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

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

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

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

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

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

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


Class	Outstanding at ~~November~~ 8~~, 2017~~August 10, 2020
Common Stock, $0.01 par value	~~6,077,354~~6,176,756 shares

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

		PAGE

	PART I. FINANCIAL INFORMATION
		4
~~ITEM~~ 1.
ITEM 1. FINANCIAL STATEMENTS		4

Interim C~~ondensed~~Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2020 (Unaudited) and December 31, ~~2016~~2019		4

Interim C~~ondensed~~Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		5

Interim C~~ondensed~~Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)		6

Interim C~~ondensed~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)		7

Interim Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 (Unaudited)	7	9

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	8
		10
~~ITEM~~ 2.
~~MANAGEMENT~~’SITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35
		42
~~ITEM~~ 3.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
		55
~~ITEM~~ 4.
ITEM 4. CONTROLS AND PROCEDURES	51	56

	PART II.II. OTHER INFORMATION	52
		57
~~ITEM~~ 1.
ITEM 1. LEGAL PROCEEDINGS	52
		57
~~ITEM~~ ~~1A.~~
ITEM 1A. RISK FACTORS	52
		57
~~ITEM~~ 2.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52
		59
~~ITEM~~ 6.
ITEM 6. EXHIBITS	52	60

Signature Page	53	61

FORWARD-LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). In addition, First US Bancshares, Inc. (“Bancshares” and, together with its subsidiaries, the “Company”), through its senior management, from time to time makes forward-looking statements concerning its expected future operations, ~~and~~ performance and other developments. The words “estimate,” “project,” “intend,” “anticipate,” “expect,” “believe,” “~~continues~~”“continues” and similar expressions are indicative of forward-looking statements. Such forward-looking statements are necessarily estimates reflecting the Company’s best judgment based on current information and involve a number of risks and uncertainties, and various factors could cause results to differ materially from those contemplated by such forward-looking statements. Such factors could include those identified from time to time in the Company’s Securities and Exchange Commission (“SEC”) filings and other public announcements, including the risk factors described in Part I, Item 1A of the ~~Company’s~~Company's Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2019 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. Specifically, with respect to statements relating to ~~loan demand, growth and earnings potential, geographic expansion and~~ the ~~adequacy~~sufficiency of the allowance for loan and lease losses, ~~for~~loan demand, cash flows, interest costs, growth and earnings potential, expansion and the ~~Company,~~Company’s positioning to handle the challenges presented by COVID-19, these factors include, but are not limited to, the rate of growth (or lack thereof) in the economy generally and in the Bank’s and ALC’s service areas; market conditions and investment returns; changes in interest rates; the impact of the current COVID-19 pandemic on the Company’s ~~service areas,~~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 or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security 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 pending discontinuation of LIBOR as an interest rate benchmark; the availability of quality loans in the Company’s service ~~areas,~~areas; the relative strength and weakness in the consumer and commercial credit sectors and in the real estate ~~markets~~markets; collateral values; and ~~collateral values. Forward-looking statements speak only as~~cybersecurity threats. There can be no assurance that such factors or other factors will not affect the accuracy of ~~the date they are made, and the Company undertakes no obligation to revise~~such forward-looking ~~statements to reflect circumstances or events that occur after the dates on which the forward-looking statements are made, except as required by law.~~statements.

P~~ART~~PART I. ~~FINANCIAL~~FINANCIAL INFORMATION

I~~TEM~~ITEM 1.

FINANCIAL STATEMENTS

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

		September 30,			December 31,				June 30,			December 31,
		2017			2016				2020			2019
		(Unaudited)							(Unaudited)
ASSETS	ASSETS							ASSETS
Cash and due from banks		$	8,705		$	7,018			$	12,751		$	11,939
Interest-bearing deposits in banks			23,849			16,512				95,517			45,091
Total cash and cash equivalents			32,554			23,530				108,268			57,030
Federal funds sold										80			10,080
Investment securities available-for-sale, at fair value			158,425			181,910				94,658			94,016
Investment securities held-to-maturity, at amortized cost			27,377			25,904				9,306			14,340
Federal Home Loan Bank stock, at cost			1,396			1,581				1,135			1,137
Loans, net of allowance for loan losses of $4,808 and $4,856, respectively			338,026			322,772
Premises and equipment, net			26,242			18,340
Loans, net of allowance for loan and lease losses of $6,423 and $5,762, respectively										566,062			545,243
Premises and equipment, net of accumulated depreciation of $23,195 and $22,570, respectively										28,724			29,216
Cash surrender value of bank-owned life insurance			14,843			14,603				15,696			15,546
Accrued interest receivable			1,877			1,987				3,140			2,488
Goodwill and core deposit intangible, net										8,605			8,825
Other real estate owned			3,819			4,858				1,003			1,078
Other assets			10,040			11,407				9,070			9,739
Total assets		$	614,599		$	606,892			$	845,747		$	788,738
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits		$	508,385		$	497,556
LIABILITIES AND SHAREHOLDERS’ EQUITY								LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest-bearing									$	153,664		$	112,729
Interest-bearing										584,626			570,933
Total deposits										738,290			683,662
Accrued interest expense			281			241				438			537
Other liabilities			6,444			7,735				11,404			9,766
Short-term borrowings			10,635			10,119				10,334			10,025
Long-term debt			10,000			15,000
Total liabilities			535,745			530,651				760,466			703,990
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,341,556 and 7,329,060 shares issued, respectively; 6,077,354 and 6,043,102 shares outstanding, respectively			73			73
Surplus			10,657			10,786
Accumulated other comprehensive income (loss), net of tax			25			(1,277	)
Shareholders’ equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized; 7,596,551 and 7,568,053 shares issued, respectively; 6,176,433 and 6,157,692 shares outstanding, respectively										75			75
Additional paid-in capital										13,573			13,814
Accumulated other comprehensive loss, net of tax										(145	)		(46	)
Retained earnings			88,525			87,434				93,636			92,755
Less treasury stock: 1,264,202 and 1,285,958 shares at cost, respectively			(20,414	)		(20,764	)
Noncontrolling interest			(12	)		(11	)
Total shareholders’ equity			78,854			76,241
Total liabilities and shareholders’ equity		$	614,599		$	606,892
Less treasury stock: 1,420,118 and 1,410,361 shares at cost, respectively										(21,858	)		(21,850	)
Total shareholders’ equity										85,281			84,748
Total liabilities and shareholders’ equity									$	845,747		$	788,738

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

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

	Three Months Ended					Nine Months Ended			Three Months Ended				Six Months Ended
	September 30,					September 30,			June 30,				June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Interest income:
Interest and fees on loans	$	6,802	$	6,773	$	19,928	$	19,192	$	9,237	$	9,833	$	18,876	$	19,506
Interest on investment securities		1,018		987		3,085		3,242		543		1,090		1,301		2,230
Total interest income		7,820		7,760		23,013		22,434		9,780		10,923		20,177		21,736

Interest expense:
Interest on deposits		617		532		1,713		1,568		1,131		1,690		2,606		3,330
Interest on borrowings		68		55		189		115		26		—		62		—
Total interest expense		685		587		1,902		1,683		1,157		1,690		2,668		3,330

Net interest income		7,135		7,173		21,111		20,751		8,623		9,233		17,509		18,406

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

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

Provision for loan and lease losses										850		715		1,430		1,115
Net interest income after provision for loan and lease losses										7,773		8,518		16,079		17,291
Non-interest income:
Service and other charges on deposit accounts		481		463		1,406		1,306		263		443		697		903
Credit insurance income		160		256		459		570		45		108		198		251
Net gain on sales and prepayments of investment securities		178		259		228		657		326		9		326		22
Mortgage fees from secondary market										176		186		303		289
Lease income										212		212		424		421
Other income, net		417		589		1,240		1,503		308		333		679		670
Total non-interest income		1,236		1,567		3,333		4,036		1,330		1,291		2,627		2,556

Non-interest expense:
Salaries and employee benefits		4,370		4,334		13,048		12,734		5,193		5,195		10,329		10,183
Net occupancy and equipment		806		830		2,276		2,381		995		1,046		1,996		2,135
Other real estate/foreclosure expense, net		244		124		461		370
Computer services										424		333		841		684
Fees for professional services										401		321		679		563
Other expense		1,770		2,060		5,305		6,184		1,568		1,609		3,230		3,392
Total non-interest expense		7,190		7,348		21,090		21,669		8,581		8,504		17,075		16,957

Income before income taxes		808		712		1,890		1,735		522		1,305		1,631		2,890
Provision for income taxes		173		162		435		406		118		300		380		651
Net income	$	635	$	550	$	1,455	$	1,329	$	404	$	1,005	$	1,251	$	2,239
Basic net income per share	$	0.10	$	0.09	$	0.24	$	0.22	$	0.07	$	0.16	$	0.20	$	0.35
Diluted net income per share	$	0.10	$	0.09	$	0.22	$	0.21	$	0.06	$	0.15	$	0.19	$	0.33
Dividends per share	$	0.02	$	0.02	$	0.06	$	0.06	$	0.03	$	0.02	$	0.06	$	0.04

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

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

Three Months Ended
     Nine Months Ended

September 30,
     September 30,

2017

2016
  2017   2016

(Unaudited)
     (Unaudited)
Net income
$ 635 $ 550 $ 1,455 $ 1,329
Other comprehensive income:

Unrealized holding gains (losses) on securities available-for-sale arising during period, net of tax expense (benefit) of $(7), $(39), $864 and $656, respectively
(12 ) (66 ) 1,481 1,125
Reclassification adjustment for net gains on securities available-for-sale realized in net income, net of tax expense of $66, $93, $84 and $238, respectively
(113 ) (160
)
(144 ) (410 )
Unrealized holding gains (losses) arising during the period on effective cash flow hedge derivatives, net of tax expense (benefit) of $(1), $34, $(20) and $(48), respectively (1 )
57
(35 )
(82
)
Other comprehensive income (loss)
(126 ) (169
)
1,302 633
Total comprehensive income
$ 509 $ 381 $ 2,757 $ 1,962

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
	(Unaudited)						(Unaudited)
Net income	$	404		$	1,005		$	1,251		$	2,239
Other comprehensive income (loss):
Unrealized holding gains on securities available-for-sale arising during period, net of tax expense of $343, $402, $550 and $686, respectively		1,031			1,205			1,653			2,056
Reclassification adjustment for net gains on securities available-for -sale realized in net income, net of tax of $81, $2, $81 and $5, respectively		(245	)		(7	)		(245	)		(17	)
Unrealized holding losses arising during the period on effective cash flow hedge derivatives, net of tax benefit of $56, $0, $503 and $0, respectively		(168	)		—			(1,507	)		—
Other comprehensive income (loss)		618			1,198			(99	)		2,039
Total comprehensive income	$	1,022		$	2,203		$	1,152		$	4,278

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

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

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

(Dollars in ~~Thousands)~~Thousands, Except Share and Per Share Data)

Nine Months Ended

September 30,

2017

2016

(Unaudited)

Cash flows from operating activities:

Net income
$ 1,455 $ 1,329
Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization
781 726
Provision for loan losses
1,464

1,383

Deferred income tax provision
231 368
Net gain on sale and prepayment of investment securities

(228
)
(657
)
Stock-based compensation expense
262 218
Net amortization of securities
869 1,163
Net loss on premises and equipment and other real estate
453 573
Changes in assets and liabilities:

Decrease (increase) in accrued interest receivable
110 (14 )
Decrease in other assets
57 224
Increase in accrued interest expense
40

51

Decrease in other liabilities
(114
)
(27
)
Net cash provided by operating activities
5,380 5,337
Cash flows from investing activities:

Purchases of investment securities, available-for-sale
(15,254
)
(49,236
)
Purchases of investment securities, held-to-maturity
(4,696
)
(13,850
)
Proceeds from sales of investment securities, available-for-sale

1,749
30,439
Proceeds from maturities and prepayments of investment securities, available-for-sale
38,570 37,131
Proceeds from maturities and prepayments of investment securities, held-to-maturity
3,119 17,779
Net decrease (increase) in Federal Home Loan Bank stock

185

(343
)
Proceeds from the sale of premises and equipment and other real estate
1,215 1,208
Net change in loan portfolio
(17,326 ) (64,081 )
Purchases of premises and equipment
(9,858
)
(4,554
)
Net cash used in investing activities
(2,296 ) (45,507 )
Cash flows from financing activities:

Net increase in customer deposits
10,829

14,570

Net increase (decrease) in other borrowings
516 (2,017 )
Net increase (decrease) in Federal Home Loan Bank advances (5,000 ) 10,000
Net share-based compensation transactions (41 ) —
Dividends paid
(364
)
(362
)
Net cash provided by financing activities
5,940

22,191

Net increase (decrease) in cash and cash equivalents
9,024

(17,979
)
Cash and cash equivalents, beginning of period
23,530 44,072
Cash and cash equivalents, end of period
$ 32,554 $ 26,093
Supplemental disclosures:

Cash paid for:

Interest
$ 1,862 $ 1,632
Income taxes

77
85
Non-cash transactions:

Assets acquired in settlement of loans 608 1,009
Reissuance of treasury stock as compensation
$ 350 $ 53

For the three months ended June 30, 2020 and 2019 (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, 2019		6,303,582	$	75	$	13,589		$	(1,536	)	$	89,859		$	(20,414	)	$	81,573
Net income		—		—		—			—			1,005			—			1,005
Net change in fair value of securities available-for-sale, net of tax		—		—		—			1,198			—			—			1,198
Dividends declared: $.02 per share		—		—		—			—			(127	)		—			(127	)
Impact of stock-based compensation plans, net		—		—		99			—			—			—			99
Reissuance of treasury stock as compensation		2,579		—		(42	)		—			—			42			—
Balance, June 30, 2019		6,306,161	$	75	$	13,646		$	(338	)	$	90,737		$	(20,372	)	$	83,748

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

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in Thousands, Except Share and Per Share Data)

For the six months ended June 30, 2020 and 2019 (Unaudited)

	Common Stock Shares Outstanding			Common Stock		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock, at Cost			Non- controlling Interest			Total Shareholders’ Equity
Balance, January 1, 2019		6,298,062		$	75	$	13,496		$	(2,377	)	$	88,668		$	(20,414	)	$	(11	)	$	79,437
Net income		—			—		—			—			2,239			—			—			2,239
Net change in fair value of securities available-for-sale, net of tax		—			—		—			2,039			—			—			—			2,039
Dividends declared: $.04 per share		—			—		—			—			(253	)		—			—			(253	)
Impact of stock-based compensation plans, net		5,520			—		192			—			—			—			—			192
Reissuance of treasury stock as compensation		2,579			—		(42	)		—			—			42			—			—
Discontinuation of partnership consolidation		—			—		—			—			83			—			11			94
Balance, June 30, 2019		6,306,161		$	75	$	13,646		$	(338	)	$	90,737		$	(20,372	)	$	—		$	83,748

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

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

FIRST US BANCSHARES, INC. AND SUBSIDIARIES

NINTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Six Months Ended
	June 30,
	2020			2019
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,251		$	2,239
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		806			796
Provision for loan and lease losses		1,430			1,115
Deferred income tax provision		366			624
Net gain on sale and prepayment of investment securities		(326	)		(22	)
Stock-based compensation expense		203			192
Net amortization of securities		170			306
Amortization of intangible assets		220			256
Net loss on premises and equipment and other real estate		288			245
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable		(652	)		340
Decrease (increase) in other assets		28			(4,079	)
(Decrease) increase in accrued interest expense		(99	)		102
(Decrease) increase in other liabilities		(1,278	)		3,192
Net cash provided by operating activities		2,407			5,306
Cash flows from investing activities:
Net decrease (increase) in federal funds sold		10,000			(6,727	)
Purchases of investment securities, available-for-sale		(26,296	)		(2,784	)
Proceeds from sale of investment securities, available-for-sale		12,203			—
Proceeds from maturities and prepayments of investment securities, available-for-sale		15,513			19,787
Proceeds from maturities and prepayments of investment securities, held-to-maturity		5,005			2,733
Net decrease (increase) in Federal Home Loan Bank stock		2			(10	)
Proceeds from the sale of premises and equipment and other real estate		646			768
Net (increase) decrease in loans		(21,896	)		1,455
Purchases of premises and equipment		(461	)		(2,642	)
Net cash (used in) provided by investing activities		(5,284	)		12,580
Cash flows from financing activities:
Net increase (decrease) in deposits		54,628			(21,919	)
Net increase (decrease) in short-term borrowings		309			(454	)
Treasury stock repurchases		(452	)		—
Dividends paid		(370	)		(253	)
Net cash provided by (used in) financing activities		54,115			(22,626	)
Net increase (decrease) in cash and cash equivalents		51,238			(4,740	)
Cash and cash equivalents, beginning of period		57,030			49,599
Cash and cash equivalents, end of period	$	108,268		$	44,859
Supplemental disclosures:
Cash paid for:
Interest	$	2,767		$	3,228
Income taxes		185			151
Non-cash transactions:
Assets acquired in settlement of loans		854			782
Reissuance of treasury stock as compensation		444			42

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

~~OTES~~FIRST US BANCSHARES, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

GENERAL

The accompanying unaudited interim condensed consolidated financial statements include the accounts of First US Bancshares, Inc. (“Bancshares”) and its subsidiaries (collectively, the “Company”). Bancshares is the parent holding company of First US Bank (the “Bank”). The Bank operates a finance company subsidiary, Acceptance Loan Company, Inc. (“ALC”). Management has determined that the Bank and ALC comprise Bancshares’ two reportable operating segments. All significant intercompany transactions and accounts have been eliminated.

The unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results expected for the fiscal year ending December 31, ~~2017~~.2020. While certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), management believes that the disclosures herein are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2019.

Risks and Uncertainties

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 duration and spread of COVID-19, its impact on our customers, employees and vendors, and the continued governmental, regulatory and private sector responses, which may be precautionary, to the coronavirus.

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, as well as other factors, in March 2020, the 10-year Treasury yield was reduced to historic lows, and the equity markets were significantly impacted. In response, the Federal Reserve reduced the target federal funds rate by 50 basis points on March 3, 2020, and then by an additional 100 basis points on March 15, 2020. These reductions 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.

2.	BASIS OF PRESENTATION

Summary of Significant Accounting Policies

Certain significant accounting policies followed by the Company are set forth in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2019.

Reclassification

Certain disclosures in the notes to the prior period consolidated financial statements have been reclassified to conform to the 2020 presentation. These reclassifications had no effect on the Company’s results of operations, financial position or net cash flow.

Net Income Per Share ~~and Comprehensive Income~~

Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding ~~during the period.~~(basic shares). Included in basic shares are certain shares that have been accrued as of the balance sheet date as deferred ~~compensation~~compensation for members of Bancshares’ Board of ~~Directors.~~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, ~~during the period,~~ adjusted for the effect of potentially dilutive stock awards outstanding during the ~~period.~~period (dilutive shares). The dilutive shares consist of nonqualified stock option grants issued to employees and members of Bancshares’ Board of Directors pursuant to ~~Bancshares’~~the 2013 Incentive ~~Plan (the “2013 Incentive Plan”) previously approved by Bancshares’ shareholders.~~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				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Basic shares		6,176,381		6,151,701		6,170,892		6,147,325		6,276,001		6,423,642		6,279,079		6,420,653
Dilutive shares		320,501		272,550		320,501		272,550		422,000		427,282		422,000		427,282
Diluted shares		6,496,882		6,424,251		6,491,393		6,419,875		6,698,001		6,850,924		6,701,079		6,847,935

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016		2017		2016		2020		2019		2020		2019
	(Dollars in Thousands, Except Per Share Data)								(Dollars in Thousands, Except Per Share Data)
Net income	$	635	$	550	$	1,455	$	1,329	$	404	$	1,005	$	1,251	$	2,239
Basic net income per share	$	0.10	$	0.09	$	0.24	$	0.22	$	0.07	$	0.16	$	0.20	$	0.35
Diluted net income per share	$	0.10	$	0.09	$	0.22	$	0.21	$	0.06	$	0.15	$	0.19	$	0.33

Comprehensive Income

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

Accounting Policies Recently Adopted

Accounting Standards Update (“ASU”) 2018-15, “Intangibles-Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force).” Issued in August 2018, ASU 2018-15 aims to reduce complexity in the accounting for costs of implementing a cloud computing service arrangement. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments of ASU 2018-15 require an entity to follow the guidance in FASB Accounting Standards Codification (“ASC”) Subtopic 350-40, “Intangibles-Goodwill and Other – Internal-Use Software,” in order to determine which implementation costs to capitalize as assets related to the service contract and which costs to expense. The amendments of ASU 2018-15 also require an entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement (i.e., the noncancelable period of the arrangement plus periods covered by (1) an option to extend the arrangement if the entity is reasonably certain to exercise that option, (2) an option to terminate the arrangement if the entity is reasonably certain not to exercise the option and (3) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor). ASU 2018-15 also requires an entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement, and to classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. ASU 2018-15 became effective for the Company on January 1, 2020. The adoption of ASU 2018-15 did not have a material impact on the Company’s consolidated financial statements.

ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” Issued in August 2018, the amendments in this ASU remove disclosure requirements in ASC Topic 820 related to (1) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels and (3) the valuation processes for Level 3 fair value measurements. The ASU also modifies disclosure requirements such that (1) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date that restrictions from redemption might lapse, only if the investee has communicated the timing to the entity or announced the timing publicly, and (2) it is clear that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. Additionally, this ASU adds disclosure requirements for public entities about (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 became effective for the Company on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.

Pending Accounting Pronouncements

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 U.S. 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 evaluating the impact of the potential discontinuance of LIBOR, and a determination cannot be made at this time as to the impact that the amendments of ASU 2020-04 or the reference rate reform will have on the Company’s consolidated financial statements.

ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting ~~Standards Update (“~~for Income Taxes.” ~~ASU”~~Issued in December 2019, 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 clarifying and amending existing guidance. The Company intends to adopt the amendments in ASU 2019-12 on January 1, 2021. Adoption of ASU 2019-12 is not expected to have a material impact on the Company’s consolidated financial statements.

ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350) ~~2016-13~~, : 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 ~~will remove~~removes all current recognition thresholds and ~~will require~~requires companies to recognize an allowance for lifetime expected credit losses. Credit losses will be immediately recognized through net ~~income;~~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. ~~For public business entities,~~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 iswas effective for financial statements issued for fiscal years and for interim periods within those fiscal years beginning after December 15, ~~2019. Institutions will be~~2019, with institutions required to apply the changes through a cumulative-effect adjustment to their retained earnings balance as of the beginning of the first reporting period in which the guidance is effective. ~~Management is currently evaluating~~On October 16, 2019, the ~~impact that this ASU will have on~~FASB approved a delay in the ~~Company’s consolidated financial statements.~~

~~ASU 2016-09, “Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting.”~~ Issued in March 2016, ASU 2016-09 seeks to reduce complexity in accounting standards by simplifying several aspects of the accounting for share-based payment transactions, including (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes; (6) the practical expedient for estimating the expected term; and (7) intrinsic value. ASU 2016-09 became effective for the Company on January 1, 2017. The adoptionimplementation of ASU ~~2016-09 did not have~~2016-13 by three years for smaller reporting companies, including the Company. Management has been in the process of developing a ~~material~~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.~~

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

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

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

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

3.	INVESTMENT SECURITIES

Details of investment securities available-for-sale and held-to-maturity as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:

	Available-for-Sale									Available-for-Sale
	September 30, 2017									June 30, 2020
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	83,391	$	477	$	(318	)	$	83,550	$	31,638	$	1,009	$	(13	)	$	32,634
Commercial		67,781		62		(705	)		67,138		52,201		858		(212	)		52,847
Obligations of states and political subdivisions		5,424		231		—			5,655		6,211		113		(1	)		6,323
Obligations of U.S. government-sponsored agencies		2,000		2		—			2,002
Corporate notes											2,706		67		—			2,773
U.S. Treasury securities		80		—		—			80		81		—		—			81
Total	$	158,676	$	772	$	(1,023	)	$	158,425	$	92,837	$	2,047	$	(226	)	$	94,658

	Held-to-Maturity									Held-to-Maturity
	September 30, 2017									June 30, 2020
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	15,976	$	18	$	(61	)	$	15,933	$	7,052	$	105	$	(4	)	$	7,153
Obligations of U.S. government-sponsored agencies		9,458		25		(79	)		9,404		1,205		38		—			1,243
Obligations of states and political subdivisions		1,943		26		(3	)		1,966		1,049		24		—			1,073
Total	$	27,377	$	69	$	(143	)	$	27,303	$	9,306	$	167	$	(4	)	$	9,469

	Available-for-Sale									Available-for-Sale
	December 31, 2016									December 31, 2019
			Gross		Gross			Estimated				Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	99,922	$	490	$	(2,003	)	$	98,409	$	46,182	$	372	$	(209	)	$	46,345
Commercial		71,761		56		(1,287	)		70,530		43,686		73		(386	)		43,373
Obligations of states and political subdivisions		9,759		390		(7	)		10,142		4,123		95		—			4,218
Obligations of U.S. government-sponsored agencies		2,000		—		(7	)		1,993
Corporate notes		756		—		—			756
U.S. Treasury securities		80		—		—			80		80		—		—			80
Total	$	184,278	$	936	$	(3,304	)	$	181,910	$	94,071	$	540	$	(595	)	$	94,016

	Held-to-Maturity									Held-to-Maturity
	December 31, 2016									December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in Thousands)									(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	14,684	$	5	$	(148	)	$	14,541	$	8,923	$	2	$	(46	)	$	8,879
Obligations of U.S. government-sponsored agencies		9,129		13		(222	)		8,920		4,324		5		(10	)		4,319
Obligations of states and political subdivisions		2,091		2		(46	)		2,047		1,093		15		—			1,108
Total	$	25,904	$	20	$	(416	)	$	25,508	$	14,340	$	22	$	(56	)	$	14,306

The scheduled maturities of investment securities available-for-sale and held-to-maturity as of ~~September~~June 30,~~, 2017~~ 2020 are presented in the following table:

Available-for-Sale

Held-to-Maturity

Amortized
Cost

Estimated
Fair
Value

Amortized
Cost

Estimated
Fair
Value

(Dollars in Thousands)

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

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

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in Thousands)
Maturing within one year	$	3,493	$	3,523	$	22	$	22
Maturing after one to five years		4,655		4,802		765		783
Maturing after five to ten years		47,024		48,326		3,594		3,659
Maturing after ten years		37,665		38,007		4,925		5,005
Total	$	92,837	$	94,658	$	9,306	$	9,469

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

The following ~~table reflects~~tables reflect gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

	Available-for-Sale										Available-for-Sale
	September 30, 2017										June 30, 2020
	Less than 12 Months					12 Months or More					Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)										(Dollars in Thousands)
Mortgage-backed securities:
Residential	$	38,784	$	(115	)	$	14,350	$	(203	)	$	1,414	$	(6	)	$	866	$	(7	)
Commercial		19,576		(145	)		37,291		(560	)		4,415		(6	)		3,469		(206	)
Obligations of states and political subdivisions												1,139		(1	)		146		—
U.S. Treasury securities		80		—			—		—			81		—			—		—
Total	$	58,440	$	(260	)	$	51,641	$	(763	)	$	7,049	$	(13	)	$	4,481	$	(213	)

	Held-to-Maturity										Held-to-Maturity
	September 30, 2017										June 30, 2020
	Less than 12 Months					12 Months or More					Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)										(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	9,643	$	(58	)	$	423	$	(3	)	$	771	$	(4	)	$	—	$	—
Obligations of U.S. government-sponsored agencies		3,217		(27	)		4,345		(52	)
Obligations of states and political subdivisions		—		—			543		(3	)
Total	$	12,860	$	(85	)	$	5,311	$	(58	)	$	771	$	(4	)	$	—	$	—

Available-for-Sale

December 31, 2016

Less than 12 Months

12 Months or More

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

(Dollars in Thousands)

Mortgage-backed securities:

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

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

	Held-to-Maturity									Available-for-Sale
	December 31, 2016									December 31, 2019
	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										$	17,340	$	(66	)	$	10,094	$	(143	)
Commercial	$	12,776	$	(148	)	$	—	$	—		3,794		(25	)		29,754		(361	)
Obligations of U.S. government-sponsored agencies		7,957		(222	)		—		—
Obligations of states and political subdivisions		1,628		(46	)		—		—
U.S. Treasury securities											80		—			—		—
Total	$	22,361	$	(416	)	$	—	$	—	$	21,214	$	(91	)	$	39,848	$	(504	)

	Held-to-Maturity
	December 31, 2019
	Less than 12 Months					12 Months or More
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in Thousands)
Mortgage-backed securities:
Commercial	$	685	$	—		$	6,405	$	(46	)
Obligations of U.S. government-sponsored agencies		846		(4	)		2,994		(6	)
Total	$	1,531	$	(4	)	$	9,399	$	(52	)

Management evaluates securities for other-than-temporary impairment no less frequently than quarterly and more frequently when economic or market concerns warrant such evaluation. Consideration is given to: (i) the length of time and the extent to which fair value has been less than ~~cost,~~cost; (ii) the financial condition and near-term prospects of the ~~issuer,~~issuer; (iii) whether the Company intends to sell ~~securities,~~the securities; and (iv) whether it is more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases.

As of ~~September~~June 30, ~~2017, 46~~2020, 8 debt securities had been in a loss position for more than 12 months, and 7511 debt securities had been in a loss position for less than 12 months. As of December 31, ~~2016, 13~~2019, 69 debt securities had been in a loss position for more than 12 months, and ~~130~~35 debt securities had been in a loss position for less than 12 months. As of both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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 first six months of 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 as of June 30, 2020 compared to December 31, 2019. Most of the securities in an unrealized loss position as of both June 30, 2020 and December 31, 2019 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 not recognize any other-than-temporary impairments as of ~~September~~June 30, ~~2017 and~~2020 or December 31, ~~2016.~~

2019.

Investment securities ~~available-for-sale~~ with a carrying value of ~~$87.1~~$64.4 million and ~~$87.7~~$51.7 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, were pledged to secure public deposits and for other purposes.

4.	LOANS AND ALLOWANCE FOR LOAN LOSSES

Portfolio Segments

The Company has divided the loan portfolio into eight portfolio segments, each with different risk characteristics described as follows:

Construction, land development and other land loans – Commercial construction, land and land development loans include loans for the development of residential housing projects, loans for the development of commercial and industrial use property, ~~and~~ loans for the purchase and improvement of raw ~~land.~~land and loans primarily for agricultural production that are secured by farmland. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowing entity.

Secured by 1-4 family residential properties– These loans include conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’s primary residence, vacation home or investment property. Also included in this portfolio are home equity loans and lines of credit. This type of lending, which is secured by a first or second mortgage on the borrower’s residence, allows customers to borrow against the equity in their ~~homes.~~home.

Secured by multi-family residential properties – This portfolio segment includes mortgage loans secured by apartment buildings.

Secured by non-farm, non-residential properties – This portfolio segment includes real estate loans secured by commercial and industrial properties, office or mixed-use facilities, strip shopping centers or other commercial property. These loans are generally guaranteed by the principals of the borrowing entity.

~~Other real estate loans~~ ~~– Other real estate loans are loans primarily for agricultural production, secured by mortgages on farmland.~~

Commercial and industrial 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, ~~and~~ lines of credit and leases to financially strong borrowers, secured by inventories, equipment or receivables, and are generally guaranteed by the principals of the borrowing entity.

~~Consumer loans~~Direct consumer – This portfolio segment includes a variety of secured and unsecured personal loans, including automobile loans, loans for household and personal purposes and all other direct consumer installment loans.

~~Indirect sales~~Branch retail – This portfolio segment includes loans secured by collateral ~~that is~~ purchased by consumers at retail stores with whom ALC has an established relationship through its branch network to provide financing for the retail products sold if applicable underwriting standards are 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 and horse trailers.

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the composition of the loan portfolio by reporting segment and portfolio segment was as follows:

September 30, 2017

Bank

ALC

Total

(Dollars in Thousands)

Real estate loans:

Construction, land development and other land loans
$ 20,213 $
—
$ 20,213
Secured by 1-4 family residential properties
35,125 11,490 46,615
Secured by multi-family residential properties
16,498
—
16,498
Secured by non-farm, non-residential properties
107,679
—
107,679
Other
223
—
223
Commercial and industrial loans
66,320
—
66,320
Consumer loans:

Consumer 5,431 35,650 41,081
Indirect sales
—
50,553
50,553
Total loans
251,489 97,693 349,182
Less: Unearned interest, fees and deferred cost
367 5,981 6,348
Allowance for loan losses
2,422 2,386 4,808
Net loans
$ 248,700 $ 89,326 $ 338,026

	December 31, 2016						June 30, 2020
	Bank		ALC		Total		Bank		ALC		Total
	(Dollars in Thousands)						(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	23,772	$	—	$	23,772	$	31,384	$	—	$	31,384
Secured by 1-4 family residential properties		32,955		13,724		46,679		88,549		4,461		93,010
Secured by multi-family residential properties		16,627		—		16,627		48,807		—		48,807
Secured by non-farm, non-residential properties		102,112		—		102,112		160,683		—		160,683
Other		234		—		234
Commercial and industrial loans		57,963		—		57,963
Commercial and industrial loans ⁽¹⁾								87,771		—		87,771
Consumer loans:
Consumer		6,206		36,413		42,619
Direct consumer								7,340		25,959		33,299
Branch retail								—		33,000		33,000
Indirect sales(2)		—		44,775		44,775		89,932		—		89,932
Total loans		239,869		94,912		334,781		514,466		63,420		577,886
Less: Unearned interest, fees and deferred cost		218		6,935		7,153		578		4,823		5,401
Allowance for loan losses		2,409		2,447		4,856		4,568		1,855		6,423
Net loans	$	237,242	$	85,530	$	322,772	$	509,320	$	56,742	$	566,062

	December 31, 2019
	Bank		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	30,820	$	—	$	30,820
Secured by 1-4 family residential properties		98,971		5,566		104,537
Secured by multi-family residential properties		50,910		—		50,910
Secured by non-farm, non-residential properties		162,981		—		162,981
Commercial and industrial loans ⁽¹⁾		90,957		—		90,957
Consumer loans:
Direct consumer		7,816		30,224		38,040
Branch retail		—		32,305		32,305
Indirect sales ⁽²⁾		—		45,503		45,503
Total loans		442,455		113,598		556,053
Less: Unearned interest, fees and deferred cost		262		4,786		5,048
Allowance for loan losses		3,483		2,279		5,762
Net loans	$	438,710	$	106,533	$	545,243

(1)

Includes equipment financing leases.

(2)

Effective January 1, 2020, the Company transferred a total of $45.5 million of its indirect sales portfolio from ALC to the Bank.

The Company makes commercial, real estate and installment loans to its customers. Although the Company has a diversified loan portfolio, 54~~.8%~~57.8% and ~~56.6%~~62.8% of the portfolio was concentrated in loans secured by real estate ~~located primarily within a single geographic region of the United States~~ as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

Loans with a carrying value of $32.6 million and $34.6 million were pledged as collateral to secure Federal Home Loan Bank (“FHLB”) borrowings as of June 30, 2020 and December 31, 2019, respectively.

Related Party Loans

In the ordinary course of business, the Bank makes loans to certain officers and directors of the Company, including companies with which they are associated. These loans are made on the same terms as those prevailing for comparable transactions with ~~non-related~~unrelated parties. Management believes that such loans do not represent more than a normal risk of collectability, nor do they present other unfavorable features. The aggregate balances of such related party loans and commitments ~~as of September 30, 2017 and December 31, 2016~~ were $0.5 million and ~~$2.7~~$0.9 million as of June 30, 2020 and December 31, 2019, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, there were no new loans to these parties, and repayments by active related parties were $7 thousand. In addition, during the nine months ended September 30, 2017, approximately $2.5 million in related party loans were reclassified as unrelated party loans due to the retirement of certain members of the Company’s Board of Directors.$0.4 million. During the year ended December 31, ~~2016,~~2019, there ~~was one~~were $0.1 million of new ~~loan~~loans to ~~a related party,~~these parties, and repayments by active related parties ~~totaled $0.1 million.~~were $22 thousand.

Acquired Loans

The Company acquired loans through the acquisition of The Peoples Bank (“TPB”) completed on August 31, 2018. At acquisition, certain acquired loans evidenced deterioration of credit quality since origination and it was probable that all contractually-required payments would not be collected.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Evidence of credit quality deterioration as of the purchase date may include information such as past-due and nonaccrual status, borrower credit scores and recent loan to value percentages. Purchased credit impaired (“PCI”) loans are accounted for under ASC Topic 310-30, Accounting for Purchased Loans with Deteriorated Credit Quality, and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loan. Accordingly, an allowance for credit losses related to these loans is not carried over and recorded at the acquisition date. On the date of completion of the acquisition, the outstanding principal balance and carrying value of PCI loans accounted for under ASC Topic 310-30 were $2.9 million and $2.8 million, respectively.

The carrying amount of PCI loans, which is included within loans on the condensed consolidated balance sheet, is set forth in the table below as of June 30, 2020 and December 31, 2019:

	June 30, 2020			December 31, 2019
	(Dollars in Thousands)
Real estate loans:
Secured by 1-4 family residential properties	$	200		$	224
Outstanding balance		200			224
Fair value adjustment		(33	)		(49	)
Carrying amount, net of fair value adjustment	$	167		$	175

During both the six months ended June 30, 2020 and the year ended December 31, 2019, the Company did not recognize any accretable yield, or income expected to be collected, associated with these loans. Additionally, the Company did not increase or reverse the allowance for loan losses related to the remaining PCI loans.

Allowance for Loan Losses

The following tables present changes in the allowance for loan losses during the six months ended June 30, 2020 and 2019 and the related loan balances by loan ~~portfolio segment and loan~~ type as of ~~September~~June 30, ~~2017~~2020 and ~~December 31, 2016.~~

Bank

Nine Months Ended September 30, 2017

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential
Other Commercial
Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

Beginning balance
$ 535 $ 304 $ 88 $ 903 $ 2 $ 527 $ 50 $ — $ 2,409
Charge-offs
— — — — — (16 ) (63 ) — (79 )
Recoveries
— 85 — 69 — 16 52 — 222
Provision
(328 ) (141 ) 27 (142 ) — 440 14 — (130 )
Ending balance
$ 207 $ 248 $ 115 $ 830 $ 2 $ 967 $ 53 $ — $ 2,422

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ 62 $ 5 $ — $ 55 $ — $ 72 $ — $ — $ 194
Collectively evaluated for impairment
145 243 115 775 2 895 53 — 2,228
Total allowance for loan losses $ 207 $ 248 $ 115 $ 830 $ 2 $ 967 $ 53 $ — $ 2,422
Ending balance of loans receivable:

Individually evaluated for impairment $ 86 $ 189 $ — $ 535 $ — $ 70 $ — $ — $ 880
Collectively evaluated for impairment
20,127 34,936 16,498 107,144 223 66,250 5,431 — 250,609
Total loans receivable
$ 20,213 $ 35,125 $ 16,498 $ 107,679 $ 223 $ 66,320 $ 5,431 $ — $ 251,489

ALC

Nine Months Ended September 30, 2017

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential

Other

Commercial

Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

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

Ending balance of allowance attributable to loans:
Individually evaluated for impairment
$ — $ — $ — $ — $ — $ — $ — $ — $ —
Collectively evaluated for impairment
— 103 — — — — 1,565 718 2,386
Total allowance for loan losses $ — $ 103 $ — $ — $ — $ — $ 1,565 $ 718 $ 2,386
Ending balance of loans receivable:

Individually evaluated for impairment
$ — $ — $ — $ — $ — $ — $ — $ — $ —
Collectively evaluated for impairment — 11,490 — — — — 35,650 50,553 97,693
Total loans receivable
$ — $ 11,490 $ — $ — $ — $ — $ 35,650 $ 50,553 $ 97,693

2019:

	As of and for the Six Months Ended June 30, 2020
	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
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	197	$	466		$	422	$	964	$	1,377		$	1,625		$	395		$	316		$	5,762
Charge-offs		—		(42	)		—		—		—			(962	)		(221	)		(38	)		(1,263	)
Recoveries		—		14			—		8		—			381			90			1			494
Provision		72		84			70		272		(448	)		373			211			796			1,430
Ending balance	$	269	$	522		$	492	$	1,244	$	929		$	1,417		$	475		$	1,075		$	6,423
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	—	$	13		$	—	$	—	$	62		$	3		$	—		$	—		$	78
Collectively evaluated for impairment		269		509			492		1,244		867			1,414			475			1,075			6,345
Total allowance for loan losses	$	269	$	522		$	492	$	1,244	$	929		$	1,417		$	475		$	1,075		$	6,423
Ending balance of loans receivable:
Individually evaluated for impairment	$	—	$	785		$	—	$	2,748	$	62		$	25		$	—		$	—		$	3,620
Collectively evaluated for impairment		31,384		92,058			48,807		157,935		87,709			33,274			33,000			89,932			574,099
Loans acquired with deteriorated credit quality		—		167			—		—		—			—			—			—			167
Total loans receivable	$	31,384	$	93,010		$	48,807	$	160,683	$	87,771		$	33,299		$	33,000		$	89,932		$	577,886

Bank and ALC

Nine Months Ended September 30, 2017

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential

Other

Commercial

Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

Beginning balance
$ 535 $ 411 $ 88 $ 903 $ 2 $ 527 $ 1,767 $ 623 $ 4,856
Charge-offs
— (27 ) — — — (16 ) (1,784 ) (445 ) (2,272 )
Recoveries
— 113 — 69 — 16 487 75 760
Provision
(328 ) (146 ) 27 (142 ) — 440 1,148 465 1,464
Ending balance
$ 207 $ 351 $ 115 $ 830 $ 2 $ 967 $ 1,618 $ 718 $ 4,808

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

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

Bank

Year Ended December 31, 2016

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential

Other

Commercial

Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

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

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

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

	As of and for the Six Months Ended June 30, 2019
	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
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	241		$	346		$	128	$	831		$	1,138	$	1,799		$	427		$	145		$	5,055
Charge-offs		—			(77	)		—		—			—		(1,090	)		(201	)		(128	)		(1,496	)
Recoveries		—			15			—		—			3		334			59			2			413
Provision		(50	)		105			38		(22	)		63		646			151			184			1,115
Ending balance	$	191		$	389		$	166	$	809		$	1,204	$	1,689		$	436		$	203		$	5,087
Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	95		$	16		$	—	$	—		$	65	$	12		$	—		$	—		$	188
Collectively evaluated for impairment		96			373			166		809			1,139		1,677			436			203			4,899
Total allowance for loan losses	$	191		$	389		$	166	$	809		$	1,204	$	1,689		$	436		$	203		$	5,087
Ending balance of loans receivable:
Individually evaluated for impairment	$	421		$	1,141		$	—	$	504		$	65	$	35		$	—		$	—		$	2,166
Collectively evaluated for impairment		27,980			102,043			28,033		158,244			91,424		37,125			29,609			45,466			519,924
Loans acquired with deteriorated credit quality		—			170			—		—			—		—			—			—			170
Total loans receivable	$	28,401		$	103,354		$	28,033	$	158,748		$	91,489	$	37,160		$	29,609		$	45,466		$	522,260

ALC

Year Ended December 31, 2016

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential

Other

Commercial

Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

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

— —

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

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

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

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

Bank and ALC

Year Ended December 31, 2016

Construction,
Land

1-4
Family

Real
Estate
Multi-
Family

Non-Farm Non-Residential

Other

Commercial

Consumer

Indirect
Sales

Total

(Dollars in Thousands)

Allowance for loan losses:

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

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

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

Credit Quality Indicators

The ~~Bank~~Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, ~~each loan is~~construction, land, multi-family real estate, other commercial real estate, and commercial and industrial loans are graded based on pre-determined risk metrics and categorized into one of nine risk grades. These risk grades can be summarized into categories described as pass, special mention, substandard, doubtful and loss, as described in further detail below.

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

Special Mention (Risk Grade 6): Loans in this category exhibit potential credit weaknesses or downward trends deserving management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than pass-rated categories, its default is not imminent.

●

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

●•

~~Special Mention (Risk Grade 6):~~ Loans in this category exhibit potential credit weaknesses or downward trends deserving Bank management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the Bank’s credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Although a special mention asset has a higher probability of default than pass-rated categories, its default is not imminent.

●

Substandard (Risk Grade 7): Loans in this category have defined weaknesses that jeopardize the orderly liquidation of debt. A substandard loan is inadequately protected by the current ~~sound~~ worth and paying capacity of the obligor or by the collateral pledged, if any. Normal repayment from the borrower is in jeopardy, although no loss of principal is envisioned. There is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified as substandard.

Doubtful (Risk Grade 8): Loans classified as doubtful have all of the weaknesses found in substandard loans, with the added characteristic that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable or improbable. Serious problems exist such that partial loss of principal is likely; however, because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Such pending factors may include proposed merger, acquisition or liquidation procedures, capital injection, perfection of liens on additional collateral and refinancing plans. Loans classified as doubtful may include loans to borrowers that have demonstrated a history of failing to live up to agreements. The Company did not have any loans classified as Doubtful (Risk Grade 8) as of June 30, 2020 or December 31, 2019.

●

~~Doubtful (Risk Grade 8):~~ Loans classified as doubtful have all of the weaknesses found in substandard loans, with the added characteristic that the weaknesses make collection of debt in full, based on currently existing facts, conditions and values, highly questionable or improbable. Serious problems exist such that partial loss of principal is likely; however, because of certain important, reasonably specific pending factors that may work to strengthen the assets, the loans’ classification as estimated losses is deferred until a more exact status may be determined. Such pending factors may include proposed merger, acquisition or liquidation procedures, capital injection, perfection of liens on additional collateral and refinancing plans. Loans classified as doubtful may include loans to borrowers that have demonstrated a history of failing to live up to agreements.

●

~~Loss (Risk Grade 9):~~ Loans are classified in this category when borrowers are deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectable and of such little value that continuance as active assets of the BankLoss (Risk Grade 9): Loans are classified in this category when borrowers are deemed incapable of repayment of unsecured debt. Loans to such borrowers are considered uncollectable and of such little value that continuance as active assets of the Company is not warranted. This classification does not mean that ~~the loan has absolutely no recovery or salvage value, but rather that it is not prudent to defer writing off these worthless assets, even though partial recovery may occur in the future.~~

~~At ALC, because~~ the loan ~~portfolio~~has absolutely no recovery or salvage value, but rather that it is not prudent to defer writing off these assets, even though partial recovery may be realized in the future. The Company did not have any loans classified as Loss (Risk Grade 9) as of June 30, 2020 or December 31, 2019.

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 ~~September~~June 30, ~~2017.~~2020:

Bank

Pass
1-5

Special
Mention
6

Substandard
7

Doubtful
8

Total

(Dollars in Thousands)

Loans secured by real estate:

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

—

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

—

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

65

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

ALC

Performing

Nonperforming

Total

(Dollars in Thousands)

Loans secured by real estate:

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

	June 30, 2020
	Pass 1-5			Special Mention 6			Substandard 7			Total
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	31,302		$	77		$	5		$	31,384
Secured by multi-family residential properties		48,807			—			—			48,807
Secured by non-farm, non-residential properties		156,033			2,783			1,867			160,683
Commercial and industrial loans		86,129			1,186			456			87,771
Total	$	322,271		$	4,046		$	2,328		$	328,645
As a percentage of total loans		98.06	%		1.23	%		0.71	%		100.00	%

	June 30, 2020
	Performing			Nonperforming			Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	91,012		$	1,998		$	93,010
Consumer loans:
Direct consumer		32,942			357			33,299
Branch retail		32,933			67			33,000
Indirect sales		89,873			59			89,932
Total	$	246,760		$	2,481		$	249,241
As a percentage of total loans		99.00	%		1.00	%		100.00	%

The above amounts include PCI loans. As of June 30, 2020, $0.2 million of PCI loans were classified as “Nonperforming.”

The tables below illustrate the carrying amount of loans by credit quality indicator as of December 31, ~~2016.~~2019:

	Bank										December 31, 2019
	Pass 1-5		Special Mention 6		Substandard 7		Doubtful 8		Total		Pass 1-5			Special Mention 6			Substandard 7			Total
	(Dollars in Thousands)										(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	22,240	$	—	$	1,532	$	—	$	23,772	$	30,466		$	354		$	—		$	30,820
Secured by 1-4 family residential properties		31,995		213		747		—		32,955
Secured by multi-family residential properties		16,627		—		—		—		16,627		50,910			—			—			50,910
Secured by non-farm, non-residential properties		99,082		2,315		715		—		102,112		157,718			2,961			2,302			162,981
Other		234		—		—		—		234
Commercial and industrial loans		55,481		2,227		255		—		57,963		88,463			714			1,780			90,957
Consumer loans		6,126		—		80		—		6,206
Total	$	231,785	$	4,755	$	3,329	$	—	$	239,869	$	327,557		$	4,029		$	4,082		$	335,668
As a percentage of total loans												97.58	%		1.20	%		1.22	%		100.00	%

ALC

Performing

Nonperforming

Total

(Dollars in Thousands)

Loans secured by real estate:

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

	December 31, 2019
	Performing			Nonperforming			Total
	(Dollars in Thousands)
Loans secured by real estate:
Secured by 1-4 family residential properties	$	102,176		$	2,361		$	104,537
Consumer loans:
Direct consumer		37,474			566			38,040
Branch retail		32,024			281			32,305
Indirect sales		45,503			—			45,503
Total	$	217,177		$	3,208		$	220,385
As a percentage of total loans		98.54	%		1.46	%		100.00	%

The above amounts include PCI loans. As of December 31, 2019, $0.2 million of PCI loans were classified as “Nonperforming.”

The following ~~tables provide~~table provides an aging analysis of past due loans by class as of ~~September~~June 30, ~~2017.~~2020:

Bank

As of September 30, 2017

30-59
Days
Past
Due

60-89
Days
Past
Due

90
Days
Or
Greater

Total
Past
Due

Current

Total
Loans

Recorded
Investment
>
90 Days
And
Accruing

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$ 23 $
—
$ — $ 23 $ 20,190 $ 20,213 $
—

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

Secured by multi-family residential properties

—

—

—

—
16,498 16,498
—

Secured by non-farm, non-residential properties

15

117

—

132
107,547 107,679
—

Other

—

—

—

—
223 223
—

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

Consumer loans

—

—

23

23
5,408 5,431
—

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

	As of June 30, 2020
	30-59 Days Past Due			60-89 Days Past Due			90 Days Or Greater			Total Past Due			Current			Total Loans			Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—		$	—		$	—		$	—		$	31,384		$	31,384		$	—
Secured by 1-4 family residential properties		97			31			96			224			92,786			93,010			—
Secured by multi-family residential properties		—			—			—			—			48,807			48,807			—
Secured by non-farm, non-residential properties		22			—			1,417			1,439			159,244			160,683			—
Commercial and industrial loans		58			12			—			70			87,701			87,771			—
Consumer loans:
Direct consumer		253			113			326			692			32,607			33,299			—
Branch retail		132			30			67			229			32,771			33,000			—
Indirect sales		166			—			59			225			89,707			89,932			—
Total	$	728		$	186		$	1,965		$	2,879		$	575,007		$	577,886		$	—
As a percentage of total loans		0.13	%		0.03	%		0.34	%		0.50	%		99.50	%		100.00	%

ALC

As of September 30, 2017

30-59
Days
Past
Due

60-89
Days
Past
Due

90
Days
Or
Greater

Total
Past
Due

Current

Total
Loans

Recorded
Investment
>
90 Days
And
Accruing

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$
—
$
—
$
—
$
—
$
—
$
—
$
—

Secured by 1-4 family residential properties
73 70 71 214 11,276 11,490
—

Secured by multi-family residential properties

—

—

—

—

—

—

—

Secured by non-farm, non-residential properties

—

—

—

—

—

—

—

Other

—

—

—

—

—

—

—

Commercial and industrial loans

—

—

—

—

—

—

—

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

Indirect sales

214

221

383

818

49,735

50,553

—

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

The above amounts include PCI loans. As of June 30, 2020, $0.2 million of PCI loans were 60-89 days past due.

The following ~~tables provide~~table provides an aging analysis of past due loans by class as of December 31, ~~2016~~.2019:

Bank

As of December 31, 2016

30-59
Days
Past
Due

60-89
Days
Past
Due

90
Days
Or
Greater

Total
Past
Due

Current

Total
Loans

Recorded
Investment
>
90 Days
And
Accruing

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$
—
$ — $ 86 $ 86 $ 23,686 $ 23,772 $ —
Secured by 1-4 family residential properties
164 69 145 378 32,577 32,955 —
Secured by multi-family residential properties

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

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

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

	As of December 31, 2019
	30-59 Days Past Due			60-89 Days Past Due			90 Days Or Greater			Total Past Due			Current			Total Loans			Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—		$	—		$	—		$	—		$	30,820		$	30,820		$	—
Secured by 1-4 family residential properties		259			108			844			1,211			103,326			104,537			—
Secured by multi-family residential properties		—			—			—			—			50,910			50,910			—
Secured by non-farm, non-residential properties		30			—			1,419			1,449			161,532			162,981			—
Commercial and industrial loans		56			—			—			56			90,901			90,957			—
Consumer loans:
Direct consumer		387			287			531			1,205			36,835			38,040			—
Branch retail		444			189			281			914			31,391			32,305			—
Indirect sales		132			—			—			132			45,371			45,503			—
Total	$	1,308		$	584		$	3,075		$	4,967		$	551,086		$	556,053		$	—
As a percentage of total loans		0.24	%		0.11	%		0.55	%		0.89	%		99.11	%		100.00	%

ALC

As of December 31, 2016

30-59
Days
Past
Due

60-89
Days
Past
Due

90
Days
Or
Greater

Total
Past
Due

Current

Total
Loans

Recorded Investment
>
90 Days
And
Accruing

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
$ — $ — $ — $ — $ — $ — $ —
Secured by 1-4 family residential properties
61 29 213 303 13,421 13,724 —
Secured by multi-family residential properties
— — — — — — —
Secured by non-farm, non-residential properties
— — — — — — —
Other
— — — — — — —
Commercial and industrial loans
— — — — — — —
Consumer loans:
Consumer
441 413 1,104 1,958 34,455 36,413 —
Indirect sales
191 139 489 819 43,956 44,775 —
Total
$ 693 $ 581 $ 1,806 $ 3,080 $ 91,832 $ 94,912 $ —

The above amounts include PCI loans. As of December 31, 2019, $0.2 million of PCI loans were 60-89 days past due.

The following table provides an analysis of non-accruing loans by class as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019:

	Loans on Non-Accrual Status
	June 30, 2020		December 31, 2019
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	5	$	8
Secured by 1-4 family residential properties		1,421		1,423
Secured by multi-family residential properties		—		—
Secured by non-farm, non-residential properties		1,421		1,426
Commercial and industrial loans		106		27
Consumer loans:
Direct consumer		336		558
Branch retail		67		281
Indirect sales		59		—
Total loans	$	3,415	$	3,723

As of both June 30, 2020 and December 31, 2019, PCI loans comprised $0.2 million of nonaccrual loans.

COVID-19 Loan Deferments and Risk Identification

Loans on Non-Accrual Status

September 30,
2017

December 31,
2016

(Dollars in Thousands)

Loans secured by real estate:

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

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

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

A significant amount of uncertainty continues to exist as to what the ultimate economic impact of the COVID-19 pandemic will be on the Company’s borrowers. In response to this uncertainty, during the first six months of 2020, the Company has increased qualitative factors in the calculation of the allowance for loan and lease losses. Although we believe that the allowance was sufficient to absorb losses in the portfolio based on circumstances existing as of June 30, 2020, management is continuing to closely monitor the Company’s loan portfolio for indications of credit deterioration, particularly with respect to those loans that have had payments deferred in connection with the pandemic, as well as those loans that management currently considers to potentially be more vulnerable (“at-risk”) as a result of the pandemic. The aggregate balances and categories of these loans are identified in the tables below. It should be noted that the tables below are not necessarily indicative of loans that have experienced credit deterioration; rather, they represent loans that are currently being given heightened attention by management as a result of the pandemic.

Loan Deferments

In accordance with section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the Company implemented initiatives to provide short-term payment relief to borrowers who have been negatively impacted by COVID-19. Over 1,700 of the Company’s borrowers requested and were granted COVID-19 pandemic-related deferments by the Company during the six months ended June 30, 2020. Although the interpretive guidance defines short-term as six months, the deferments granted by the Company were generally for terms of 90 days or less. The table below summarizes all remaining COVID-19 loan payment deferments made by the Company as of June 30, 2020.

	As of June 30, 2020
	Number of Loans Deferred		Principal Balance of Loans Deferred		% of Portfolio Balance			Principal and Interest Deferments		Principal Only Deferments
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		7	$	4,544		14.5	%	$	4,544	$	—
Secured by 1-4 family residential properties		50		9,474		10.2	%		8,078		1,396
Secured by multi-family residential properties		12		29,726		60.9	%		15,523		14,203
Secured by non-farm, non-residential properties		49		42,797		26.6	%		37,073		5,724
Commercial and industrial loans		9		1,460		1.7	%		831		629
Consumer loans:
Direct consumer		442		2,188		6.6	%		2,188		—
Branch retail		172		1,856		5.6	%		1,856		—
Indirect sales		123		3,199		3.6	%		3,199		—
Total loans		864	$	95,244		16.5	%	$	73,292	$	21,952

The credit quality of COVID-19 deferred loans will be evaluated on an ongoing basis in accordance with the Company’s uniform framework for establishing and monitoring credit risk. However, in accordance with regulatory guidance related to the CARES Act, loans for which payments were deferred related to COVID-19 will generally not be considered troubled debt restructurings or placed in past due or nonaccrual status during the COVID-19 deferment period.

At-Risk Categories

While most industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, the Company has identified certain loan categories considered to be “at-risk” of significant impact. The “at-risk” categories have been further subdivided into those deemed by management to be of “high-risk” and those deemed to be of “moderate-risk.” The categories were determined based on management’s current judgment as to the risk that the borrower and underlying collateral supporting the loans could ultimately be negatively impacted by the economic impact of the COVID-19 pandemic.

Hotels/motels – These are loans that are secured by real estate and furniture, fixtures and equipment for hotel or motel facilities. This category may also include hotel or motel facilities that were under construction as of June 30, 2020 and for which the Company is financing the construction costs. While all loans in this category are to individual owner groups, 90% of the loan balance is to major franchises. The primary source of income for the borrowers comes from nightly occupancy of the facilities. Due to an overall decrease in travel during the COVID-19 pandemic, and due to restrictions on travel by many state and local governmental authorities, employers and other entities, the hotel industry has seen declines in occupancy rates, resulting in decreased revenue. Additionally, there is uncertainty as to when the public will have the confidence to utilize hotels and motels at the levels that the industry experienced prior to COVID-19. Therefore, these loans are currently considered by management to be of high-risk of potential loss.

Restaurants – These are loans that are secured by real estate, equipment and leasehold improvements for restaurant facilities. This category may also include restaurant facilities that were under construction as of June 30, 2020 and for which the Company is financing the construction

costs. The restaurant category is comprised of franchised fast food restaurants, which account for 54% of the restaurants loan balance, and dine-in restaurants, which represent the remaining 46% of the loan balance. The primary source of income for the borrowers comes from the operation of the restaurant facilities. Fast food restaurants have shown the ability to adapt more quickly to governmental restrictions due to COVID-19 because of their established presence with drive-through business, and, therefore, are considered by management to be of moderate risk of potential loss. Dine-in restaurants, which rely more heavily on the presence of diners within the facilities, have had to adapt to decreased dining capacities, as well as offering a drive-up concept, in the current environment. Due to the greater impact that restrictions placed by governmental authorities have had on dine-in restaurants, these loans are currently considered by management to be of high-risk of potential loss.

Retail – These are loans that are generally secured by retail centers of various sizes. Typically, they have multiple retail-styled tenants. The tenants can range from national or regional retail outlets to small box retailers, restaurants, finance companies, hair and nail salons, and other similar retailers. The primary source of income for these borrowers is from the rental income of tenants that could be experiencing decreased business during the COVID-19 pandemic. These loans are currently considered by management to be of moderate-risk of potential loss.

1-4 family investment – These are loans that are generally secured by residential dwellings. The borrowers may be companies or individuals that have purchased 1-4 family property for the purpose of leasing the property to households as a residence. Lease terms are typically for 12 months. The primary source of income for the borrower is rental income from the tenant. The borrowers may hold the properties for an indefinite period of time or may sell the properties to similar investors of like properties. These loans are currently considered by management to be of moderate-risk of potential loss.

The table below summarizes the “at-risk” categories and the relative percentage of the Company’s loan portfolio for each as of June 30, 2020.

	June 30, 2020
	Balance of Risk Category		% of Total Loan Balance
	(Dollars in Thousands)
High-risk loan categories:
Hotels/motels	$	10,410		1.8	%
Dine-in restaurants		4,459		0.8	%
Total high-risk loans		14,869		2.6	%
Moderate-risk loan categories:
Fast food restaurants		5,326		0.9	%
Retail		34,587		6.0	%
1-4 family investment		21,874		3.8	%
Total moderate-risk loans		61,787		10.7	%
Total at-risk loans	$	76,656		13.3	%

Management will continue to evaluate credit exposures on these loans on an ongoing basis in accordance with the Company’s uniform framework for establishing and monitoring credit risk.

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. An Interim Final Rule related to the PPP was issued on April 2, 2020, and additional clarifications to the Interim Final Rule have been provided subsequently by the SBA. 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. If not forgiven in whole or in part, the loans carry a fixed interest rate of 1.00% per annum with payments deferred for the first six months of the loan. 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 beginning on that date and (ii) permitted lenders and borrowers to amend loans previously issued under two-year terms to terms of five to ten years if mutually agreed upon by both the lender and the borrower. As of June 30, 2020, the Company had originated 158 PPP loans with an aggregate principal balance of $13.8 million. Of this amount, $13.7 million of the loans were originated under two-year terms, while $0.1 million of the loans were originated under five-year terms.

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the related loan agreement. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported at the present value of estimated future cash flows using the ~~loan~~’sloan’s existing rate or at the fair value of collateral if repayment is expected solely from the liquidation of the ~~collateral at~~collateral. At the Bank. 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 a borrower’s ability to pay. At ALC,Bank, all ~~real estate loans of $0.1 million or more are identified for impairment analysis. There are currently no loans at ALC that meet that criteria. All~~ loans of $0.5 million or more that have a credit quality risk grade of seven or above are identified for impairment analysis. Loans of less than $0.5 million may also be impaired if in management’s judgement circumstances warrant impairment. 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, 2020 and December 31, 2019, 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 ~~September~~June 30, ~~2017,~~2020, the carrying amount of the Company’s impaired loans consisted of the following:

September 30, 2017

Impaired loans with no related allowance recorded

Carrying
Amount

Unpaid
Principal
Balance

Related
Allowances

(Dollars in Thousands)

Loans secured by real estate

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

Impaired loans with an allowance recorded

Loans secured by real estate

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

Total impaired loans

Loans secured by real estate

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

	June 30, 2020
	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Impaired loans with no related allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		932		932		—
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,748		2,748		—
Commercial and industrial		—		—		—
Direct consumer		—		—		—
Total loans with no related allowance recorded	$	3,680	$	3,680	$	—
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		20		20		13
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		—		—		—
Commercial and industrial		62		62		62
Direct consumer		25		25		3
Total loans with an allowance recorded	$	107	$	107	$	78
Total impaired loans
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		952		952		13
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,748		2,748		—
Commercial and industrial		62		62		62
Direct consumer		25		25		3
Total impaired loans	$	3,787	$	3,787	$	78

The above amounts include PCI loans. As of June 30, 2020, PCI loans comprised $0.2 million of impaired loans without a related allowance recorded.

As of December 31, ~~2016,~~2019, the carrying amount of the Company’s impaired loans consisted of the following:

							December 31, 2019
							Carrying Amount		Unpaid Principal Balance		Related Allowances
	December 31, 2016						(Dollars in Thousands)
Impaired loans with no related allowance recorded	Carrying Amount		Unpaid Principal Balance		Related Allowances
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		—		—		—		984		984		—
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		1,877		1,877		—
Commercial and industrial		—		—		—		—		—		—
Direct consumer								—		—		—
Total loans with no related allowance recorded	$	—	$	—	$	—	$	2,861	$	2,861	$	—

Impaired loans with an allowance recorded
Loans secured by real estate
Construction, land development and other land loans	$	1,361	$	1,361	$	423	$	—	$	—	$	—
Secured by 1-4 family residential properties		193		193		5		21		21		14
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		549		549		107		—		—		—
Commercial and industrial		—		—		—		206		206		206
Direct consumer								29		29		7
Total loans with an allowance recorded	$	2,103	$	2,103	$	535	$	256	$	256	$	227

Total impaired loans
Loans secured by real estate							.
Construction, land development and other land loans	$	1,361	$	1,361	$	423	$	—	$	—	$	—
Secured by 1-4 family residential properties		193		193		5		1,005		1,005		14
Secured by multi-family residential properties		—		—		—		—		—		—
Secured by non-farm, non-residential properties		549		549		107		1,877		1,877		—
Commercial and industrial		—		—		—		206		206		206
Direct consumer								29		29		7
Total impaired loans	$	2,103	$	2,103	$	535	$	3,117	$	3,117	$	227

The above amounts include PCI loans. As of December 31, 2019, PCI loans comprised $0.2 million of impaired loans without a related allowance recorded.

The average net investment in impaired loans and interest income recognized and received on impaired loans ~~as of~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and the year ended December 31, ~~2016~~2019 were as follows:

September 30, 2017

Average
Recorded
Investment

Interest
Income
Recognized

Interest
Income
Received

(Dollars in Thousands)

Loans secured by real estate

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

	Six Months Ended June 30, 2020
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	—	$	—	$	—
Secured by 1-4 family residential properties		890		5		4
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		2,754		14		14
Commercial and industrial		86		3		3
Direct consumer		26		1		2
Total	$	3,756	$	23	$	23

	Year Ended December 31, 2019
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	181	$	—	$	—
Secured by 1-4 family residential properties		1,021		48		48
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		645		29		29
Commercial and industrial		991		7		7
Direct consumer		38		2		2
Total	$	2,876	$	86	$	86

December 31, 2016

Average
Recorded
Investment

Interest
Income
Recognized

Interest
Income
Received

(Dollars in Thousands)

Loans secured by real estate

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

Loans on which the accrual of interest has been discontinued amounted to ~~$2.0~~$3.4 million and ~~$2.4~~$3.7 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. If interest on those loans had been accrued, there would have been $5$45 thousand and ~~$35~~$41 thousand of interest accrued for the periods ended ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. Interest income related to these loans ~~as of September~~for the six months ended June 30, ~~2017~~2020 and the year ended December 31, ~~2016~~2019 was $3$27 thousand and $4$147 thousand, respectively.

Troubled Debt Restructurings

Troubled debt restructurings include loans with respect to which concessions have been granted to borrowers that generally would not have otherwise been considered had the borrowers not been experiencing financial difficulty. The concessions granted may include payment schedule modifications, interest rate reductions, maturity date extensions, ~~modification~~smodifications of note structure, principal balance reductions or some combination of these concessions. There were no loans modified with concessions granted during the ~~nine-month period~~six months ended ~~September~~June 30, ~~2017.~~2020 or the year ended December 31, 2019. Restructured loans may involve loans remaining on non-accrual, moving to non-accrual or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Non-accrual restructured loans are included with all other non-accrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings. Generally, restructured loans remain on non-accrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on non-accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, then the loan remains on non-accrual. As of ~~both September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had ~~$0.1 million~~$12 thousand and $16 thousand, respectively, of non-accruing loans that were previously restructured and that remained on non-accrual status. For both the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 and the year ended December 31, 2019, the Company had no loans that were restored to accrual status based on a sustained period of repayment performance. ~~For the year ended December 31, 2016, the Company had $0.3 million in restructured loans that were restored to accrual status based on a sustained period of repayment performance.~~

The following table provides, as of June 30, 2020 and December 31, 2019, the number of loans remaining in each loan category ~~as of September 30, 2017 and December 31, 2016~~ that the ~~Bank~~Company had previously modified in a troubled debt restructuring, as well as the pre- and post-modification principal balance as of each date.

September 30, 2017

December 31, 2016

Number
of
Loans

Pre-
Modification
Outstanding
Principal
Balance

Post-
Modification
Principal
Balance

Number
of
Loans

Pre-
Modification
Outstanding
Principal
Balance

Post-
Modification
Principal
Balance

(Dollars in Thousands)

Loans secured by real estate:

Construction, land development and other land loans
1 $ 107 $ 84 2 $ 1,960 $ 1,286
Secured by 1-4 family residential properties
3 318 188 3 318 249
Secured by non-farm, non-residential properties
1 53 38 1 53 41
Commercial loans
2 116 83 2 116 88
Total
7 $ 594 $ 393 8 $ 2,447 $ 1,664

	June 30, 2020						December 31, 2019
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		1	$	107	$	—		1	$	107	$	62
Secured by 1-4 family residential properties		2		59		13		2		59		14
Commercial loans		2		116		55		2		116		60
Total		5	$	282	$	68		5	$	282	$	136

As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, no loans that previously had been modified in a troubled debt restructuring had defaulted subsequent to modification.

Restructured loan modifications primarily included maturity date extensions and payment schedule modifications. There were no modifications to principal balances of the loans that were restructured. Accordingly, there was no impact on the ~~Company~~’sCompany’s allowance for loan losses resulting from the modifications.

All loans with a principal balance of $0.5 million or more that have been modified in a troubled debt restructuring are considered impaired and evaluated individually for impairment. The nature and extent of impairment of restructured loans, including those that have experienced a subsequent payment default, are considered in the determination of an appropriate level of allowance for loan losses. This evaluation resulted in an allowance for loan losses attributable to such restructured loans of $3$1 thousand as of ~~September~~both June 30, ~~2017~~2020 and ~~$15 thousand as of~~ December 31, ~~2016.~~2019.

5.	OTHER REAL ESTATE OWNED AND REPOSSESSED ASSETS

Other Real Estate Owned

Other real estate and certain other assets acquired in foreclosure are reported at the ~~lower of the investment in the loan or the fair~~net realizable value of the property, less estimated costs to sell. The following table summarizes foreclosed property activity ~~for~~as of the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019:

	September 30, 2017
	Bank			ALC			Total			June 30, 2020			June 30, 2019
	(Dollars in Thousands)									(Dollars in Thousands)
Beginning balance	$	4,353		$	505		$	4,858		$	1,078		$	1,505
Transfers from loans		—			87			87
Additions ⁽¹⁾											293			262
Sales proceeds		(649	)		(199	)		(848	)		(358	)		(483	)
Gross gains		14			—			14			38			39
Gross losses		(20	)		(101	)		(121	)		(38	)		(27	)
Net gains (losses)		(6	)		(101	)		(107	)
Net gains											—			12
Impairment		(171	)		—			(171	)		(10	)		(38	)
Ending balance	$	3,527		$	292		$	3,819		$	1,003		$	1,258

September 30, 2016

Bank

ALC

Total

(Dollars in Thousands)

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

(1)

Additions to other real estate owned (“OREO”) include transfers from loans, other assets and capitalized improvements to existing OREO properties.

Valuation adjustments are recorded in other non-interest expense and are primarily post-foreclosure write-downs that are a result of continued declining property values based on updated appraisals or other indications of value, such as offers to purchase. ~~Fair~~Net realizable value less estimated ~~cost~~costs to sell of foreclosed residential real estate held by the Company was ~~$0.6 million and $1.1~~$0.1 million as of ~~September~~both June 30, ~~2017~~2020 and ~~2016, respectively.~~2019. In addition, the Company ~~held $20 thousand and $0.1 million in~~did not hold any consumer mortgage loans collateralized by residential real estate that were in the process of foreclosure as of ~~September~~both June 30, ~~2017~~2020 and ~~2016, respectively.~~2019.

Repossessed Assets

In addition to the other real estate and other assets acquired in foreclosure, the Company also acquires assets through the repossession of the underlying collateral of loans in default. The following table summarizes repossessed asset activity as of the six months ended June 30, 2020 and 2019:

	June 30, 2020			June 30, 2019
	(Dollars in Thousands)
Beginning balance	$	256		$	229
Transfers from loans		561			520
Sales proceeds		(270	)		(278	)
Gross gains		—			2
Gross losses		(286	)		(227	)
Net losses		(286	)		(225	)
Impairment		—			—
Ending balance	$	261		$	246

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

6.	~~INVESTMENT IN LIMITED PARTNERSHIP~~GOODWILL AND OTHER INTANGIBLE ASSETS

The Company holds an investment in an affordable housing project for which it provides funding as a limited partner and has received tax credits related to its investment in the project based on its partnership share. The net assets of the partnership consist primarily of apartment complexes~~, and the primary liabilities consist of those~~recorded goodwill associated with ~~the operation~~its acquisition of ~~the partnership. The Company has determined that this investment requires consolidation as a variable interest entity under~~ ~~ASC Topic 810, Consolidation.~~ ~~The Company holds a 99.9% interest~~TPB in ~~the limited partnership. Assets recorded by the Company~~2018. As of both June 30, 2020 and December 31, 2019, goodwill totaled $7.4 million. Goodwill must be tested for impairment annually, or more often if circumstances warrant. If, as a result of impairment testing, it is determined that the ~~consolidation were less~~implied fair value of goodwill is lower than ~~$0.1 million~~its carrying amount, impairment is indicated, and the goodwill must be written down to its implied fair value.

The Company’s annual test date for goodwill impairment is October 1; however, goodwill may be tested between annual test dates if events or changes in circumstances indicate that it is more likely than not that goodwill is impaired. Factors that are considered when evaluating whether it is more likely than not that goodwill is impaired may include (but are not limited to) significant and sustained reductions in stock price, significant earnings deterioration below forecasted levels, significant deterioration in the credit quality of borrowers, changes in the overall business outlook for an organization, losses in operating cash flows and significant impairment losses recognized by competitors.

Based on a number of considerations, as of ~~both September~~June 30, ~~2017~~2020, the Company’s management concluded that circumstances did not indicate that it was more likely than not that goodwill was impaired. Accordingly, the Company’s goodwill was not tested for impairment as of June 30, 2020. However, the ultimate economic impact of the COVID-19 pandemic on the Company’s operations, as well as its stock price, is not yet known. The COVID-19 pandemic and ~~December 31, 2016.~~resulting economic implications, including changes in the interest rate environment and potential implications on credit quality, have impacted the Company’s operations and earnings during the course of the first six months of 2020. In addition, the Company’s stock price has remained at discounted levels since the onset of the pandemic in March 2020. Should the Company’s future operations and/or stock price be negatively impacted for a sustained period of time, management may determine that goodwill testing at an interim period between annual testing dates is appropriate.

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 intangibles (carrying basis and accumulated amortization) as of June 30, 2020 were as follows:

	June 30, 2020
	(Dollars in Thousands)
Goodwill	$	7,435
Core deposit intangible:
Gross carrying amount		2,048
Accumulated amortization		(878	)
Core deposit intangible, net		1,170
Total	$	8,605

The Company’s estimated remaining amortization expense on intangibles as of June 30, 2020 was as follows:

	Amortization Expense
	(Dollars in Thousands)
2020	$	195
2021		341
2022		268
2023		195
2024		122
2025		49
Total	$	1,170

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 its carrying amount may not be recoverable.

7.	~~SHORT-TERM~~ BORROWINGS

Short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, and short-term ~~Federal Home Loan Bank (“FHLB”)~~FHLB advances with original maturities of one year or less. Short-term borrowings totaled ~~$10.6~~$10.3 million and ~~$10.1~~$10.0 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

Federal funds purchased, which represent unsecured lines of credit that generally mature within one to four days, are available to the Bank through arrangements with correspondent banks and the Federal Reserve. As of both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, there were no federal funds purchased ~~outstanding, and the~~outstanding. The Bank had ~~$18.8~~$61.7 million in available unused lines of credit with correspondent banks and the Federal ~~Reserve.~~Reserve as of both June 30, 2020 and December 31, 2019.

Securities sold under repurchase agreements, which are secured borrowings, generally are reflected at the amount of cash received in connection with the transaction. The Bank may be required to provide additional collateral based on the fair value of the underlying securities. The Bank monitors the fair value of the underlying securities on a daily basis. Securities sold under repurchase agreements as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 totaled ~~$0.6~~$0.3 million and ~~$0.1 million,~~$25 thousand, respectively.

Short-term FHLB advances are secured borrowings available to the Bank as an alternative funding source. As of both ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Bank had $10.0 million in outstanding FHLB advances with original maturities of less than one year.

8.	~~LONG-TERM DEBT~~

The Company ~~uses~~ may use FHLB advances with original maturities of more than one year as an alternative to funding sources with similar maturities, such as certificates of deposit or other deposit programs. These advances generally offer more attractive rates than other mid-term financing options. They are also flexible, allowing the Company to quickly obtain the necessary maturities and rates that best suit its overall asset/liability strategy. FHLB advances with an original maturity of more than one year are classified as long-term. ~~The~~As of both June 30, 2020 and December 31, 2019, the Company ~~had~~did not have any long-term FHLB advances ~~outstanding of $10.0 million and $15.0 million as of September 30, 2017 and December 31, 2016, respectively.~~

outstanding.

Assets pledged (including loans and investment securities) associated with FHLB advances totaled ~~$22.3~~$32.6 million and ~~$28.0~~$34.6 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the ~~Company~~Bank had ~~$164.8~~$216.5 million and ~~$155.0~~$211.5 million, respectively, in remaining credit from the FHLB (subject to available collateral).

9.8.	INCOME TAXES

The provision for income taxes was ~~$0.4~~$0.4 million and $0.7 million for ~~both of~~ the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019, respectively. The Company’s effective tax rate was ~~23.0%~~23.3% and ~~23.4%~~22.5%, respectively, for the same periods. The effective tax rate is impacted by recurring permanent differences, such as those associated with bank-owned life insurance and tax-exempt ~~investments~~investment and loan income.

The Company had a net deferred tax asset of ~~$7.7~~$2.4 million and ~~$8.7~~$2.8 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The ~~reduction~~decrease in the net deferred tax asset resulted primarily from the impact of changes in the fair value of securities available-for-sale, ~~as well as the reduction of federal~~combined with reductions in net operating loss ~~carry-forwards.~~

carryforwards and other book-to-tax temporary differences.

~~10.~~9.

DEFERRED COMPENSATION PLANS

The ~~Bank~~Company has entered into supplemental retirement compensation benefits agreements with certain directors and former executive officers. The measurement of the liability under these agreements includes estimates involving life expectancy, length of time before retirement and the expected returns on the bank-owned life insurance policies used to fund those agreements. Should these estimates prove to be materially wrong, the cost of these agreements could change accordingly. The related deferred compensation obligation to these directors and executive officers included in other liabilities was ~~$3.4 million and $3.5~~$3.2 million as of ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016, respectively.~~

2019.

Non-employee directors may elect to defer payment of all or any portion of their Bancshares and Bank director fees under Bancshares’ Non-Employee Directors’ Deferred Compensation Plan (the “Deferral Plan”). The Deferral Plan ~~which was ratified by Bancshares’ shareholders at the annual meeting held on May 11, 2004,~~ permits non-employee directors to invest their directors’ fees and to receive the adjusted value of the deferred amounts in cash and/or shares of Bancshares’ common stock. Neither Bancshares nor the Bank makes any contribution to participants’ accounts under the Deferral Plan. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, a total of ~~100,990~~104,794 and ~~114,547~~124,392 shares of Bancshares common stock, respectively, were deferred in connection with the Deferral Plan. All deferred fees, whether in the form of cash or shares of Bancshares common stock, are reflected as compensation expense in the period earned. The Company classifies all deferred ~~directors'~~directors’ fees allocated to be paid in shares ~~of stock~~ as equity ~~surplus.~~additional paid-in capital. The Company ~~uses~~may use issued shares or shares of treasury stock to satisfy these obligations when due.

~~11.~~10.

STOCK AWARDS

In accordance with the 2013 Incentive Plan, stock awards, including stock options and restricted stock, have been granted to certain employees and non-employee directors. Shares of common stock available for distribution to satisfy the grants may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares reacquired by the Company in any manner. Stock-based compensation expense related to stock awards totaled $0.2 million and $0.1 million for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Stock Options

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

The Company recognizes the cost of services received in exchange for stock option awards based on the grant date fair value of the award, with compensation expense recognized on a straight-line b~~asis~~basis over the award’s vesting period. The fair value of outstanding awards was determined using the Black-Scholes option pricing model based on the assumptions noted in the table below. Expected volatilities are based on historical volatilities of ~~Bancshares’~~the Company’s common stock.

	2017			2016			2020			2019
Risk-free interest rate		2.23	%		1.58	%		1.24	%		2.59	%
Expected term	7.5 years			7.5 years
Expected term (in years)								7.5			7.5
Expected stock price volatility		25.36	%		25.25	%		28.9	%		30.9	%
Dividend yield		1.50	%		1.50	%		1.25	%		1.25	%
Fair value of stock option								3.34			3.30

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

	Nine Months Ended								Six Months Ended
	September 30, 2017				September 30, 2016				June 30, 2020				June 30, 2019
	Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price		Number of Shares		Average Exercise Price
Options:
Outstanding, beginning of period		272,550	$	8.21		175,550	$	8.17		412,800	$	9.72		377,950	$	9.80
Granted		70,600		13.84		97,000		8.30		10,200		11.95		66,150		10.01
Exercised		19,316		8.15		—		—		666		10.75		—		—
Expired		—		—		—		—		—		—		—		—
Forfeited		3,334		11.79		—		—		334		10.75		16,819		11.39
Options outstanding, end of period		320,500	$	9.42		272,550	$	8.21		422,000	$	9.77		427,281	$	9.77
Options exercisable, end of period		208,633	$	8.20		175,550	$	8.17		353,183	$	9.59		309,682	$	9.20

The aggregate intrinsic value of stock options outstanding (calculated as the amount by which the market value of underlying stock exceeds the exercise price of the option) was approximately ~~$0.8 million~~zero and ~~$0.4~~$0.3 million as of ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

Restricted Stock

During the ~~first nine~~six months ~~of 2017, 7,533~~ended June 30, 2020 and 2019, respectively, 28,460 shares and 5,520 shares of restricted stock were ~~granted with vesting periods of either one or three years. No shares of restricted stock were granted during the nine months ended September 30, 2016.~~granted. The Company recognizes the cost of services received in exchange for restricted stock awards based on the grant date closing price of the stock, with compensation expense recognized on a straight-line basis over the award’s vesting period.

11.

LEASES

The Bank and ALC are involved in a number of operating leases, primarily for branch locations. Branch leases have remaining lease terms ranging from less than one year to 14 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, 2020 and 2019:

	Location in the Condensed	Three Months Ended				Six Months Ended
	Consolidated Statements of Operations	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
		(Dollars in Thousands)				(Dollars in Thousands)
Operating lease expense ⁽¹⁾	Net occupancy and equipment	$	212	$	210	$	423	$	420
Operating lease income ⁽²⁾	Other income, net	$	212	$	212	$	424	$	421

⁽¹⁾	Includes short-term lease costs. For the three- and six-month periods ended June 30, 2020 and 2019, short-term lease costs were nominal in amount.

⁽²⁾	Operating lease income includes rental income from owned properties.

The following table provides supplemental lease information for operating leases on the Condensed Consolidated Balance Sheet as of June 30, 2020:

	Location in the Condensed
	Consolidated Balance Sheet	June 30, 2020
		(Dollars in Thousands)
Operating lease right-of-use assets	Other assets	$	3,269
Operating lease liabilities	Other liabilities	$	3,312
Weighted-average remaining lease term (in years)			6.28
Weighted-average discount rate			3.14	%

The following table provides supplemental lease information for the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019:

	Six Months Ended
	June 30, 2020		June 30, 2019
	(Dollars in Thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	373	$	385

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, 2020:

	Minimum Rental Payments
	(Dollars in Thousands)
2020	$	352
2021		628
2022		558
2023		458
2024		438
2025 and thereafter		1,276
Total future minimum lease payments	$	3,710
Less: Imputed interest		398
Total operating lease liabilities	$	3,312

12.	DERIVATIVE FINANCIAL INSTRUMENTS

~~On April~~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.

Cash Flow Hedges

Effective July 8, 2019, the Bank entered into a forward interest rate swap contract on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average) with a total notional amount of $10.0 million. The money market account balances are expected to exceed $10 million for the next seven years, and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. The interest rate swap was designated as a derivative instrument in a cash flow hedge with the objective of converting the floating interest payments to a fixed rate throughout the seven-year period beginning on July 8, 2019 and ending on July 8, 2026. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.790% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.

Effective July 22, 2019, the Bank entered into a forward interest rate swap contract on certain variable-rate money market deposit accounts (indexed to the Federal Funds effective rate’s daily weighted average) with a total notional amount of $10.0 million. The money market account balances are expected to exceed $10 million for the next five years, and the rates on these deposits are anticipated to move closely with changes in one-month LIBOR, or a comparable benchmark interest rate. The interest rate swap was designated as a derivative instrument in a cash flow hedge with the objective of converting the floating interest payments to a fixed rate throughout the five-year period beginning on July 22, 2019 and ending on July 22, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.698% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.

Effective October 1, ~~2016,~~2019, the Bank entered into a forward interest rate swap contract on a ~~variable rate~~variable-rate FHLB advance (indexed to ~~three-month~~one-month LIBOR) with a total notional amount of $10.0 million. The FHLB advance will be renewed on a monthly basis and will remain outstanding until October 1, 2024. The interest rate swap ~~contract~~ was designated as a derivative instrument in a cash flow hedge ~~under~~ ~~ASC Topic 815, Derivatives and Hedging,~~with the objective of ~~protecting~~converting the ~~quarterly~~floating interest ~~rate~~ payments ~~on the FHLB advance from the risk of variability of those payments resulting from changes in the three-month LIBOR interest~~to a fixed rate throughout the ~~seven-year~~five-year period beginning on ~~April 5, 2016~~October 1, 2019 and ending on ~~April 5, 2023.~~October 1, 2024. Under the swap arrangement, ~~which became effective on April 5, 2016,~~ the Bank will pay a fixed interest rate of ~~1.46%~~1.357% and receive a variable interest rate based on ~~three-month~~one-month LIBOR, or a comparable benchmark interest rate, on the ~~total~~ notional amount of $10.0 million, with ~~quarterly~~monthly net settlements.

~~No ineffectiveness related to~~Fair Value Hedges

Effective August 9, 2019, the Bank entered into a forward interest rate swap contract on fixed rate commercial real estate loans with a total notional amount of $10.0 million. The interest rate swap was designated as a derivative instrument in a fair value hedge with the objective of effectively converting a pool of fixed rate assets to variable rate throughout the five-year period beginning on August 9, 2019 and ending on August 9, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.406% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.

Effective August 21, 2019, the Bank entered into a forward interest rate swap contract on fixed rate commercial real estate loans with a total notional amount of $10.0 million. The interest rate swap was designated as a derivative instrument in a fair value hedge with the objective of effectively converting a pool of fixed rate assets to variable rate throughout the five-year period beginning on August 21, 2019 and ending on August 21, 2024. Under the swap arrangement, the Bank will pay a fixed interest rate of 1.292% and receive a variable interest rate based on one-month LIBOR, or a comparable benchmark interest rate, on the notional amount of $10.0 million, with monthly net settlements.

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 ~~flow hedge was recognized in~~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 ~~statements of operations for the three- or nine-month periods ended September 30, 2017. The accumulated net after-tax gain~~balance sheet related to ~~the effective cash flow hedge included in accumulated other comprehensive income totaled $0.2 million as of both September 30, 2017 and December 31, 2016.~~cumulative basis adjustments for fair value hedges:

Location in the Condensed Consolidated Balance Sheet in Which the Hedged	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Item is Included	June 30, 2020
	(Dollars in Thousands)
Loans and leases, net of allowance for loan and lease losses ⁽¹⁾	$	39,291	$	900

⁽¹⁾

These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. As of June 30, 2020, the amortized cost basis of the closed portfolios used in these hedging relationships was $38.4 million, the cumulative basis adjustments associated with these hedging relationships were $0.9 million, and the amounts of the designated hedged items were $20.0 million.

13.	SEGMENT REPORTING

Under ASC Topic 280,Segment Reporting, certain information is disclosed for the two reportable operating segments of Bancshares: the Bank and ALC. The reportable segments were determined using the internal management reporting system. These segments comprise Bancshares’ and the Bank’s significant subsidiaries. The accounting policies for each segment are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, ~~2016.~~2019. 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 September 30, 2017:
As of and for the three months ended June 30, 2020:
Net interest income	$	4,192		$	2,940	$	3		$	—		$	7,135	$	6,442	$	2,174		$	7		$	—		$	8,623
Provision (reduction in reserve) for loan losses		(130	)		503		—			—			373
Provision for loan losses															530		320			—			—			850
Total non-interest income		1,005			219		954			(942	)		1,236		1,251		191			784			(896	)		1,330
Total non-interest expense		4,699			2,303		336			(148	)		7,190		6,110		2,091			538			(158	)		8,581
Income before income taxes		628			353		621			(794	)		808		1,053		(46	)		253			(738	)		522
Provision for income taxes		48			202		(77	)		—			173		220		(14	)		(88	)		—			118
Net income	$	580		$	151	$	698		$	(794	)	$	635	$	833	$	(32	)	$	341		$	(738	)	$	404
Other significant items:
Total assets	$	616,820		$	92,942	$	84,170		$	(179,333	)	$	614,599	$	848,376	$	60,044		$	90,684		$	(153,357	)	$	845,747
Total investment securities		185,722			—		80			—			185,802		103,883		—			81			—			103,964
Total loans, net		329,327			89,326		—			(80,627	)		338,026		561,253		56,742			—			(51,933	)		566,062
Goodwill and core deposit intangible, net															8,605		—			—			—			8,605
Investment in subsidiaries		5			—		78,469			(78,469	)		5		—		—			84,718			(84,718	)		—
Fixed asset additions		818			13		—			—			831		223		5			—			—			228
Depreciation and amortization expense		238			41		—			—			279		376		31			—			—			407
Total interest income from external customers		3,596			4,224		—			—			7,820		6,872		2,907			1			—			9,780
Total interest income from affiliates		1,284			—		3			(1,287	)		—		733		—			6			(739	)		—

For the nine months ended September 30, 2017:
For the six months ended June 30, 2020:
Net interest income	$	12,168		$	8,933	$	10		$	—		$	21,111	$	12,922	$	4,574		$	13		$	—		$	17,509
Provision (reduction in reserve) for loan losses		(130	)		1,594		—			—			1,464
Provision for loan losses															778		652			—			—			1,430
Total non-interest income		2,647			700		2,451			(2,465	)		3,333		2,345		428			2,018			(2,164	)		2,627
Total non-interest expense		13,522			6,966		1,074			(472	)		21,090		12,266		4,260			894			(345	)		17,075
Income before income taxes		1,423			1,073		1,387			(1,993	)		1,890		2,223		90			1,137			(1,819	)		1,631
Provision for income taxes		249			458		(272	)		—			435		494		37			(151	)		—			380
Net income	$	1,174		$	615	$	1,659		$	(1,993	)	$	1,455	$	1,729	$	53		$	1,288		$	(1,819	)	$	1,251
Other significant items:
Fixed asset additions		8,578			103		—			—			8,681		442		19			—			—			461
Depreciation and amortization expense		657			124		—			—			781		742		64			—			—			806
Total interest income from external customers		10,493			12,520		—			—			23,013		14,129		6,047			1			—			20,177
Total interest income from affiliates		3,587			—		9			(3,596	)		—		1,473		—			12			(1,485	)		—

					All
	Bank		ALC		Other			Eliminations			Consolidated
	(Dollars in Thousands)
As of and for the three months ended June 30, 2019:
Net interest income	$	5,986	$	3,240	$	7		$	—		$	9,233
Provision for loan losses		90		625		—			—			715
Total non-interest income		1,108		228		1,384			(1,429	)		1,291
Total non-interest expense		5,798		2,366		493			(153	)		8,504
Income before income taxes		1,206		477		898			(1,276	)		1,305
Provision for income taxes		249		121		(70	)		—			300
Net income	$	957	$	356	$	968		$	(1,276	)	$	1,005
Other significant items:
Total assets	$	778,252	$	107,911	$	89,102		$	(198,094	)	$	777,171
Total investment securities		136,569		—		80			—			136,649
Total loans, net		501,177		104,007		—			(93,669	)		511,515
Goodwill and core deposit intangible, net		9,056		—		—			—			9,056
Investment in subsidiaries		5		—		83,436			(83,436	)		5
Fixed asset additions		887		64		—			—			951
Depreciation and amortization expense		361		35		—			—			396
Total interest income from external customers		6,476		4,447		—			—			10,923
Total interest income from affiliates		1,206		—		7			(1,213	)		—
For the six months ended June 30, 2019:
Net interest income	$	11,995	$	6,398	$	13		$	—		$	18,406
Provision for loan losses		90		1,025		—			—			1,115
Total non-interest income		2,186		447		2,965			(3,042	)		2,556
Total non-interest expense		11,631		4,734		920			(328	)		16,957
Income before income taxes		2,460		1,086		2,058			(2,714	)		2,890
Provision for income taxes		511		264		(124	)		—			651
Net income	$	1,949	$	822	$	2,182		$	(2,714	)	$	2,239
Other significant items:
Fixed asset additions		2,564		78		—			—			2,642
Depreciation and amortization expense		728		68		—			—			796
Total interest income from external customers		12,969		8,766		1			—			21,736
Total interest income from affiliates		2,367		—		12			(2,379	)		—

14.	OTHER OPERATING INCOME AND EXPENSE

Other Operating Income

Other operating income for the three and six months ended June 30, 2020 and 2019 consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(Dollars in Thousands, Except Per Share Data)
Bank-owned life insurance	$	107	$	108	$	215	$	214
Auto Club revenue		18		62		53		100
ATM fee income		116		111		216		215
Wire transfer fees		15		11		28		22
Other income		52		41		167		119
Total	$	308	$	333	$	679	$	670

On January 1, 2018, the Company implemented ASU 2014-09, Revenue from Contracts with Customers, codified at ASC Topic 606. The majority of the Company’s revenue is generated through interest earned on financial instruments, including loans and investment securities, which falls outside the scope of ASC Topic 606. The Company also generates revenue from insurance- and lease-related contracts that fall outside the scope of ASC Topic 606.

All of the Company’s revenue that is subject to 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, 2020 and 2019 was $1.4 million and $1.6 million, respectively, and for the three-month periods ended June 30, 2020 and 2019 was $0.6 million and $0.8 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 no contract liabilities or unsatisfied performance obligations with customers as of June 30, 2020.

Other Operating Expense

Other operating expense for the three and six months ended June 30, 2020 and 2019 consisted of the following:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
	(Dollars in Thousands, Except Per Share Data)
Postage, stationery and supplies	$	218	$	212	$	432	$	450
Telephone/data communication		229		205		452		418
Advertising and marketing		42		58		86		92
Travel and business development		23		102		149		213
Collection and recoveries		60		20		145		100
Other services		85		71		176		143
Insurance expense		141		153		303		315
FDIC insurance and state assessments		116		39		196		158
Loss on sale of fixed assets		121		134		287		219
Core deposit intangible amortization		109		128		219		256
Other real estate/foreclosure expense, net		22		31		41		89
Other expense		402		456		744		939
Total	$	1,568	$	1,609	$	3,230	$	3,392

All

Bank

ALC

Other

Eliminations

Consolidated

(Dollars in Thousands)

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

Net interest income

$
3,917

$
3,253
$
3

$
—

$
7,173

Provision for loan losses

100

580
—

—

680

Total non-interest income

1,159
316 973
(881
)

1,567

Total non-interest expense

4,636
2,403 474
(165
)

7,348

Income (loss) before income taxes

340
586 502
(716
)

712

Provision for income taxes

52
196 (86
)

—

162

Net income (loss)

$
288

$
390
$
588
$
(716
)

$
550

Other significant items:

Total assets

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

$
(175,454
)

$
600,307

Total investment securities
209,486
—

80

—

209,566

Total loans, net
308,423 85,720
—

(77,022
)

317,121

Investment in subsidiaries
5 —
78,737

(78,737
)

5

Fixed asset additions
960 16
—

—

976

Depreciation and amortization expense
193 54
—

—

247

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

—

7,760

Total interest income from affiliates
1,092
—

3

(1,095
)

—

For the nine months ended September 30, 2016:

Net interest income

$
11,199

$
9,544
$
8

$
—

$
20,751

Provision (reduction in reserve) for loan losses

(350
)
1,733
—

—

1,383

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

(2,356
)

4,036

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

(445
)

21,669

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

(1,911
)

1,735

Provision for income taxes
224 484
(302
)

—

406

Net income (loss)

$
892
$
930
$
1,418

$
(1,911
)

$
1,329

Other significant items:

Fixed asset additions
4,521 33
—

—

4,554

Depreciation and amortization expense
564 162
—

—

726

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

—

22,434

Total interest income from affiliates
3,140
—

8

(3,148
)

—

14.15.

GUARANTEES, COMMITMENTS AND CONTINGENCIES

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

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

Standby letters of credit and standby performance letters of credit are contingent commitments issued by the Bank generally to guarantee the performance of a customer to a ~~third-party.~~third party. The Bank has recourse against the customer for any amount that it is required to pay to a ~~third-party~~third party under a standby letter of credit or standby performance letter of credit. Revenues are recognized over the lives of the standby letters of credit and standby performance letters of credit. As of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the potential ~~amount~~amounts of future payments that the Bank could be required to make under its standby letters of credit and standby performance letters of credit, which represent the Bank’s total credit risk in ~~this category, is~~these categories, are included in the table above.

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

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

The Company is self-insured for a significant portion of employee health benefits. However, the Company maintains stop-loss coverage with third-party insurers to limit the Company’s individual claim and total exposure related to self-insurance. The Company estimates an accrued

liability for the ultimate costs to ~~close~~settle known claims, as well as claims incurred but not yet reported, as of the balance sheet date. The Company’s recorded estimated liability for self-insurance is based on the insurance companies’ incurred loss estimates and management’s judgment, including assumptions and evaluation of factors related to the frequency and severity of claims, the Company’s claims development history and the Company’s claims settlement practices. The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of self-insurance accruals. Self-insurance accruals totaled $0.2 million as of both June 30, 2020 and December 31, 2019. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts ~~that the Company has~~ accrued in the Company’s consolidated financial statements.

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

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

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 estimation of the fair value of the Company’s financial instruments are detailed below. The following disclosures should not be considered a ~~surrogate~~representation of the liquidation value of the Company, but rather represent a good-faith estimate of the increase or decrease in value of financial instruments held by the Company since purchase, origination or issuance.

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

The Company rarely transfers assets and liabilities measured at fair value between Level 1 and Level 2 measurements. Trading account assets and securities available-for-sale may be periodically transferred to or from Level 3 valuation based on ~~management~~’smanagement’s conclusion regarding the best method of pricing for an individual security. Such transfers are accounted for as if they occurred at the beginning of a reporting period. There were no such transfers during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 or the year ended December 31, ~~2016.~~

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 ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019. There were no liabilities measured at fair value on a recurring basis ~~for either period presented.~~as of December 31, 2019.

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

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

~~Included~~As of June 30, 2020, included within ~~other assets are~~OREO were certain assets that were formerly included as premises and equipment but have been removed from service, and as of the balance sheet date, were designated as assets to be disposed of by sale. These include assets associated with branches of the Bank that have been closed. When an asset is designated as ~~held for sale,~~held-for-sale, the Company ceases depreciation of the asset, and the asset is recorded at the lower of its carrying amount or fair value less estimated cost to sell. Estimates of fair value are generally based on third-party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes discounted based on management’s knowledge of the property and/or changes in market conditions from the date of the most recent appraisal. Such discounts are typically unobservable inputs for determining fair value.

These assets were included within other assets on the balance sheet as of December 31, 2019.

The following table presents the balances of impaired loans, OREO and other assets held-for-sale measured at fair value on a non-recurring basis as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016.~~2019:

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

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

	September 30, 2017
	Bank		ALC		Total
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	20,213	$	—	$	20,213
Secured by 1-4 family residential properties		35,125		11,490		46,615
Secured by multi-family residential properties		16,498		—		16,498
Secured by non-farm, non-residential properties		107,679		—		107,679
Other		223		—		223
Commercial and industrial loans		66,320		—		66,320
Consumer loans:
Consumer		5,431		35,650		41,081
Indirect sales		—		50,553		50,553
Total loans		251,489		97,693		349,182
Less: Unearned interest, fees and deferred cost		367		5,981		6,348
Allowance for loan losses		2,422		2,386		4,808
Net loans	$	248,700	$	89,326	$	338,026

	Bank
	Nine Months Ended September 30, 2017
	Construction, Land			1-4 Family			Real Estate Multi- Family			Non-Farm Non-Residential			Other		Commercial		Consumer			Indirect Sales		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	535		$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409
Charge-offs		—			—			—		—			—		(16	)		(63	)		—		(79	)
Recoveries		—			85			—		69			—		16			52			—		222
Provision		(328	)		(141	)		27		(142	)		—		440			14			—		(130	)
Ending balance	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422

Ending balance of allowance attributable to loans:
Individually evaluated for impairment	$	62		$	5		$	—	$	55		$	—	$	72		$	—		$	—	$	194
Collectively evaluated for impairment		145			243			115		775			2		895			53			—		2,228
Total allowance for loan losses	$	207		$	248		$	115	$	830		$	2	$	967		$	53		$	—	$	2,422
Ending balance of loans receivable:
Individually evaluated for impairment	$	86		$	189		$	—	$	535		$	—	$	70		$	—		$	—	$	880
Collectively evaluated for impairment		20,127			34,936			16,498		107,144			223		66,250			5,431			—		250,609
Total loans receivable	$	20,213		$	35,125		$	16,498	$	107,679		$	223	$	66,320		$	5,431		$	—	$	251,489

	ALC
	Nine Months Ended September 30, 2017
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential		Other		Commercial		Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	—	$	107		$	—	$	—	$	—	$	—	$	1,717		$	623		$	2,447
Charge-offs		—		(27	)		—		—		—		—		(1,721	)		(445	)		(2,193	)
Recoveries		—		28			—		—		—		—		435			75			538
Provision		—		(5	)		—		—		—		—		1,134			465			1,594
Ending balance	$	—	$	103		$	—	$	—	$	—	$	—	$	1,565		$	718		$	2,386

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

	Bank and ALC
	Nine Months Ended September 30, 2017
	Construction, Land			1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential			Other		Commercial			Consumer			Indirect Sales			Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	535		$	411		$	88	$	903		$	2	$	527		$	1,767		$	623		$	4,856
Charge-offs		—			(27	)		—		—			—		(16	)		(1,784	)		(445	)		(2,272	)
Recoveries		—			113			—		69			—		16			487			75			760
Provision		(328	)		(146	)		27		(142	)		—		440			1,148			465			1,464
Ending balance	$	207		$	351		$	115	$	830		$	2	$	967		$	1,618		$	718		$	4,808

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

	Bank
	Year Ended December 31, 2016
	Construction, Land		1-4 Family			Real Estate Multi- Family		Non-Farm Non-Residential			Other		Commercial			Consumer			Indirect Sales		Total
	(Dollars in Thousands)
Allowance for loan losses:
Beginning balance	$	110	$	138		$	29	$	351		$	1	$	659		$	41		$	—	$	1,329
Charge-offs		—		(66	)		—		(40	)		—		(2	)		(43	)		—		(151	)
Recoveries		200		23			—		—			—		73			50			—		346
Provision		225		209			59		592			1		(203	)		2			—		885
Ending balance	$	535	$	304		$	88	$	903		$	2	$	527		$	50		$	—	$	2,409

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

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

	Bank
	As of September 30, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	23	$	—	$	—	$	23	$	20,190	$	20,213	$	—
Secured by 1-4 family residential properties		149		—		91		240		34,885		35,125		—
Secured by multi-family residential properties		—		—		—		—		16,498		16,498		—
Secured by non-farm, non-residential properties		15		117		—		132		107,547		107,679		—
Other		—		—		—		—		223		223		—
Commercial and industrial loans		31		—		—		31		66,289		66,320		—
Consumer loans		—		—		23		23		5,408		5,431		—
Total	$	218	$	117	$	114	$	449	$	251,040	$	251,489	$	—

	ALC
	As of September 30, 2017
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Secured by 1-4 family residential properties		73		70		71		214		11,276		11,490		—
Secured by multi-family residential properties		—		—		—		—		—		—		—
Secured by non-farm, non-residential properties		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—		—
Consumer loans:
Consumer		506		433		1,016		1,955		33,695		35,650		—
Indirect sales		214		221		383		818		49,735		50,553		—
Total	$	793	$	724	$	1,470	$	2,987	$	94,706	$	97,693	$	—

	Bank
	As of December 31, 2016
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days And Accruing
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans	$	—	$	—	$	86	$	86	$	23,686	$	23,772	$	—
Secured by 1-4 family residential properties		164		69		145		378		32,577		32,955		—
Secured by multi-family residential properties		—		—		—		—		16,627		16,627		—
Secured by non-farm, non-residential properties		762		—		—		762		101,350		102,112		—
Other		—		—		—		—		234		234		—
Commercial and industrial loans		—		—		14		14		57,949		57,963		—
Consumer loans		—		28		—		28		6,178		6,206		—
Total	$	926	$	97	$	245	$	1,268	$	238,601	$	239,869	$	—

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

	September 30, 2017
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
	(Dollars in Thousands)
Loans secured by real estate
Construction, land development and other land loans	$	1,183	$	1	$	1
Secured by 1-4 family residential properties		191		10		11
Secured by multi-family residential properties		—		—		—
Secured by non-farm, non-residential properties		539		27		25
Commercial and industrial		55		6		3
Total	$	1,968	$	44	$	40

	September 30, 2017						December 31, 2016
	Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance		Number of Loans		Pre- Modification Outstanding Principal Balance		Post- Modification Principal Balance
	(Dollars in Thousands)
Loans secured by real estate:
Construction, land development and other land loans		1	$	107	$	84		2	$	1,960	$	1,286
Secured by 1-4 family residential properties		3		318		188		3		318		249
Secured by non-farm, non-residential properties		1		53		38		1		53		41
Commercial loans		2		116		83		2		116		88
Total		7	$	594	$	393		8	$	2,447	$	1,664

	September 30, 2017		December 31, 2016		June 30, 2020		December 31, 2019
	(Dollars in Thousands)				(Dollars in Thousands)
Standby letters of credit	$	180	$	183	$	180	$	180
Standby performance letters of credit					$	555	$	647
Commitments to extend credit	$	53,231	$	41,267	$	93,733	$	96,967

	Fair Value Measurements as of September 30, 2017 Using								Fair Value Measurements as of June 30, 2020 Using
	Totals At September 30, 2017		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At June 30, 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	$	83,550	$	—	$	83,550	$	—	$	32,634	$	—	$	32,634	$	—
Commercial		67,138		—		67,138		—		52,847		—		52,847		—
Obligations of states and political subdivisions		5,655		—		5,655		—		6,323		—		6,323		—
Obligations of U.S. government-sponsored agencies		2,002		—		2,002		—
Corporate notes										2,773		—		2,773		—
U.S. Treasury securities		80		—		80		—		81		—		81		—
Other assets - derivatives		291		—		291		—
Other liabilities - derivatives										2,915		—		2,915		—

	Fair Value Measurements as of December 31, 2016 Using								Fair Value Measurements as of December 31, 2019 Using
	Totals At December 31, 2016		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals At December 31, 2019		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in Thousands)								(Dollars in Thousands)
Investment securities, available-for-sale
Mortgage-backed securities:
Residential	$	98,409	$	—	$	98,409	$	—	$	46,345	$	—	$	46,345	$	—
Commercial		70,530		—		70,530		—		43,373		—		43,373		—
Obligations of states and political subdivisions		10,142		—		10,142		—		4,218		—		4,218		—
Obligations of U.S. government-sponsored agencies		1,993		—		1,993		—
Corporate notes		756		—		756		—
U.S. Treasury securities		80		—		80		—		80		—		80		—
Other assets - derivatives		346		—		346		—		301		—		301		—

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

	September 30, 2017										June 30, 2020
	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
	(Dollars in Thousands)										(Dollars in Thousands)
Assets:
Cash and cash equivalents	$	32,554	$	32,554	$	32,554	$	—	$	—	$	108,268	$	108,268	$	108,268	$	—	$	—
Investment securities available-for-sale		158,425		158,425		—		158,425		—		94,658		94,658		—		94,658		—
Investment securities held-to-maturity		27,377		27,303		—		27,303		—		9,306		9,469		—		9,469		—
Federal funds sold												80		80		—		80		—
Federal Home Loan Bank stock		1,396		1,396		—		—		1,396		1,135		1,135		—		—		1,135
Loans, net of allowance for loan losses		338,026		327,251		—		—		327,251		566,062		577,172		—		—		577,172
Other assets - derivatives		291		291		—		291		—
Liabilities:
Deposits		508,385		507,298		—		507,298		—		738,290		741,062		—		741,062		—
Short-term borrowings		10,635		10,634		—		10,634		—		10,334		10,334		—		10,334		—
Long-term debt		10,000		10,000		—		10,000		—
Other liabilities - derivatives												2,915		2,915		—		2,915		—


Note A	—	For the purpose of these computations, non-accruing loans are included in the average loan amounts outstanding. ~~At the Bank, these~~These loans averaged ~~$0.3~~$3.5 million and ~~$0.9~~$1.6 million for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~At ALC, these loans averaged $1.6 million and $1.5 million for the respective periods presented.~~

Note B	—	The annualized rate on total average funding costs, including total average interest-bearing liabilities and average non-interest-bearing demand deposits, was 0.64% and 0.98% for the three-month periods ended June 30, 2020 and 2019, respectively.
Note C	—	Loan fees are included in the interest amounts presented. ~~At the Bank, loan~~Loan fees totaled $~~0.1~~$0.4 million and $0.5 million for ~~both of~~ the three-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016. At ALC, loan fees totaled $0.5 million and $0.7 million for the respective periods presented.~~2019, respectively.

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

	Three Months Ended June 30, 2020									Six Months Ended June 30, 2020
	Compared to									Compared to
	Three Months Ended June 30, 2019									Six Months Ended June 30, 2019
	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	$	847		$	(1,443	)	$	(596	)	$	1,527		$	(2,157	)	$	(630	)
Taxable investment securities		(189	)		(53	)		(242	)		(426	)		(79	)		(505	)
Tax-exempt investment securities		(3	)		—			(3	)		(10	)		3			(7	)
Federal Home Loan Bank stock		7			(4	)		3			14			(7	)		7
Federal funds sold		(57	)		(37	)		(94	)		(21	)		(76	)		(97	)
Interest-bearing deposits in banks		204			(415	)		(211	)		222			(549	)		(327	)
Total interest-earning assets		809			(1,952	)		(1,143	)		1,306			(2,865	)		(1,559	)
Interest expense on:
Demand deposits		17			(94	)		(77	)		17			(125	)		(108	)
Savings deposits		(26	)		(288	)		(314	)		(35	)		(428	)		(463	)
Time deposits		(45	)		(123	)		(168	)		(109	)		(44	)		(153	)
Borrowings		—			26			26			—			62			62
Total interest-bearing liabilities		(54	)		(479	)		(533	)		(127	)		(535	)		(662	)
Increase (decrease) in net interest income	$	863		$	(1,473	)	$	(610	)	$	1,433		$	(2,330	)	$	(897	)

	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended June 30,										Six Months Ended June 30,
	2017		2016		$ Change			% Change				2017		2016		$ Change			% Change				2020		2019		$ Change			% Change			2020		2019		$ Change			% Change
	(Dollars in Thousands)											(Dollars in Thousands)											(Dollars in Thousands)										(Dollars in Thousands)
Service charges and other fees on deposit accounts	$	481	$	463	$	18			3.9		%	$	1,406	$	1,306	$	100			7.7		%	$	263	$	443	$	(180	)		(40.6	)%	$	697	$	903	$	(206	)		(22.8	)%
Credit insurance commissions and fees		160		256		(96	)		(37.5	)	%		459		570		(111	)		(19.5	)	%		45		108		(63	)		(58.3	)%		198		251		(53	)		(21.1	)%
Bank-owned life insurance		106		105		1			0.1		%		318		316		2			0.6		%		107		107		—			—			215		214		1			0.5	%
Net gain on sale and prepayment of investment securities		178		259		(81	)		(31.3	)	%		228		657		(429	)		(65.3	)	%		326		9		317		NM				326		22		304		NM
Mortgage fees from secondary market																								176		186		(10	)		(5.4	)%		303		289		14			4.8	%
Lease income																								212		212		—			—			424		421		3			0.7	%
Other income		311		484		(173	)		(35.7	)	%		922		1,187		(265	)		(22.3	)	%		201		226		(25	)		(11.1	)%		464		456		8			1.8	%
Total non-interest income	$	1,236	$	1,567	$	(331	)		(21.1	)	%	$	3,333	$	4,036	$	(703	)		(17.4	)	%	$	1,330	$	1,291	$	39			3.0	%	$	2,627	$	2,556	$	71			2.8	%

	Quarter Ended
	2020				2019
	June 30,		March 31,		December 31,		September 30,		June 30,
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	31,384	$	31,927	$	30,820	$	28,190	$	28,401
Secured by 1-4 family residential properties		93,010		100,186		104,537		109,336		103,354
Secured by multi-family residential properties		48,807		44,029		50,910		46,843		28,033
Secured by non-farm, non-residential properties		160,683		156,222		162,981		164,941		158,748
Commercial and industrial loans		87,771		80,771		90,957		90,470		91,489
Consumer loans:
Direct consumer		33,299		36,307		38,040		37,477		37,160
Branch retail		33,000		31,568		32,305		30,008		29,609
Indirect sales		89,932		69,982		45,503		48,073		45,466
Total loans	$	577,886	$	550,992	$	556,053	$	555,338	$	522,260
Less unearned interest, fees and deferred cost		5,401		5,353		5,048		5,234		5,658
Allowance for loan and lease losses		6,423		5,954		5,762		5,585		5,087
Net loans	$	566,062	$	539,685	$	545,243	$	544,519	$	511,515

	June 30, 2020								December 31, 2019
	Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans			Allocation Allowance		Percent of Allowance in Each Category to Total Allowance			Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)
Real estate loans:
Construction, land development and other land loans	$	269		4.2	%		5.4	%	$	197		3.4	%		5.5	%
Secured by 1-4 family residential properties		522		8.1	%		16.1	%		466		8.1	%		18.8	%
Secured by multi-family residential properties		492		7.7	%		8.4	%		422		7.3	%		9.2	%
Secured by non-farm, non-residential properties		1,244		19.4	%		27.8	%		964		16.7	%		29.3	%
Commercial and industrial loans		929		14.5	%		15.2	%		1,377		23.9	%		16.4	%
Consumer loans:
Direct consumer		1,417		22.1	%		5.8	%		1,625		28.2	%		6.8	%
Branch retail		475		7.4	%		5.7	%		395		6.9	%		5.8	%
Indirect sales		1,075		16.7	%		15.6	%		316		5.5	%		8.2	%
Total loans	$	6,423		100.0	%		100.0	%	$	5,762		100.0	%		100.0	%

	6 Months			1 Year			2 Years			5 Years
+1%		9			8			11			21
+2%		13			11			15			35
-1%		(2	)		(3	)		(6	)		(13	)
-2%		(6	)		(9	)		(14	)		(23	)

	+1%			+2%			-1%		-2%
	(Dollars in Thousands)
Change in market value of assets	$	(13,581	)	$	(28,057	)	$	5,763	$	7,950
Change in market value of liabilities		(18,362	)		(32,595	)		5,467		4,641
Net change in market value of equity		4,781			4,538			296		3,309
Beginning market value of equity		105,337			107,422			102,695		102,618
Resulting market value of equity	$	110,118		$	111,960		$	102,991	$	105,927

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⁾
April 1 – April 30		7,492	$	6.34		—		54,961
May 1 – May 31		2,045	$	7.54		—		54,961
June 1 – June 30		1,416	$	7.28		—		54,961
Total		10,953	$	6.68		—		54,961

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*		First US Bancshares, Inc. Non-Employee Director Fee Schedule.

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

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

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

101*		Interactive Data Files for the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020.

~~BY:~~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)

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

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

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

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

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

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

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

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