)		(Dollars in Thousands)
2021		158
2022		268	$	195
2023		195		195
2024		122		122
2025		49		49
Total	$	792	$	561

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.

Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term FHLB advances with original maturities of one year or less. ~~Short-term borrowings totaled $10.0 million as of both June 30, 2021 and December 31, 2020.~~

The Company may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. As of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company did 0t have any long-term FHLB advances outstanding.

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 (the “Notes”). The Notes bear interest at a rate of 3.50% per annum for the first five years, after which the interest rate will be reset quarterly to a benchmark interest rate per annum which, subject to certain conditions provided in the Notes, will be equal to the then current three-month term Secured Overnight Financing Rate (“SOFR”) plus 275 basis points. The Company expects to continue to use the net proceeds for general corporate purposes, which may include the repurchase of the Company’s common stock, and to support organic growth plans, including the maintenance of capital ratios. Following receipt of the net proceeds of the Notes, the Company invested $5 million into capital surplus of the Bank. As of both March 31, 2022 and December 31, 2021, the Notes were recorded as long-term borrowings totaling $10.7 million, net of unamortized debt issuance costs. The table below provides additional information related to the Notes as of and for the three-month periods ended March 31, 2022 and 2021, respectively.

As an additional funding source, the Company has available unused lines of credit with correspondent banks, the Federal Reserve and the FHLB. Certain of these funding sources are subject to underlying collateral. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company’s available unused lines of credit consisted of the following:

The provision for income taxes was ~~$0.5~~$0.4 million and ~~$0.4~~$0.3 million for the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. The Company’s effective tax rate was ~~22.1%~~22.7% and ~~23.3%~~22.0%, 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 investment and loan income.

The Company had a net deferred tax asset of ~~$1.7~~$3.3 million and ~~$2.0~~$2.5 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. The ~~decrease in the~~ net deferred tax asset ~~resulted primarily from the impact of~~is impacted by changes in the fair value of securities available-for-sale ~~combined with reductions~~and cash flow hedges, changes in net operating loss carryforwards and other book-to-tax temporary differences.

The 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 $3.2 million ~~and $3.3 million~~ as of ~~June 30, 2021~~both March 31, 2022 and December 31, ~~2020, respectively.~~2021.

Non-employee directors may elect to defer payment of all or ~~any~~a portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, a total of ~~115,506~~119,270 and ~~111,419~~117,825 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors’ fees allocated to be paid in shares as equity additional paid-in capital. The Company may use issued shares or shares of treasury stock to satisfy these obligations when due.

In accordance with the Company’s 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares of common stock available for distribution to satisfy the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Stock-based compensation expense related to stock awards totaled ~~$0.2~~$0.1 million for both of the ~~six-month~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Stock option awards have been granted with an exercise price equal to the market price of the Company’s common stock on the date of the grant and have vesting periods ranging from one to three years, with 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 basis over the award’s vesting period. The fair value of outstanding awards was determined using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company did 0t grant any stock option awards during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

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

	Six Months Ended								Three Months Ended
	June 30, 2021				June 30, 2020				March 31, 2022				March 31, 2021
	Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price
Options:
Outstanding, beginning of period		421,000	$	9.79		412,800	$	9.72		420,250	$	9.79		421,000	$	9.79
Granted		—		—		10,200		11.95		0		0		0		0
Exercised		—		—		666		10.75		0		0		0		0
Expired		—		—		—		—		0		0		0		0
Forfeited		—		—		334		10.75		600		10.86		—		—
Options outstanding, end of period		421,000	$	9.79		422,000	$	9.77		419,650	$	9.79		421,000	$	9.79
Options exercisable, end of period		396,095	$	9.74		353,183	$	9.59		415,916	$	9.77		396,095	$	9.74

The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was approximately ~~$0.7~~$0.9 million and 0$0.3 million as of ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

During the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, 45,938 shares and ~~2020, respectively,~~ 37,930 shares, ~~and 28,460 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.

The Bank and ALC are involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from less than one year to 13 years, some of which include options to extend the leases for up to five years, and some of which include an option to terminate the lease within one year. The Bank leases certain office facilities to third parties and classifies these leases as operating leases.

The following table provides a summary of the components of lease expense, as well as the reporting location in the Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

	Location in the Condensed	Three Months Ended				Six Months Ended				Location in the Condensed	Three Months Ended
	Consolidated Statements of Operations	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020		Consolidated Statements of Operations	March 31, 2022		March 31, 2021
		(Dollars in Thousands)				(Dollars in Thousands)					(Dollars in Thousands)
Operating lease expense ⁽¹⁾	Net occupancy and equipment	$	209	$	212	$	418	$	423	Net occupancy and equipment	$	36	$	209
Operating lease income ⁽²⁾	Lease income	$	202	$	212	$	411	$	424	Lease income	$	214	$	209

The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheet as of ~~June 30, 2021:~~March 31, 2022:

	Location in the Condensed				Location in the Condensed
	Consolidated Balance Sheet	June 30, 2021			Consolidated Balance Sheet	March 31, 2022
		(Dollars in Thousands)				(Dollars in Thousands)
Operating lease right-of-use assets	Other assets	$	2,813		Other assets	$	2,154
Operating lease liabilities	Other liabilities	$	2,878		Other liabilities	$	2,228
Weighted-average remaining lease term (in years)			5.42				5.78
Weighted-average discount rate			3.04	%			3.30	%

The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:

	Six Months Ended				Three Months Ended
	June 30, 2021		June 30, 2020		March 31, 2022		March 31, 2021
	(Dollars in Thousands)				(Dollars in Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	349	$	373	$	35	$	176

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 ~~June 30, 2021:~~March 31, 2022:

	Minimum Rental Payments		Minimum Rental Payments
	(Dollars in Thousands)		(Dollars in Thousands)
2021	$	345
2022		625	$	319
2023		491		432
2024		443		438
2025		339		339
2026 and thereafter		937
2026				346
2027 and thereafter				591
Total future minimum lease payments	$	3,180	$	2,465
Less: Imputed interest		302		237
Total operating lease liabilities	$	2,878	$	2,228

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

The Bank has entered into forward interest rate swap contracts on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average). The money market account balances are expected to exceed the notional amount for the duration of the hedges and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. The Bank has also entered into a forward interest rate swap contract on a variable-rate FHLB advance (indexed to one-month LIBOR) that will be renewed on a monthly basis and will remain outstanding until the hedge expiration. These interest rate swaps were designated as derivative instruments in cash flow hedges with the objective of converting the floating interest payments to a fixed rate. Under the swap arrangements, the Bank pays a fixed interest rate and receives a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount, with monthly net settlements. There were 0 gains or losses reclassified from other comprehensive income (loss) for cash flow hedges for the three ~~or six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

The Bank has entered into forward interest rate swap contracts on fixed rate commercial real estate loans. The interest rate swaps were designated as derivative instruments in fair value hedges with the objective of effectively converting pools of fixed rate assets to variable rate throughout the hedge durations. Under the swap arrangements, the Bank pays a fixed interest rate and receives a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount, with monthly net settlements. The Bank recognized 0 gains or losses on the fair value hedges for the three ~~or six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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

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

	As of June 30, 2021					As of December 31, 2020					As of March 31, 2022				As of December 31, 2021
	Notional		Estimated Fair Value			Notional		Estimated Fair Value			Notional		Estimated Fair Value		Notional		Estimated Fair Value
	Amount		Gain (Loss) ⁽¹⁾			Amount		Gain (Loss) ⁽¹⁾			Amount		Gain (Loss) ⁽¹⁾		Amount		Gain (Loss) ⁽¹⁾
	(Dollars in Thousands)										(Dollars in Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to fixed rate commercial real estate loans	$	20,000	$	(530	)	$	20,000	$	(837	)	$	20,000	$	509	$	20,000	$	(198	)
Total fair value hedges				(530	)				(837	)				509				(198	)
Cash flow hedges:
Interest rate swaps related to variable-rate money market deposit accounts		20,000		(854	)		20,000		(1,337	)		20,000		410		20,000		(472	)
Interest rate swaps related to FHLB advances		10,000		(274	)		10,000		(436	)		10,000		263		10,000		(104	)
Total cash flow hedges				(1,128	)				(1,773	)				673				(576	)
Total hedges designated as hedging instruments, net			$	(1,658	)			$	(2,610	)			$	1,182			$	(774	)

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

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

Location in the Condensed Consolidated Balance Sheet in Which the Hedged	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets			Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Item is Included	June 30, 2021					March 31, 2022
	(Dollars in Thousands)					(Dollars in Thousands)
Loans and leases, net of allowance for loan and lease losses ⁽¹⁾	$	43,021	$	(530	)	$	38,317	$	509

The following table presents the effect of hedging derivative instruments on the Company’s Consolidated Statements of ~~Income.~~Operations.

	Location in the Condensed	Three Months Ended						Six Months Ended						Location in the Condensed	Three Months Ended
	Consolidated Statements of Operations	June 30, 2021			June 30, 2020			June 30, 2021			June 30, 2020			Consolidated Statements of Operations	March 31, 2022			March 31, 2021
		(Dollars in Thousands)						(Dollars in Thousands)							(Dollars in Thousands)
Interest income	Interest and fees on loans	$	$(63)	)	$	$(44)	)	$	$(124)	)	$	$(35)	)	Interest and fees on loans	$	$(59)	)	$	$(61)	)
Interest expense	Interest on deposits		32			21			63			15		Interest on deposits		79			81
Interest expense	Interest on short-term borrowings		83			65			164			75		Interest on short-term borrowings		30			31
	Net interest income (expense)	$	$(178)	)	$	$(130)	)	$	$(351)	)	$	$(125)	)	Net interest income (expense)	$	$(168)	)	$	$(173)	)

Under ASC Topic 280, Segment Reporting, certain information is disclosed for the 2 reportable operating segments of Bancshares: the Bank and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’ and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2020.~~2021. The segment results include certain overhead allocations and intercompany transactions that were recorded at current market prices. All intercompany transactions have been eliminated to determine the consolidated balances. The results for the two reportable segments of the Company are included in the tables below.

						All														All
	Bank		ALC			Other			Eliminations			Consolidated		Bank			ALC			Other			Eliminations			Consolidated
	(Dollars in Thousands)													(Dollars in Thousands)
As of and for the three months ended June 30, 2021:
As of and for the three months ended March 31, 2022:
Total interest income														$	8,125		$	1,589		$	1		$	(334	)	$	9,381
Total interest expense															559			333			114			(334	)		672
Net interest income	$	7,384	$	1,927		$	1		$	—		$	9,312		7,566			1,256			(113	)		—			8,709
Provision for loan and lease losses		515		(17	)		—			—			498		(135	)		856			—			—			721
Net interest income after provision															7,701			400			(113	)		—			7,988
Total non-interest income		789		154			1,201			(1,335	)		809		855			70			1,648			(1,744	)		829
Total non-interest expense		6,365		1,811			339			(116	)		8,399		6,285			544			296			(69	)		7,056
Income before income taxes		1,293		287			863			(1,219	)		1,224		2,271			(74	)		1,239			(1,675	)		1,761
Provision for income taxes		275		71			(75	)		—			271		502			(19	)		(83	)		—			400
Net income	$	1,018	$	216		$	938		$	(1,219	)	$	953	$	1,769		$	(55	)	$	1,322		$	(1,675	)	$	1,361
Other significant items:
Total assets	$	949,711	$	51,836		$	94,203		$	(148,804	)	$	946,946	$	972,318		$	33,518		$	104,414		$	(141,604	)	$	968,646
Total investment securities		123,502		—			81			—			123,583		137,655			—			81			—			137,736
Total loans, net		671,661		49,506			—			(43,411	)		677,756		669,569			32,237			—			(31,960	)		669,846
Goodwill and core deposit intangible, net		8,227		—			—			—			8,227		7,996			—			—			—			7,996
Investment in subsidiaries		—		—			88,228			(88,228	)		—		—			—			93,963			(93,963	)		—
Fixed asset additions		417		—			—			—			417		118			—			—			—			118
Depreciation and amortization expense		409		24			—			—			433		377			10			—			—			387
Total interest income from external customers		7,719		2,340			—			—			10,059		7,792			1,589			—			—			9,381
Total interest income from affiliates		413		—			2			(415	)		—		333			—			1			(334	)		—
For the six months ended June 30, 2021:
Net interest income	$	14,472	$	3,900		$	4		$	—		$	18,376
Provision for loan and lease losses		820		79			—			—			899
Total non-interest income		1,613		304			2,497			(2,654	)		1,760
Total non-interest expense		12,642		3,649			748			(244	)		16,795
Income before income taxes		2,623		476			1,753			(2,410	)		2,442
Provision for income taxes		559		119			(139	)		—			539
Net income	$	2,064	$	357		$	1,892		$	(2,410	)	$	1,903
Other significant items:
Fixed asset additions		535		4			—			—			539
Depreciation and amortization expense		830		48			—			—			878
Total interest income from external customers		15,161		4,743			—			—			19,904
Total interest income from affiliates		843		—			4			(847	)		—

						All												All
	Bank		ALC			Other			Eliminations			Consolidated		Bank		ALC		Other			Eliminations			Consolidated
	(Dollars in Thousands)													(Dollars in Thousands)
As of and for the three months ended June 30, 2020:
As of and for the three months ended March 31, 2021:
Total interest income														$	7,872	$	2,402	$	3		$	(432	)		9,845
Total interest expense															784		429		-			(432	)		781
Net interest income	$	6,442	$	2,174		$	7		$	—		$	8,623		7,088		1,973		3			—			9,064
Provision for loan and lease losses		530		320			—			—			850		305		96		—			—			401
Net interest income after provision															6,783		1,877		3			—			8,663
Total non-interest income		1,251		191			784			(896	)		1,330		824		150		1,296			(1,319	)		951
Total non-interest expense		6,110		2,091			538			(158	)		8,581		6,277		1,838		409			(128	)		8,396
Income before income taxes		1,053		(46	)		253			(738	)		522		1,330		189		890			(1,191	)		1,218
Provision for income taxes		220		(14	)		(88	)		—			118		284		48		(64	)		—			268
Net income	$	833	$	(32	)	$	341		$	(738	)	$	404	$	1,046	$	141	$	954		$	(1,191	)	$	950
Other significant items:
Total assets	$	848,376	$	60,044		$	90,684		$	(153,357	)	$	845,747	$	929,571	$	52,393	$	93,259		$	(148,688	)	$	926,535
Total investment securities		103,883		—			81			—			103,964		75,702		—		81			—			75,783
Total loans, net		561,253		56,742			—			(51,933	)		566,062		653,688		49,825		—			(44,283	)		659,230
Goodwill and core deposit intangible, net		8,605		—			—			—			8,605		8,319		—		—			—			8,319
Investment in subsidiaries		—		—			84,718			(84,718	)		—		—		—		87,345			(87,345	)		—
Fixed asset additions		223		5			—			—			228		118		4		—			—			122
Depreciation and amortization expense		376		31			—			—			407		421		24		—			—			445
Total interest income from external customers		6,872		2,907			1			—			9,780		7,443		2,402		—			—			9,845
Total interest income from affiliates		733		—			6			(739	)		—		430		—		2			(432	)		—
For the six months ended June 30, 2020:
Net interest income	$	12,922	$	4,574		$	13		$	—		$	17,509
Provision for loan and lease losses		778		652			—			—			1,430
Total non-interest income		2,345		428			2,018			(2,164	)		2,627
Total non-interest expense		12,266		4,260			894			(345	)		17,075
Income before income taxes		2,223		90			1,137			(1,819	)		1,631
Provision for income taxes		494		37			(151	)		—			380
Net income	$	1,729	$	53		$	1,288		$	(1,819	)	$	1,251
Other significant items:
Fixed asset additions		442		19			—			—			461
Depreciation and amortization expense		742		64			—			—			806
Total interest income from external customers		14,129		6,047			1			—			20,177
Total interest income from affiliates		1,473		—			12			(1,485	)		—

Other operating income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ consisted of the following:

	Three Months Ended					Six Months Ended				Three Months Ended
	June 30,					June 30,				March 31,
	2021			2020		2021		2020		2022			2021
	(Dollars in Thousands, Except Per Share Data)									(Dollars in Thousands)
Bank-owned life insurance	$	109		$	107	$	217	$	215	$	110		$	108
Credit insurance commissions and fees		(18	)		45		87		198		(27	)		105
Auto Club revenue		37			18		56		53		(1	)		19
ATM fee income		155			116		291		216		134			136
Mortgage fees from secondary market											—			23
Wire transfer fees		17			15		31		28		13			14
Gain on sales of premises and equipment and other assets		—			8		—		8		19			—
Other income		45			44		116		159		68			71
Total	$	345		$	353	$	798	$	877	$	316		$	476

~~All of the Company’s revenue that is subject to~~ ~~ASU~~ ~~2014-09,~~ ~~Revenue from Contracts with Customers~~, codified at ASC Topic 606, is included in non-interest income; however, not all non-interest income is subject to ASC Topic 606. Revenue earned by the Company that is subject to ASC Topic 606 primarily consists of service and other charges on deposit accounts, mortgage fees from secondary market transactions at the Bank, ATM fee income and other non-interest income. Revenue generated from these sources for the six-month periods ended June 30, 2021 and 2020 was $1.0 million and $1.4 million, respectively, and for the three-month periods ended June 30, 2021 and 2020 was $0.5 million and $0.6 million, respectively. All sources of the Company’s revenue subject to ASC Topic 606 are transaction-based, and revenue is recognized at the time at which the transaction is executed, which is the same time at which the Company’s performance obligation is satisfied. The Company had 0 contract liabilities or unsatisfied performance obligations with customers as of June 30, 2021.

Other operating expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ consisted of the following:

	Three Months Ended					Six Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
	2021			2020		2021			2020		2022			2021
	(Dollars in Thousands, Except Per Share Data)										(Dollars in Thousands)
Postage, stationery and supplies	$	197		$	218	$	412		$	432	$	164		$	215
Telephone/data communication		227			229		459			452		171			232
Advertising and marketing		53			42		82			86		48			29
Travel and business development		39			23		67			149		45			28
Collection and recoveries		64			60		110			145		47			46
Other services		79			85		143			176		51			64
Insurance expense		152			141		315			303		181			163
FDIC insurance and state assessments		177			116		330			196		187			153
Loss on sales of premises and equipment and other assets		22			121		54			287		20			32
Core deposit intangible amortization		92			109		183			219		73			91
Other real estate/foreclosure expense, net		(20	)		22		(13	)		41		(145	)		7
Other expense		466			402		1,027			744		473			561
Total	$	1,548		$	1,568	$	3,169		$	3,230	$	1,315		$	1,621

The Bank’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.

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:

	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
	(Dollars in Thousands)				(Dollars in Thousands)
Standby letters of credit	$	—	$	180	$	—	$	—
Standby performance letters of credit	$	582	$	580	$	582	$	582
Commitments to extend credit	$	136,114	$	118,699	$	188,153	$	164,247

Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a third party. The Bank has recourse against the customer for any amount that it is required to pay to a 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the potential 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 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.

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 accrued liability for the ultimate costs to 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’ 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~~$0.2 million as of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts accrued in the Company’s consolidated financial statements.

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.

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

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

The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on management’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were0 such transfers during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 or the year ended December 31, ~~2020.~~2021.

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

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

The following table presents assets and liabilities measured at fair value on a recurring basis as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021.

	Fair Value Measurements as of June 30, 2021 Using								Fair Value Measurements as of March 31, 2022 Using
	Totals At June 30, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At March 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	$	48,022	$	—	$	48,022	$	—	$	44,582	$	—	$	44,582	$	—
Commercial		32,279		—		32,279		—		22,136		—		22,136		—
Obligations of U.S. government-sponsored agencies										4,801		—		4,801		—
Obligations of states and political subdivisions		3,828		—		3,828		—		4,182		—		4,182		—
Corporate notes		4,355		—		4,355		—		19,395		—		19,395		—
U.S. Treasury securities		30,251		—		30,251		—		39,922		—		39,922		—
Other liabilities - derivatives		1,658		—		1,658		—
Other assets - derivatives										1,182		—		1,182		—

	Fair Value Measurements as of December 31, 2020 Using								Fair Value Measurements as of December 31, 2021 Using
	Totals At December 31, 2020		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, 2020		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	$	25,537	$	—	$	25,537	$	—	$	46,228	$	—	$	46,228	$	—
Commercial		41,487		—		41,487		—		24,971		—		24,971		—
Obligations of U.S. government-sponsored agencies										5,192				5,192		—
Obligations of states and political subdivisions		5,108		—		5,108		—		4,317		—		4,317		—
Corporate notes		2,784		—		2,784		—		15,482		—		15,482		—
U.S. Treasury securities		10,077		—		10,077		—		34,693		—		34,693		—
Other liabilities - derivatives		2,610		—		2,610		—		774		—		774		—

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

OREO consists of properties obtained through foreclosure or in satisfaction of loans and is recorded at net realizable 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 significant unobservable inputs for determining fair value.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, included within 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, 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

	Fair Value Measurements as of June 30, 2021 Using								Fair Value Measurements as of March 31, 2022 Using
	Totals At June 30, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At March 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)
Impaired loans	$	5	$	—	$	—	$	5	$	7	$	—	$	—	$	7
OREO and other assets held-for-sale		846		—		—		846		874		—		—		874

	Fair Value Measurements as of December 31, 2020 Using								Fair Value Measurements as of December 31, 2021 Using
	Totals At December 31, 2020		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At December 31, 2021		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)								(Dollars in Thousands)
Impaired loans	$	28	$	—	$	—	$	28	$	6	$	—	$	—	$	6
OREO and other assets held-for-sale		949		—		—		949		2,149		—		—		2,149

The following table presents information regarding assets and liabilities measured at fair value using significant unobservable inputs (Level 3) as of ~~June 30, 2021.~~March 31, 2022. The table includes the valuation techniques and the significant unobservable inputs utilized. The range of each unobservable input and the weighted average within the range utilized as of ~~June 30, 2021~~March 31, 2022 are both included. Following the table is a description of the valuation technique and the sensitivity of the technique to changes in the significant unobservable input.

	Level 3 Significant Unobservable Input Assumptions						Level 3 Significant Unobservable Input Assumptions
	Fair Value June 30, 2021		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs (Weighted Average)		Fair Value March 31, 2022		Valuation Technique	Unobservable Input	Quantitative Range of Unobservable Inputs (Weighted Average)
	(Dollars in Thousands)						(Dollars in Thousands)
Non-recurring fair value measurements:

Impaired loans	$	5	Multiple data points, including discount to appraised value of collateral based on recent market activity	Appraisal comparability adjustment (discount)	9%-10%	(9.5%)	$	7	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	$	846	Discount to appraised value of property based on recent market activity for sales of similar properties	Appraisal comparability adjustment (discount)	9%-10%	(9.5%)	$	874	Discount to appraised value of property based on recent market activity for sales of similar properties	Appraisal comparability adjustment (discount)	9%-10%	(9.5%)

Impaired loans 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 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.~~ 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: The fair value of loans is estimated on an exit price basis incorporating contractual cash flow, prepayment discount spreads, credit loss and 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 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’s financial instruments as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:

	June 30, 2021										March 31, 2022
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)										(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	81,823	$	81,823	$	81,823	$	—	$	—	$	97,839	$	97,839	$	97,839	$	—	$	—
Investment securities available-for-sale		118,735		118,735		—		118,735		—		135,018		135,018		—		135,018		—
Investment securities held-to-maturity		4,848		4,943		—		4,943		—		2,718		2,686		—		2,686		—
Federal funds sold		83		83		—		83		—		81		81		—		81		—
Federal Home Loan Bank stock		870		870		—		—		870		934		934		—		—		934
Loans, net of allowance for loan and lease losses		677,756		682,148		—		—		682,148		669,846		660,789		—		—		660,789
Other assets - derivatives												1,182		1,182		—		1,182		—
Liabilities:
Deposits		837,885		838,482		—		838,482		—		853,117		848,274		—		848,274		—
Short-term borrowings		10,017		10,017		—		10,017		—		10,062		10,062		—		10,062		—
Other liabilities - derivatives		1,658		1,658		—		1,658		—
Long-term borrowings												10,671		10,369				10,369

	December 31, 2020										December 31, 2021
	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	$	94,415	$	94,415	$	94,415	$	—	$	—	$	61,244	$	61,244	$	61,244	$	—	$	—
Investment securities available-for-sale		84,993		84,993		—		84,993		—		130,883		130,883		—		130,883		—
Investment securities held-to-maturity		6,429		6,559		—		6,559		—		3,436		3,477		—		3,477		—
Federal funds sold		85		85		—		85		—		82		82		—		82		—
Federal Home Loan Bank stock		1,135		1,135		—		—		1,135		870		870		—		—		870
Loans, net of allowance for loan and lease losses		638,374		650,107		—		—		650,107		700,030		694,744		—		—		694,744
Liabilities:
Deposits		782,212		784,574		—		784,574		—		838,126		837,439		—		837,439		—
Short-term borrowings		10,017		10,017		—		10,017		—		10,046		10,046		—		10,046		—
Long-term borrowings												10,653		10,804				10,804
Other liabilities - derivatives		2,610		2,610		—		2,610		—		774		774		—		774		—

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiaries, the “Company”), is a bank holding company with its principal offices in Birmingham, Alabama. Bancshares operates one commercial banking subsidiary, First US Bank (the “Bank”). As of ~~June 30, 2021,~~March 31, 2022, the Bank operated and served its customers through 1915 banking offices located in Birmingham, ~~Bucksville,~~ Butler, Calera, Centreville, ~~Columbiana,~~ Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, ~~and Ewing,~~ Virginia. In addition, the Bank operates loan production offices in Mobile, Alabama and the Chattanooga, Tennessee area. The Bank provides a wide range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and currently conducts this lending in 12 states, including Alabama, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas and Virginia. During the second quarter of 2021, the Company announced the pending closure of four banking offices as part of a strategic initiative to improve the Bank’s operating efficiency and promote the Company’s long-term sustainable growth. The decision was based on analysis of banking center activity, profitability and Community Reinvestment Act assessment. The closures, which are expected to occur during the third quarter of 2021, include banking offices located in Bucksville, Columbiana and south Tuscaloosa, Alabama, as well as Ewing, Virginia.

The Bank owns all of the stock of Acceptance Loan Company, Inc., an Alabama corporation (“ALC”). ALC is a finance company headquartered in Mobile, ~~Alabama that performs both indirect~~Alabama. During the third quarter of 2021, ALC ceased new business development and permanently closed its 20 branch lending ~~and conventional consumer finance lending through a branch network. ALC’s branch network serves customers through 20 offices located~~locations in Alabama and ~~southeast Mississippi. The Bank serves as~~Mississippi to the ~~primary funding source for ALC’s operations.~~public.

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

Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its ~~259~~161 full-time equivalent employees (as of ~~June 30, 2021)~~March 31, 2022), to ensure customer satisfaction and convenience.

The preparation of the Company’s consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and general banking practices. These estimates include accounting for the allowance for loan and lease losses, the right-of-use asset and lease liability, the value of other real estate owned and certain collateral-dependent loans, consideration related to goodwill impairment testing and deferred tax asset valuation. A description of these estimates, which significantly affect the determination of the Company’s consolidated financial position, results of operations and cash flows, is set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, ~~2020.~~2021.

The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of ~~June 30, 2021~~March 31, 2022 to December 31, ~~2020,~~2021, while comparing income and expense for the ~~six-month~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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

This information should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, ~~2020.~~2021. As used in the following discussion, the words “we,” “us,” “our” and the “Company” refer to Bancshares and its consolidated subsidiaries, unless the context indicates otherwise.

During the first three months of 2022, general economic conditions benefited from declining COVID-19 ~~PANDEMIC~~

~~The~~cases and the related lifting of COVID-19 ~~pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity and other~~restrictions throughout the United States. However, economic ~~activities have had, are currently having, and may for some time continue~~concerns remain due to ~~have a destabilizing effect on financial markets and economic activity. The extent~~uncertainty that persists with respect to the long-term effectiveness of efforts to reduce the impact of COVID-19 onboth globally and domestically. In addition, economic uncertainty emerged from geopolitical developments surrounding the ~~Company’s operational~~invasion of Ukraine by Russia and ~~financial performance is currently uncertain, cannot be predicted~~further COVID-19 lockdowns in China. Furthermore, inflation has reached a 40-year high during 2022, and ~~will depend on certain developments, including, among others, the spread~~market rates of COVID-19 and its variants, vaccination efforts, the duration of the pandemic, its impact on our customers, employees and vendors, and the continued governmental, regulatory and private sector responses, which may be precautionary, to COVID-19.

prolonged period at historical lows. In ~~light of the changing economic outlook as a result of COVID-19, in~~ March ~~2020,~~2022, the Federal Reserve ~~reduced~~Board (FRB) raised the target federal funds rate ~~by 150 basis points. These reductions~~for the first time in three years to a range of 0.25% to 0.50%. In May 2022, the FRB again raised the target federal funds rate to a range of 0.75% to 1.00%, and signaled the possibility of additional rate increases throughout 2022.

The prolonged period of reduced interest rates has and may continue to have an adverse effect on net interest income, margins and profitability for financial institutions, including the Company. As interest rates increase, competitive pressures on deposit pricing are also expected to increase. The pace and magnitude of changes in interest rates, or the impact that such changes will have on the Company’s operating results cannot be fully predicted. Further, as the rate of inflation accelerates, the Company’s operations could be impacted by, among other things, accelerating cost of goods and ~~other economic uncertainties that have arisen as a result primarily~~services, including the cost of salaries and benefits. Additionally, the ~~COVID-19 pandemic have and are likely to continue to negatively impact net interest income, provisions for loan losses and noninterest income. Additional negative financial impacts~~Company’s borrowers could ~~occur; however, the ultimate potential impact is not known at this time.~~

In accordance with section 4013 of the Coronavirus Aid, Relief and Economic Security (CARES) Act and interpretive guidance from banking regulators, in 2020, the Company implemented initiatives to provide short-term payment relief to borrowers who werebe negatively impacted by ~~COVID-19. As~~rising expense levels, leading to deterioration of June 30, 2021, loans that continued to be in pandemic-related deferment totaled $0.6 million, compared to $8.1 million as of December 31, 2020 and $95.2 million as of June 30, 2020. Management believes that the decrease in deferred loans over the past year is indicative of the strength of the credit quality ~~within the portfolio.~~

~~In addition, at the onset of the pandemic, management identified certain categories of loans that it believed to be at “high-risk” of potential default~~ and/or credit loss due to the COVID-19 pandemic. The “high-risk” category, which includes loans collateralized by hotels/motels and dine-in restaurants, decreased to $12.0 million, or 1.7% of the loan portfolio, as of June 30, 2021, compared to $13.5 million, or 2.1% of the loan portfolio, as of December 31, 2020.

The spread of COVID-19 has created a global public health crisis that has resulted in widespread volatility and deterioration in household, business, economic and market conditions. Although loans in deferment status and loansreductions in the ~~“high-risk” category have decreased, the Company will continue to closely monitor the impact of changing economic circumstances on the~~ Company’s ~~loan portfolio.~~lending activity.

Sections 1102 and 1106 of the CARES Act added a new loan program administered by the Small Business Administration (“SBA”) entitled the Paycheck Protection Program (“PPP”). The PPP is intended to provide economic relief to small businesses throughout the United States that have been adversely impacted by COVID-19. PPP loans are 100% guaranteed by the SBA and are forgivable in whole, or in part, if the proceeds are used by the borrower for payroll and other permitted purposes in accordance with the requirements of the PPP (as discussed in greater detail below). If not forgiven in whole or in part, the loans carry a fixed interest rate of 1.00% per annum with payments deferred for 24 weeks from the date of the loan, plus another 10 months after the 24-week period. As compensation for originating a PPP loan, the Company receives lender processing fees from the SBA ranging from 1% to 5% of the original loan balance, depending on the size of the loan. Processing fees, net of origination costs, are deferred and amortized over the contractual life of the loan as interest income. Upon forgiveness of a loan by the SBA, any unrecognized net deferred fees will be recognized as interest income in that period.

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

On September 3, 2021, ALC ceased new business development and permanently closed its 20 branch lending locations in Alabama and Mississippi to the public. This initiative assisted the Company in reducing non-interest expense through the reduction of personnel, branch leases, technology and other overhead expenses beginning in the fourth quarter of 2021. ALC’s non-interest expense totaled $0.5 million for the three months ended March 31, 2022, compared to $1.8 million for the three months ended March 31, 2021. As of March 31, 2022, ALC employed eight full-time equivalent employees that continued to collect payments on loans through ALC’s Mobile, Alabama headquarters office. Management expects that the majority of ALC’s loans will be paid off by the end of 2023.

While this strategy is expected to provide ongoing expense reductions, interest income earned on ALC’s loans will also continue to decline in future periods as the loans pay down. For the three-months ended March 31, 2022, interest income earned on ALC’s loans totaled $1.6 million, compared to $2.4 million for the three months ended March 31, 2021. Accordingly, the Company’s focus remains on continued loan growth in other areas of the Bank’s portfolio, as well as efforts to continue to simplify the Company’s ongoing operations and reduce expenses further.

Over time, the reduction of loans at ALC is expected to improve the Company’s asset quality significantly. ALC’s loans, and in particular, its direct consumer portfolio, have historically had the Company’s highest level of losses. Approximately 98.4% and 68.9% of the Company’s net charge-offs were related to loans in ALC’s portfolio during the three months ended March 31, 2022 and March 31, 2021, respectively.

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

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

The Company earned net income of ~~$1.0~~$1.4 million, or ~~$0.14~~$0.20 per diluted common share, during the three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$0.4 million,~~$950 thousand, or ~~$0.06~~$0.14 per diluted common share, for the three months ended ~~June 30, 2020. For~~March 31, 2021. Growth in the ~~six~~Company’s net income resulted from reductions in both non-interest expense and, to a lesser extent, interest expense, comparing the three months ended ~~June 30,~~March 31, 2022 to the three months ended March 31, 2021. The non-interest expense reductions were driven by the strategic initiatives executed by the Company in 2021, ~~net income totaled $1.9 million, or $0.28 per diluted common share, compared to $1.3 million, or $0.19 per diluted common share, for~~primarily the ~~corresponding six-month period of 2020.~~ALC business cessation strategy.

Summarized condensed consolidated statements of operations are included below for the ~~three- and six-month~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020, respectively.~~2021.

	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,		June 30,		June 30,		June 30,		March 31,		March 31,
	2021		2020		2021		2020		2022		2021
	(Dollars in Thousands)								(Dollars in Thousands)
Interest income	$	10,059	$	9,780	$	19,904	$	20,177	$	9,381	$	9,845
Interest expense		747		1,157		1,528		2,668		672		781
Net interest income		9,312		8,623		18,376		17,509		8,709		9,064
Provision for loan and lease losses		498		850		899		1,430		721		401
Net interest income after provision for loan and lease losses		8,814		7,773		17,477		16,079		7,988		8,663
Non-interest income		809		1,330		1,760		2,627		829		951
Non-interest expense		8,399		8,581		16,795		17,075		7,056		8,396
Income before income taxes		1,224		522		2,442		1,631		1,761		1,218
Provision for income taxes		271		118		539		380		400		268
Net income	$	953	$	404	$	1,903	$	1,251	$	1,361	$	950
Basic net income per share									$	0.22	$	0.15
Diluted net income per share									$	0.20	$	0.14
Dividends per share									$	0.03	$	0.03

The following discussion summarizes the most significant activity that drove changes in the Company’s net income during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

Net interest income ~~increased $0.9~~decreased by $0.4 million comparing the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 to the ~~six~~three months ended ~~June 30, 2020. Although average total~~March 31, 2021. The most significant driver of the decrease in net interest income was the reduction of interest and fees on ALC loans ~~increased $110.5~~in connection with the ALC business cessation strategy. Interest and fees on ALC loans decreased by $0.8 million ~~comparing~~during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022, compared to the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021. This reduction was partially offset by increased interest income ~~decreased $0.3 million comparing~~in the ~~two periods. The decrease~~Bank’s other loan portfolios, as well as an increase in investment security interest income is primarily due to margin compression, which has remained a challenge for the Company due in part to the interest rate environment that has persisted since the onset of the COVID-19 pandemic. In response to the interest rate environment, management has continued to reprice deposit liabilities at lower rates upon maturity. Due to these repricing efforts, annualized average total funding costs decreased to 0.37% for the six months ended June 30, 2021, compared to 0.75% for the six months ended June 30, 2020, which resulted inand a reduction in interest expense ~~of $1.1 million comparing the two periods.~~

~~Management expects the current lower~~on deposits. As ALC’s loan portfolio continues to pay down, there will be continued reduction in interest ~~rate environment, coupled with substantial growth in investable cash balances,~~and fees attributable to ALC’s loans. These reductions are expected to continue to put downward pressure on total loan yield and net interest ~~income and~~ margin. ~~Accordingly,~~As a result of the ~~Company will remain focused on deploying investable cash balances into~~changing mix of loans, ~~or investment securities that meet~~ the Company’s ~~established~~net interest margin was reduced to 3.97% during the three months ended March 31, 2022, compared to 4.40% during the three months ended March 31, 2021. Historically, ALC’s loan portfolio has represented both the Company’s highest yielding loans, as well as the portfolio with the highest level of credit ~~standards,~~losses. Accordingly, while atinterest earned on these loans is expected to decrease over time, loan loss provision expense is also expected to decrease as the ~~same time seeking to reduce interest expense through continued liability repricing.~~ portfolio pays down.

The provision for loan and lease losses was ~~$0.9~~$0.7 million during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1.4~~$0.4 million during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in provisioning comparing the periods was due in part to improvement in the credit quality of the loan portfolio resulting from reductions in ALC’s consumer-related portfolio. As of June 30, 2021, total loans at ALC, which contain the highest charge-off rates in the Company’s loan portfolio, were reduced by $8.3 million compared to June 30, 2020. The loan volume reductions at ALC led to lower credit losses, but also contributed to margin compression as the mix of higher interest-earning loans decreased relative to prior periods.

~~In addition to changes in the credit quality mix of the Company’s loan portfolio, the overall economic outlook in the markets served by the Company continued to improve~~provision expense during the ~~first half of 2021~~three months ended March 31, 2022, compared to the ~~prior fiscal year, including reductions~~three months ended March 31, 2021 reflected both an increase in COVID-19-related deferments. Although a measure of economic uncertainty continues to exist, management believes that the allowance, which was calculated under an incurred loss model, was sufficient to absorb losses in the Company’scharge-offs associated with ALC’s loan portfolio, ~~based on circumstances existing~~as well as qualitative adjustments applied to ALC’s portfolio in response to heightened inflationary trends and other economic uncertainties that emerged during the quarter. In management’s view, the combination of the business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of ~~June 30,~~March 31, 2022, compared to December 31, 2021. The Company will continue to closely monitor the impact of changing economic circumstances on the Company’s loan portfolio. In accordance with relevant accounting guidance for smaller reporting companies, the Company has not yet adopted the Current Expected Credit Loss (CECL) accounting model for the calculation of credit losses and is currently evaluating the impact that adopting CECL will have on the

Company’s financial statements. Due to its classification as a smaller reporting company by the Securities and Exchange Commission, the Company is not required to implement the CECL model until January 1, 2023; however, early adoption is permissible.

Non-interest income decreased by ~~$0.9~~$0.1 million comparing the ~~first half of 2021~~three months ended March 31, 2022 to the ~~first half of 2020. Approximately $0.6 million of the decrease~~three months ended March 31, 2021. The reduction resulted primarily from ~~reductions~~decreases in ~~service charges and related fees on the Bank’s deposit accounts,~~miscellaneous revenue sources, including credit insurance income ~~and secondary market mortgage revenues, while~~associated with ALC’s loans.

Non-interest expense decreased by $1.3 million comparing the ~~remaining $0.3 million~~three months ended March 31, 2022 to the three months ended March 31, 2021. The decrease in 2022 resulted primarily from implementation of the ~~decrease resulted from~~ALC strategy, as well as other efficiency efforts conducted at the Bank. As a result of these efforts, significant expense reductions were realized associated with salaries and employee benefits, occupancy and equipment, as well as other expenses associated with technology and professional services. Non-interest expense during the three months ended March 31, 2022 was reduced by $0.2 million in nonrecurring net gains on the sale of investment securities that occurred during the first half of 2020 that were not repeated in the first half of 2021. The decrease in service charges is consistent with changes in deposit customer behaviors since the onset of the pandemic. The reduction in secondary market mortgage fees resulted from the discontinuance of the Bank’s mortgage division that became effective in the fourth quarter of 2020. Although the discontinuance resulted in a reduction in non-interest income, non-interest expense, primarily salaries and benefits, was reduced commensurately.

Non-interest expense decreased $0.3 million comparing the six months ended June 30, 2021 to the six months ended June 30, 2020 due primarily to reductions in salaries and employee benefits. A portion of the expense reduction was associated with the discontinuation of the secondary mortgage marketing division.

~~The Company’s effective tax rate was 22.1% for the six months ended June 30, 2021, a decrease from 23.3% for the six months ended June 30, 2020.~~other real estate owned (OREO).

~~The Company’s asset base increased during the first half of 2021.~~ As of ~~June 30, 2021,~~March 31, 2022, the Company’s assets totaled ~~$946.9~~$968.6 million, compared to ~~$890.5~~$958.3 million as of December 31, ~~2020. The discussion below presents significant balance sheet components comparing June 30,~~ 2021, an increase of 1.1%. Compared to ~~December~~March 31, ~~2020.~~2021, the Company’s total assets increased by $42.1 million, or 4.5%.

Total loans ~~increased~~decreased by ~~$39.4~~$30.9 million, or 4.3% as of ~~June 30, 2021~~March 31, 2022, compared to December 31, ~~2020. The increase was distributed primarily between indirect lending and~~2021. Loan volume decreases were most pronounced in the Bank’s commercial real estate ~~lending, which netted growth~~(secured by non-farm, non-residential properties) and construction categories. The decreases in these loan categories was generally consistent with historic first quarter seasonality, and a portion of ~~$34.6 million and $12.5 million, respectively. Growth in real estate lending~~the reduction was ~~split between construction and non-residential real estate, partially offset by a reduction in single family residential lending. Growth in~~attributable to the indirect portfolio continued to be focused on consumer loans secured by collateral that includes recreational vehicles, campers, boats, horse trailers and cargo trailers. The Bank does not originate autopayoff of loans in ~~its indirect portfolio. The Bank now operates indirect lending~~accordance with contractual terms as financed construction projects were completed. In addition, the ALC business cessation strategy resulted in ~~a 12-state footprint~~decreases primarily in the ~~southeastern United States, including Oklahoma, which became operational in the second quarter of 2021.~~

~~Aside from indirect lending, other consumer loan categories decreased during the first half of 2021. The~~ direct consumer and branch retail ~~categories, which consist primarily of loans at ALC, decreased~~loan categories. Loan volume reductions were partially offset by ~~a total of $3.3 million during~~growth in the ~~first six months of 2021.~~ Bank’s indirect and multi-family portfolios.

The Bank’s commercial and industrial (“C&I”) portfolio also decreased during the period by $4.4 million. However, $0.3 million of this decrease resulted from a decline in PPP loans as they continue to be forgiven by the SBA.

~~Non-performing~~Company’s nonperforming assets, including loans in non-accrual status and ~~other real estate owned (OREO), decreased to $2.1~~OREO, totaled $3.1 million as of ~~June 30, 2021,~~March 31, 2022, compared to ~~$4.0~~$4.2 million as of December 31, ~~2020.~~2021. The reduction in nonperforming assets during the three months ended March 31, 2022 resulted from the sale of OREO properties during the quarter. Reductions in OREO totaled $1.3 million and included the sale of banking centers that were closed by the Company in 2021. As a percentage of total assets, non-performing assets ~~improved to 0.22%~~totaled 0.32% as of ~~June 30, 2021,~~March 31, 2022, compared to ~~0.45%~~0.43% as of December 31, ~~2020. Net charge-offs~~2021.

Deposits increased by $15.0 million, or 1.8%, as ~~a percentage~~ of March 31, 2022, compared to December 31, 2021. In the current environment, management has continued to focus on minimizing deposit expense and deploying excess cash balances into earning assets that meet the Company’s established credit standards, while maintaining appropriate levels of liquidity in accordance with projected funding needs. Total average ~~loans totaled 0.20%~~funding costs, including both interest- and noninterest-bearing liabilities and borrowings, was reduced to 0.32% for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~0.28%~~0.39% for the ~~six~~three months ended ~~June 30, 2020.~~

~~During~~March 31, 2021. Given the ~~second~~increasing interest rate environment during the first quarter of ~~2021, additional investment securities were purchased in an effort~~2022, management continued to ~~more effectively~~ deploy ~~excess cash. The investment securities portfolio continues to provide the Company with additional liquidity and allows management to fund~~ a portion of ~~loan growth from the maturity and payoff of securities within the portfolio. As of June 30, 2021,~~excess funds into the investment securities ~~portfolio increased to $123.6~~portfolio. Investment securities, including both the available-for-sale and held-to-maturity portfolios totaled $137.7 million as of March 31, 2022, compared to ~~$91.4~~$134.3 million as of December 31, ~~2020. Management monitors its liquidity position, including forecasted expectations related to loan growth, when making determinations about whether to re-invest~~2021. The expected average life of securities in the ~~securities portfolio.~~

~~Deposits totaled $837.9 million~~investment portfolio as of ~~June 30, 2021,~~March 31, 2022 was 3.5 years, compared to ~~$782.2 million~~3.7 years as of December 31, ~~2020.~~2021. Management maintains the portfolio with average durations that are expected to provide monthly cash flows that can be utilized to reinvest in earning assets at current market rates.

Shareholders’ equity decreased by $2.3 million, or 2.5%, as of March 31, 2022, compared to December 31, 2021. The ~~deposit growth reflected~~decrease in shareholders’ equity resulted primarily from increases in accumulated other comprehensive loss due to declines in the ~~impact~~market value of the ~~pandemic on~~Company’s available-for-sale investment portfolio. The market value declines were the direct result of the increasing interest rate environment during the three months ended March 31, 2022. No other-than-temporary impairment was recognized in the investment portfolio during the three months ended March 31, 2022, and the Company has both ~~business~~the intent and ~~consumer deposit holders, including preferences~~ability to retain the investments for ~~liquidity, loan payment deferments, tax payment deferments, government stimulus receipts and generally lower consumer spending. Of~~a period of time sufficient to allow for the ~~total~~full recovery of all market value decreases. The market value decrease in available-for-sale securities was partially offset by an increase in the market value of cash flow derivative instruments that hedge certain deposits ~~$22.8 million represented non-interest-bearing deposits, while $32.9 million were interest-bearing.~~and borrowings on the Company’s balance sheet.

During the three months ended March 31, 2022, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of March 31, 2022, the Bank’s common equity Tier 1 capital and ~~Capital~~Tier 1 risk-based capital ratios were each 11.82%. Its total capital ratio was 12.95%, and its Tier 1 leverage ratio was 9.38%.

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

As of June 30, 2021, the Bank continued to maintain capital ratios at higher levels than the ratios required to be considered a “well-capitalized” institution under applicable banking regulations. As of June 30, 2021, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.14%. Its total capital ratio was 12.22%, and its Tier 1 leverage ratio was 8.60%.

The Company declared a cash dividend of $0.03 per share on its common stock induring both three-month periods ended March 31, 2022 and March 31, 2021.

During the ~~second quarter~~three months ended March 31, 2022, the Company completed share repurchases totaling 87,600 shares of ~~2021, which is consistent with~~its common stock at a weighted average price of $10.94 per share. The repurchases were completed under the Company’s ~~dividend declaration~~existing share repurchase program, which was amended in April 2021 to allow for the ~~first quarter~~repurchase of ~~2021 and each quarter~~additional shares through December 31, 2022. As of ~~2020.~~

March 31, 2022, a total of 921,613 shares remained available for repurchase under the program.

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 consist of loans, taxable and tax-exempt investments, Federal Home Loan Bank stock, federal funds sold by the Bank and interest-bearing deposits in banks. Interest-bearing liabilities consist of interest-bearing demand deposits and savings and time deposits, as well as short-term borrowings.

The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the ~~three- and six-month~~three-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net 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							Three Months Ended							Three Months Ended
	June 30, 2021							June 30, 2020							March 31, 2022							March 31, 2021
	Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %			Average Balance		Interest		Annualized Yield/ Rate %
	(Dollars in Thousands)														(Dollars in Thousands)
ASSETS
Interest-earning assets:
Total loans (Note A)	$	673,676	$	9,668		5.76	%	$	557,511	$	9,237		6.66	%	$	696,695	$	8,847		5.15	%	$	652,886	$	9,490		5.89	%
Taxable investment securities		97,237		344		1.42	%		104,449		493		1.90	%		130,306		485		1.51	%		83,151		306		1.49	%
Tax-exempt investment securities		3,506		16		1.83	%		1,737		12		2.78	%		2,771		12		1.76	%		3,522		16		1.84	%
Federal Home Loan Bank stock		870		8		3.69	%		1,135		15		5.32	%		879		8		3.69	%		1,106		9		3.30	%
Federal funds sold		83		—		0.00	%		6,233		4		0.26	%		81		—		0.00	%		84		—		0.00	%
Interest-bearing deposits in banks		91,340		23		0.10	%		74,596		19		0.10	%		57,859		29		0.20	%		95,303		24		0.10	%
Total interest-earning assets		866,712		10,059		4.66	%		745,661		9,780		5.28	%		888,591		9,381		4.28	%		836,052		9,845		4.78	%
Non-interest-earning assets:
Other assets		68,237							72,990

Non interest-earning assets																64,958							68,838
Total	$	934,949						$	818,651						$	953,549						$	904,890

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Demand deposits	$	235,493	$	145		0.25	%	$	183,536	$	138		0.30	%	$	250,612	$	126		0.20	%	$	225,152	$	139		0.25	%
Savings deposits		187,655		148		0.32	%		155,953		146		0.38	%		197,016		140		0.29	%		174,678		145		0.34	%
Time deposits		230,473		412		0.72	%		234,041		847		1.46	%		210,727		249		0.48	%		238,659		459		0.78	%
Total interest-bearing deposits (Note B)		653,621		705		0.43	%		573,530		1,131		0.79	%
Total interest-bearing deposits																658,355		515		0.32	%		638,489		743		0.47	%
Non interest-bearing demand deposits																175,285		—		—			159,208		—		—
Total deposits																833,640		515		0.25	%		797,697		743		0.38	%
Borrowings		10,017		42		1.68	%		10,230		26		1.02	%		20,715		157		3.07	%		10,016		38		1.54	%
Total interest-bearing liabilities		663,638		747		0.45	%		583,760		1,157		0.80	%
Non-interest-bearing liabilities:
Demand deposits		173,842							140,621
Other liabilities		8,991							9,317
Total funding costs																854,355		672		0.32	%		807,713		781		0.39	%

Other non interest-bearing liabilities																9,692							9,720
Shareholders’ equity		88,478							84,953							89,502							87,457
Total	$	934,949						$	818,651						$	953,549						$	904,890
Net interest income (Note C)			$	9,312						$	8,623
Net interest income (Note B)																	$	8,709						$	9,064
Net interest margin						4.31	%						4.65	%						3.97	%						4.40	%

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

Average
Balance

Interest

Annualized
Yield/
Rate %

Average
Balance

Interest

Annualized
Yield/
Rate %

(Dollars in Thousands)

ASSETS

Interest-earning assets:

Total loans (Note A)

$
663,338

$
19,158

5.82
%

$
552,810

$
18,876

6.87
%
Taxable investment securities

90,233

650

1.45
%

104,286

1,024

1.97
%
Tax-exempt investment securities

3,514

32

1.84
%

1,464

23

3.16
%
Federal Home Loan Bank stock

987

17

3.47
%

1,136

30

5.31
%
Federal funds sold

84

—

0.00
%

9,448

45

0.96
%
Interest-bearing deposits in banks

93,311

47

0.10
%

63,311

179

0.57
%
Total interest-earning assets

851,467

19,904

4.71
%

732,455

20,177

5.54
%
Non-interest-earning assets:

Other assets

68,536

73,199

Total

$
920,003

$
805,654

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest-bearing liabilities:

Demand deposits

$
230,351

$
284

0.25
%

$
176,480

$
313

0.36
%
Savings deposits

181,202

293

0.33
%

160,686

458

0.57
%
Time deposits

234,544

871

0.75
%

236,137

1,835

1.56
%
Total interest-bearing deposits (Note B)

646,097

1,448

0.45
%

573,303

2,606

0.91
%
Borrowings

10,017

80

1.61
%

10,176

62

1.23
%
Total interest-bearing liabilities

656,114

1,528

0.47
%

583,479

2,668

0.92
%
Non-interest-bearing liabilities:

Demand deposits

166,566

127,431

Other liabilities

9,353

9,906

Shareholders’ equity

87,970

84,838

Total

$
920,003

$
805,654

Net interest income (Note C)

$
18,376

$
17,509

Net interest margin

4.35
%

4.81
%

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. ~~For each category of~~

	Three Months Ended March 31, 2022									Three Months Ended March 31, 2021
	Compared to									Compared to
	Three Months Ended March 31, 2021									Three Months Ended March 31, 2020
	Increase (Decrease)									Increase (Decrease)
	Due to Change In:									Due to Change In:
	Volume			Average Rate			Net			Volume			Average Rate			Net
	(Dollars in Thousands)
Interest earned on:
Total loans	$	637		$	(1,280	)	$	(643	)	$	1,843		$	(1,992	)	$	(149	)
Taxable investment securities		174			5			179			(107	)		(118	)		(225	)
Tax-exempt investment securities		(3	)		(1	)		(4	)		20			(14	)		6
Federal Home Loan Bank stock		(2	)		1			(1	)		—			(5	)		(5	)
Federal funds sold		—			—			—			(42	)		—			(42	)
Interest-bearing deposits in banks		(9	)		14			5			134			(271	)		(137	)
Total interest-earning assets		797			(1,261	)		(464	)		1,848			(2,400	)		(552	)
Interest expense on:
Demand deposits		16			(29	)		(13	)		58			(94	)		(36	)
Savings deposits		19			(24	)		(5	)		18			(186	)		(168	)
Time deposits		(54	)		(156	)		(210	)		2			(530	)		(528	)
Borrowings		41			78			119			—			2			2
Total interest-bearing liabilities		22			(131	)		(109	)		78			(808	)		(730	)
Increase (decrease) in net interest income	$	775		$	(1,130	)	$	(355	)	$	1,770		$	(1,592	)	$	178

Net interest income for the three months ended March 31, 2022 decreased by $0.4 million compared to the three months ended March 31, 2021. The decrease in net interest income comparing the two periods resulted from a decrease in interest and fees on loans, partially offset by an increase in interest on investment securities and a decrease in interest expense. Average yield on interest-earning assets ~~and interest-bearing liabilities, information is provided on changes attributable~~decreased to ~~(1) changes in volume, which are changes~~4.28% in the ~~average balance multiplied by~~first quarter of 2022, compared to 4.78% for the ~~previous year’s average rate~~corresponding quarter of 2021, while aggregate funding costs, including noninterest-bearing deposits and ~~(2) changes in rate, which are changes~~borrowings, decreased to 0.32% in the ~~average rate multiplied by~~first quarter of 2022, compared to 0.39% in the ~~average balance from the current year period. The net changes attributable to the combined impact~~first quarter of ~~both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.~~

Three Months Ended June 30, 2021

Six Months Ended June 30, 2021

Compared to

Compared to

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Increase (Decrease)

Increase (Decrease)

Due to Change In:

Due to Change In:

Volume

Average
Rate

Net

Volume

Average
Rate

Net

(Dollars in Thousands)

Interest earned on:

Total loans

$
1,925

$
(1,494
)

$
431

$
3,774

$
(3,492
)

$
282

Taxable investment securities

(34
)

(115
)

(149
)

(138
)

(236
)

(374
)
Tax-exempt investment securities

12

(8
)

4

32

(23
)

9

Federal Home Loan Bank stock

(4
)

(3
)

(7
)

(4
)

(9
)

(13
)
Federal funds sold

(4
)

—

(4
)

(45
)

—

(45
)
Interest-bearing deposits in banks

4

—

4

85

(217
)

(132
)
Total interest-earning assets

1,899

(1,620
)

279

3,704

(3,977
)

(273
)
Interest expense on:

Demand deposits

39

(32
)

7

96

(125
)

(29
)
Savings deposits

30

(28
)

2

58

(223
)

(165
)
Time deposits

(13
)

(422
)

(435
)

(12
)

(952
)

(964
)
Borrowings

(1
)

17

16

(1
)

19

18

Total interest-bearing liabilities

55

(465
)

(410
)

141

(1,281
)

(1,140
)
Increase (decrease) in net interest income

$
1,844

$
(1,155
)

$
689

$
3,563

$
(2,696
)

$
867

2021. Net interest margin was reduced by 3443 basis points to ~~4.31%~~3.97% during the ~~second~~first quarter of ~~2021,~~2022, compared to ~~4.65%~~4.40% during the second quarter of 2020. Net interest margin decreased 46 basis points to 4.35% for the six months ended June 30, 2021 compared to 4.81% for the six months ended June 30, 2020. The reduction in net interest margin primarily resulted from the prevailing low interest rate environment and our asset-sensitive balance sheet. Since August 2019, the federal funds rate has been reduced by 225 basis points, including decreases totaling 150 basis points in March 2020 in response to the COVID-19 pandemic. Net interest margin was also affected by the decrease in higher interest-earning ALC consumer loans.

The Company’s average loan balance increased by $116.2 million comparing the second quarter of 2021 to the second quarter of 2020 and increased by $110.5 million comparing the six-month period ended June 30, 2021 to the same period of 2020. However, as a result of declining yields, interest earned on loans decreased $0.4 million comparing the three-month periods ended June 30, 2021 and 2020 and decreased $0.3 million comparing the six months ended June 30, 2021 to the corresponding period of 2020. The growth in average loans from June 30, 2020 to June 30, 2021 was funded through growth in deposits combined with maturities, sales and pay-downs in the Company’s investment portfolio. Accordingly, the average balance of the investment portfolio (taxable and tax-exempt combined) was reduced by $5.4 million and $12.0 million comparing the three and six months ended June 30, 2021 to the same periods in 2020. Based on this volume reduction, coupled with the reduced interest rate environment, interest earned on the investment portfolio declined by $0.1 million and $0.4 million comparing the three and six months ended June 30, 2021 to the same periods in 2020.

~~The COVID-19 pandemic has reduced economic activity and increased liquidity for deposit customers, consequently increasing the Company’s cash balances during 2020 and the~~ first six months of 2021. In the current environment, the excess cash balances earn low yields, which has put downward pressure on net interest margin. Management remains focused on deploying investable cash balances into earning assets that meet the Company’s established credit standards, while maintaining appropriate levels of liquidity. In an effort to more effectively deploy excess cash, additional investment securities were purchased during the second quarter of 2021.

InDuring the ~~current~~first quarter of 2022, both interest income and interest expense continued to be impacted by the relatively low interest rate environment ~~management expects to further reduce interest expense as interest-bearing liabilities continue to reprice; however, economic uncertainty remains due to~~that began in early 2020 at the onset of the COVID-19 pandemic. ~~We expect~~However, a number of benchmark interest rates increased during the first quarter of 2022, and it is expected that the Company’s net interest income will continue to be impacted by changes in the interest rate environment. Management’s interest rate risk modeling generally indicates that both net interest margin and net interest income would benefit over time in a rising interest rate environment and would decrease in a reducing interest rate environment. In addition, the Company’s strategy to cease new business development at ALC is expected to reduce average yields on loans in the near term until the ALC portfolio has paid down to nominal levels. Management expects that growth in ~~net~~ loan volume with loans of sufficient credit quality will enhance net interest income ~~particularly~~ as ~~resources~~earning assets are shifted from lower earning ~~excess~~ cash ~~balances~~ and federal funds sold balances into loan assets. However, ~~there continues~~the environment for both loan and deposit generation is highly competitive and subject to be competitive pressure to generate loans of sufficient credit quality. Management is maintaining vigilance in the deployment of strategies to effectively manage risks associated with interest rate fluctuations. However, net interest income could continue to experience downward pressure as a result of the interest rate ~~environment,~~environment. Reductions in either loan volume or deposit levels could result in downward pressure on net interest income.

The Federal Open Market Committee raised the federal funds rate by 25 basis points in March of 2022 and by an additional 50 basis points in May of 2022, and statements by the Federal Reserve chair have indicated that further interest rate increases may be expected in 2022 to address inflationary pressures. Although, as ~~well as increased competition for quality~~described above, the Company’s interest margin generally will benefit from rising interest rates, rates may rise in an uneven manner causing unpredictable effects, and higher rates could negatively affect the economy, loan demand and ~~deposit funding opportunities.~~ borrowers’ financial position, and could cause additional declines in the market value of the Company’s investment securities.

The provision for loan and lease losses was ~~$0.5~~$0.7 million during the ~~second~~first quarter of ~~2021,~~2022, compared to ~~$0.9~~$0.4 million during the ~~second~~first quarter of ~~2020,~~2021. The increase in the provision, comparing the two quarters, resulted from both an increase in charge-offs associated with ALC’s runoff loan portfolio, as well as qualitative adjustments applied to ALC’s portfolio in response to heightened inflationary trends and ~~was $0.9 million for~~other economic uncertainties that emerged during the ~~six months ended June 30, 2021,~~first quarter of 2022. In management’s view, the combination of the business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of March 31, 2022, compared to ~~$1.4~~December 31, 2021. The loan loss provision recorded by the Company during the first quarter of 2022 included $0.8 million ~~for the six months ended June 30, 2020. The~~associated with ALC’s portfolio, partially offset by a $0.1 million net decrease in ~~provisioning comparing the periods was due in part to improvement~~provision in the ~~credit quality~~Bank’s other loan categories due to overall reduction in loan volume associated with those categories. The Company’s net charge-offs totaled $0.6 million during the first quarter of 2022, compared to $0.4 million during the first quarter of 2021. The majority of the ~~loan portfolio resulting from reductions~~Company’s charge-offs in both 2022 and 2021 were associated with loans in ALC’s ~~consumer-related~~ portfolio. As of June 30, 2021, total loans at ALC, which contain the highest charge-off rates in the Company’s loan portfolio, were reduced by $8.3 million compared to June 30, 2020, which led to lower credit losses.

Management believes that the allowance for loan and lease losses as of ~~June 30, 2021,~~March 31, 2022, which was calculated under an incurred loss model, was sufficient to absorb losses in the Company’s loan portfolio based on circumstances existing as of the balance sheet date. ~~However, the economic environment as a result of the COVID-19 pandemic continues to contain a significant level of uncertainty.~~ Management will continue to closely monitor the impact of changing economic circumstances ~~associated with~~on the Company’s loan portfolio and ~~should economic circumstances deteriorate further, additional loan loss provisioning may be required.~~will adjust the allowance accordingly. In accordance with relevant accounting guidance for smaller reporting companies, the Company has not yet adopted the Current Expected Credit Loss (CECL) accounting model for the calculation of credit losses and is currently evaluating the impact that adopting CECL will have on the Company’s financial statements. Due to its classification as a smaller reporting company by the Securities and Exchange Commission, the Company is not required to implement the CECL model until January 1, ~~2023; however, early adoption is permissible.~~2023.

Non-interest income represents fees and income derived from sources other than interest-earning assets. The following table presents the major components of non-interest income for the periods indicated:

	Three Months Ended June 30,											Six Months Ended June 30,										Three Months Ended March 31,
	2021			2020		$ Change			% Change			2021		2020		$ Change			% Change			2022		2021		$ Change			% Change
	(Dollars in Thousands)											(Dollars in Thousands)										(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	240		$	263	$	(23	)		(8.7	)%	$	506	$	697	$	(191	)		(27.4	)%	$	299	$	266	$	33			12.4	%
Credit insurance commissions and fees		(18	)		45		(63	)		(140.0	)%		87		198		(111	)		(56.1	)%
Bank-owned life insurance		109			107		2			1.9	%		217		215		2			0.9	%		110		108		2			1.9	%
Net gain on sale and prepayment of investment securities		22			326		(304	)		(93.3	)%		22		326		(304	)		(93.3	)%
Mortgage fees from secondary market		—			176		(176	)		(100.0	)%		23		303		(280	)		(92.4	)%
Lease income		202			212		(10	)		(4.7	)%		411		424		(13	)		(3.1	)%		214		209		5			2.4	%
Other income		254			201		53			26.4	%		494		464		30			6.5	%		206		368		(162	)		(44.0	)%
Total non-interest income	$	809		$	1,330	$	(521	)		(39.2	)%	$	1,760	$	2,627	$	(867	)		(33.0	)%	$	829	$	951	$	(122	)		(12.8	)%

~~Non-interest~~The Company’s non-interest income decreased during the first quarter of 2022 by $0.1 million compared to the first quarter of 2021 due to a decrease in the other income category that resulted primarily from reductions in credit insurance commissions and fees. The reduction in credit insurance revenue is commensurate with the overall reduction in ALC’s loan volume since implementation of the cessation of business strategy at ALC. We expect continued declines in this revenue as the ~~Bank consists~~ALC loan portfolio runs out. The decrease in other non-interest income comparing the first quarter of 2022 to the first quarter of 2021 was partially offset by increases in service charges and other fees on deposit ~~accounts; bank-owned life insurance; net gains on the sale and prepayment of investment securities; gains on the sale of premises and equipment and other assets; fees~~accounts that were volume driven. Non-interest revenues earned from the secondary market mortgage activities; lease income; and other non-interest income, which includes fee income generated by the Bank, such as ATM fees and real estate rental income. Non-interest income at ALC consists of credit insurance commissions and fees and other non-interest income generated for ancillary services, such as ALC’s auto club membership program. Non-interest income decreased by $0.5 million and $0.9 million comparing the three- and six-month periods ended June 30, 2021 to the corresponding periods of 2020. The decrease resulted from reductions in service charges and ~~related~~other fees on ~~the Bank’s~~ deposit accounts credit insurance income, secondary market mortgage revenues and net gains on the sale of investment securities. The decrease in service charges is consistent with changes in deposit customer behaviors since the onset of the pandemic. The decrease in net gains on the sale of investment securities resulted from the sale of securities that occurredhave generally declined during the six months ended June 30, 2020 that were not repeated during 2021. The reduction in secondary market mortgage fees resulted from the discontinuance of the Bank’s mortgage division that became effective in the fourth quarter of 2020. Although the discontinuance resulted in a reduction in non-interest income, non-interest expense, primarily salaries and benefits, was reduced commensurately.

~~Certain categories of non-interest income are expected to provide a relatively stable source of revenues, while others may fluctuate significantly~~recent years based on changes in ~~economic conditions, regulation~~depositor preferences for liquidity, particularly during the pandemic. Management continues to evaluate opportunities to add new non-interest revenue streams or ~~other factors. Non-interest~~to grow existing streams; however, significant growth in non-interest income is not expected ~~to remain below historic levels~~ in the ~~near-term due to the decline in economic activities resulting from the COVID-19 pandemic, as well as the discontinuance of the mortgage division.~~near term.

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:

	Three Months Ended June 30,											Six Months Ended June 30,											Three Months Ended March 31,
	2021			2020		$ Change			% Change			2021			2020		$ Change			% Change			2022			2021		$ Change			% Change
	(Dollars in Thousands)											(Dollars in Thousands)											(Dollars in Thousands)
Salaries and employee benefits	$	4,992		$	5,193	$	(201	)		(3.9	)%	$	9,906		$	10,329	$	(423	)		(4.1	)%	$	4,330		$	4,914	$	(584	)		(11.9	)%
Net occupancy and equipment expense		1,020			995		25			2.5	%		2,059			1,996		63			3.2	%		766			1,039	$	(273	)		(26.3	)%
Computer services		485			424		61			14.4	%		950			841		109			13.0	%		377			465	$	(88	)		(18.9	)%
Insurance expense and assessments		329			257		72			28.0	%		645			499		146			29.3	%		367			316	$	51			16.1	%
Fees for professional services		354			401		(47	)		(11.7	)%		711			679		32			4.7	%		268			357	$	(89	)		(24.9	)%
Postage, stationery and supplies		197			218		(21	)		(9.6	)%		412			432		(20	)		(4.6	)%		164			215	$	(51	)		(23.7	)%
Telephone/data communications		227			229		(2	)		(0.9	)%		459			452		7			1.5	%		171			232	$	(61	)		(26.3	)%
Other real estate/foreclosure (income) expense, net		(20	)		22		(42	)		(190.9	)%		(13	)		41		(54	)		(131.7	)%		(145	)		7	$	(152	)	NM
Other expense		815			842		(27	)		(3.2	)%		1,666			1,806		(140	)		(7.8	)%		758			851	$	(93	)		(10.9	)%
Total non-interest expense	$	8,399		$	8,581	$	(182	)		(2.1	)%	$	16,795		$	17,075	$	(280	)		(1.6	)%	$	7,056		$	8,396	$	(1,340	)		(16.0	)%

Non-interest expense decreased ~~$0.2 million and $0.3~~$1.3 million comparing the ~~three- and six-month periods ended June 30, 2021~~first quarter of 2022 to the ~~corresponding periods~~first quarter of ~~2020 due primarily~~2021. Implementation of the ALC cessation of business strategy, combined with Bank branch closures that occurred in the third quarter of 2021 and other operational efficiency efforts, led to significant reductions in ~~salaries~~the Company’s personnel levels, reduced levels of occupancy and ~~employee benefits. A portion~~equipment expense, and decreases in various other expense categories. As of March 31, 2022, the Company employed 161 full-time equivalent employees (including 153 at the Bank and eight at ALC), compared to 175 as of December 31, 2021, and 265 as of March 31, 2021.

The reduction in occupancy and equipment expense resulted primarily from the termination of the ~~expense reduction was associated with the discontinuation~~majority of ~~the secondary mortgage marketing division beginning in the fourth quarter~~ALC’s lease contracts following cessation of 2020. In general, non-interest expense is expected to increase over time due to inflationary pressures; however, management continues to maintain vigilance in efforts to reduce these costs where opportunities to do so exist. The Company has an ongoing strategic initiative to improve the Bank’s operating efficiency, which includesbusiness at its branches, as well as the closure of four ~~banking offices later this year. After~~bank branches in the ~~initial closing costs, management expects~~third quarter of 2021. As of March 31, 2022, all previously existing ALC leases had been terminated except for the ~~initiative~~ongoing lease of ALC’s headquarters office that continues to ~~create reductions~~house the remaining ALC staff. During the first quarter of 2022, non-interest expenses were reduced by one-time net gains on the sale of OREO that totaled $0.2 million. The gains were primarily generated by the sale of the Bank’s closed branch assets. As of March 31, 2022, all branches closed by the Bank during the third quarter of 2021 had been sold.

Reductions in most expense categories were partially offset by an increase in insurance expense and assessments due primarily to growth in the Company’s total assets which resulted in increased regulatory assessments. The decrease in non-interest ~~expense.~~expense was partially offset by $0.1 million in restructuring charges associated with the ALC cessation of business strategy recorded during the first quarter of 2022. As of March 31, 2022, the majority of estimated restructuring charges associated with the ALC strategy have been incurred. The strategic initiatives implemented in 2021 are expected to continue to reduce the Company’s expense structure in the near term, although the reductions may be partially offset by inflationary pressures affecting the Company’s ongoing operations. One of management’s primary focuses continues to be business simplification and process improvements in an effort to continue improving the Company’s overall efficiency levels.

The provision for income taxes was ~~$0.3~~$0.4 million and ~~$0.1~~$0.3 million for the three-month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, and the Company’s effective tax rate was ~~22.1%~~22.7% and 22.6%, respectively, for the same periods. The provision for income taxes was $0.5 million and $0.4 million for the six-month periods ended June 30, 2021 and 2020, respectively, and the Company’s effective tax rate was 22.1% and 23.3%22.0%, respectively, for the same periods.

The effective tax rate is 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.

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 ~~3.8~~3.5 years and ~~2.2~~3.7 years as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive income, a separate component of shareholders’ equity. As of ~~June 30, 2021,~~March 31, 2022, available-for-sale securities totaled ~~$118.7~~$135.0 million, or ~~96.1%~~98.0% of the total investment portfolio, compared to ~~$85.0~~$130.9 million, or ~~93.0%~~97.4% of the total investment portfolio, as of December 31, ~~2020.~~2021. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds and obligations of state and political 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 ~~June 30, 2021,~~March 31, 2022, held-to-maturity securities totaled ~~$4.8~~$2.7 million, or ~~3.9%~~2.0% of the total investment portfolio, compared to ~~$6.4~~$3.4 million, or ~~7.0%~~2.6% of the total investment portfolio, as of December 31, ~~2020.~~2021. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies and obligations of states and political subdivisions.

48Due to the increasing interest rate environment, during the first quarter of 2022, gross unrealized losses increased significantly, particularly within the Company’s available-for-sale portfolio. Gross unrealized losses in the investment portfolio totaled $4.9 million as of March 31, 2022, compared to $0.8 million as of December 31, 2021. Management evaluated unrealized losses as of March 31, 2022, and determined that no losses within the portfolio were other-than-temporary. Accordingly, no losses were realized during the first quarter of 2022. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive income.

The Company’s total loan portfolio decreased by $30.9 million, or 4.3%, as of March 31, 2022, compared to December 31, 2021. Loan volume decreases were most pronounced in the Bank’s commercial real estate (secured by non-farm, non-residential properties) and construction categories. The decrease in these loan categories was generally consistent with historic first quarter seasonality, and a portion of the reduction was attributable to the payoff of loans in accordance with contractual terms as financed construction projects were completed. In addition, the ALC business cessation strategy resulted in decreases primarily in the direct consumer and branch retail loan categories. Loan volume reductions were partially offset by growth in the Bank’s indirect and multi-family portfolios. The indirect portfolio has experienced significant growth in recent quarters and is focused on consumer lending secured by collateral that includes recreational vehicles, campers, boats, horse trailers and cargo trailers. The Bank now operates indirect lending in a 12-state footprint primarily in the southeastern United States.

The tables below summarize loan balances by portfolio category at the end of each of the most recent five quarters as of ~~June 30, 2021:~~March 31, 2022:

	Quarter Ended										Quarter Ended
	2021				2020						2022		2021
	June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	(Dollars in Thousands)										(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	53,425	$	48,491	$	37,282	$	35,472	$	31,384	$	52,817	$	67,048	$	58,175	$	53,425	$	48,491
Secured by 1-4 family residential properties		78,815		82,349		88,856		95,147		93,010		69,760		72,727		73,112		78,815		82,349
Secured by multi-family residential properties		53,811		54,180		54,326		49,197		48,807		50,796		46,000		51,420		53,811		54,180
Secured by non-farm, non-residential properties		191,398		193,626		184,528		183,754		160,683		177,752		197,901		198,745		191,398		193,626
Commercial and industrial loans, including PPP loans		77,359		79,838		81,735		86,898		87,771
Commercial and industrial loans												68,098		73,947		77,679		77,359		79,838
Consumer loans:
Direct consumer		26,937		26,998		29,788		30,048		33,299		18,023		21,689		25,845		26,937		26,998
Branch retail		31,688		31,075		32,094		33,145		33,000		21,891		25,692		29,764		31,688		31,075
Indirect sales		176,116		153,940		141,514		125,369		89,932
Indirect												220,931		205,940		194,154		176,116		153,940
Total loans	$	689,549	$	670,497	$	650,123	$	639,030	$	577,886	$	680,068	$	710,944	$	708,894	$	689,549	$	670,497
Less unearned interest, fees and deferred cost		4,067		3,792		4,279		4,240		5,401		1,738		2,594		3,729		4,067		3,792
Allowance for loan and lease losses		7,726		7,475		7,470		7,185		6,423		8,484		8,320		8,193		7,726		7,475
Net loans	$	677,756	$	659,230	$	638,374	$	627,605	$	566,062	$	669,846	$	700,030	$	696,972	$	677,756	$	659,230

The tables below summarize changes in the allowance for loan and lease losses for each of the most recent five quarters as of ~~June 30, 2021:~~March 31, 2022:

	Quarter Ended															Quarter Ended
	2021						2020									2022			2021
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	(Dollars in Thousands)															(Dollars in Thousands)
Balance at beginning of period	$	7,475		$	7,470		$	7,185		$	6,423		$	5,954		$	8,320		$	8,193		$	7,726		$	7,475		$	7,470
Charge-offs:
Real estate loans:
Construction, land development and other land loans		(1	)		(21	)		—			—			—			—			(1	)		—			(1	)		(21	)
Secured by 1-4 family residential properties		4			(9	)		(9	)		(10	)		(22	)		(2	)		(6	)		(1	)		4			(9	)
Secured by multi-family residential properties		—			—			—			—			—			—			—			—			—			—
Secured by non-farm, non-residential properties		—			—			—			—			—			—			—			—			—			—
Commercial and industrial loans, including PPP loans		—			—			—			—			—			—			—			(6	)		—			—
Consumer loans:
Direct consumer		(278	)		(348	)		(274	)		(385	)		(470	)		(557	)		(437	)		(222	)		(278	)		(348	)
Branch retail		(92	)		(130	)		(95	)		(58	)		(79	)		(145	)		(23	)		(77	)		(92	)		(130	)
Indirect sales		(193	)		(117	)		(49	)		(65	)		(38	)
Indirect																	(25	)		(118	)		(55	)		(193	)		(117	)
Total charge-offs		(560	)		(625	)		(427	)		(518	)		(609	)		(729	)		(585	)		(361	)		(560	)		(625	)
Recoveries		313			229			243			234			228			172			219			210			313			229
Net charge-offs		(247	)		(396	)		(184	)		(284	)		(381	)		(557	)		(366	)		(151	)		(247	)		(396	)
Provision for loan and lease losses		498			401			469			1,046			850			721			493			618			498			401
Ending balance	$	7,726		$	7,475		$	7,470		$	7,185		$	6,423		$	8,484		$	8,320		$	8,193		$	7,726		$	7,475
Ending balance as a percentage of loans ⁽¹⁾		1.13	%		1.12	%		1.16	%		1.13	%		1.12	%		1.25	%		1.17	%		1.16	%		1.13	%		1.12	%
Net charge-offs as a percentage of average loans		0.15	%		0.25	%		0.11	%		0.19	%		0.27	%		0.32	%		0.20	%		0.09	%		0.15	%		0.25	%

⁽¹⁾ ~~The allowance for~~Charge-offs increased during the first quarter of 2022 in the direct consumer and branch retail categories due to charge-offs associated with ALC’s loan ~~and lease losses as a percentage of loans excluding PPP loans, which are guaranteed by~~portfolio. In management’s view, the ~~SBA, for each~~combination of the ~~five most recent quarters was 1.15%, 1.15%, 1.18%, 1.16% and 1.15%, respectively.~~ALC business cessation strategy, coupled with deteriorating economic conditions, including elevated inflation levels, increased overall credit risk in ALC’s loan portfolio as of March 31, 2022, compared to December 31, 2021. The increase in provision expense in the first quarter of 2022 reflected the impact of these changing circumstances on ALC’s portfolio.

Nonperforming assets at the end of the five most recent quarters as of ~~June 30, 2021~~March 31, 2022 were as follows:

	Quarter Ended															Quarter Ended
	2021						2020									2022			2021
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	(Dollars in Thousands)															(Dollars in Thousands)
Non-accrual loans	$	1,279		$	2,509		$	3,086		$	3,053		$	3,415		$	2,228		$	2,008		$	969		$	1,279		$	2,509
Other real estate owned		846			942			949			985			1,003			874			2,149			2,373			846			942
Total	$	2,125		$	3,451		$	4,035		$	4,038		$	4,418		$	3,102		$	4,157		$	3,342		$	2,125		$	3,451
Nonperforming assets as a percentage of total assets		0.22	%		0.37	%		0.45	%		0.47	%		0.52	%		0.32	%		0.43	%		0.35	%		0.22	%		0.37	%

The decrease in OREO as of March 31, 2022, compared to December 31, 2021, resulted primarily from the sale of banking centers that were closed in 2021.

While no portion of the allowance for loan and lease losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table shows an allocation of the allowance for loan and lease losses as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

	June 30, 2021								December 31, 2020								March 31, 2022								December 31, 2021
	Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans			Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans			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)																(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	472		6.1	%		7.8	%	$	393		5.3	%		5.7	%	$	487		5.8	%		7.7	%	$	628		7.5	%		9.4	%
Secured by 1-4 family residential properties		752		9.7	%		11.4	%		639		8.5	%		13.7	%		684		8.1	%		10.3	%		690		8.3	%		10.2	%
Secured by multi-family residential properties		511		6.6	%		7.8	%		577		7.7	%		8.4	%		484		5.7	%		7.5	%		437		5.3	%		6.5	%
Secured by non-farm, non-residential properties		1,915		24.8	%		27.8	%		1,566		21.0	%		28.4	%		1,774		20.9	%		26.1	%		1,958		23.5	%		27.8	%
Commercial and industrial loans, including PPP loans		693		9.0	%		11.2	%		1,008		13.5	%		12.5	%
Commercial and industrial loans																		889		10.5	%		10.0	%		860		10.3	%		10.4	%
Consumer loans:
Direct consumer		959		12.4	%		3.9	%		1,202		16.1	%		4.6	%		1,064		12.5	%		2.7	%		1,004		12.1	%		3.1	%
Branch retail		324		4.2	%		4.6	%		373		5.0	%		4.9	%		521		6.1	%		3.2	%		304		3.7	%		3.6	%
Indirect sales		2,100		27.2	%		25.5	%		1,712		22.9	%		21.8	%
Indirect																		2,581		30.4	%		32.5	%		2,439		29.3	%		29.0	%
Total loans	$	7,726		100.0	%		100.0	%	$	7,470		100.0	%		100.0	%	$	8,484		100.0	%		100.0	%	$	8,320		100.0	%		100.0	%

Total deposits increased ~~by 7.1%~~ to ~~$837.9~~$853.1 million as of ~~June 30, 2021,~~March 31, 2022, from ~~$782.2~~$838.1 million as of December 31, ~~2020.~~2021, an increase of 1.8%. Core deposits, which exclude time deposits of $250 thousand or more, provide a relatively stable funding source that supports earning assets. Core deposits increased to ~~$779.3~~$791.6 million, or ~~93.0%~~92.8% of total deposits, as of ~~June 30, 2021,~~March 31, 2022, compared to ~~$726.9~~$775.1 million, or ~~92.9%~~92.5% of total deposits, as of December 31, 2020. The deposit growth reflects the impact of the pandemic on both business and consumer deposit holders, including preferences for liquidity, loan payment deferments, tax payment deferments, government stimulus receipts and generally lower consumer spending.2021.

~~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 the Company’s primary source of funding in the future. ~~The closure of four of the Bank’s banking offices scheduled for the third quarter of 2021 may cause a slowing in deposit growth later this year. We~~Management will continue to monitor deposit levels closely to help ensure an adequate level of funding for the Company’s activities. However, various economic and competitive factors could affect this funding source in the future, including increased competition from other financial institutions in deposit gathering, national and local economic conditions and interest rate policies adopted by the Federal Reserve and other central banks.

The average daily amount of deposits and rates paid on such deposits are summarized for the periods indicated in the following table:

	Three Months Ended										Six Months Ended										Three Months Ended
	June 30, 2021					June 30, 2020					June 30, 2021					June 30, 2020					March 31, 2022					March 31, 2021
	Average Amount		Rate			Average Amount		Rate			Average Amount		Rate			Average Amount		Rate			Average Amount		Rate			Average Amount		Rate
	(Dollars in Thousands)										(Dollars in Thousands)										(Dollars in Thousands)
Non-interest-bearing demand deposit accounts	$	173,842		—		$	140,621		—		$	166,566		—		$	127,431		—		$	175,285		—		$	159,208		—
Interest-bearing demand deposit accounts		235,493		0.25	%		183,536		0.30	%		230,351		0.25	%		176,480		0.36	%		250,612		0.20	%		225,152		0.25	%
Savings deposits		187,655		0.32	%		155,953		0.38	%		181,202		0.33	%		160,686		0.57	%		197,016		0.29	%		174,678		0.34	%
Time deposits		230,473		0.72	%		234,041		1.46	%		234,544		0.75	%		236,137		1.56	%		210,727		0.48	%		238,659		0.78	%
Total deposits	$	827,463		0.34	%	$	714,151		0.64	%	$	812,663		0.36	%	$	700,734		0.75	%	$	833,640		0.25	%	$	797,697		0.38	%
Total interest-bearing deposits	$	653,621		0.43	%	$	573,530		0.79	%	$	646,097		0.45	%	$	573,303		0.91	%	$	658,355		0.32	%	$	638,489		0.47	%

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 ~~three-month period ended June 30, 2021, these borrowings~~first quarter of 2022, other interest-bearing liabilities represented ~~1.5%~~3.1% of average interest-bearing liabilities, compared to ~~1.8%~~1.5% in the ~~same period~~first quarter of ~~2020. During the six-month period ended June 30, 2021, these borrowings represented 1.5% of average interest-bearing liabilities, compared to 1.7% in the same period of 2020.~~2021.

~~The Company has historically placed significant emphasis on maintaining its strong capital base and continues to do so.~~ As of ~~June 30, 2021,~~March 31, 2022, shareholders’ equity totaled ~~$88.8~~$87.8 million, or ~~9.4%~~9.1% of total assets, compared to ~~$86.7~~$90.1 million, or ~~9.7%~~9.4% of total assets, as of December 31, ~~2020.~~2021. 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. ~~Growth~~The decrease in ~~retained earnings during the six months ended June 30,~~shareholders’ equity as of March 31, 2022, compared to December 31, 2021, was ~~supplemented by an increase in additional paid-in capital, as well as~~due primarily to an increase in accumulated other comprehensive ~~income~~loss associated with unrealized losses on available-for-sale investment securities. The increase in unrealized losses within the securities portfolio resulted from significant increases in interest rates during the quarter which reduced security valuations. The reductions in security valuations were partially offset by increases in the fair value of cash flow hedges during the ~~six months ended June 30, 2021. The~~quarter. Changes in both the fair value of the ~~cash flow hedges fluctuates based on~~available-for-sales investment securities portfolio and changes ~~in interest rates. Accordingly, the increase~~ in the fair value of ~~the~~cash flow hedges ~~during the six months ended June 30, 2021 is not necessarily indicative~~are recorded, net of ~~future performance~~tax, in accumulated other comprehensive income.

three-month periods ended March 31, 2022 and 2021, the Company declared a dividend of $0.03 per common share, or approximately $0.2 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

During ~~both~~the first quarter of ~~the six-month periods ended June 30, 2021 and 2020, Bancshares declared a dividend of $0.06 per common share, or approximately $0.4 million in aggregate amount.~~

~~As of June 30, 2021 and December 31, 2020,~~2022, the Company retained approximately $21.8 million and $21.9 million in treasury stock, respectively. The Company initiated a share repurchase program in January 2006, under which the Company was authorized to repurchase up to 642,785completed repurchases of 87,600 shares of ~~Bancshares’~~its common stock before December 31, 2007. In December 2007, and in each year since, the Board of Directors extended the expiration date of the share repurchase program for an additional year. On April 28, 2021, the Board of Directors approved the repurchase of an additional 1,000,000 shares of common stock under the share repurchase program and extended the expiration of the repurchase program to December 31, 2022. As of June 30, 2021, there were 1,054,961 shares available for repurchase under this program. During the six months ended June 30, 2021, there were no shares repurchased under this program. During the year ended December 31, 2020, 38,604 shares were repurchased under this program at a weighted average price of ~~$11.70~~$10.94 per share, or ~~$0.5~~$1.0 million in ~~total.~~aggregate. The shares were repurchased under the Company’s existing share repurchase program that was amended by the Board of Directors in April 2021 and will expire on December 31, 2022. Share repurchases under the program may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate, subject to applicable regulatory requirements. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended at any time at the Company’s discretion. As of March 31, 2022, 921,613 shares remained available for repurchase under the program.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, a total of ~~115,506~~119,270 and ~~111,419~~117,825 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 Bancshares common stock. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred directors’ fees allocated to be paid in shares of stock as equity additional paid-in capital. The Company may use issued shares or shares of treasury stock to satisfy these obligations when due.

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to ~~$109.3~~$130.0 million as of ~~June 30, 2021~~March 31, 2022 and ~~$105.3~~$102.4 million as of December 31, ~~2020.~~2021. Investment securities forecasted to mature or reprice in one year or less were estimated to be ~~$7.5~~$14.8 million and ~~$11.3~~$9.5 million of the investment portfolio as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Although 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 consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of ~~3.8~~3.5 years and ~~2.2~~3.7 years as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

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

As of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had $10.0 million of outstanding borrowings under FHLB advances. In addition, on October 1, 2021, the Company completed a private placement of $11.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes that will mature on October 1, 2031. Net of unamortized debt issuance costs, the subordinated notes were recorded as long-term borrowings totaling $10.7 million as of both March 31, 2022 and December 31, 2021.

The Company had up to ~~$227.9~~$237.5 million and ~~$225.8~~$237.0 million in remaining unused credit from the FHLB (subject to available collateral) as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. In addition, the Company had ~~$46.1~~$45.9 million and ~~$46.4~~$46.0 million in unused established federal funds lines as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Management believes that the Company has adequate sources of liquidity to cover its contractual obligations and commitments over the next twelve months.

The primary purpose of managing interest rate risk is to invest capital effectively and preserve the value created by 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 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 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’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.

On a ~~monthly~~periodic basis, management simulates how changes in short- and long-term interest rates will impact future profitability, as reflected by changes in the Bank’s net interest margin and net interest income. The tables below depict how, as of ~~June 30, 2021,~~March 31, 2022, pre-tax net interest margin and net interest income are forecasted to change over timeframes of six months, one year, two years and five years under the four listed interest rate scenarios. The interest rate scenarios contemplate immediate and parallel shifts in short- and long-term interest rates.

Average Change in Net Interest Margin from Level Interest Rate Forecast (basis points, pre-tax):

	6 Months			1 Year			2 Years			5 Years			6 Months			1 Year			2 Years			5 Years
+1%		4			5			9			20			10			10			12			20
+2%		5			5			13			35			14			13			17			33
+3%														7			5			11			35
+4%														2			—			7			40
-1%		(5	)		(10	)		(17	)		(29	)		(17	)		(21	)		(27	)		(39	)
-2%		(10	)		(15	)		(23	)		(34	)		(36	)		(44	)		(57	)		(84	)

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

	6 Months			1 Year			2 Years			5 Years			6 Months			1 Year			2 Years			5 Years
+1%	$	208		$	473		$	1,866		$	12,273		$	484		$	943		$	2,310		$	9,835
+2%		221			509			2,702			21,488			671			1,267			3,325			16,247
+3%														324			504			2,129			17,236
+4%														84			(40	)		1,424			19,738
-1%		(256	)		(962	)		(3,527	)		(17,138	)		(854	)		(2,034	)		(5,218	)		(19,190	)
-2%		(487	)		(1,503	)		(4,765	)		(20,100	)		(1,765	)		(4,305	)		(11,185	)		(41,376	)

~~Assessing Long-Term Interest Rate Risk – Market Value of Equity and Estimating Modified Durations for Assets and Liabilities~~

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

~~The table below is a summary of estimated market value changes in the Company’s assets, liabilities and equity as of June 30, 2021, for the four listed scenarios.~~

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 ~~June 30, 2021,~~March 31, 2022, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Based on that evaluation, Bancshares’ management concluded, as of ~~June 30, 2021,~~March 31, 2022, that Bancshares’ disclosure controls and procedures 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 in the SEC’s rules and forms.

There were no changes in Bancshares’ internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

A list of factors that could materially affect the Company’s business, financial condition and/or operating results is included in Part I, Item 1A, “Risk Factors” in Bancshares’ Annual Report on Form 10-K as of and for the year ended December 31, ~~2020.~~2021. There have been no material changes to such risk factors. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

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’ common stock during the ~~second~~first quarter of ~~2021:~~2022:

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.

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	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐


Class	Outstanding at ~~August 9, 2021~~May 10, 2022
Common Stock, $0.01 par value	~~6,217,489~~6,080,919 shares

		PAGE

PART I. FINANCIAL INFORMATION		4

ITEM 1. FINANCIAL STATEMENTS		4

Interim Condensed Consolidated Balance Sheets at ~~June 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~2021		4

Interim Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		5

Interim Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		6

Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		7

Interim Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		98

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)		109

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		39

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		52

ITEM 4. CONTROLS AND PROCEDURES		5352

PART II. OTHER INFORMATION		54

ITEM 1. LEGAL PROCEEDINGS		54

ITEM 1A. RISK FACTORS		54

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		54

ITEM 6. EXHIBITS		55

Signature Page		56

Available Unused Lines of Credit	Collateral Requirements	~~June 30, 2021~~March 31, 2022	December 31, ~~2020~~2021
Correspondent banks	None	$~~44.8~~45.0 million	$~~44.8~~45.0 million
Federal Reserve (discount window)	Subject to collateral	$~~1.3~~0.9 million	$~~1.6~~1.0 million
FHLB advances ⁽¹⁾	Subject to collateral	$~~227.9~~237.5 million	$~~225.8~~237.0 million

	Three Months Ended		Year Ended
	March 31, 2022		December 31, 2021		Total
	(Dollars in Thousands)
Expense Category
Severance and personnel expenses	$	108	$	263	$	371
Lease termination costs		2		224		226
Fixed asset valuation adjustments		—		239		239
Termination of technology contracts		30		85		115
Other expenses		—		93		93
Total expenses	$	140	$	904	$	1,044


Note A	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. These loans averaged ~~$1.9~~$2.1 million and ~~$3.5~~$2.5 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.
Note B	—	The annualized rate on total average funding costs, including total average interest-bearing liabilities and average non-interest-bearing demand deposits, was 0.36% and 0.64% for the three-month periods ended June 30, 2021 and 2020, respectively.
~~Note C~~	—	Loan fees are included in the interest amounts presented. Loan fees totaled ~~$0.5~~$0.3 million and ~~$0.4~~$0.5 million for the three-month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~These amounts included PPP processing fees of $149 thousand and $31 thousand for the three-month periods ended June 30, 2021 and 2020, respectively.~~


~~Note A~~	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. These loans averaged $2.2 million and $3.6 million for the six months ended June 30, 2021 and 2020, respectively.
~~Note B~~	—	The annualized rate on total average funding costs, including total average interest-bearing liabilities and average non-interest-bearing demand deposits, was 0.37% and 0.75% for the six-month periods ended June 30, 2021 and 2020, respectively.
~~Note C~~	—	Loan fees are included in the interest amounts presented. Loan fees totaled $0.8 million and $0.9 million for the six-month periods ended June 30, 2021 and 2020, respectively. These amounts included PPP processing fees of $242 thousand and $31 thousand for the six-month periods ended June 30, 2021 and 2020, respectively.

	Three Months Ended June 30, 2021									Six Months Ended June 30, 2021
	Compared to									Compared to
	Three Months Ended June 30, 2020									Six Months Ended June 30, 2020
	Increase (Decrease)									Increase (Decrease)
	Due to Change In:									Due to Change In:
	Volume			Average Rate			Net			Volume			Average Rate			Net
	(Dollars in Thousands)
Interest earned on:
Total loans	$	1,925		$	(1,494	)	$	431		$	3,774		$	(3,492	)	$	282
Taxable investment securities		(34	)		(115	)		(149	)		(138	)		(236	)		(374	)
Tax-exempt investment securities		12			(8	)		4			32			(23	)		9
Federal Home Loan Bank stock		(4	)		(3	)		(7	)		(4	)		(9	)		(13	)
Federal funds sold		(4	)		—			(4	)		(45	)		—			(45	)
Interest-bearing deposits in banks		4			—			4			85			(217	)		(132	)
Total interest-earning assets		1,899			(1,620	)		279			3,704			(3,977	)		(273	)
Interest expense on:
Demand deposits		39			(32	)		7			96			(125	)		(29	)
Savings deposits		30			(28	)		2			58			(223	)		(165	)
Time deposits		(13	)		(422	)		(435	)		(12	)		(952	)		(964	)
Borrowings		(1	)		17			16			(1	)		19			18
Total interest-bearing liabilities		55			(465	)		(410	)		141			(1,281	)		(1,140	)
Increase (decrease) in net interest income	$	1,844		$	(1,155	)	$	689		$	3,563		$	(2,696	)	$	867

	+1%			+2%			-1%			-2%
	(Dollars in Thousands)
Change in market value of assets	$	(19,302	)	$	(38,596	)	$	10,417		$	14,622
Change in market value of liabilities		(22,850	)		(41,072	)		23,969			21,270
Net change in market value of equity		3,548			2,476			(13,552	)		(6,648	)
Beginning market value of equity		119,715			121,404			116,711			116,710
Resulting market value of equity	$	123,263		$	123,880		$	103,159		$	110,062

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⁾
January 1 – January 31		4,735	$	10.91		3,200		1,006,013
February 1 – February 28		38,800	$	10.92		38,800		967,213
March 1 – March 31		45,600	$	10.96		45,600		921,613
Total		89,135	$	10.94		87,600		921,613

Exhibit No.		Description

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).

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

10.1*10.1		2022 Cash Incentive Program (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on January 26, 2022).

10.2		Amended and Restated Change in Control Agreement dated March 1, 2022, entered into by and among First US Bancshares, Inc. ~~Non-Employee Director Fee Schedule.~~, First US Bank and Thomas S. Elley – (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 000-14549), filed on March 4, 2022).

10.3		Second Amended and Restated Change in Control Agreement dated March 1, 2022, entered into by and among First US Bancshares, Inc., First US Bank and William C. Mitchell – (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 000-14549), filed on March 4, 2022).

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		The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL: (i) Interim Condensed Consolidated Balance Sheets, (ii) Interim Condensed Consolidated Statements of Comprehensive Income, (iii) Interim Condensed Consolidated Statements of Operations, (iv) Interim Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Interim Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Interim Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104		The cover page from the Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL.

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