Beach rental equipments

FIRST US BANCSHARES, INC. – 10-Q – MANAGEMENT REPORT ON THE FINANCIAL POSITION AND OPERATING RESULTS

ACTIVITY DESCRITION


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 September 30, 2021, the
Bank operated and served its customers through 15 banking offices located in
Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville,
Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell,
Tennessee; and Rose Hill, 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
third quarter of 2021, the Company closed four 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.
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.

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 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 187 full-time equivalent employees (as of
September 30, 2021), 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.

The focus of this discussion is a comparison of assets, liabilities and
equity at September 30, 2021 To December 31, 2020, while
compare revenues and expenses for the completed nine-month periods September 30, 2021
and 2020.

All returns and ratios presented and discussed here are recorded and presented
on an accrual basis and not on a tax equivalent basis, unless otherwise indicated
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. 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.

RECENT MARKET CONDITIONS: COVID-19 PANDEMIC

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.

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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. These reductions in interest rates and other economic uncertainties that
have arisen as a result primarily of 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 could occur;
however, the ultimate potential impact is not known at this time.

Response to the COVID-19 pandemic and the CARES law

Loan deferrals and credit risk identification


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 September 30, 2021,
loans that continued to be in pandemic-related deferment totaled $0.8 million,
compared to $8.1 million as of December 31, 2020 and $95.2 million as of June
30, 2020, at the height of deferment activity. 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
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 $11.6 million, or 1.6% of the loan portfolio, as of September 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.



Paycheck Protection Program



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
September 30, 2021, 77 PPP loans with an aggregate principal balance of $3.9
million remained outstanding. Of this amount, $0.2 million of the loans were
originated under two-year terms, and $3.7 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 September 30, 2021, 194 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 $398
thousand for the nine months ended September 30, 2021 and $161 thousand for the
year ended December 31, 2020. As of September 30, 2021, the Company had
approximately $188 thousand in remaining net deferred SBA PPP loan fees.


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EXECUTIVE OVERVIEW

Progress of strategic initiatives

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 cessation of new business and closure of ALC's branch locations
are being 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.



In connection with the ALC branch closures, the Company recorded pre-tax charges
of approximately $550 thousand during the third quarter of 2021. These one-time
expenses included severance and related personnel costs, lease termination
costs, fixed asset valuation adjustments, termination of technology contracts,
and other costs to administer the branch closures. The Company expects to incur
approximately $500 thousand in additional expenses in the coming months
primarily related to personnel expenses associated with one-time payments to ALC
personnel that continue to manage the remaining loan portfolio, as well as
expenses associated with the ultimate termination of ALC's remaining branch
leases. It is expected that the majority of the remaining one-time expenses will
be incurred during the fourth quarter of 2021 and the first quarter of 2022 and
will be fully offset by ongoing cost savings that result from the closures. The
ongoing cost savings include reduced personnel-related expenses, branch lease
and property depreciation expenses, and other overhead expenses that will no
longer be incurred.



In addition to the ALC branch closures, four of the Bank's previously existing
banking offices were closed during the third quarter of 2021. The decision to
close these banking offices was based on analysis of banking center activity,
profitability and Community Reinvestment Act assessment. The closures included
banking centers located in Bucksville, Columbiana and south Tuscaloosa, Alabama,
as well as Ewing, Virginia.



Earnings Highlights

The Company earned net income of $0.8 million, or $0.13 per diluted common
share, during the three months ended September 30, 2021, compared to $0.4
million, or $0.06 per diluted common share, for the three months ended September
30, 2020. For the nine months ended September 30, 2021, net income totaled $2.7
million, or $0.41 per diluted common share, compared to $1.7 million, or $0.25
per diluted common share, for the corresponding nine-month period of 2020.

The condensed consolidated statements of operating results are included below
for the completed three and nine month periods September 30, 2021 and 2020,
respectively.


                                                   Three Months Ended                       Nine Months Ended
                                            September 30,       September 30,       September 30,       September 30,
                                                2021                2020                2021                2020
                                                                     (Dollars in Thousands)
Interest income                            $        10,030     $         9,996     $        29,934     $        30,173
Interest expense                                       695               1,031               2,223               3,699
Net interest income                                  9,335               8,965              27,711              26,474
Provision for loan and lease losses                    618               1,046               1,517               2,476
Net interest income after provision for
loan and lease losses                                8,717               7,919              26,194              23,998
Non-interest income                                    896               1,375               2,656               4,002
Non-interest expense                                 8,547               8,747              25,342              25,822
Income before income taxes                           1,066                 547               3,508               2,178
Provision for income taxes                             229                 136                 768                 516
Net income                                 $           837     $           411     $         2,740     $         1,662
Basic net income per share                 $          0.13     $          0.07     $          0.43     $          0.27
Diluted net income per share               $          0.13     $          0.06     $          0.41     $          0.25
Dividends per share                        $          0.03     $          0.03     $          0.09     $          0.09




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



Net Interest Income



Net interest income increased $1.2 million comparing the nine months ended
September 30, 2021 to the nine months ended September 30, 2020. Although average
total loans increased $100.9 million comparing the nine months ended September
30, 2021 to the nine months ended September 30, 2020, interest income decreased
$0.2 million comparing the two periods. The decrease in 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

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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 0.36% for the nine months ended September 30, 2021, compared to
0.68% for the nine months ended September 30, 2020, which resulted in a
reduction in interest expense of $1.5 million comparing the two periods. In
addition to the prevailing interest rate environment, loan portfolio reductions
in the higher-yielding direct consumer portfolio, coupled with significant
influxes of investable cash through deposit growth, have also contributed to
margin compression.



Management expects the current lower interest rate environment to continue to
put pressure on net interest income and margin. Accordingly, the Company will
remain focused on deploying investable cash balances into loans or investment
securities that meet the Company's established credit standards, while at the
same time seeking to reduce interest expense through continued liability
repricing.



Provision for losses on loans and leases


The provision for loan and lease losses was $1.5 million during the nine months
ended September 30, 2021, compared to $2.5 million during the nine months ended
September 30, 2020. The decrease 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 September 30, 2021,
total loans at ALC, which contain the highest charge-off rates in the Company's
loan portfolio, were reduced by $7.9 million compared to September 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 during the nine months ended September 30, 2021 compared to
the prior fiscal year, including reductions 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's loan portfolio based on
circumstances existing as of September 30, 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.

Income other than interest

Non-interest income decreased by $1.4 million comparing the nine months ended
September 30, 2021 to the nine months ended September 30, 2020. Approximately
$0.8 million of the decrease resulted from reductions in service charges and
related fees on the Bank's deposit accounts, credit insurance income and
secondary market mortgage revenues, while the remaining $0.6 million of the
decrease resulted from net gains on the sale of investment securities and gains
on the sale of premises and equipment and other assets that occurred during the
nine months ended September 30, 2020 that were not repeated in the same period
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 charges

Non-interest expense decreased $0.5 million comparing the nine months ended
September 30, 2021 to the nine months ended September 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.

Provision for income taxes

The Company’s effective tax rate was 21.9% for the nine months ended September
30, 2021
, a decrease from 23.7% for the nine months ended September 30, 2020.

Balance sheet management

The Company's asset base increased during the nine months ended September 30,
2021. As of September 30, 2021, assets totaled $956.7 million, compared to
$890.5 million as of December 31, 2020. The discussion below presents
significant balance sheet components comparing September 30, 2021 to December
31, 2020.

Loans and Credit Quality



Total loans increased by $58.8 million as of September 30, 2021 compared to
December 31, 2020. The increase was distributed between indirect lending, real
estate lending, and commercial and industrial lending, which netted growth of
$52.6 million, $16.4 million and $4.0 million, respectively. Growth in real
estate lending was split between construction and non-residential real estate,
partially offset by a reduction in single family and multi-family residential
lending. Growth in the indirect portfolio continued to be focused on consumer
loans secured by

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collateral that includes recreational vehicles, campers, boats, horse trailers
and cargo trailers. The Bank does not originate auto loans in its indirect
portfolio. The Bank operates indirect lending in a 12-state footprint primarily
in the southeastern United States.



Aside from indirect lending, other consumer loan categories decreased during the
nine months ended September 30, 2021. The direct consumer and branch retail
categories, which consist primarily of loans at ALC, decreased by a total of
$6.3 million during the nine months ended September 30, 2021. We expect that the
ALC loan portfolio will continue to decrease over time as these loans mature and
are paid off. Additionally, the Bank's PPP loan balance, which is included
within commercial and industrial lending, declined by $7.9 million during the
nine months ended September 30, 2021 as PPP loans continue to be forgiven by the
SBA.

Non-performing assets, including unrecognized loans and other real estate assets
real estate ownership (OREO), decreased to $ 3.3 million from September 30, 2021,
compared to $ 4.0 million from December 31, 2020. As a percentage of the total
assets, non-performing assets improve to 0.35% September 30, 2021,
against 0.45% at December 31, 2020. Net depreciation as a percentage of
the average loan amount is 0.16% for the nine months ended September 30, 2021,
against 0.25% for the nine months ended September 30, 2020.

Investment security

During the third quarter of 2021, additional investment securities were
purchased in an effort 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 September 30, 2021, the
investment securities portfolio increased to $121.5 million, compared to $91.4
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 in the securities portfolio.

Deposits and loans

Deposits totaled $846.8 million as of September 30, 2021, compared to $782.2
million as of December 31, 2020. The deposit growth reflected 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. Of the total increase
in deposits, $23.4 million represented non-interest-bearing deposits, while
$41.2 million were interest-bearing.



Liquidity and capital

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.



During the third quarter of 2021, the Bank continued to maintain capital ratios
at higher levels than required to be considered a "well-capitalized" institution
under applicable banking regulations. As of September 30, 2021, the Bank's
common equity Tier 1 capital and Tier 1 risk-based capital ratios were each
10.69%. Its total capital ratio was 11.78%, and its Tier 1 leverage ratio was
8.51%.

Cash Dividend

The Company declared a cash dividend of $ 0.03 per share on its ordinary shares in
the third quarter of 2021, which is consistent with the Company’s dividend
declaration for the first and second quarters of 2021 and each quarter of 2020.

Issue of subordinated debt

Subsequent to September 30, 2021, 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 will bear interest at a rate of 3.50% per annum for the
first five years, then 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.




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RESULTS OF OPERATIONS

Net Interest Income

Net interest income is calculated as the difference between interest and fee
income generated from earning assets and the interest expense paid on deposits
and borrowed funds. Fluctuations in interest rates, as well as volume and mix
changes in earning assets and interest-bearing liabilities, can materially
impact net interest income. The Company's earning assets 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 nine-month
periods ended September 30, 2021 and 2020. 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
                                               September 30, 2021                           September 30, 2020
                                                                 Annualized                                   Annualized
                                      Average                      Yield/         Average                       Yield/
                                      Balance      Interest        Rate %         Balance       Interest        Rate %
                                                                    (Dollars in Thousands)
ASSETS
Interest-earning assets:
Total loans (Note A)                 $ 691,435     $   9,568            5.49 %   $ 609,609     $    9,557            6.24 %
Taxable investment securities          119,943           409            1.35 %      95,402            393            1.64 %
Tax-exempt investment securities         3,367            15            1.77 %       3,530             16            1.80 %
Federal Home Loan Bank stock               870             8            3.65 %       1,135             11            3.86 %
Federal funds sold                          86             -            0.00 %          80              -            0.00 %
Interest-bearing deposits in banks      73,490            30            0.16 %      72,288             19            0.10 %
Total interest-earning assets          889,191        10,030            4.48 %     782,044          9,996            5.08 %
Non-interest-earning assets:
Other assets                            67,067                              

68,424

Total                                $ 956,258                                   $ 850,468
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand deposits                      $ 239,188     $     141            0.23 %   $ 203,842     $      130            0.25 %
Savings deposits                       208,187           160            0.30 %     161,699            147            0.36 %
Time deposits                          223,988           351            0.62 %     226,269            717            1.26 %
Total interest-bearing deposits
(Note B)                               671,363           652            0.39 %     591,810            994            0.67 %
Borrowings                              10,032            43            1.70 %      10,252             37            1.44 %
Total interest-bearing liabilities     681,395           695            0.40 %     602,062          1,031            0.68 %
Non-interest-bearing liabilities:
Demand deposits                        176,102                                     153,112
Other liabilities                        9,158                                       9,638
Shareholders' equity                    89,603                                      85,656
Total                                $ 956,258                                   $ 850,468
Net interest income (Note C)                       $   9,335                                   $    8,965
Net interest margin                                                     4.17 %                                       4.56 %



Note A – For the purposes of these calculations, unaccounted for loans are included in

average outstanding loans. These loans amounted on average $ 1.1 million

and $ 3.1 million for the three months ended September 30, 2021 and 2020,

respectively.

Note B – The annualized rate on the total average financing costs, including the total

average interest-bearing and average non-interest-bearing liabilities

sight deposits, was 0.32% and 0.54% for the three-month periods ended

September 30, 2021 and 2020, respectively.

Note C – Borrowing costs are included in the interest amounts presented. Loan fees

totaled $ 0.4 million and $ 0.5 million for the completed three-month periods

September 30, 2021 and 2020, respectively. These amounts included the PPP

processing fee $ 156,000 and $ 48,000 for the three months

         periods ended September 30, 2021 and 2020, respectively.


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                                               Nine Months Ended                           Nine Months Ended
                                              September 30, 2021                          September 30, 2020
                                                                Annualized                                  Annualized
                                     Average                      Yield/         Average                      Yield/
                                     Balance      Interest        Rate %         Balance      Interest        Rate %
                                                                  (Dollars in Thousands)
ASSETS
Interest-earning assets:
Total loans (Note A)                $ 672,807     $  28,726            5.71 %   $ 571,881     $  28,433            6.64 %
Taxable investment securities         100,245         1,059            1.41 %     101,303         1,417            1.87 %
Tax-exempt investment securities        3,464            47            1.81 %       2,158            39            2.41 %
Federal Home Loan Bank stock              948            25            3.53 %       1,136            41            4.82 %
Federal funds sold                         84             -            0.00 %       6,302            45            0.95 %
Interest-bearing deposits in
banks                                  86,632            77            0.12 %      66,325           198            0.40 %
Total interest-earning assets         864,180        29,934            4.63 %     749,105        30,173            5.38 %
Non-interest-earning assets:
Other assets                           68,041                                      71,594
Total                               $ 932,221                                   $ 820,699
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Demand deposits                     $ 233,329     $     425            0.24 %   $ 185,667     $     442            0.32 %
Savings deposits                      190,296           453            0.32 %     161,026           605            0.50 %
Time deposits                         230,986         1,222            0.71 %     232,824         2,553            1.46 %
Total interest-bearing deposits
(Note B)                              654,611         2,100            0.43 %     579,517         3,600            0.83 %
Borrowings                             10,022           123            1.64 %      10,201            99            1.30 %
Total interest-bearing
liabilities                           664,633         2,223            0.45 %     589,718         3,699            0.84 %
Non-interest-bearing liabilities:
Demand deposits                       169,780                                     136,052
Other liabilities                       9,288                                       9,816
Shareholders' equity                   88,520                                      85,113
Total                               $ 932,221                                   $ 820,699
Net interest income (Note C)                      $  27,711                                   $  26,474
Net interest margin                                                    4.29 %                                      4.72 %



Note A – For the purposes of these calculations, unaccounted for loans are included in

average outstanding loans. These loans amounted on average $ 1.9 million

and $ 3.4 million for the nine months ended September 30, 2021 and 2020,

respectively.

Note B – The annualized rate on the total average financing costs, including the total

average interest-bearing and average non-interest-bearing liabilities

sight deposits, was 0.36% and 0.68% for the nine-month periods ended

September 30, 2021 and 2020, respectively.

Note C – Borrowing costs are included in the interest amounts presented. Loan fees

totaled $ 1.3 million and $ 1.4 million for the completed nine-month periods

September 30, 2021 and 2020, respectively. These amounts included PPP

processing fee $ 398,000 and $ 79,000 for the nine months

         periods ended September 30, 2021 and 2020, respectively.







                                       46
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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 interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) changes in volume, which are changes in the average balance multiplied by
the previous year's average rate, and (2) changes in rate, which are changes in
the average rate multiplied by the average balance during the current year
period. The net changes attributable to the combined impact of both rate and
volume have been allocated proportionately.



                            Three Months Ended September 30, 2021              Nine Months Ended September 30, 2021
                                         Compared to                                        Compared to
                            Three Months Ended September 30, 2020              Nine Months Ended September 30, 2020
                                     Increase (Decrease)                                Increase (Decrease)
                                      Due to Change In:                                  Due to Change In:
                                             Average                                           Average
                          Volume               Rate              Net         Volume              Rate             Net
                                                            (Dollars in Thousands)
Interest earned on:
Total loans            $      1,283       $       (1,272 )     $    11     $     5,018       $     (4,725 )     $    293
Taxable investment
securities                      101                  (85 )          16             (15 )             (343 )         (358 )
Tax-exempt
investment
securities                       (1 )                  -            (1 )            24                (16 )            8
Federal Home Loan
Bank stock                       (3 )                  -            (3 )            (7 )               (9 )          (16 )
Federal funds sold                -                    -             -             (44 )               (1 )          (45 )
Interest-bearing
deposits in banks                 -                   11            11              61               (182 )         (121 )
Total
interest-earning
assets                        1,380               (1,346 )          34           5,037             (5,276 )         (239 )
Interest expense on:
Demand deposits                  23                  (12 )          11             113               (130 )          (17 )
Savings deposits                 42                  (29 )          13             110               (262 )         (152 )
Time deposits                    (7 )               (359 )        (366 )           (20 )           (1,311 )       (1,331 )
Borrowings                       (1 )                  7             6              (2 )               26             24
Total
interest-bearing
liabilities                      57                 (393 )        (336 )           201             (1,677 )       (1,476 )
Increase (decrease)
in net interest
income                 $      1,323       $         (953 )     $   370     $     4,836       $     (3,599 )     $  1,237




Net interest margin was reduced by 39 basis points to 4.17% during the third
quarter of 2021, compared to 4.56% during the third quarter of 2020. Net
interest margin decreased 43 basis points to 4.29% for the nine months ended
September 30, 2021 compared to 4.72% for the nine months ended September 30,
2020. The reduction in net interest margin primarily resulted from the
prevailing low interest rate environment. 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. In addition to
the prevailing interest rate environment, loan portfolio reductions in the
higher-yielding direct consumer portfolio, coupled with significant influxes of
investable cash through deposit growth, have also contributed to margin
compression. Given this 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 0.32% during the third
quarter of 2021, compared to 0.54% during the third quarter of 2020, and
decreased to 0.36% during the nine months ended September 30, 2021, compared to
0.68% during the nine months ended September 30, 2020.



The Company's average loan balance increased by $81.8 million comparing the
third quarter of 2021 to the third quarter of 2020 and increased by $100.9
million comparing the nine-month period ended September 30, 2021 to the same
period of 2020. Interest earned on loans increased by $11 thousand comparing the
three-month periods ended September 30, 2021 and 2020 and increased by $0.3
million comparing the nine months ended September 30, 2021 to the corresponding
period of 2020. The growth in average loans from September 30, 2020 to September
30, 2021 was funded through growth in deposits combined with maturities, sales
and pay-downs in the Company's investment portfolio.



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 nine months ended September 30, 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 nine months ended September 30, 2021.



In the current interest rate environment, management expects to further reduce
interest expense as interest-bearing liabilities continue to reprice; however,
economic uncertainty remains due to the COVID-19 pandemic. We expect that growth
in net loan volume with loans of sufficient credit quality will enhance net
income, particularly as resources are shifted from lower earning excess cash
balances and federal funds sold into loan assets. However, there continues 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, as well as increased competition for quality loan and deposit
funding opportunities.

                                       47

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Provision for losses on loans and leases

The provision for loan and lease losses was $0.6 million during the third
quarter of 2021, compared to $1.0 million during the third quarter of 2020, and
was $1.5 million for the nine months ended September 30, 2021, compared to $2.5
million for the nine months ended September 30, 2020. The decrease 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 September 30, 2021, total loans at ALC, which
contain the highest charge-off rates in the Company's loan portfolio, were
reduced by $7.9 million compared to September 30, 2020, which led to lower
credit losses.

Management believes that the allowance for loan and lease losses as of September
30, 2021, 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 circumstances associated with the
Company's loan portfolio, and should economic circumstances deteriorate further,
additional loan loss provisioning may be required. 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.

Income other than interest

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 September 30,                       Nine Months Ended September 30,
                              2021          2020        $ Change      % Change        2021        2020       $ Change       % Change
                                    (Dollars in Thousands)                                (Dollars in Thousands)
Service charges and other
fees on
  deposit accounts           $   271       $   298     $      (27 )        (9.1 )%   $   777     $   995     $    (218 )        (21.9 )%
Credit insurance
commissions and fees              63            54              9         

16.7% 150 252 (102) (40.5)%
Life insurance held by the bank 110

           108              2           1.9 %        327         323             4            1.2 %
Net gain on sale and
prepayment of
  investment securities            -             -              -            NM           22         326          (304 )        (93.3 )%
Mortgage fees from
secondary market                   -           196           (196 )      (100.0 )%        23         499          (476 )        (95.4 )%
Lease income                     208           206              2           1.0 %        619         630           (11 )         (1.7 )%
Gain on sales of premises
and equipment
  and other assets                17           316           (299 )       (94.6 )%        17         324          (307 )        (94.8 )%
Other income                     227           197             30          15.2 %        721         653            68           10.4 %

Total non-interest income $ 896 $ 1375 $ (479) (34.8)% $ 2,656 $ 4,002 $ (1,346) (33.6)%


NM: Not measurable



Non-interest income at the Bank consists of 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 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 $1.3 million
comparing the three- and nine-month periods ended September 30, 2021 to the
corresponding periods of 2020. The decrease resulted from reductions in service
charges and related fees on the Bank's deposit accounts, credit insurance
income, net gains on the sale of investment securities, secondary market
mortgage revenues and gains on the sale of premises and equipment and other
assets. The decrease in service charges is consistent with changes in deposit
customer behaviors since the onset of the pandemic. The decreases in net gains
on the sale of investment securities and gains on the sale of premises and
equipment and other assets resulted from sales that occurred during the nine
months ended September 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 based on
changes in economic conditions, regulation or other factors. Non-interest income
is 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.

                                       48

————————————————– ——————————-

Non-interest charges

Non-interest expenses represent expenses incurred from sources other than
interest bearing liabilities. The following table shows the main components
non-interest charges for the periods indicated:

                                        Three Months Ended September 30,                        Nine Months Ended September 30,
                                  2021        2020        $ Change      % Change         2021         2020        $ Change      % Change
                                      (Dollars in Thousands)                                  (Dollars in Thousands)
Salaries and employee
benefits                        $  5,045     $ 5,138     $      (93 )        (1.8 )%   $ 14,951     $ 15,467     $     (516 )        (3.3 )%
Net occupancy and equipment
expense                            1,259       1,078     $      181          16.8 %       3,318        3,074            244           7.9 %
Computer services                    461         470     $       (9 )        (1.9 )%      1,411        1,311            100           7.6 %
Insurance expense and
assessments                          340         259     $       81          31.3 %         985          758            227          29.9 %
Fees for professional
services                             292         325     $      (33 )       (10.2 )%      1,003        1,004             (1 )        (0.1 )%
Postage, stationery and
supplies                             206         207     $       (1 )        (0.5 )%        618          639            (21 )        (3.3 )%

Telephone / data communications 283 232 $ 51

  22.0 %         742          684             58           8.5 %
Other real estate/foreclosure
(income) expense, net               (273 )        21     $     (294 )     (1400.0 )%       (286 )         62           (348 )      (561.3 )%
Other expense                        934       1,017     $      (83 )        (8.2 )%      2,600        2,823           (223 )        (7.9 )%

Total non-interest charges $ 8,547 $ 8,747 $ (200)

 (2.3 )%   $ 25,342     $ 25,822     $     (480 )        (1.9 )%




Non-interest expense decreased $0.2 million and $0.5 million comparing the
three- and nine-month periods ended September 30, 2021 to the corresponding
periods of 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 beginning in the fourth quarter of 2020.
The Company also recognized a gain of $0.3 million in other real estate during
the third quarter of 2021 due to the sale of the closed Bucksville, Alabama
branch, which caused a decline in non-interest expense for the three- and
nine-month periods ended September 30, 2021. Reductions in non-interest expense
were partially offset in the third quarter of 2021 by approximately $0.5 million
in one-time expenses associated with the closure to the public of ALC's
branches. These expenses included severance and related personnel costs, lease
termination costs, fixed asset valuation adjustments, termination of technology
contracts, and other costs to administer the branch closures. The Company
expects to incur approximately $0.5 million in additional one-time expenses
primarily related to personnel expenses associated with one-time payments to ALC
personnel that continue to manage the remaining loan portfolio, as well as
expenses associated with the ultimate termination of ALC's remaining branch
leases. It is expected that the majority of the remaining one-time expenses will
be incurred during the fourth quarter of 2021 and the first quarter of 2022 and
will be fully offset by ongoing cost savings that result from the branch
closures. The ongoing cost savings include reduced personnel-related expenses,
branch lease and property depreciation expenses, and other overhead expenses
that will no longer be incurred.



As a result of the restructuring efforts at ALC, the total number of ALC's
full-time equivalent employees was reduced to nine as of September 30, 2021,
compared to 77 as of June 30, 2021, and 81 as of December 31, 2020. The ALC
restructuring, combined with the closure of four Bank branches during the third
quarter of 2021, resulted in a decrease in the Company's total full-time
equivalent employees to 187 as of September 30, 2021, compared to 259 as of June
30, 2021, and 270 as of December 31, 2020. The ongoing reductions in salaries
and employee benefits, combined with efficiencies gained in branch operations at
both ALC and the Bank, are expected to drive continued reduction in the
Company's non-interest expense in the near term.

Provision for income taxes

The provision for income taxes was $0.2 million and $0.1 million for the
three-month periods ended September 30, 2021 and 2020, respectively, and the
Company's effective tax rate was 21.5% and 24.9%, respectively, for the same
periods. The provision for income taxes was $0.8 million and $0.5 million for
the nine-month periods ended September 30, 2021 and 2020, respectively, and the
Company's effective tax rate was 21.9% and 23.7%, 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.

BALANCE SHEET ANALYSIS

Investment security

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 years and 2.2 years as of
September 30, 2021 and December 31, 2020, respectively.

                                       49

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Available-for-sale securities are recorded at estimated fair value, with
unrealized gains or losses recognized, net of taxes, in accumulated other
comprehensive income, a separate component of shareholders' equity. As of
September 30, 2021, available-for-sale securities totaled $117.6 million, or
96.8% of the total investment portfolio, compared to $85.0 million, or 93.0% of
the total investment portfolio, as of December 31, 2020. 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 September 30, 2021, held-to-maturity securities totaled $3.9
million, or 3.2% of the total investment portfolio, compared to $6.4 million, or
7.0% of the total investment portfolio, as of December 31, 2020.
Held-to-maturity securities consisted of commercial mortgage-backed securities,
obligations of U.S. government-sponsored agencies and obligations of states and
political subdivisions.

Loans and allowance for losses on loans and leases

The tables below summarize the outstanding loans by category of portfolio at the end of
each of the five most recent quarters as of September 30, 2021:

                                                                 Quarter Ended
                                                       2021                                2020
                                      September        June          March       December      September
                                         30,            30,           31,           31,           30,
                                                            (Dollars in Thousands)
Real estate loans:
Construction, land development and
other land loans                      $   58,175     $  53,425     $  48,491     $  37,282     $   35,472
Secured by 1-4 family residential
properties                                73,112        78,815        82,349        88,856         95,147
Secured by multi-family residential
properties                                51,420        53,811        54,180        54,326         49,197
Secured by non-farm,
non-residential properties               198,745       191,398       193,626       184,528        183,754
Commercial and industrial loans,
including PPP loans                       77,679        77,359        79,838        81,735         86,898
Consumer loans:
Direct consumer                           25,845        26,937        26,998        29,788         30,048
Branch retail                             29,764        31,688        31,075        32,094         33,145
Indirect sales                           194,154       176,116       153,940       141,514        125,369
Total loans                           $  708,894     $ 689,549     $ 670,497     $ 650,123     $  639,030
Less unearned interest, fees and
deferred cost                              3,729         4,067         3,792         4,279          4,240
Allowance for loan and lease losses        8,193         7,726         7,475         7,470          7,185
Net loans                             $  696,972     $ 677,756     $ 659,230     $ 638,374     $  627,605






                                       50
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The tables below summarize the changes in the allowance for losses on loans and rentals.
for each of the five most recent quarters as of September 30, 2021:

                                                                 Quarter Ended
                                                      2021                                 2020
                                       September        June        March        December       September
                                          30,           30,          31,           31,             30,
                                                             (Dollars in Thousands)

Balance at the beginning of the period $ 7,726 $ 7,475 $ 7,470

     $    7,185     $     6,423
Charge-offs:
Real estate loans:
Construction, land development and
other land loans                                -           (1 )        (21 )            -               -
Secured by 1-4 family residential
properties                                     (1 )          4           (9 )           (9 )           (10 )
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                              (222 )       (278 )       (348 )         (274 )          (385 )
Branch retail                                 (77 )        (92 )       (130 )          (95 )           (58 )
Indirect sales                                (55 )       (193 )       (117 )          (49 )           (65 )
Total charge-offs                            (361 )       (560 )       (625 )         (427 )          (518 )
Recoveries                                    210          313          229            243             234
Net charge-offs                              (151 )       (247 )       (396 )         (184 )          (284 )
Provision for loan and lease losses           618          498          401            469           1,046
Ending balance                        $     8,193     $  7,726     $  7,475     $    7,470     $     7,185
Ending balance as a percentage of
loans (1)                                    1.16 %       1.13 %       1.12 %         1.16 %          1.13 %
Net charge-offs as a percentage of
average loans                                0.09 %       0.15 %       0.25 %         0.11 %          0.19 %




(1)   The allowance for loan and lease losses as a percentage of loans excluding
PPP loans, which are guaranteed by the SBA, for each of the five most recent
quarters was 1.17%, 1.15%, 1.15%, 1.18% and 1.16%, respectively.

Non-performing assets

Nonperforming assets at the end of the five most recent quarters as of September
30, 2021 were as follows:



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



The increase in non-performing assets during the third quarter of 2021 resulted in
the transfer of the assets of the closed branches of the Bank and the ALC to OREO.

                                       51

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Allocation of allowance for losses on loans and leases


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



                                                    September 30, 2021                                 December 31, 2020
                                                        Percent of       Percent of                        Percent of       Percent of
                                                        Allowance          Loans                           Allowance          Loans
                                                         in Each          in Each                           in Each          in Each
                                                         Category         Category                          Category         Category
                                       Allocation        to Total         to Total        Allocation        to Total         to Total
                                       Allowance        Allowance          Loans          Allowance        Allowance          Loans
                                                                           (Dollars in Thousands)
Real estate loans:
Construction, land development and
other land loans                      $        520              6.4 %            8.2 %   $        393              5.3 %            5.7 %
Secured by 1-4 family residential
properties                                     692              8.4 %           10.3 %            639              8.5 %           13.7 %
Secured by multi-family residential
properties                                     488              6.0 %            7.3 %            577              7.7 %            8.4 %
Secured by non-farm,
non-residential properties                   1,985             24.2 %           28.0 %          1,566             21.0 %           28.4 %
Commercial and industrial loans,
including PPP loans                            877             10.7 %           11.0 %          1,008             13.5 %           12.5 %
Consumer loans:
Direct consumer                                986             12.0 %            3.6 %          1,202             16.1 %            4.6 %
Branch retail                                  349              4.3 %            4.2 %            373              5.0 %            4.9 %
Indirect sales                               2,296             28.0 %           27.4 %          1,712             22.9 %           21.8 %
Total loans                           $      8,193            100.0 %          100.0 %   $      7,470            100.0 %          100.0 %




Deposits

Total deposits increased by 8.3% to $846.8 million as of September 30, 2021,
from $782.2 million as of December 31, 2020. 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 $795.5 million, or
93.9% of total deposits, as of September 30, 2021, compared to $726.9 million,
or 92.9% 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.

Deposits, in particular 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
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 during the third
quarter of 2021 may cause a slowing in deposit growth later this year. We 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.

Average daily amount of deposits and rates

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

                                        Three Months Ended                                         Nine Months Ended
                          September 30, 2021           September 30, 2020           September 30, 2021           September 30, 2020
                         Average                      Average                      Average                      Average
                          Amount         Rate          Amount         Rate          Amount         Rate          Amount         Rate
                                      (Dollars in Thousands)                                    (Dollars in Thousands)
Non-interest-bearing
demand deposit
accounts               $    176,102           -     $    153,112           -     $    169,780           -     $    136,052           -
Interest-bearing
demand deposit
accounts                    239,188        0.23 %        203,842        0.25 %        233,329        0.24 %        185,667        0.32 %
Savings deposits            208,187        0.30 %        161,699        0.36 %        190,296        0.32 %        161,026        0.50 %
Time deposits               223,988        0.62 %        226,269        1.26 %        230,986        0.71 %        232,824        1.46 %
Total deposits         $    847,465        0.31 %   $    744,922        0.53 %   $    824,391        0.34 %   $    715,569        0.67 %
Total
interest-bearing
deposits               $    671,363        0.39 %   $    591,810        0.67 %   $    654,611        0.43 %   $    579,517        0.83 %


                                       52
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Other interest-bearing liabilities

Other interest-bearing liabilities consist of federal funds purchased,
securities sold under agreements to repurchase and FHLB advances. This
category continues to be utilized as an alternative source of funds. During the
three- and nine-month periods ended September 30, 2021, these borrowings
represented 1.5% of average interest-bearing liabilities, compared to 1.7% in
the same periods of 2020.

Shareholders' Equity

The Company has historically placed significant emphasis on maintaining its
strong capital base and continues to do so. As of September 30, 2021,
shareholders' equity totaled $89.6 million, or 9.4% of total assets, compared to
$86.7 million, or 9.7% of total assets, as of December 31, 2020. 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 in retained earnings during the nine months ended
September 30, 2021 was supplemented by an increase in additional paid-in
capital, as well as an increase in accumulated other comprehensive income
associated with increases in the fair value of cash flow hedges during the nine
months ended September 30, 2021. The fair value of the cash flow hedges
fluctuates based on changes in interest rates. Accordingly, the increase in the
fair value of the hedges during the nine months ended September 30, 2021 is not
necessarily indicative of future performance of the portfolio.

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 of the nine-month periods ended September 30, 2021 and 2020, Bancshares
declared a dividend of $0.09 per common share, or approximately $0.6 million in
aggregate amount.

As of September 30, 2021 and December 31, 2020, 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 642,785 shares of Bancshares'
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 September 30, 2021, there were 1,054,961
shares available for repurchase under this program. During the nine months ended
September 30, 2021, there were no shares repurchased under this program. During
the year ended December 31, 2020, 38,604 shares were repurchased under the
program at a weighted average price of $11.70 per share, or $0.5 million in
total. 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 September 30, 2021 and December 31, 2020, a total of 115,308 and 111,419
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.

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LIQUIDITY AND CAPITAL RESOURCES

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 $107.2 million as of September 30,
2021 and $105.3 million as of December 31, 2020. Investment securities
forecasted to mature or reprice in one year or less were estimated to be $7.1
million and $11.3 million of the investment portfolio as of September 30, 2021
and December 31, 2020, 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 years and 2.2 years as
of September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020, the Company had $10.0
million of outstanding borrowings under FHLB advances. The Company had up to
$234.0 million and $225.8 million in remaining unused credit from the FHLB
(subject to available collateral) as of September 30, 2021 and December 31,
2020, respectively. In addition, the Company had $45.9 million and $46.4 million
in unused established federal funds lines as of September 30, 2021 and December
31, 2020, respectively.

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

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