TC Bancshares, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2022


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


	For the transition period from		to

Commission File Number 001-40637

TC Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Georgia	86-2650449
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

131 South Dawson Street, Thomasville, Georgia	31792
(Address of Principal Executive Office)	(Zip Code)

(229) 226-3221

(Issuer’s Telephone Number including area code)

Securities registered pursuant to Section 12(b) of the Act:


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

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 past 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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☒

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 09, 2022, 4,898,350 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

TC BANCSHARES, INC.

Form 10-Q Quarterly Report

Table of Contents

PART I. FINANCIAL INFORMATION


		Page Number
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

Signature Pages		40

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

September 30, 2022 and December 31, 2021

UNAUDITED


ASSETS
	September 30, 2022			December 31, 2021
Cash and due from banks	$	18,731,747		$	31,890,831
Federal funds sold		5,000,000			10,000,000
Cash and cash equivalents		23,731,747			41,890,831
Certificates of deposit with other banks		2,237,000			3,451,000
Investment securities available-for-sale		44,232,829			45,631,636
Other investments		925,700			190,700
Mortgage loans held for sale		1,795,761			2,844,707
Loans, net		311,514,026			266,304,448
Premises and equipment, net		3,133,045			3,224,889
Other real estate owned		948,400			1,115,100
Bank owned life insurance		11,372,284			11,166,573
Accrued interest receivable and other assets		6,332,264			5,122,263
Total Assets	$	406,223,056		$	380,942,147

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand	$	46,628,542		$	35,939,917
Interest-bearing demand		160,580,185			146,831,902
Savings		34,333,084			34,014,635
Certificates of deposit		74,328,045			72,530,254
Total deposits		315,869,856			289,316,708
Accrued interest payable and other liabilities		5,706,189			4,812,858
Total liabilities		321,576,045			294,129,566
Commitments
Shareholders' Equity:
Common stock, $.01 par value, 20,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 4,846,829 shares issued and outstanding as of September 30, 2022 and December 31, 2021		48,984			48,984
Additional paid in capital		47,481,077			47,481,077
Retained earnings		46,362,157			44,613,668
Accumulated other comprehensive loss		(4,788,385	)		(1,608,401	)
Treasury stock: 51,521 shares and -0- shares at September 30, 2022 and December 31, 2021, respectively		(734,075	)		—
Unearned ESOP shares 372,275 shares unallocated at September 30, 2022 and December 31, 2021		(3,722,747	)		(3,722,747	)
Total shareholders' equity		84,647,011			86,812,581
Total Liabilities and Shareholders' Equity	$	406,223,056		$	380,942,147

The accompanying notes are an integral part of these consolidated financial statements.

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

UNAUDITED


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and Dividend Income:
Interest and fees on loans	$	3,643,536	$	3,210,252	$	10,051,325	$	9,422,541
Interest and dividends on taxable investment securities		223,438		116,441		557,619		265,987
Interest on deposits with other banks and federal funds sold		182,071		46,639		376,015		157,621
Total interest and dividend income		4,049,045		3,373,332		10,984,959		9,846,149
Interest Expense:
Interest on deposits		283,631		231,728		625,543		794,208
Interest on borrowings		—		1,383		—		39,924
Total interest expense		283,631		233,111		625,543		834,132
Net interest income		3,765,414		3,140,221		10,359,416		9,012,017
Provision for Loan Losses		37,744		106,836		98,432		123,183
Net interest income after provision for loan losses		3,727,670		3,033,385		10,260,984		8,888,834
Other Income:
Service charges on deposit accounts		144,112		151,853		414,746		421,001
Gain on sale of mortgage loans		219,395		537,115		825,100		1,638,612
Bank owned life insurance income		69,751		70,610		205,711		212,317
Other		4,507		17,232		101,213		24,607
Total other income		437,765		776,810		1,546,770		2,296,537
Other Expense:
Salaries and employee benefits		1,987,042		1,892,823		5,695,274		5,562,710
Occupancy and equipment		213,733		216,816		624,293		616,766
Other real estate owned, net of operations, loss on sales and write-downs		26,811		2,449		58,761		3,649
Data processing conversion costs		—		—		—		503
Other		1,022,553		916,808		2,833,671		2,484,906
Total other expense		3,250,139		3,028,896		9,211,999		8,668,534
Income Before Income Taxes		915,296		781,299		2,595,755		2,516,837
Income Tax Expense		212,278		183,455		602,348		583,857
Net Income	$	703,018	$	597,844	$	1,993,407	$	1,932,980

Earnings per share:
Basic	$	0.14	$	0.12	$	0.41	$	0.12
Diluted	$	0.14	$	0.12	$	0.41	$	0.12
Cash dividends per common share	N/A		N/A		$	0.05	N/A

Weighted Average Shares Outstanding:
Basic		4,870,692		3,844,941		4,889,131		3,844,941
Diluted		4,870,692		3,844,941		4,889,131		3,844,941

The accompanying notes are an integral part of these consolidated financial statements.

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

UNAUDITED


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Income	$	703,018		$	597,844		$	1,993,407		$	1,932,980
Other Comprehensive (Loss) Income
Net of Income Taxes:
Unrealized (losses) gains on securities available-for-sale:
Holding (losses) gains arising during the period, net of taxes of ($315,191), ($33,126), ($1,176,160) and ($68,704), respectively		(852,185	)		(89,562	)		(3,179,984	)		(178,561	)
Total other comprehensive loss		(852,185	)		(89,562	)		(3,179,984	)		(178,561	)
Comprehensive (Loss) Income	$	(149,167	)	$	508,282		$	(1,186,577	)	$	1,754,419

The accompanying notes are an integral part of these consolidated financial statements.

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

three and nine months ended September 30, 2022 and 2021

UNAUDITED


	Common Stock		Additional Paid in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Unearned ESOP Shares			Total
Balance, December 31, 2020	$	—	$	—	$	41,973,211		$	(2,114,923	)	$	—		$	—		$	39,858,288
Net income for the three months ended March 31, 2021		—		—		764,933			—			—			—			764,933
Other comprehensive loss, net of tax		—		—		—			(116,965	)		—			—			(116,965	)
Balance, March 31, 2021	$	—	$	—	$	42,738,144		$	(2,231,888	)	$	—		$	—		$	40,506,256
Net income for the three months ended June 30, 2021		—		—		570,203			—			—			—			570,203
Other comprehensive income, net of tax		—		—		—			27,966			—			—			27,966
Balance, June 30, 2021	$	—	$	—	$	43,308,347		$	(2,203,922	)	$	—		$	—		$	41,104,425
Net income for the three months ended September 30, 2021		—		—		597,844			—			—			—			597,844
Other comprehensive loss, net of tax		—		—		—			(89,562	)		—			—			(89,562	)
Proceeds from issuance of common stock, net of offering expenses		48,984		47,411,073		—			—			—			—			47,460,057
Purchases of shares of common stock by the ESOP		—		—		—			—			—			(3,918,680	)		(3,918,680	)
Balance, September 30, 2021	$	48,984	$	47,411,073	$	43,906,191		$	(2,293,484	)	$	—		$	(3,918,680	)	$	85,154,084


Balance, December 31, 2021	$	48,984	$	47,481,077	$	44,613,668		$	(1,608,401	)	$	—		$	(3,722,747	)	$	86,812,581
Net income for the three months ended March 31, 2022		—		—		695,893			—			—			—			695,893
Other comprehensive loss, net of tax		—		—		—			(1,318,938	)		—			—			(1,318,938	)
Balance, March 31, 2022	$	48,984	$	47,481,077	$	45,309,561		$	(2,927,339	)	$	—		$	(3,722,747	)	$	86,189,536
Net income for the three months ended June 30, 2022		—		—		594,496			—			—			—			594,496
Dividend declared		—		—		(244,918	)		—			—			—			(244,918	)
Other comprehensive loss, net of tax		—		—		—			(1,008,861	)		—			—			(1,008,861	)
Balance, June 30, 2022	$	48,984	$	47,481,077	$	45,659,139		$	(3,936,200	)	$	—		$	(3,722,747	)	$	85,530,253
Net income for the three months ended September 30, 2022		—		—		703,018			—			—			—			703,018
Other comprehensive loss, net of tax		—		—		—			(852,185	)		—			—			(852,185	)
Purchase of common stock		—		—		—			—			(734,075	)		—			(734,075	)
Balance, September 30, 2022	$	48,984	$	47,481,077	$	46,362,157		$	(4,788,385	)	$	(734,075	)	$	(3,722,747	)	$	84,647,011

The accompanying notes are an integral part of these consolidated financial statements.

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED


	Nine Months Ended September 30,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	1,993,407		$	1,932,980
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion		408,125			330,112
Provision for loan losses		98,432			123,183
Loss on disposal of premises and equipment		583			—
Increase in cash surrender value of bank owned life insurance		(205,711	)		(212,317	)
Write-down of other real estate owned		41,675			—
Gain on mortgage loans sold, net		(825,100	)		(1,638,612	)
Proceeds from the sale of mortgage loans held for sale		41,007,372			78,856,454
Originations of mortgage loans held for sale		(39,133,326	)		(78,467,117	)
Change in:
Accrued interest receivable and other assets		91,184			521,730
Accrued interest payable and other liabilities		893,331			783,904
Net cash provided by operating activities		4,369,972			2,230,317
Cash Flows from Investing Activities:
Net change in interest-bearing deposits in other banks		1,214,000			2,201,000
Purchase of investment securities available-for -sale		(5,760,156	)		(30,688,457	)
Proceeds from calls, paydowns and maturities of investment securities available-for-sale		2,663,301			3,022,800
Purchase of other investments		(735,000	)		—
Proceeds from sales of other investments		—			523,300
Net change in loans		(45,308,010	)		(5,030,481	)
Purchase of premises and equipment		(177,346	)		(125,729	)
Net cash used in investing activities		(48,103,211	)		(30,097,567	)
Cash Flows from Financing Activities:
Net change in deposits		26,553,148			207,626
Repayments of Federal Home Loan Bank advances		—			(9,515,477	)
Proceeds from sale of common stock		—			48,983,500
Repurchase of common stock		(734,075	)		—
Cash dividend		(244,918	)		—
Stock offering expenses		—			(1,523,443	)
Common stock purchased by ESOP		—			(3,918,680	)

Net cash provided by financing activities		25,574,155			34,233,526
Net Change in Cash and Cash Equivalents		(18,159,084	)		6,366,276
Cash and Cash Equivalents, Beginning of Period		41,890,831			41,876,399
Cash and Cash Equivalents, End of Period	$	23,731,747		$	48,242,675
Supplement Disclosures of Cash Flow Information:
Cash paid during the period for interest	$	601,513		$	844,628
Non-Cash Investing and Financing Activities:
Transfer of loans to other real estate owned	$	—		$	1,297,200
Change in unrealized losses on securities-for-sale, net of tax	$	(3,179,984	)	$	(178,561	)

The accompanying notes are an integral part of these consolidated financial statements.

TC BANCSHARES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – GENERAL; BASIS OF PRESENTATION

Nature of Operations:

TC Bancshares, Inc. ("Company") is a Bank holding company incorporated under the laws of the State of Georgia in 2021, to serve as the holding company for TC Federal Bank ("Bank"). The Company owns 100% of the outstanding stock of the Bank. See Note 8 for a detailed discussion of the Company. The Bank was organized in 1934 and chartered in 1937 by the Federal Home Loan Bank Board as a mutual savings and loan association owned 100% by its depositors. The Bank operates one branch in Thomasville, Georgia, and one in Tallahassee, Florida as well as loan production offices in Tallahassee, Florida and Savannah, Georgia, that provide a variety of services to individuals and corporate customers in their markets. The Bank’s primary deposit products are interest-bearing checking accounts, savings accounts, and certificates of deposit. Its primary lending products consist of single-family residential mortgage loans and commercial and multi-family real estate loans. The Bank is regulated by the Office of the Comptroller of the Currency (“OCC”) and its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Bank undergoes periodic examinations by the OCC. The Company is subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve").

Basis of Presentation:

The accounting and financial reporting policies of the Company conform, in all material respects to accounting principles generally accepted in the United States of America (“GAAP”) and with general practices within the banking industry. The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management reflect all necessary adjustments for a fair presentation of the Company's consolidated financial position and consolidated results of operations. All adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with GAAP and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (the “SEC”). Accordingly, the consolidated financial statements do not include all information and footnotes required by GAAP for complete financial presentation and should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2021, included in the Company's 2021 Annual Report on Form 10-K as filed with the SEC. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year or any future period.

The COVID-19 pandemic has continued to cause extensive disruptions to the global economy, to businesses, and to the lives of individuals throughout the world. The pandemic may impact various parts of the Company's future operations and financial results, including additional allowance for loan loss provisions. Management believes the Company is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 on the allowance for loan losses in future periods cannot be reasonably estimated, as these events are still developing.

Treasury Stock:

On August 4, 2022, the Company announced a program to repurchase 250,000 shares of the Company’s common stock. Shares may be repurchased in open market or private transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The timing and amount of any repurchases will depend on a number of factors, including the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. As of September 30, 2022, 51,521 shares of the Company's common stock had been repurchased at an average price of $14.25. Treasury stock is accounted for by the cost method. Subsequent reissuances are accounted for at average cost.

Earnings per Share:

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents were issued during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Dividends:

The Company announced that its Board of Directors declared a semi-annual cash dividend on June 15, 2022, in the amount of $0.05 per share of common stock. The cash dividend was paid on July 15, 2022, to the shareholders of record at the close of business on June 27, 2022.

Summary of Significant Accounting Policies:

The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. The Notes to Consolidated Financial Statements appearing in the Company's 2021 Annual Report on Form 10-K, which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Estimates as disclosed in the Company's 2021 Annual Report on Form 10-K.

Employee Stock Ownership Plan:

The Company sponsors an employee stock ownership plan ("ESOP") that covers all employees who meet certain service requirements. The Company will make annual contributions to the ESOP in amounts as defined by the plan document. These contributions are used to pay debt service and purchase additional shares. Certain ESOP shares are pledged as collateral for debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.

In connection with the Company's initial public stock offering, the ESOP borrowed $3.9 million payable to the Company for the purpose of purchasing shares of the Company's common stock. A total of 391,868 shares were purchased with the loan proceeds. Because the source of the loan payments are contributions received by the ESOP from the Company, the related notes receivable is shown as a reduction of shareholders' equity.

TC Bancshares, Inc. 2022 Equity Incentive Plan:

On September 21, 2022, the Company's shareholders approved the TC Bancshares, Inc. 2022 Equity Incentive Plan ("Equity Plan") which provides for the grant of stock options, restricted stock awards and other equity awards to our officers, employees, directors, advisors and consultants. As of September 30, 2022, no stock options, restricted stock awards or other equity awards had been granted under the Equity Plan. The Company will account for its stock-based compensation plan using a fair value based based method whereby compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

Recent Accounting Pronouncements:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This update will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now include forward-looking information in the determination of their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In November 2019, the FASB issued ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This update clarified the effective date of ASC 2016-13 for nonpublic business entities to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application of ASU 2016-13 will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of working with a third-party vendor using their software solution to assist with the adoption. The Company is also currently gathering necessary data to implement this change and is continuing to assess the impact of the adoption of this ASU on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14 – Compensation – Retirement Benefits – Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures and adds

disclosure requirements identified as relevant. This ASU is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. Management does not expect the adoption of this ASU to have a significant impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted, including adoption in any interim period for (1) public business entities for periods for which financial statements have not yet been issued and (2) all other entities for periods for which financial statements have not yet been made available for issuance. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. Management does not expect the adoption of this ASU to have a significant impact on the Company's consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04- Earning per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This ASU provides clarity and reduction in diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments in this ASU affect all entities that issue freestanding written call options that are classified in equity. Specifically, the amendments affect those entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. The amendments that relate to the recognition and measurement of earnings per share ("EPS") for certain modifications or exchanges of freestanding equity-classified written call options affect entities that present EPS in accordance with the guidance in Topic 260, Earnings Per Share. The amendments do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic. The amendments do not affect a holder's accounting for freestanding call options. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Management does not expect the adoption of this ASU to have a significant impact on the Company's consolidated financial statements.

Emerging Growth Company Status:

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as the Company is an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies. An emerging growth company may elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies, but must make such election when the company is first required to file a registration statement. The Company has elected to use the extended transition period described above and intends to maintain its emerging growth company status as allowed under the JOBS Act.

NOTE 2 - INVESTMENT SECURITIES

Investment securities available-for-sale at September 30, 2022 and December 31, 2021 are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Fair Value as % of Total
September 30, 2022-
US treasuries	$	10,121,544	$	—	$	800,398	$	9,321,146		21	%
Mortgage-backed securities		9,787,108		—		855,315		8,931,793		20	%
Collateralized mortgage obligations		16,530,557		—		869,758		15,660,799		36	%
Municipal bonds		8,763,535		—		1,673,995		7,089,540		16	%
Corporate obligations		3,625,000		—		395,449		3,229,551		7	%
	$	48,827,744	$	—	$	4,594,915	$	44,232,829		100	%

December 31, 2021-
US treasuries	$	5,129,275	$	—	$	25,271	$	5,104,004		11	%
Mortgage-backed securities		10,295,332		174,102		100,143		10,369,291		23	%
Collateralized mortgage obligations		18,804,325		70,925		145,656		18,729,594		41	%
Municipal bonds		8,766,475		1,513		170,787		8,597,201		19	%
Corporate obligations		2,875,000		—		43,454		2,831,546		6	%
	$	45,870,407	$	246,540	$	485,311	$	45,631,636		100	%

The following outlines the unrealized losses and estimated fair value by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022 and December 31, 2021:


	September 30, 2022				December 31, 2021
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Unrealized loss for less than 12 months:
US treasuries	$	4,862,792	$	144,599	$	5,104,004	$	25,271
Mortgage-backed securities		4,247,463		628,102		6,389,012		100,143
Collateralized mortgage obligations		6,247,094		287,495		11,190,910		145,656
Municipal bonds		2,325,350		461,160		7,828,330		170,787
Corporate obligations		1,116,119		133,881		2,831,546		43,454
Total less than 12 months	$	18,798,818	$	1,655,237	$	33,343,802	$	485,311
Unrealized loss for more than 12 months:
US treasuries		4,458,354		655,799		—		—
Mortgage-backed securities		4,684,330		227,213		—		—
Collateralized mortgage obligations		9,413,705		582,263		—		—
Municipal bonds		4,764,190		1,212,835		—		—
Corporate obligations		2,113,432		261,568		—		—
Total more than 12 months		25,434,011		2,939,678		—		—
Total	$	44,232,829	$	4,594,915	$	33,343,802	$	485,311

At September 30, 2022 and December 31, 2021, unrealized losses in the investment portfolio related to debt securities. The unrealized losses on the debt securities arose due to changing interest rates and market conditions and are considered to be temporary because of acceptable investment grades or because the repayment sources of principal and interest are backed by government entities. At September 30, 2022, all five US treasuries, all 14 mortgage backed securities, all 13 collateralized mortgage obligations, all nine municipal bonds and all seven corporate obligations contained unrealized losses. At December 31, 2021, all US treasuries, four of 14 mortgage backed securities, 7 out of 13 collateralized mortgage obligations, eithgt of nine municipal bonds and all six corporate obligations contained unrealized losses. The Bank does not intend to sell the investments, and it is not likely that the Bank will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity.

The amortized cost and estimated fair value of investment securities available-for-sale at September 30, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.


	Amortized Cost		Estimated Fair Value
Investment securities with maturities -
1 to 5 years	$	5,007,392	$	4,862,793
5 to 10 years		17,502,687		14,777,444
Mortgage-backed securities and collateralized mortgage obligations		26,317,665		24,592,592
Total	$	48,827,744	$	44,232,829

The Bank did not sell any investment securities available-for-sale for the nine months ended September 30, 2022 or 2021. Securities with carrying values of approximately $204,000 and $142,000 at September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits as required by law and for other purposes.

NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans, by purpose code, at September 30, 2022 and December 31, 2021, are summarized as follows:


	September 30, 2022		Percent			December 31, 2021		Percent
Real estate loans:
Residential	$	126,247,970		39.84	%	$	98,433,124		36.27	%
Home equity		11,699,041		3.69	%		11,510,661		4.24	%
Multi-family		24,869,858		7.85	%		19,937,187		7.35	%
Commercial		106,044,970		33.47	%		89,830,611		33.10	%
Construction and land development		29,670,249		9.36	%		34,401,702		12.68	%
Total real estate loans		298,532,088					254,113,285
Consumer loans		1,251,595		0.40	%		1,373,761		0.51	%
Commercial and industrial loans		17,073,986		5.39	%		15,900,097		5.85	%
Total loans		316,857,669		100.00	%		271,387,143		100.00	%
Less: Allowance for loan losses		4,336,648					4,183,599
Deferred loan fees		1,006,995					899,096
Loans, net	$	311,514,026				$	266,304,448

The Bank grants loans and extensions of credit to individuals and a variety of firms and corporations in its primary market areas surrounding Thomasville and Savannah, Georgia and Tallahassee and Jacksonville, Florida. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent on the real estate market.

The Bank has divided the loan portfolio into seven portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified by the Bank are real estate - residential, real estate - home equity, real estate - multi-family, real estate - commercial, real estate - construction and land development, consumer loans and commercial and industrial loans.

Real Estate - Residential: The Bank originates residential real estate loans for the purchase or refinancing of a mortgage. These loans are primarily collateralized by owner-occupied properties and rental properties located primarily in the Bank’s market areas.

Real Estate - Home Equity: The Bank originates home equity real estate loans to provide home equity lines of credit and closed-end home equity loans. These loans are primarily collateralized by owner-occupied properties located primarily in the Bank’s market areas.

Real Estate - Multi-family: Multi-family loans consist of loans to finance real estate purchases, refinancings, expansions and improvements to multi-family properties. These loans may be secured by, but are not limited to, first liens on apartments, mobile home parks or other multi-family properties primarily located within the Bank’s market areas. The Bank’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s and borrower’s related entities’ financial condition, and a detailed analysis of the borrower’s underlying cash flows. Multi-family loans are larger than residential or home equity loans and involve greater credit risk. The repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions also affect the repayment ability to a greater extent than residential or home equity real estate loans.

Real Estate - Commercial: Commercial real estate loans consist of loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. These loans may be secured by first liens on office buildings, farms, retail and mixed-use properties, churches, warehouses and restaurants primarily located within the Bank’s market areas. The Bank’s underwriting analysis includes credit verification, independent appraisals, a review of the borrower’s and borrower’s related entities’ financial condition, and a detailed analysis of the borrower’s underlying cash flows. Commercial real estate loans are larger than residential loans and involve greater credit risk. The repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic conditions also affect the repayment ability to a greater extent than residential real estate loans.

Real Estate - Construction and land development: These loans are made to borrowers to build commercial structures, a primary or secondary residence and, in some cases, to real estate investors to acquire and develop land. These loans are more difficult to evaluate since they are significantly more vulnerable to changes in economic conditions. In addition, these loans possess a higher degree of credit risk since they are made based on estimates of the future worth of a project and the estimated costs required for completion. The Bank limits its overall investment in this portfolio segment due both to management’s assessment of risk and certain percentage guidance set by the regulatory agencies.

Consumer: Consumer loans mainly consist of personal loans, revolving credit plans and other loans. The Bank’s consumer loans may be uncollateralized and rely on the borrower’s income for repayment.

Commercial and industrial: Commercial and industrial loans consist generally of business loans and lines of credit to companies in the Bank’s market area. Commercial and industrial loans are generally used for working capital purposes or for acquiring equipment, inventory or furniture. Such loans are usually collateralized by the financed assets, although a portion may be made on an unsecured basis and contain the guarantee of the business principals. The Bank’s underwriting analysis consists of a review of the financial statements of the borrower, the lending history of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business, the value of the collateral, if any, and whether the loan is guaranteed by the principals of the borrower. Commercial and industrial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, which makes them of higher risk than residential loans and the collateral securing loans may be difficult to appraise and may fluctuate in value based on the success of the business.

Commercial and industrial loans also include loans originated under the Paycheck Protection Program (“PPP”), before the program expired on May 31, 2021. These loans have an interest rate of 1.0% and a two-year or five-year loan term to maturity. The Small Business Administration (“SBA”) guarantees 100% of the PPP loans made to eligible borrowers, and loan proceeds may be partially or fully forgiven by the SBA if the funds are used for eligible expenses during the relevant forgiveness period and the borrower meets the employee retention criteria.

The Bank was paid a processing fee from the SBA on PPP loan originations ranging from 1% to 5%, based on the size of the loans. For the three and nine months ended September 30, 2022, the Bank did not record any PPP-related SBA fees, compared to $0 and $481,000 in PPP-related SBA fees in the three and nine months ended September 30, 2021, respectively. These fees are accreted into interest income over the estimated life of the applicable loans. If a PPP loan is forgiven or paid off before maturity, the remaining unearned fee is recognized into income at that time. For the three and nine months ended September 30, 2022, and 2021, the Bank had recognized approximately $100, $58,900, $151,000 and $436,000 in PPP-related SBA fees, respectively. The majority of the remaining unearned fees are expected to be recognized as the PPP loans are forgiven or paid off. Deferred PPP-related SBA fees totaled $3,500 and $62,400 at September 30, 2022 and December 31, 2021, respectively.

Allowance for Loan Losses:

An analysis of the change in allowance for loan losses follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Beginning balance	$	4,271,782		$	4,119,010		$	4,183,599		$	4,085,719
Charge-offs:
Real estate loans:
Residential		—			—			(2,842	)		(11,123	)
Home equity		—			—			—			—
Multi-family		—			—			—			—
Commercial		—			—			—			—
Construction and land development		—			—			—			—
Total real estate loans		—			—			(2,842	)		(11,123	)
Consumer loans		(8,848	)		(6,448	)		(45,950	)		(28,037	)
Commercial and industrial loans		—			—			—			—
Total charge-offs		(8,848	)		(6,448	)		(48,792	)		(39,160	)
Recoveries:
Real estate loans:
Residential		11,349			9,979			41,473			22,256
Home equity		—			—			—			—
Multi-family		—			—			—			—
Commercial		—			—			—			—
Construction and land development		11,345			13,047			11,345			24,392
Total real estate loans		22,694			23,026			52,818			46,648
Consumer loans		2,003			1,155			4,017			6,309
Commercial and industrial loans		11,273			3,499			46,574			24,379
Total recoveries		35,970			27,680			103,409			77,336
Net recoveries		27,122			21,232			54,617			38,176
Provision for loan losses		37,744			106,836			98,432			123,183
Ending balance	$	4,336,648		$	4,247,078		$	4,336,648		$	4,247,078

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2022 and December 31, 2021:


	Loans				Allowance for loan losses
	Individually evaluated for impairment		Collectively evaluated for impairment		Individually evaluated for impairment		Collectively evaluated for impairment
September 30, 2022 -
Real estate loans:
Residential	$	1,320,094	$	124,927,876	$	—	$	1,727,639
Home equity		—		11,699,041		—		164,516
Multi-family		—		24,869,858		—		299,452
Commercial		—		106,044,970		—		1,719,900
Construction and development		51,816		29,618,433		—		312,630
Total real estate loans		1,371,910		297,160,178		—		4,224,137
Consumer loans		—		1,251,595		—		1,154
Commercial and industrial loans		—		17,073,986		—		101,092
Unallocated		—		—		—		10,265
Total	$	1,371,910	$	315,485,759	$	—	$	4,336,648
December 31, 2021 -
Real estate loans:
Residential	$	1,517,822	$	96,915,302	$	—	$	1,468,649
Home equity		—		11,510,661		—		174,579
Multi-family		—		19,937,187		—		288,455
Commercial		—		89,830,611		—		1,757,794
Construction and development		9,928		34,391,774		—		350,586
Total real estate loans		1,527,750		252,585,535		—		4,040,063
Consumer loans		—		1,373,761		—		1,798
Commercial and industrial loans		—		15,900,097		—		109,724
Unallocated		—		—		—		32,014
Total	$	1,527,750	$	269,859,393	$	—	$	4,183,599

Impaired Loans:

The following tables present impaired loans by class of loans as of September 30, 2022 and December 31, 2021:


	Recorded Investment		Principal Balance		Related Allowance
September 30, 2022 -
Impaired loans with related allowance:
Real estate loans:
Residential	$	—	$	—	$	—
Home equity		—		—		—
Multi-family		—		—		—
Commercial		—		—		—
Construction and land development		—		—		—
Total real estate loans		—		—		—
Consumer loans		—		—		—
Commercial and industrial loans		—		—		—
Total	$	—	$	—	$	—
Impaired loans without related allowance:
Real estate loans:
Residential	$	1,320,094	$	1,320,094	$	—
Home equity		—		—		—
Multi-family		—		—		—
Commercial		—		—		—
Construction and land development		51,816		51,816		—
Total real estate loans		1,371,910		1,371,910		—
Consumer loans		—		—		—
Commercial and industrial loans		—		—		—
Total	$	1,371,910	$	1,371,910	$	—


	Recorded Investment		Principal Balance		Related Allowance
December 31, 2021 -
Impaired loans with related allowance:
Real estate loans:
Residential	$	—	$	—	$	—
Home equity		—		—		—
Multi-family		—		—		—
Commercial		—		—		—
Construction and land development		—		—		—
Total real estate loans		—		—		—
Consumer loans		—		—		—
Commercial and industrial loans		—		—		—
Total	$	—	$	—	$	—
Impaired loans without related allowance:
Real estate loans:
Residential	$	1,517,822	$	1,517,822	$	—
Home equity		—		—		—
Multi-family		—		—		—
Commercial		—		—		—
Construction and land development		9,928		9,928		—
Total real estate loans		1,527,750		1,527,750		—
Consumer loans		—		—		—
Commercial and industrial loans		—		—		—
Total	$	1,527,750	$	1,527,750	$	—

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows:


	Three Months Ended September 30,
	2022						2021
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
Real estate loans:
Residential	$	1,321,370	$	14,276	$	19,348	$	1,589,919	$	48,846	$	24,631
Home equity		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		669,600		—		—
Construction and land development		30,281		1,753		1,742		10,408		355		129
Total real estate loans		1,351,651		16,029		21,090		2,269,927		49,201		24,760
Consumer loans		—		—		—		39,390		10,755		13,139
Commercial and industrial loans		—		—		—		—		—		—
Total	$	1,351,651	$	16,029	$	21,090	$	2,309,317	$	59,956	$	37,899

	Nine Months Ended September 30,
	2022						2021
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
Real estate loans:
Residential	$	1,381,503	$	46,292	$	49,789	$	1,571,775	$	70,611	$	70,743
Home equity		—		—		—		598		—		—
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		1,039,595		—		—
Construction and land development		19,910		1,939		1,939		68,876		399		358
Total real estate loans		1,401,413		48,231		51,728		2,680,844		71,010		71,101
Consumer loans		—		—		—		—		10,755		13,139
Commercial and industrial loans		—		—		—		—		—		—
Total	$	1,401,413	$	48,231	$	51,728	$	2,680,844	$	81,765	$	84,240

Past Due and Nonaccrual Loans:

The following tables present the aging of the recorded investment in past due loans and nonaccrual loans as of September 30, 2022 and December 31, 2021, by class of loans:


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total		Non-accrual
September 30, 2022 -
Real estate loans:
Residential	$	32,731	$	582,558	$	471,491	$	1,086,780	$	125,161,190	$	126,247,970	$	523,900
Home equity		42,121		—		—		42,121		11,656,920		11,699,041		—
Multi-family		—		—		—		—		24,869,858		24,869,858		—
Commercial		—		—		—		—		106,044,970		106,044,970		—
Construction and land development		—		—		—		—		29,670,249		29,670,249		—
Total real estate loans		74,852		582,558		471,491		1,128,901		297,403,187		298,532,088		523,900
Consumer loans		—		—		—		—		1,251,595		1,251,595		—
Commercial and industrial loans		—		—		109,561		109,561		16,964,425		17,073,986		—
	$	74,852	$	582,558	$	581,052	$	1,238,462	$	315,619,207	$	316,857,669	$	523,900
December 31, 2021 -
Real estate loans:
Residential	$	1,330,647	$	75,169	$	—	$	1,405,816	$	97,027,308	$	98,433,124	$	354,295
Home equity		—		—		—		—		11,510,661		11,510,661		—
Multi-family		—		—		—		—		19,937,187		19,937,187		—
Commercial		—		—		—		—		89,830,611		89,830,611		—
Construction and land development		—		9,928		60,111		70,039		34,331,663		34,401,702		60,111
Total real estate loans		1,330,647		85,097		60,111		1,475,855		252,637,430		254,113,285		414,406
Consumer loans		—		—		—		—		1,373,761		1,373,761		—
Commercial and industrial loans		—		—		—		—		15,900,097		15,900,097		—
	$	1,330,647	$	85,097	$	60,111	$	1,475,855	$	269,911,288	$	271,387,143	$	414,406

As of September 30, 2022 and December 31, 2021, there were no loans greater than 90 days past due and still accruing.

Troubled Debt Restructurings:

The Bank did not modify any loans in the nine months ended September 30, 2022 and 2021 in a manner that would be considered troubled debt restructurings. There were no specific allowances allocated to troubled debt restructurings as of September 30, 2022 or 2021. The Bank did not commit to lend any additional amounts to customers with outstanding loans that are classified as troubled restructurings. Certain troubled debt restructurings are accruing loans in which interest is earned when payments are made. Management continues to evaluate these accruing troubled debt restructurings for impairment on a quarterly basis. During the nine months ended September 30, 2022 and 2021, no restructured loans defaulted subsequent to modification.

COVID-19 Related Loan Modifications:

In 2020, the Bank implemented a customer payment deferral program to assist borrowers that may be experiencing financial hardship due to COVID-19 related challenges, whereby short-term deferrals of payments (generally three to six months) were provided. As of September 30, 2022 and December 31, 2021, all loans that were granted COVID-19 related payment deferrals had resumed making payments under the terms of the original loan agreements. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals

between March 1, 2020 and January 1, 2022 continued to be reported as current loans throughout the agreed upon deferral period and were not classified as troubled debt restructurings.

Credit Quality:

The Bank categorized loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

Special Mention. Evidence of financial deterioration exists, or file documentation is inadequate or not available to determine the borrower’s financial status or ability to repay. The loan possesses potential weakness which may, if not reversed or corrected, weaken the credit or inadequately protect the Bank’s position.

Substandard. A well-defined weakness or weaknesses exists that jeopardizes the liquidation of the debt. The loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. All of the weaknesses of a substandard loan exist, with the added characteristic that the weaknesses jeopardize the collection and/or liquidation of the debt. Loss exposure, while evident, is not clearly determinable. Special workout negotiations and/or litigation should be initiated.

Loss. Considered uncollectible in full and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be achieved in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. As of September 30, 2022 and December 31, 2021, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


	Pass		Special Mention		Substandard		Doubtful		Loss		Total
September 30, 2022 -
Real estate loans:
Residential	$	124,467,571	$	455,566	$	1,324,833	$	—	$	—	$	126,247,970
Home equity		11,699,041		—		—		—		—		11,699,041
Multi-family		24,869,858		—		—		—		—		24,869,858
Commercial		98,658,441		4,561,557		2,824,972		—		—		106,044,970
Construction and land development		26,969,647		2,634,703		65,899		—		—		29,670,249
Total real estate loans		286,664,558		7,651,826		4,215,704		—		—		298,532,088
Consumer loans		1,251,595		—		—		—		—		1,251,595
Commercial and industrial loans		17,073,986		—		—		—		—		17,073,986
	$	304,990,139	$	7,651,826	$	4,215,704	$	—	$	—	$	316,857,669
December 31, 2021 -
Real estate loans:
Residential	$	95,421,741	$	1,764,789	$	1,246,594	$	—	$	—	$	98,433,124
Home equity		11,510,661		—		—		—		—		11,510,661
Multi-family		19,937,187		—		—		—		—		19,937,187
Commercial		78,797,687		8,075,262		2,957,662		—		—		89,830,611
Construction and land development		31,347,154		2,920,406		134,142		—		—		34,401,702
Total real estate loans		237,014,430		12,760,457		4,338,398		—		—		254,113,285
Consumer loans		1,373,761		—		—		—		—		1,373,761
Commercial and industrial loans		15,900,097		—		—		—		—		15,900,097
	$	254,288,288	$	12,760,457	$	4,338,398	$	—	$	—	$	271,387,143

NOTE 4 - FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

The Bank had approximately $48.9 million and $15.7 million in available borrowing capacity through the FHLB at September 30, 2022 and December 31, 2021, respectively. Any future FHLB advances would be collateralized by the Bank’s FHLB stock

and a blanket lien on certain of the Bank’s residential and commercial real estate loans with a lendable value of approximately $48.9 million at September 30, 2022 and $15.7 million at December 31, 2021.

Unsecured federal funds lines of credit totaling $19.5 million were available to the Bank for overnight borrowing through correspondent banks at both September 30, 2022 and December 31, 2021. The Bank also had approximately $5.8 million and $5.7 million in available borrowing capacity through the Federal Reserve Bank of Atlanta at September 30, 2022 and December 31, 2021, respectively. There were no borrowings against either of these facilities at September 30, 2022 or December 31, 2021. The available borrowings with the Federal Reserve Bank are collateralized by a blanket lien on certain of the Bank’s residential and commercial real estate loans with a carrying value of approximately $8.4 million and $9.3 million at September 30, 2022 and December 31, 2021, respectively.

NOTE 5 - COMMITMENTS

Credit Related Financial Instruments:

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contractual amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. In most cases, the Bank requires collateral or other security to support financial instruments with credit risk.


	September 30, 2022		December 31, 2021
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	48,290,000	$	28,204,000
Stand-by letters of credit	$	687,000	$	931,000

Commitments to extend credit are agreements 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 may 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 extension of credit is based on management’s credit evaluation. Collateral held varies but may include unimproved and improved real estate, certificates of deposit, or personal property.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to businesses within the Bank’s trade area.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds real estate and assignments of deposit accounts as collateral supporting those commitments for which collateral is deemed necessary. The extent of collateral held for these commitments at September 30, 2022 and December 31, 2021 varies.

NOTE 6 - REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under certain adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In July 2013, the Federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating components of capital and of computing risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions and, pursuant to the Federal Reserve Board’s policy statements, to top-tier bank and savings and loan holding companies with total consolidated assets of $3.0 billion or more. The rule established a new common equity Tier

1 minimum capital requirement, increased the minimum capital ratios and assigned a higher risk weight to certain assets based on the risk associated with these assets. The final rule included a transition period that implemented the new regulations over a five-year period. These changes were fully phased in on January 1, 2019.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total common equity Tier 1, total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Management believes, as of September 30, 2022 and December 31, 2021, that the Bank met all capital adequacy requirements to which it is subject.

As of September 30, 2022 and December 31, 2021, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum common equity Tier 1 risk-based, total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth below. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital amounts and ratios, and minimum amounts under current regulatory standards, as of September 30, 2022 and December 31, 2021, are presented in the following table:


	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
September 30, 2022:
Common Equity Tier 1 Capital to Risk- Weighted Assets	$	66,195		22.61	%	$	13,177		4.50	%	$	19,033		6.50	%
Total Capital to Risk- Weighted Assets	$	69,863		23.86	%	$	23,425		8.00	%	$	29,281		10.00	%
Tier 1 Capital to Risk- Weighted Assets	$	66,195		22.61	%	$	17,569		6.00	%	$	23,425		8.00	%
Tier I Capital to Average Assets	$	66,195		16.06	%	$	16,485		4.00	%	$	20,606		5.00	%
December 31, 2021:
Common Equity Tier 1 Capital to Risk- Weighted Assets	$	63,764		25.08	%	$	11,441		4.50	%	$	16,526		6.50	%
Total Capital to Risk- Weighted Assets	$	66,954		26.33	%	$	20,340		8.00	%	$	25,425		10.00	%
Tier 1 Capital to Risk- Weighted Assets	$	63,764		25.08	%	$	15,255		6.00	%	$	20,340		8.00	%
Tier I Capital to Average Assets	$	63,764		16.64	%	$	15,327		4.00	%	$	19,159		5.00	%

NOTE 7 - FAIR VALUE MEASUREMENT

The Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. From time to time, the Bank may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets. Additionally, the Bank is required to disclose, but not record, the fair value of other financial instruments.

Fair Value Hierarchy

The Bank groups assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Assets Recorded at Fair Value on a Recurring Basis. The table below presents the recorded amount of assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, all of which consisted of investment securities available-for-sale:


	Level 1		Level 2		Level 3		Total
September 30, 2022:
US treasuries	$	—	$	9,321,146	$	—	$	9,321,146
Mortgage-backed securities		—		8,931,793		—		8,931,793
Collateralized mortgage obligations		—		15,660,799		—		15,660,799
Municipal bonds		—		7,089,540		—		7,089,540
Corporate obligations		—		3,229,551		—		3,229,551
Investment securities available-for-sale	$	—	$	44,232,829	$	—	$	44,232,829
December 31, 2021:
US treasuries	$	—	$	5,104,004	$	—	$	5,104,004
Mortgage-backed securities		—		10,369,291		—		10,369,291
Collateralized mortgage obligations		—		18,729,594		—		18,729,594
Municipal bonds		—		8,597,201		—		8,597,201
Corporate obligations		—		2,831,546		—		2,831,546
Investment securities available-for-sale	$	—	$	45,631,636	$	—	$	45,631,636

Assets Recorded at Fair Value on a Nonrecurring Basis. The Bank may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of September 30, 2022 and December 31, 2021:


	Level 1		Level 2		Level 3		Total
September 30, 2022:
Other real estate owned	$	—	$	—	$	948,400	$	948,400
Impaired loans		—		—		—		—
	$	—	$	—	$	948,400	$	948,400
December 31, 2021:
Other real estate owned	$	—	$	—	$	1,115,100	$	1,115,100
Impaired loans		—		—		—		—
	$	—	$	—	$	1,115,100	$	1,115,100

The following methods and assumptions were used to estimate the fair value of each class of assets and liabilities either recorded or disclosed at fair value.

Cash and Cash Equivalents. The carrying value of cash and cash equivalents is a reasonable estimate of fair value.

Certificates of deposit with other banks. The carrying value of certificates of deposit with other banks is a reasonable estimate of fair value.

Investment Securities Available-for-Sale. Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities and collateralized mortgage obligations issued by government sponsored enterprises and state, county and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Other Investments. Other investments consist of FHLB stock whose carrying value approximates its fair value.

Mortgage Loans Held for Sale. The estimated fair value of mortgage loans held for sale, classified within Level 2, is approximated by the carrying value, given the short-term nature of the loans and similarly to what secondary markets are currently offering for portfolios of loans with similar characteristics.

Loans. The Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and a specific allocation is established within the allowance for loan losses. Loans for which it is probable that payment of interest

and/or principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Impaired loans in which an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Bank records the impaired loan as nonrecurring Level 2. When an appraised value is utilized or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the impaired loan as nonrecurring Level 3.

Other Real Estate Owned. Other real estate owned properties are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned. Subsequently, other real estate owned assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value is based on an observable market price, the Bank records the other real estate owned as nonrecurring Level 2. When the fair value is based on an appraised value, or when an appraised value is not available, the Bank records the other real estate owned asset as nonrecurring Level 3.

Bank Owned Life Insurance. The carrying value of Bank Owned Life Insurance approximates fair value.

Commitments to Extend Credit. Commitments to extend credit are short-term and, therefore, the carrying value and the fair value are considered immaterial for disclosure.

Deposits. The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of savings accounts approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected maturities of time deposits.

Federal Home Loan Bank Advances. Federal Home Loan Bank advances are carried at cost and the fair value is obtained from the Federal Home Loan Bank of Atlanta.

The carrying amounts and estimated fair values of the Bank’s financial instruments as of September 30, 2022 and December 31, 2021 are as follows:


			Fair Value Measurements at September 30, 2022
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	23,731,747	$	23,731,747	$	23,731,747	$	—	$	—
Certificates of deposit with other banks		2,237,000		2,237,000		2,237,000		—		—
Investment securities available-for-sale		44,232,829		44,232,829		—		44,232,829		—
Other investments		925,700		925,700		—		925,700		—
Mortgage loans held for sale		1,795,761		1,795,761		—		1,795,761		—
Loans, net		311,514,026		296,092,000		—		—		296,092,000
Bank owned life insurance		11,372,284		11,372,284		11,372,284		—		—
Financial liabilities:
Deposits		315,869,856		314,179,811		241,541,811		—		72,638,000


			Fair Value Measurements at December 31, 2021
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	41,890,831	$	41,890,831	$	41,890,831	$	—	$	—
Certificates of deposit with other banks		3,451,000		3,451,000		3,451,000		—		—
Investment securities available-for-sale		45,631,636		45,631,636		—		45,631,636		—
Other investments		190,700		190,700		—		190,700		—
Mortgage loans held for sale		2,844,707		2,844,707		—		2,844,707		—
Loans, net		266,304,448		274,168,000		—		—		274,168,000
Bank owned life insurance		11,166,573		11,166,573		11,166,573		—		—
Financial liabilities:
Deposits		289,316,708		289,267,454		216,786,454		—		72,481,000

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s

entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

NOTE 8 – CHANGE IN CORPORATE FORM

The Bank converted to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to the Company (the "Conversion"). The Bank became the wholly owned subsidiary of the Company, and the Company issued and sold shares of its capital stock pursuant to an independent valuation appraisal of the Bank and the Company. The stock was priced at $10.00 per share. In addition, the Bank’s board of directors adopted an employee stock ownership plan ("ESOP") which subscribed for 8% of the common stock sold in the offering. The Conversion was completed on July 20, 2021 and resulted in the issuance of 4,898,350 common shares by the Company, of which 391,868 were issued to the ESOP. The cost of the Conversion and issuing the capital stock totaled $1.5 million and was deducted from the proceeds of the offering.

In accordance with OCC regulations, at the time of the Conversion, the Bank substantially restricted retained earnings by establishing a $42.0 million liquidation account. The liquidation account will be maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that eligible holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation account. In the event of a complete liquidation by the Bank, and only in such event, each eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying account balances then held. The Bank may not pay dividends if those dividends would reduce equity capital below the required liquidation account amount.

The Conversion was accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the accompanying unaudited financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains certain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and reflect management’s beliefs and expectations based on information currently available. These forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “potential,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan and investment portfolios; and

•

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•

the continuing effects of the COVID-19 pandemic on our business, customers, employees and third-party service providers;

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses, including after implementation of the credit impairment model for Current Expected Credit Losses ("CECL");

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

•

changes to statutes, regulations or regulatory policies or practices;

•

our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;

•

the impact of the Dodd-Frank Act and JOBS Act and the implementing regulations;

•

changes in the quality or composition of our loan or investment portfolios;

•

changes in consumer spending and saving habits;

•

the effects of harsh weather conditions, including hurricanes, and man-made disasters;

•

technological changes that may be more difficult or expensive than expected;

•

the inability of third party providers to perform as expected;

•

the efficiency and effectiveness of our internal control environment;

•

our ability to manage market risk, credit risk, interest rate risk, liquidity risk and operational risk in the current economic environment;

•

the soundness of other financial institutions;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC or the Public Company Accounting Oversight Board;

•

our ability to retain key employees;

•

our management team’s ability to focus primarily on the operation of our business rather than diversion of management attention to responses to the COVID-19 pandemic;

•

our compensation expense associated with equity allocated or awarded to our employees;

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own,

•

the adverse effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, essential utility outages, deterioration in the global economy, instability in the credit markets, disruptions in our customers' supply chains or disruptions in transportation; and

•

each of the factors and risks under the heading "Risk Factors" in the Company's 2021 Annual Report on Form 10-K and in subsequent filings we make with the SEC.

We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on any forward-looking statements. Because the Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain, there can be no assurances that future actual results will correspond to any forward-looking statements and you should not rely on any forward-looking statements. Additionally, all statements in this Quarterly Report on Form10-Q, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events, except as required by applicable law.

Critical Accounting Estimates

For a description of the Company's critical accounting estimates, refer to "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Company's 2021 Annual Report. The Company considers its most significant accounting estimates to be those applied to the Allowance for Loan Losses and income Taxes. There have been no material changes to the Company's critical accounting estimates since December 31, 2021.

Recent Mutual-to-Stock Conversion and Reorganization

The Company, a Georgia corporation, was formed on March 5, 2021 to serve as the bank holding company for the Bank. The Bank is a federally chartered savings bank headquartered in Thomasville, Georgia that has served the banking needs of our customers since 1934. On July 20, 2021, the Bank completed a mutual-to-stock conversion in a series of transactions by which it reorganized its corporate structure from a mutual savings bank to a federal stock savings bank, and became a wholly-owned subsidiary of the Company. In connection with the reorganization and conversion, the Company sold 4,898,350 shares of its common stock at a price of $10.00 per

share, which we refer to as the "stock offering," and on July 21, 2021, the Company's common stock commenced trading on the NASDAQ Stock Market under the symbol "TCBC".

Before the reorganization and conversion, the Company conducted no operations other than organizational activities. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, all references to “we,” “us” and “our” refer to the Company and the Bank, except that if the discussions relate to a period before July 20, 2021, these terms refer solely to the Bank.

Overview

We are a full service community bank that provides a variety of services to individual and commercial accounts in our market areas. Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from our operations, in one- to four-family residential real estate loans, commercial and multi-family residential real estate loans, commercial and industrial loans, construction and land development loans and consumer loans. At September 30, 2022, we had total assets of $406.2 million, loans, net of the allowance for loan losses and deferred fees of $311.5 million, total deposits of $315.9 million and total equity of $84.6 million. During 2019, the Bank elected to be treated as a “covered savings association” which allows us to engage in the same activities as a national bank.

Our primary deposit products are personal checking accounts, business checking accounts, savings accounts, money market accounts and certificates of deposit. Our lending products include single-family residential loans, construction loans, land development loans and SBA/USDA guaranteed loans.

We expect to continue to focus on originating one- to four-family residential real estate loans, commercial and multi-family residential real estate loans, commercial and industrial loans, construction and land development loans and consumer loans. Although in recent years, we have increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real estate and commercial and industrial loans.

We also invest in securities, which have historically consisted primarily of mortgage-backed securities issued by U.S. government sponsored enterprises. In recent years, we have originated single-family owner-occupied loans for sale into the secondary market and for our own portfolio. We intend to continue this activity in the future in order to generate fee income.

As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets, which can result in interest expense increasing more rapidly than increases in interest income as interest rates increase. Therefore, increases in interest rates may adversely affect our net interest income and net economic value, which in turn would likely have an adverse effect on our results of operations. To help manage interest rate risk, we promote core deposit products and we are continuing to diversify our loan portfolio by adding more commercial-related loans. We will seek to continue to increase our core checking accounts during 2022.

Anticipated Increase in Expense

The completion of the conversion and stock offering, which resulted in us becoming an SEC public reporting company, has increased our noninterest expenses due to the increased costs of operating as a public company. In September, our shareholders approved a stock-based benefit plan, which we anticipate will further increase our noninterest expenses as the Board grants awards under the TC Bancshares, Inc. 2022 Equity Incentive Plan.

Comparison of Financial Condition at September 30, 2022 and December 31, 2021

Total Assets. Total assets increased $25.3 million, or 6.6%, to $406.2 million at September 30, 2022 from $380.9 million at December 31, 2021. The increase was principally due to an increase in net loans of $45.2 million partially offset by a decrease in cash and cash equivalents of $18.2 million.

Cash and Cash Equivalents. Cash and cash equivalents decreased $18.2 million at September 30, 2022, compared to December 31, 2021. These funds were deployed to finance loan growth of $45.2 million after $26.6 million in funds provided by deposit growth. The remaining funding was provided by maturities of certificates of deposits with other banks.

Total Loans. Loans increased $45.5 million, or 16.8%, to $316.9 million at September 30, 2022 from $271.4 million at December 31, 2021. Commercial real estate loans increased $16.2 million, or 18.0%, to $106.0 million at September 30, 2022 from $89.8 million at December 31, 2021, due to new loan originations. Multi-family real estate loans increased $4.9 million, or 24.7%, to $24.9 million at September 30, 2022, from $19.9 million at December 31, 2021, also due to new loan originations. Due to the rapid rise in secondary market rates, residential loans increased as customers chose to utilize our in-house portfolio adjustable rate mortgages. As

a result, residential loans increased $27.8 million, or 28.3%, to $126.2 million at September 30, 2022, from $98.4 million at December 31, 2021, due to new loan originations. Commercial and industrial loans increased $1.2 million, or 7.4% to $17.1 million at September 30, 2022 from $15.9 million at December 31, 2021. Home equity loans also increased $0.2 million, or 1.6%, to $11.7 million at September 30, 2022, from $11.5 million at December 31, 2021.

Construction and land development loans decreased $4.7 million, or 13.8%, to $29.7 million at September 30, 2022 from $34.4 million at December 31, 2021. This decrease is attributable to several construction loans converting to permanent financing.

Allowances for Loan Losses. The amount of our allowance for loan losses is based on management's evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties associated with regional economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of probable loan losses inherent in the loan portfolio and the related allowance may change materially in the near-term. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses.

During the nine months ended September 30, 2022, eight loans totaling $3.2MM were downgraded from pass to substandard, two loans totaling $3MM were upgraded from substandard to pass and five loans totaling $5.0MM were upgraded from Special Mention to a rating of Acceptable and removed from the Watchlist. The largest loan downgraded was a $2.9MM loan for a hotel located in Savannah, GA in which the borrower has made timely payments of principal and interest. The largest loan upgraded was a $2.9MM loan for the renovations of an existing commercial property located in Montgomery, AL. The property had experienced lower rental rates than anticipated and an extension of the interest only period was requested in 2020. The property stabilized in 2021 and occupancy improved such that the borrower has been able to service the debt in 2022. Loan loss provision of $38,000 was recorded for the nine months ended September 30, 2022 compared to $107,000 for the nine months ended September 30, 2021. The Company had 25 impaired loans totaling $1.4 million at September 30, 2022 compared to 27 impaired loans totaling $1.5 million at December 31, 2021. At September 30, 2022, there were no specific reserves and $24,000 of the allowance was unallocated. We had net recoveries of $27,000 during the nine months ended September 30, 2022, compared to net recoveries of $21,000 for the nine months ended September 30, 2021. None of the charge-offs taken in 2022 related to the COVID-19 pandemic. Management believes that the allowance for loan losses, which was $4.3 million, or 1.37% of gross loans, at September 30, 2022, is adequate to cover losses inherent in the loan portfolio.

Investment Securities. Investment securities, all of which are available-for-sale, decreased $1.4 million, or -3.1%, to $44.2 million at September 30, 2022 from $45.6 million at December 31, 2021. This decrease resulted from investments made in U.S. treasuries of $5.0 million less paydowns on mortgage-backed securities of $2.5 million and additional unrealized losses on our investments of $4.1 million during the nine months ended September 30, 2022. Unrealized losses on our investments increased to $4.6 million at September 30, 2022 from $485,000 at December 31, 2021. This increase in unrealized losses was not due to a decrease in credit quality, but rather from an aggregate increase of 300 basis points in the federal funds target range by the Federal Open Market Committee ("FOMC") during the nine months ended September 30, 2022, the first increases in the federal funds target range by the FOMC since 2018.

Other Real Estate Owned. In July 2021, an SBA guaranteed owner occupied property securing a commercial real estate loan was moved to other real estate owned resulting in a $1.0 million increase in other real estate owned. In August 2022, the selling price of the property was reduced to $985,000 less 10% selling costs resulting in a write-down of this property to $886,500 of which 75% is guaranteed by the SBA and 25%, or $41,675 was recognized by the Bank.

Bank Owned Life Insurance. Our investment in bank owned life insurance increased $0.2 million, or 1.8%, to $11.3 million at September 30, 2022 from $11.2 million at December 31, 2021. We invest in bank owned life insurance to provide us with a funding offset for our benefit plan obligations. Bank owned life insurance also generally provides us noninterest income that is non-taxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses. Our investment in bank owned life insurance at September 30, 2022 was 16.3% of our Tier 1 capital plus our allowance for loan losses.

Deposits. Total deposits increased $26.6 million, or 9.2%, to $315.9 million at September 30, 2022 from $289.3 million at December 31, 2021. Non-interest-bearing demand accounts increased $10.7 million, or 29.7%, to $46.6 million at September 30, 2022, from $35.9 million at December 31, 2021. Interest-bearing demand accounts increased $13.7 million, or 9.4%, to $160.6 million at September 30, 2022, from $146.8 million at December 31, 2021. Savings accounts increased $318,000, or .9%, to $34.3 million at September 30, 2022 from $34.0 million at December 31, 2021. Certificates of deposit increased $1.8 million, or 2.5%, to $74.3 million at September 30, 2022 from $72.5 million at December 31, 2021.

Accrued interest payable and other liabilities. Accrued interest payables and other liabilities increased $893,000, or 18.6%, to $5.7 million at September 30, 2022, from $4.8 million at December 31, 2021. Of this amount, first mortgage loan escrows increased $639,000, or 331.1% to $832,000 at September 30, 2022, from $193,000 at December 31, 2021.

Shareholders’ Equity. Total shareholders' equity decreased $2.2 million, or 2.5%, to $84.6 million at September 30, 2022 from $86.8 million at December 31, 2021. The decrease resulted primarily from the $3.2 million, or 1,839.1%, increase in the unrealized loss after taxes on our investment securities available for sale of $3.4 million at September 30, 2022, from $0.2 million at December 31, 2021. This decrease was not due to a change in credit quality but resulted from the increase in the federal funds rates as noted above. Also contributing to the decrease, the Company purchased $734,000 of its own stock that is held in treasury and reported as a reduction in equity. Additionally, the Company declared $245,000 of cash dividends to shareholders in June 2022 and paid on July 15, 2022. These decreases were partially offset by net income of $2.0 million for the nine months ended September 30, 2022.

Comparison of Operating Results for the Three Months Ended September 30, 2022 and 2021

General. Net income increased $105,000, or 17.6%, to $703,000 for the three months ended September 30, 2022, compared to $598,000 for the three months ended September 30, 2021. The increase in net income resulted primarily from a $625,000 increase in net interest income partially offset by a $318,000 decrease in gains on sale of mortgage loans and a $221,000 increase in other expense.

Interest Income. Interest and dividend income increased $676,000, or 20.0%, to $4.0 million for the three months ended September 30, 2022 from $3.4 million for the three months ended September 30, 2021. This increase was primarily due to increases in interest income on the loan portfolio of $433,000, or 13.5%, as well as increases in interest and dividends on taxable investment securities available for sale of $107,000 and interest on deposits with other banks and federal funds sold of $135,000. The average balance of loans, including loans held for sale, increased $45.0 million, or 16.8%, to $313.1 million for the three months ended September 30, 2022, from $268.1 million for the three months ended September 30, 2021, and the average yield on loans decreased to 4.62% for the three months ended September 30, 2022 from 4.75% for three months ended September 30, 2021. The average balance of investment securities increased $14.1 million, or 44.2%, to $45.9 million for the three months ended September 30, 2022, from $31.9 million for the three months ended September 30, 2021, while the average yield on investment securities increased 55 basis points to 1.93% for the three months ended September 30, 2022, from 1.38% for the three months ended September 30, 2021. The average balance of other interest-earning deposits decreased $25.2 million, or -43.3%, to $33.0 million for three months ended September 30, 2022, from $58.2 million for the three months ended September 30, 2021, while the average yield on other interest-earning deposits increased 184 basis points to 2.16% for the three months ended September 30, 2022, from 0.32% for the three months ended September 30, 2021.

Interest Expense. Total interest expense increased $51,000, or 21.7%, to $284,000 for the three months ended September 30, 2022 from $233,000 for the three months ended September 30, 2021. The increase was primarily due to an increase in interest rates offered on money market accounts and certificate of deposits due to the federal funds target range increasing 300 basis points to 3.25% on September 30, 2022, from 0.25% on September 30, 2021. The average balance of interest-bearing deposits increased $13.8 million, or 5.3%, to $274.8 million for the three months ended September 30, 2022, from $261.0 million for the three months ended September 30, 2021, with a 6 basis point increase in the average cost of interest-bearing deposits to 0.41% for the three months ended September 30, 2022, from 0.35% for the three months ended September 30, 2021. The average balances of FHLB advances decreased $797,000, or 100%, to $0 for the three months ended September 30, 2022. For the three months ended September 30, 2021, the average cost of FHLB advances was 0.50%.

Net Interest Income. Net interest income increased $625,000, or 19.9%, to $3.8 million for the three months ended September 30, 2022 from $3.1 million for the three months ended September 30, 2021. Our average interest-earning assets increased $34.5 million, or 9.6%, period over period. This increase was due primarily to increases in our loan portfolio of $45.0 million and securities of $14.0 million, partially offset by a $25.2 million decrease in the average balance of our interest-earning deposits with other banks. Our interest rate spread increased to 3.68% for the three months ended September 30, 2022 from 3.38% for the three months ended September 30, 2021, and our net interest margin increased to 3.80% for the three months ended September 30, 2022 from 3.47% for the three months ended September 30, 2021. The increases in interest rate spread and net interest margin were primarily the result of the mix of our interest earning assets. As stated earlier, average loans which is our highest yielding asset increased $45.0 million from September 30, 2021, and our interest-bearing deposits, which are our lowest yield assets, decreased $25.2 million from September 30, 2021. The cost on our earning assets increased 24 bps; whereas, the yield on our interest-bearing liabilities increased only 6 bps.

Provision for Loan Losses. We recorded $38,000 in provision for loan losses for the three months ended September 30, 2022, compared to a $107,000 provision for the three months ended September 30, 2021. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and

non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See the section entitled "Allowance for Loan Losses" in this Item 2, and Note 3 of the Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

The allowance for loan losses was $4.3 million, or 1.37% of total loans, at September 30, 2022, and $4.2 million, or 1.54%, of total loans at December 31, 2021, and $4.2 million, or 1.57% of total loans, at September 30, 2021. Classified (substandard, doubtful and loss) loans decreased to $4.2 million at September 30, 2022 compared to $4.3 million at December 31, 2021 and $4.7 million at September 30, 2021. We had $524,000 of nonperforming loans at September 30, 2022, compared to $414,000 at December 31, 2021 and $690,000 at September 30, 2021. Net recoveries for the three months ended September 30, 2022 and 2021 were $27,000 and $21,000, respectively. We had no loans in deferral at September 30, 2022, or December 31, 2021.

Other Income. Other income information is as follows.


	For the three months ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Service charges on deposit accounts	$	144	$	152	$	(8	)		(5.3	)%
Gain on sale of loans		219		537		(318	)		(59.2	)%
Other		75		88		(13	)		(14.8	)%
Total non-interest income	$	438	$	777	$	(339	)		(43.6	)%

Other income decreased $339,000, or 43.6%, to $438,000 for the three months ended September 30, 2022 from $777,000 for the three months ended September 30, 2021. The decrease was primarily due to a $318,000 decrease in gain on sale of mortgage loans into the secondary market to $219,000 for the three months ended September 30, 2022, compared to $537,000 for the three months ended September 30, 2021. This decrease is primarily due to the decrease in mortgage loan refinancings and home purchases sold into the secondary market as interest rates have increased since December 31, 2021.

Other Expense. Other expense information is as follows.


	For the three months ended September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	1,987	$	1,892	$	95			5.0	%
Occupancy and equipment		213		217		(4	)		(1.8	)%
Advertising		67		58		9			15.5	%
Audit and examination		159		107		52			48.6	%
Checking account related expenses		138		168		(30	)		(17.9	)%
Consulting and advisory fees		24		79		(55	)		(69.6	)%
Data processing fees		115		133		(18	)		(13.5	)%
Director fees		105		68		37			54.4	%
Legal		131		48		83			172.9	%
Other real estate loss/(gain) on sale and write-downs		27		2		25			1,250.0	%
Other		284		257		27			10.5	%
Total non-interest expense	$	3,250	$	3,029	$	221			7.3	%

Other expense increased $221,000, or 9.5%, to $3.25 million for the three months ended September 30, 2022, from $3.03 million for the three months ended September 30, 2021. The increase was due primarily to a $95,000 and $83,000 increase in salaries and employee benefits and legal fees, respectively. In addition, audit and examination expenses increased $52,000, or 48.6%, to $159,000 for the three months ended September 30, 2022 from $107,000 for the three months ended September 30, 2021. The increase in salaries and benefits was attributable to additional staff hired. The increases in legal and audit and examination fees were attributable to expenses associated with the additional SEC filing and compliance requirements of being a public company.

Income Tax Expense. Income tax expense increased $29,000 to $212,000 for the three months ended September 30, 2022, compared to $183,000 for the three months ended September 30, 2021. The increase resulted from the $134,000 increase in income before income taxes. For the three months ended September 30, 2022, income before taxes was $915,000, compared to $781,000 for the three months ended September 30, 2021. Our effective tax rate was 23.2% for the three months ended September 30, 2022 and 23.5% for the three months ended September 30, 2021.

Average Balances, Interest and Average Yields/Cost

The following table sets forth for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin (otherwise known as net yield on interest-earning assets), and the ratio of average interest-earning assets to average interest-bearing liabilities. All average balances are daily average balances. Non-accruing loans have been included in the table as loans carrying a zero yield. Loan fees are included in interest income on loans and are not material. No tax-equivalent yield adjustments have been made, as the effects would be immaterial.


				For the quarter ended September 30,
	2022			2022								2021
	Yield/rate			Average			Interest		Average			Average			Interest		Average
	At 9-30			Balance			Earned/		Yield/			Balance			Earned/		Yield/
	2022			Outstanding			Paid		Rate			Outstanding			Paid		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable		4.46	%	$	313,134		$	3,644		4.62	%	$	268,161		$	3,210		4.75	%
Securities available-for-sale		2.11	%		45,940			223		1.93	%		31,880			111		1.38	%
Interest-earning deposits		3.15	%		33,006			180		2.16	%		58,169			47		0.32	%
Other interest-earning assets		4.11	%		926			2		0.86	%		284			5		6.98	%
Total interest-earning assets		4.12	%		393,006		$	4,049		3.97	%		358,494		$	3,373		3.73	%
Non-interest-earning assets					20,030								10,197
Total assets				$	413,036							$	368,691
Interest-bearing liabilities:
Savings and money market accounts		0.58	%	$	141,281		$	168		0.47	%	$	141,467		$	66		0.19	%
Interest-bearing checking accounts		0.09	%		58,255			17		0.12	%		42,073			13		0.12	%
Certificate accounts		0.59	%		75,221			99		0.52	%		77,418			153		0.78	%
Total interest-bearing deposits		0.26	%		274,757			284		0.41	%		260,958			232		0.35	%
Borrowings		—	%		—			—		—	%		797			1		0.50	%
Total interest-bearing liabilities		0.48	%		274,757			284		0.41	%		261,755			233		0.35	%
Non-interest-bearing liabilities					52,577								65,969
Total liabilities					327,334								327,724
Total equity					85,702								40,967
Total liabilities and equity				$	413,036							$	368,691
Net interest income							$	3,765							$	3,140
Net earning assets				$	118,249							$	96,739
Net interest rate spread(1)		3.64	%							3.68	%							3.38	%
Net interest margin(2)										3.80	%							3.47	%
Average interest-earning assets to average interest-bearing liabilities					143.04	%							136.96	%

(1)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the changes related to outstanding balances and that due to the changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.


	Quarter Ended
	September 30,
	2022 vs. 2021
	Increase/
	(decrease)						Total
	due to						increase/
	Volume			Rate			(decrease)
	(In thousands)
Interest-earning assets:
Loans receivable	$	538		$	(104	)	$	434
Securities available for sale		49			63			112
Interest-earning deposits		(20	)		153			133
Other interest-earning assets		11			(14	)		(3	)
Total interest-earning assets		578			98			676
Interest-bearing liabilities:
Savings and money market accounts		—			102			102
Interest-bearing checking accounts		5			(1	)		4
Certificate accounts		(4	)		(50	)		(54	)
Total interest-bearing deposits		1			51			52
Borrowings		(1	)					(1	)
Total interest-bearing liabilities		—			51			51
Change in net interest income	$	578		$	47		$	625

Comparison of Operating Results for the Nine Months Ended September 30, 2022 and 2021

General. Net income increased $60,000, or 3.1%, to $1,993,000 for the nine months ended September 30, 2022, compared to $1,933,000 for the nine months ended September 30, 2021. The increase in net income resulted primarily from a $1.3 million increase in net interest income that was reduced primarily by a decrease in gain on sale of mortgage loans of $814,000 and an increase in other expenses of $543,000.

Interest Income. Interest and dividend income increased $1,139,000, or 11.6%, to $11.0 million for the nine months ended September 30, 2022 from $9.8 million for the nine months ended September 30, 2021. This increase was primarily due to an increase in interest on our loan portfolio of $629,000, and interest income and dividends on taxable investment securities available for sale of $292,000 as well as interest on deposits with other banks and federal funds sold of $218,000. The average balance of loans, including loans held for sale, increased $26.5 million, or 9.95%, to $292.8 million for the nine months ended September 30, 2022, from $266.3 million for the nine months ended September 30, 2021, and the average yield on loans decreased 14 basis points to 4.59% for the nine months ended September 30, 2022, from 4.73% for the nine months ended September 30, 2021. The average balance of investment securities increased $22.6 million, or 95.29%, to $46.4 million for the nine months ended September 30, 2022, from $23.7 million for the nine months ended September 30, 2021, while the average yield on investment securities increased 11 basis points to 1.61% for the nine months ended September 30, 2022, from 1.50% for the nine months ended September 30, 2021. The average balance of other interest-earning deposits decreased $16.7 million, or 26.48%, to $46.3 million for nine months ended September 30, 2022, from $63.0 million for the nine months ended September 30, 2021, and the average yield on other interest-earning deposits increased 73 basis points to 1.03% for the nine months ended September 30, 2022, from 0.30% for the nine months ended September 30, 2021.

Interest Expense. Total interest expense decreased $209,000, or 14.9%, to $625,000 for the nine months ended September 30, 2022 from $834,000 for the nine months ended September 30, 2021. The decrease was primarily due to lower interest rates offered on all deposit products even though the federal funds target range increased 300 basis points to 3.25% on September 21, 2022 from 0.25% on January 1, 2022. The average balance of interest-bearing deposits decreased $2.3 million, or 0.85%, to $268.1 million for the nine months ended September 30, 2022, from $270.4 million for the nine months ended September 30, 2021 with an 8 basis point decline in the average cost of interest-bearing deposits to 0.31% for the nine months ended September 30, 2022, from 0.40% for the nine months

ended September 30, 2021. The average balances of FHLB advances decreased $6.3 million, or 100%, to $0 for the nine months ended September 30, 2022. For the nine months ended September 30, 2021, the average cost of FHLB advances was 0.83%.

Net Interest Income. Net interest income increased $1.4 million, or 14.9%, to $10.4 million for the nine months ended September 30, 2022 from $9.0 million for the nine months ended September 30, 2021. Our average interest-earning assets increased $32.8 million, or 9.28%, period over period. This increase was due primarily to increases in our loan portfolio of $26.5 million and investment securities available for sale of $22.6 million offset by a decrease in interest-earning deposits with other banks of $16.7 million. Our interest rate spread increased to 3.49% for the nine months ended September 30, 2022 from 3.32% for the nine months ended September 30, 2021, and our net interest margin increased to 3.58% for the nine months ended September 30, 2022 from 3.41% for the nine months ended September 30, 2021. The increases in interest rate spread and net interest margin were primarily the result of the mix of our earning assets. As stated earlier average loans which is our highest yielding asset increased $26.5 million and our interest-bearing deposits, which are our lowest yield assets, decreased $16.7 million from December 31, 2021. The yield on our earning assets increased 8 bps; whereas, the yield on our interest-bearing liabilities decreased 9 bps as we paid off our FHLB advances in 2021.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See the section entitled "Allowance for Loan Losses" in this Item 2, and Note 3 of the Consolidated Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.

We recorded $98,000 in provision for loan losses for the nine months ended September 30, 2022 compared to $123,000 for the nine months ended September 30, 2021. The allowance for loan losses was $4.3 million, or 1.37% of total loans at September 30, 2022, and $4.2 million, or 1.54% of total loans at December 31, 2021, and $4.1 million, or 1.56% of total loans, at September 30, 2021. Classified (substandard, doubtful and loss) loans decreased to $4.2 million at September 30, 2022 compared to $4.3 million at December 31, 2021 and $4.6 million at September 30, 2021. We had $524,000 of nonperforming loans at September 30, 2022, compared to $414,000 at December 31, 2021 and $690,000 at September 30, 2021. Net recoveries for the nine months ended September 30, 2022 and 2021 were $55,000 and $38,000, respectively. We had no loans in deferral at September 30, 2022 or December 31, 2021.

Other Income. Other income information is as follows.


	For the nine
	months ended
	September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Service charges on deposit accounts	$	415	$	421	$	(6	)		(1.4	)%
Gain on sale of loans		825		1,639		(814	)		(49.7	)%
Other		307		237		70			29.5	%
Total non-interest income	$	1,547	$	2,297	$	(750	)		(32.7	)%

Other income decreased $750,000, or 32.7%, to $1,547,000 for the nine months ended September 30, 2022, from $2,297,000 for the nine months ended September 30, 2021. The decrease was primarily due to a $814,000 decrease in gain on sale of mortgage loans into the secondary market to $9825,000 for the nine months ended September 30, 2022, compared to $1,639,000 for the nine months ended September 30, 2021. This decrease is primarily due to the decrease in mortgage loan refinancings and home purchases as interest rates have increased since December 31, 2021.

Other Expense. Other expense information is as follows.


	For the nine
	months ended
	September 30,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	5,695	$	5,562	$	133			2.4	%
Occupancy and equipment		624		617		7			1.1	%
Advertising		197		170		27			15.9	%
Audit and examination		410		306		104			34.0	%
Checking account related expenses		424		416		8			1.9	%
Consulting and advisory fees		91		135		(44	)		(32.6	)%
Data system conversion costs		—		1		(1	)		(100.0	)%
Data processing fees		346		337		9			2.7	%
Director fees		226		231		(5	)		(2.2	)%
Legal		247		37		210			567.6	%
Other real estate loss/(gain) on sale and write-downs		59		4		55			1,375.0	%
Other		893		853		40			4.7	%
Total non-interest expense	$	9,212	$	8,669	$	543			6.3	%

Other expense increased $543,000, or 6.3%, to $9.2 million for the nine months ended September 30, 2022, from $8.7 million for the nine months ended September 30, 2021. The increase was due primarily to a $148,000 and $104,000 increase in legal and audit and examination expenses, respectively, which are attributable to expenses associated with the additional SEC filing and compliance requirements of being a public company. In addition, salaries and employee benefits increased $133,000 increased due to hiring additional staff.

Income Tax Expense. Income tax expense increased $18,000 to $602,000 for the nine months ended September 30, 2022, compared to $584,000 for the nine months ended September 30, 2021. The increase resulted from a $79,000 increase in income before income taxes. For the nine months ended September 30, 2022, income before taxes was $2,596,000 compared to $2,517,000 for the nine months ended September 30, 2021. Our effective tax rate was 23.2% both the nine months ended September 30, 2022 and 2021.

Average Balances, Interest and Average Yields/Cost


				For the nine months ended September 30,
	2022			2022								2021
	Yield/rate			Average			Interest		Average			Average			Interest		Average
	At 9-30			Balance			Earned/		Yield/			Balance			Earned/		Yield/
	2022			Outstanding			Paid		Rate			Outstanding			Paid		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable		4.46	%	$	292,803		$	10,051		4.59	%	$	266,312		$	9,422		4.73	%
Securities available-for-sale		2.11	%		46,355		558			1.61	%		23,737		266			1.50	%
Interest-earning deposits		3.15	%		46,322		356			1.03	%		63,006		140			0.30	%
Other interest-earning assets		4.11	%	926			20			2.89	%	530			18			4.54	%
Total interest-earning assets		4.12	%		386,406			10,985		3.80	%		353,585			9,846		3.72	%
Non-interest-earning assets					18,839								20,616
Total assets				$	405,245							$	374,201
Interest-bearing liabilities:
Savings and money market accounts		0.58	%	$	135,444			311		0.31	%	$	138,760			206		0.20	%
Interest-bearing checking accounts		0.09	%		58,705			44		0.10	%		51,076			35		0.09	%
Certificate accounts		0.59	%		73,938			271		0.49	%		80,543			554		0.92	%
Total interest-bearing deposits		0.26	%		268,087			626		0.31	%		270,379			795		0.39	%
Borrowings		—	%		-			-	-				6,299			39		0.83	%
Total interest-bearing liabilities		0.48	%		268,087			626		0.31	%		276,678			834		0.40	%
Non-interest-bearing liabilities					50,910								57,148
Total liabilities					318,997								333,826
Total equity					86,248								40,375
Total liabilities and equity				$	405,245							$	374,201
Net interest income							$	10,359							$	9,012
Net earning assets				$	118,319							$	76,907
Net interest rate spread(1)		3.64	%							3.49	%							3.32	%
Net interest margin(2)										3.58	%							3.41	%
Average interest-earning assets to average interest-bearing liabilities					144.13	%							127.80	%

(1)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)

Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis


	Nine Months Ended September 30,
	2022 vs. 2021
	Increase/
	(decrease)						Total
	due to						increase/
	Volume			Rate			(decrease)
	(In thousands)
Interest-earning assets:
Loans receivable	$	937		$	(308	)	$	629
Securities available for sale		253			39			292
Interest-earning deposits		(37	)		253			216
Other interest-earning assets		13			(11	)		2
Total interest-earning assets		1,166			(27	)		1,139
Interest-bearing liabilities:
Savings and money market accounts		(5	)		110			105
Interest-bearing checking accounts	5				4			9
Certificate accounts		(45	)		(238	)		(283	)
Total interest-bearing deposits		(45	)		(124	)		(169	)
Borrowings		(39	)		—			(39	)
Total interest-bearing liabilities		(84	)		(124	)		(208	)
Change in net interest income	$	1,250		$	97		$	1,347

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our liquidity is a measure of our ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. Our short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, other borrowings, and new advances from the Federal Home Loan Bank. There has been no material adverse change during the nine months ended September 30, 2022 in our ability to fund our operations.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities. We also have the ability to borrow from the Federal Home Loan Bank of Atlanta. At September 30, 2022, we had $48.8 million in borrowing capacity with the Federal Home Loan Bank of Atlanta, and had no advances outstanding. In addition, we have $19.5 million in unsecured federal funds lines of credit through our correspondent banks and $5.8 million secured borrowing capacity through the Federal Reserve Bank of Atlanta. No amounts were outstanding on these lines of credit at September 30, 2022.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our current strategy to increase our loan portfolio, we will seek to increase core deposits and use Federal Home Loan Bank of Atlanta advances as well as brokered certificates of deposit as needed.

Capital Requirements

At September 30, 2022, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 16.30%, and total qualifying capital as a percentage of risk-weighted assets was 23.86%. As of September 30, 2022, the Bank was classified as “well capitalized” for regularity capital purposes. Note 6 to the Financial Statements describes the regulatory capital requirements applicable to the Bank.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. Note 5 to the Financial Statements describes the financial instruments with off-balance-sheet risk that we enter into in the normal course of business to meet the financing needs of our customers.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There has been no change in the Company’s internal control over financial reporting during the nine months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal proceedings

None.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in our 2021 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information regarding purchases of the Company's common stock made during the third quater of 2022 by or on behalf of the Company or any "affiliated purchaser," as defined by Rule 10b-18(a)(3) of the Exchange Act.


Period	Total Number os Shares purchased		Average Price Paid Per Share		Total Number of Shares Purchasd as Part of Publicly Announced Plan or Programs		Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (1)
July 1 - 31, 2022		-	N/A			-	N/A
August 1 - 31, 2022		31,452	$	14.20		31,452		218,548
September 1 -30, 2022		20,069	$	14.31		20,069		198,479
Total		51,521	$	14.25		51,521		198,479

(1) On August 3, 2022, the Company announced a program to repurchase up to 250,000 shraes of the Company's common stock through June 30, 2023.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.


31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 (unaudited), (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021 (unaudited), (vi) Consolidated Statements of Change in Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited), (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited), and (vi) the Notes to Financial Statements (unaudited) with detail tagging.

104	The cover page from TC Bancshares, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included in Exhibit 101).

Signatures

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


		TC BANCSHARES, INC. (Registrant)

Date: Novmber 10, 2022		/s/ Gregory H. Eiford
		Gregory H. Eiford
		Chief Executive Officer

Date: November 10, 2022		/s/ Linda Palmer
		Linda Palmer
		Chief Financial Officer