TC Bancshares, Inc. - Quarter Report: 2022 March (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 March 31, 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 May 11, 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	33
Item 4.	Controls and Procedures	33
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

Signature Pages		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

March 31, 2022 and December 31, 2021


ASSETS
	March 31, 2022			December 31, 2021
Cash and due from banks	$	43,419,628		$	31,890,831
Federal funds sold		10,000,000			10,000,000
Cash and cash equivalents		53,419,628			41,890,831
Certificates of deposit with other banks		3,206,000			3,451,000
Investment securities available-for-sale		48,062,855			45,631,636
Other investments		923,200			190,700
Mortgage loans held for sale		2,539,422			2,844,707
Loans, net		268,503,697			266,304,448
Premises and equipment, net		3,201,049			3,224,889
Other real estate owned		1,115,100			1,115,100
Bank owned life insurance		11,234,520			11,166,573
Accrued interest receivable and other assets		5,702,379			5,122,263
Total Assets	$	397,907,850		$	380,942,147

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand	$	40,113,668		$	35,939,917
Interest-bearing demand		159,247,620			146,831,902
Savings		34,724,463			34,014,635
Certificates of deposit		72,749,497			72,530,254
Total deposits		306,835,248			289,316,708
Accrued interest payable and other liabilities		4,883,066			4,812,858
Total liabilities		311,718,314			294,129,566
Commitments
Shareholders' Equity:
Common stock, $.01 par value, 20,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 4,898,350 shares issued and outstanding as of March 31, 2022 and December 31, 2021		48,984			48,984
Additional paid in capital		47,481,077			47,481,077
Retained earnings		45,309,561			44,613,668
Accumulated other comprehensive loss		(2,927,339	)		(1,608,401	)
Unearned ESOP shares 372,275 shares unallocated at March 31, 2022 and December 31, 2021		(3,722,747	)		(3,722,747	)
Total shareholders' equity		86,189,536			86,812,581
Total Liabilities and Shareholders' Equity	$	397,907,850		$	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 March 31,
	2022		2021
Interest and Dividend Income:
Interest and fees on loans	$	3,138,193	$	3,225,305
Interest and dividends on taxable investment securities		164,122		63,544
Interest on deposits with other banks and federal funds sold		49,322		59,159
Total interest and dividend income		3,351,637		3,348,008
Interest Expense:
Interest on deposits		165,142		301,705
Interest on borrowings		—		19,730
Total interest expense		165,142		321,435
Net interest income		3,186,495		3,026,573
Provision for Loan Losses		—		—
Net interest income after provision for allowance for loan losses		3,186,495		3,026,573
Other Income:
Service charges on deposit accounts		136,896		142,245
Gain on sale of mortgage loans		353,930		540,053
Bank owned life insurance income		67,947		71,221
Other		3,320		3,080
Total other income		562,093		756,599
Other Expense:
Salaries and employee benefits		1,744,554		1,709,772
Occupancy and equipment		199,626		204,564
Other real estate owned, net of operations, loss on sales and write-downs		10,820		400
Data processing conversion costs		—		503
Other		883,567		871,650
Total other expense		2,838,567		2,786,889
Income Before Income Taxes		910,021		996,283
Income Tax Expense		214,128		231,350
Net Income	$	695,893	$	764,933

Earnings per share:
Basic	$	0.14	N/A
Diluted	$	0.14	N/A

Weighted Average Shares Outstanding:
Basic		4,898,350	N/A
Diluted		4,898,350	N/A

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 March 31,
	2022			2021
Net Income	$	695,893		$	764,933
Other Comprehensive (Loss) Income
Net of Income Taxes:
Unrealized losses on securities available-for-sale:
Holding losses arising during the period, net of taxes of $487,827 and $45,922, respectively		(1,318,938	)		(116,965	)
Total other comprehensive loss		(1,318,938	)		(116,965	)
Comprehensive (Loss) Income	$	(623,045	)	$	647,968

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 months ended March 31, 2022 and 2021

UNAUDITED


	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			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


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

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

TC BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED


	Three Months Ended March 31,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	695,893		$	764,933
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion		125,625			103,684
Provision for allowance for loan losses		—			—
Increase in cash surrender value of bank owned life insurance		(67,947	)		(71,221	)
Gain on mortgage loans sold, net		(353,930	)		(540,053	)
Proceeds from the sale of mortgage loans held for sale		19,680,093			27,581,298
Originations of mortgage loans held for sale		(19,020,878	)		(26,679,176	)
Change in:
Accrued interest receivable and other assets		(92,289	)		400,594
Accrued interest payable and other liabilities		70,208			104,573
Net cash provided by operating activities		1,036,775			1,664,632
Cash Flows from Investing Activities:
Net change in interest-bearing deposits in other banks		245,000			965,000
Purchase of investment securities available-for -sale		(5,010,156	)		(5,145,391	)
Proceeds from calls, paydowns and maturities of investment securities available-for-sale		740,998			1,428,101
Purchase of other investments		(732,500	)		—
Proceeds from sales of other investments		—			114,600
Net change in loans		(2,199,249	)		10,220,739
Purchase of premises and equipment		(70,611	)		(69,065	)
Net cash (used in) provided by investing activities		(7,026,518	)		7,513,984
Cash Flows from Financing Activities:
Net change in deposits		17,518,540			13,414,660
Repayments of Federal Home Loan Bank advances		—			(470,238	)
Net cash provided by financing activities		17,518,540			12,944,422
Net Change in Cash and Cash Equivalents		11,528,797			22,123,038
Cash and Cash Equivalents, Beginning of Period		41,890,831			41,876,399
Cash and Cash Equivalents, End of Period	$	53,419,628		$	63,999,437
Supplement Disclosures of Cash Flow Information:
Cash paid during the period for interest	$	160,125		$	331,981
Non-Cash Investing and Financing Activities:
Change in unrealized losses on securities-for-sale, net of tax	$	(1,318,938	)	$	(116,965	)

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 savings and loan 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 months ended March 31, 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.

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.

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.

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 currently evaluating the impact that the standard will have 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 March 31, 2022 and December 31, 2021 are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Fair Value as % of Total
March 31, 2022-
US treasuries	$	10,134,303	$	—	$	322,994	$	9,811,309		20	%
Mortgage-backed securities		10,076,527		11,191		417,664		9,670,054		20	%
Collateralized mortgage obligations		18,257,066		3,013		353,088		17,906,991		37	%
Municipal bonds		8,765,495		—		824,846		7,940,649		17	%
Corporate obligations		2,875,000		—		141,148		2,733,852		6	%
	$	50,108,391	$	14,204	$	2,059,740	$	48,062,855		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 March 31, 2022 and December 31, 2021:


	March 31, 2022				December 31, 2021
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Unrealized loss for less than 12 months:
US treasuries	$	9,811,309	$	322,994	$	5,104,004	$	25,271
Mortgage-backed securities		8,924,379		417,664		6,389,012		100,143
Collateralized mortgage obligations		15,832,910		353,088		11,190,910		145,656
Municipal bonds		7,940,649		824,846		7,828,330		170,787
Corporate obligations		2,733,852		141,148		2,831,546		43,454
Total less than 12 months	$	45,243,099	$	2,059,740	$	33,343,802	$	485,311

At March 31, 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 the repayment sources of principal and interest are backed by government entities. At March 31, 2022, all five US treasuries, ten of 14 mortgage backed securities, 11 of 13 collateralized mortgage obligations, all nine municipal bonds and all six corporate obligations contained unrealized losses. At December 31, 2021, all US treasuries, four of 14 mortgage backed securities, 11 out of 13 collateralized mortgage obligations, all nine municipal bonds and all 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 March 31, 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 -
Within 1 year	$	—	$	—
1 to 5 years		5,010,013		4,999,902
5 to 10 years		16,764,785		15,485,908
Over 10 years		—		—
Mortgage-backed securities and collateralized mortgage obligations		28,333,593		27,577,045
Total	$	50,108,391	$	48,062,855

The Bank did not sell any investment securities available-for-sale for the three months ended March 31, 2022 or 2021. Securities with carrying values of approximately $118,000 and $142,000 at March 31, 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 March 31, 2022 and December 31, 2021, are summarized as follows:


	March 31, 2022		Percent			December 31, 2021		Percent
Real estate loans:
Residential	$	102,034,477		37.29	%	$	98,433,124		36.27	%
Home equity		11,467,709		4.19	%		11,510,661		4.24	%
Multi-family		19,950,041		7.29	%		19,937,187		7.35	%
Commercial		95,384,937		34.86	%		89,830,611		33.10	%
Construction and land development		29,958,414		10.95	%		34,401,702		12.68	%
Total real estate loans		258,795,578					254,113,285
Consumer loans		1,314,367		0.48	%		1,373,761		0.51	%
Commercial and industrial loans		13,490,067		4.94	%		15,900,097		5.85	%
Total loans		273,600,012		100.00	%		271,387,143		100.00	%
Less: Allowance for loan losses		4,211,089					4,183,599
Deferred loan fees		885,226					899,096
Loans, net	$	268,503,697				$	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. In the first quarter of 2022, the Bank did not record any PPP-related SBA fees, compared to $227,000 in PPP-related SBA fees in the first quarter of 2021. 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 months ended March 31, 2022, and 2021, the Bank had recognized approximately $7,200 and $205,000 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 $55,000 and $62,000 at March 31, 2022 and December 31, 2021, respectively.

Allowance for Loan Losses:

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


	Three Months Ended March 31,
	2022			2021
Beginning balance	$	4,183,599		$	4,085,719
Charge-offs:
Real estate loans:
Residential		—			(11,123	)
Home equity		—			—
Multi-family		—			—
Commercial		—			—
Construction and land development		—			—
Total real estate loans		—			(11,123	)
Consumer loans		(8,633	)		(15,842	)
Commercial and industrial loans		—			—
Total charge-offs		(8,633	)		(26,965	)
Recoveries:
Real estate loans:
Residential		17,931			6,139
Home equity		—			—
Multi-family		—			—
Commercial		—			—
Construction and land development		—			11,345
Total real estate loans		17,931			17,484
Consumer loans		1,066			3,912
Commercial and industrial loans		17,126			7,250
Total recoveries		36,123			28,646
Net recoveries		27,490			1,681
Provision for allowance for loan losses		—			—
Ending balance	$	4,211,089		$	4,087,400

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 March 31, 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
March 31, 2022 -
Real estate loans:
Residential	$	1,365,448	$	100,669,029	$	—	$	1,526,841
Home equity		—		11,467,709		—		173,236
Multi-family		—		19,950,041		—		280,408
Commercial		—		95,384,937		—		1,805,018
Construction and development		9,151		29,949,263		—		267,982
Total real estate loans		1,374,599		257,420,979		—		4,053,485
Consumer loans		—		1,314,367		—		1,374
Commercial and industrial loans		—		13,490,067		—		124,213
Unallocated		—		—		—		32,017
Total	$	1,374,599	$	272,225,413	$	—	$	4,211,089
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 March 31, 2022 and December 31, 2021:


	Recorded Investment		Principal Balance		Related Allowance
March 31, 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	$	1,365,448	$	1,365,448	$	—
Home equity		—		—		—
Multi-family		—		—		—
Commercial		—		—		—
Construction and land development		9,151		9,151		—
Total real estate loans		1,374,599		1,374,599		—
Consumer loans		—		—		—
Commercial and industrial loans		—		—		—
Total	$	1,374,599	$	1,374,599	$	—


	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 March 31,
	2022						2021
	Average Recorded Investment		Interest Income Recognized		Interest Income Received		Average Recorded Investment		Interest Income Recognized		Interest Income Received
Real estate loans:
Residential	$	1,441,635	$	19,299	$	19,562	$	1,553,631	$	23,892	$	23,892
Home equity		—		—		—		1,196
Multi-family		—		—		—		—		—		—
Commercial		—		—		—		1,409,590		—		—
Construction and land development		9,540		114		159		127,344
Total real estate loans		1,451,175		19,413		19,721		3,091,761		23,892		23,892
Consumer loans		—		—		—		—		—		—
Commercial and industrial loans		—		—		—		—		—		—
Total	$	1,451,175	$	19,413	$	19,721	$	3,091,761	$	23,892	$	23,892

Past Due and Nonaccrual Loans:

The following tables present the aging of the recorded investment in past due loans and nonaccrual loans as of March 31, 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
March 31, 2022 -
Real estate loans:
Residential	$	1,087,573	$	—	$	—	$	1,087,573	$	100,946,904	$	102,034,477	$	245,613
Home equity		37,120		—		—		37,120		11,430,589		11,467,709		—
Multi-family		—		—		—		—		19,950,041		19,950,041		—
Commercial		—		—		—		—		95,384,937		95,384,937		—
Construction and land development		9,151		59,574		—		68,725		29,889,689		29,958,414		59,574
Total real estate loans		1,133,844		59,574		—		1,193,418		257,602,160		258,795,578		305,187
Consumer loans		—		—		—		—		1,314,367		1,314,367		—
Commercial and industrial loans		—		—		—		—		13,490,067		13,490,067		—
	$	1,133,844	$	59,574	$	—	$	1,193,418	$	272,406,594	$	273,600,012	$	305,187
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 March 31, 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 three months ended March 31, 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 March 31, 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 three months ended March 31, 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 March 31, 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 March 31, 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
March 31, 2022 -
Real estate loans:
Residential	$	100,473,930	$	223,024	$	1,337,523	$	—	$	—	$	102,034,477
Home equity		11,467,709		—		—		—		—		11,467,709
Multi-family		19,950,041		—		—		—		—		19,950,041
Commercial		87,894,860		4,634,029		2,856,048		—		—		95,384,937
Construction and land development		26,937,502		2,889,650		131,262		—		—		29,958,414
Total real estate loans		246,724,042		7,746,703		4,324,833		—		—		258,795,578
Consumer loans		1,314,367		—		—		—		—		1,314,367
Commercial and industrial loans		13,490,067		—		—		—		—		13,490,067
	$	261,528,476	$	7,746,703	$	4,324,833	$	—	$	—	$	273,600,012
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 $43,600,000 and $15,700,000 in available borrowing capacity through the FHLB at March 31, 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 carrying value of approximately $43,616,000 at March 31, 2022 and $15,658,000 at December 31, 2021.

Unsecured federal funds lines of credit totaling $19,500,000 were available to the Bank for overnight borrowing through correspondent banks at both March 31, 2022 and December 31, 2021. The Bank also had approximately $6,300,000 and $5,700,000 in available borrowing capacity through the Federal Reserve Bank of Atlanta at March 31, 2022 and December 31, 2021, respectively. There were no borrowings against either of these facilities at March 31, 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 $9,100,000 and $9,300,000 at March 31, 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.


	March 31, 2022		December 31, 2021
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	32,822,000	$	28,204,000
Stand-by letters of credit	$	765,000	$	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 March 31, 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 March 31, 2022 and December 31, 2021, that the Bank met all capital adequacy requirements to which it is subject.

As of March 31, 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 March 31, 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)
March 31, 2022:
Common Equity Tier 1 Capital to Risk- Weighted Assets	$	64,432		24.56	%	$	11,806		4.50	%	$	17,052		6.50	%
Total Capital to Risk- Weighted Assets	$	67,722		25.81	%	$	20,988		8.00	%	$	26,235		10.00	%
Tier 1 Capital to Risk- Weighted Assets	$	64,432		24.56	%	$	15,741		6.00	%	$	20,988		8.00	%
Tier I Capital to Average Assets	$	64,432		16.58	%	$	15,541		4.00	%	$	19,427		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 March 31, 2022 and December 31, 2021, all of which consisted of investment securities available-for-sale:


	Level 1		Level 2		Level 3		Total
March 31, 2022:
US treasuries	$	—	$	9,811,309	$	—	$	9,811,309
Mortgage-backed securities		—		9,670,054		—		9,670,054
Collateralized mortgage obligations		—		17,906,991		—		17,906,991
Municipal bonds		—		7,940,649		—		7,940,649
Corporate obligations		—		2,733,852		—		2,733,852
Investment securities available-for-sale	$	—	$	48,062,855	$	—	$	48,062,855
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 March 31, 2022 and December 31, 2021:


	Level 1		Level 2		Level 3		Total
March 31, 2022:
Other real estate owned	$	—	$	—	$	1,115,100	$	1,115,100
Impaired loans		—		—		—		—
	$	—	$	—	$	1,115,100	$	1,115,100
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 March 31, 2022 and December 31, 2021 are as follows:


			Fair Value Measurements at March 31, 2022
	Carrying Amount		Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	53,419,628	$	53,419,628	$	53,419,628	$	—	$	—
Certificates of deposit with other banks		3,206,000		3,206,000		3,206,000		—		—
Investment securities available-for-sale		48,062,855		48,062,855		—		48,062,855		—
Other investments		923,200		923,200		—		923,200		—
Mortgage loans held for sale		2,539,422		2,539,422		—		2,539,422		—
Loans, net		268,503,697		268,058,000		—		—		268,058,000
Bank owned life insurance		11,234,520		11,234,520		11,234,520		—		—
Financial liabilities:
Deposits		306,835,248		306,133,751		234,085,751		—		72,048,000


			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.

Stock offering expenses totaled $1,523,443, which were deducted from the proceeds from the sale of common stock

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 savings and loan 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 March 31, 2022, we had total assets of $397.9 million, loans, net of the allowance for loan losses and deferred fees of $268.5 million, total deposits of $306.8 million and total equity of $86.2 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.

COVID-19 Pandemic

Our historically careful underwriting practices and diverse loan portfolio has helped minimize the adverse impact of the pandemic on our operating results. In addition, the combination of the vaccine rollout, government stimulus payments, and reduced spending during the pandemic are likely contributing factors mitigating the impact of the pandemic on our business, financial condition, results of operations, and our customers as of March 31, 2022. However, there are continuing concerns that indicate a slower return to pre-pandemic routines, including concerns related to increases in new COVID-19 cases, which could lead to government imposed restrictions; refusals to receive the vaccine along with concerns related to new strains of the virus; supply chain issues remaining unresolved longer than anticipated; labor shortages and wage increases continuing to impact many industries; consumer confidence and spending falls; and rising geopolitical tensions. Given the ongoing and dynamic nature of the circumstances surrounding the pandemic, it is difficult to predict its future adverse financial impact to the Company, although we expect to continue to be impacted by the pandemic in 2022. Specifically, we expect the following balance sheet and income statement categories could be affected:

•

In response to the COVID-19 pandemic, in March 2020, the Federal Reserve reduced the target range for the federal funds rate to between 0.0% and 0.25%, compared to the previous target of between 1.00% and 1.25%. These rate reductions, combined with the decline of longer-term interest rates, reduced our net interest income to lower levels during 2020 and 2021, compared to what we experienced for the year ended December 31, 2019. In 2021, net interest income increased $377,000, compared to 2020, due to an increase in average earning assets. In 2020 and 2021, PPP fee income was recorded as interest income, which partially offset the decline in interest income due to rate reductions. After the PPP loans have been fully paid off or forgiven, we expect lower levels of interest income going forward if market rates of interest remain at low levels.

•

Although the economy has experienced a certain level of recovery in 2021 and 2022, economic assumptions used to calculate our allowance for loan losses may deteriorate causing us to increase our allowance.

Anticipated Increase in Noninterest Expense

Now that we have completed the conversion and stock offering, which resulted in us becoming an SEC public reporting company, we expect our noninterest expense may increase due to the increased costs of operating as a public company, and the possible implementation of one or more stock-based benefit plans, if approved by our shareholders. At this time, we anticipate seeking shareholder approval for a stock-based benefit plan after the one year anniversary of the completion of the conversion.

Comparison of Financial Condition at March 31, 2022 and December 31, 2021

Total Assets. Total assets increased $17.0 million, or 4.5%, to $397.9 million at March 31, 2022 from $380.9 million at December 31, 2021. The increase was principally due to increases in cash and cash equivalents of $11.5 million, investments securities of $2.4 million, and loans of $2.2 million.

Cash and Cash Equivalents. Cash and cash equivalents increased $11.5 million at March 31, 2022, compared to December 31, 2021, primarily from deposits increasing $17.5 million. Some of these funds were deployed into investment securities and loans of $2.4 million and $2.2 million, respectively.

Total Loans. Loans increased $2.2 million, or 0.8%, to $266.5 million at March 31, 2022 from $266.3 million at December 31, 2021. Commercial and multi-family real estate loans increased $5.5 million, or 5.0%, to $115.3 million at March 31, 2022 from $109.8 million at December 31, 2021, due to new loan originations. Similarly, residential loans increased $3.6 million, or 3.7%, to $102.0 million at March 31, 2022, from $98.4 million at December 31, 2021. However, loan balances in other categories decreased due to the payoff of loans.

Construction and land development loans decreased $4.4 million, or 12.9%, to $30.0 million at March 31, 2022 from $34.4 million at December 31, 2021. Commercial and industrial loans decreased $2.4 million, or 15.1%, to $13.5 million at March 31, 2022 from $15.9 million at December 31, 2021.

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 three months ended March 31, 2022 and March 31, 2021, no loans were downgraded and no loan loss provision was recorded. The Company had 24 impaired loans totaling $1.4 million at March 31, 2022 compared to 27 impaired loans totaling $1.5 million at December 31, 2021. At March 31, 2022, there were no specific reserves and $32,000 of the allowance was unallocated. We had net recoveries of $27,000 during the three months ended March 31, 2022, compared to net recoveries of $2,000 for the three months ended March 31, 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 $4.2 million, or 1.54% of gross loans, at March 31, 2022, is adequate to cover losses inherent in the loan portfolio.

Investment Securities. Investment securities, all of which are available-for-sale, increased $2.5 million, or 5.5%, to $48.1 million at March 31, 2022 from $45.6 million at December 31, 2021, primarily as a result of investments made in U.S. treasuries of $5.0 million. These investments were partially offset by an increase of $1.6 million, or 324.5%, in unrealized losses on our investments to $2.1 million at March 31, 2022 from $485,000 at December 31, 2021. This increase in losses was not due to a decrease in credit quality, but rather from the increase in the federal funds target range from 0.25% to 0.50% on March 17, 2022, by the Federal Open Market Committee ("FOMC"). This is the first increase in the federal funds target range by the FOMC since 2018.

Bank Owned Life Insurance. At both March 31, 2022 and December 31, 2021, our investment in bank owned life insurance was $11.2 million. 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 March 31, 2022 was 16.4% of our Tier 1 capital plus our allowance for loan losses.

Deposits. Total deposits increased $17.5 million, or 6.1%, to $306.8 million at March 31, 2022 from $289.3 million at December 31, 2021. Non-interest-bearing demand accounts increased $4.2 million, or 11.6%, to $40.1 million at March 31, 2022, from $35.9 million at December 31, 2021. Interest-bearing demand accounts increased $12.4 million, or 8.5%, to $159.2 million at March 31, 2022, from $146.8 million at December 31, 2021. Savings accounts increased $709,000, or 2.1%, to $34.7 million at March 31, 2022 from $34.0 million at December 31, 2021. Certificates of deposit increased $219,000, or 0.3%, to $72.7 million at March 31, 2022 from $72.5 million at December 31, 2021.

Shareholders’ Equity. Total shareholders' equity decreased $623,000, or 7.2%, to $86.2 million at March 31, 2022 from $86.8 million at December 31, 2021. The decrease resulted primarily from the $1.3 million, or 324.7%, increase in the unrealized loss after taxes on our investment securities available for sale of $2.0 million at March 31, 2022, from $0.5 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 target range from 0.25% to 0.50% on March 17, 2022 by the FOMC. This decrease was partially offset by net income of $696,000 for the three months ended March 31, 2022.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021

General. Net income decreased $69,000, or 9.0%, to $696,000 for the three months ended March 31, 2022, compared to $765,000 for the three months ended March 31, 2021. The decrease in net income resulted primarily from a $186,000 decrease in gains on sale of mortgage loans and a $52,000 increase in other operating expenses, partially offset by a $160,000 increase in net interest income.

Interest Income. Interest income increased $4,000, or 0.1%, to $3.4 million for the three months ended March 31, 2022 from $3.3 million for the three months ended March 31, 2021. This increase was primarily due to increases in interest and dividends on taxable investment securities available for sale of $101,000 and interest on deposits with other banks and federal funds sold of $22,000, partially offset by a decrease of $119,000, or 3.7%, in interest and fees on loans. The average balance of loans, including loans held for sale, increased $10.1 million, or 3.8%, to $273.4 million for the three months ended March 31, 2022, from $263.3 million for the three months ended March 31, 2021, and the average yield on loans decreased 0.36% to 4.61% for the three months ended March 31, 2022, from 4.97% for the three months ended March 31, 2021. The average balance of investment securities increased $29.1 million, or 186.0%, to $44.9 million for three months ended March 31, 2022, from $15.7 million for the three months ended March 31, 2021, while the average yield on investment securities decreased one basis point to 1.46% for the three months ended March 31, 2022, from 1.47% for the three months ended March 31, 2021. The average balance of other interest-earning deposits decreased $8.4 million, or 14.9%, to $47.6 million for three months ended March 31, 2022, from $56.0 million for the three months ended March 31, 2021 and the average yield on other interest-earning deposits increased 26 basis points to 0.69% for the three months ended March 31, 2022, from 0.43% for the three months ended March 31, 2021.

Interest Expense. Total interest expense decreased $156,000, or 48.6%, to $165,000 for the three months ended March 31, 2022 from $321,000 for the three months ended March 31, 2021. The decrease was primarily due to lower interest rates offered on all deposit products even though the federal funds target range increased 25 basis points to 0.50% on March 17, 2022. The average balance of interest-bearing deposits increased $5.2 million, or 2.0%, to $260.1 million for the three months ended March 31, 2022, from $265.3 million for the three months ended March 31, 2021, which was partially offset by a 20 basis point decline in the average cost of interest-bearing deposits to 0.26% for the three months ended March 31, 2022, from 0.47% for the three months ended March 31, 2021. The average balances of FHLB advances decreased $9.3 million, or 100%, to $0 for the three months ended March 31, 2022. For the three months ended March 31, 2021, the average cost of FHLB advances was 0.87%.

Net Interest Income. Net interest income increased $160,000, or 5.3%, to $3.2 million for the three months ended March 31, 2022 from $3.0 million for the three months ended March 31, 2021. Our average interest-earning assets increased $30.7 million, or 9.1%, period over period. This increase was due primarily to increases in our investment securities of $29.1 million and loans of $10.1 million, partially offset by a $8.4 million decrease in the average balance of our interest-earning deposits with other banks. Our interest rate spread decreased to 3.45% for the three months ended March 31, 2022 from 3.57% for the three months ended March 31, 2021, and our net interest margin decreased to 3.53% for the three months ended March 31, 2022 from 3.66% for the three months ended March 31, 2021. The decrease in interest rate spread and net interest margin were primarily the result of the increase in the average balances of our lower yielding investment securities, partially offset by a reduction in our cost of funds.

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 did not record any provision for loan losses for the three months ended March 31, 2022 or 2021. The allowance for loan losses was $4.2 million, or 1.54% of total loans, at both March 31, 2022, and December 31, 2021, and $4.0 million, or 1.60% of total loans, at March 31, 2021. Classified (substandard, doubtful and loss) loans decreased to $4.3 million at March 31, 2022 compared to $6.8 million at December 31, 2021 and $6.1 million at March 31, 2021. We had $305,000 of nonperforming loans at March 31, 2022, compared to $414,000 at December 31, 2021 and $2.2 million at March 31, 2021. 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. Net recoveries for the three months ended March 31, 2022 and 2021 were $27,000 and $2,000, respectively. We had no loans in deferral at March 31, 2022 or December 31, 2021.

Other Income. Other income information is as follows.


	For the three months ended March 31,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Service charges on deposit accounts	$	137	$	142	$	(5	)		(3.5	)%
Gain on sale of loans		354		539		(185	)		(34.3	)%
Other		71		75		(4	)		(5.3	)%
Total non-interest income	$	562	$	756	$	(194	)		(25.7	)%

Other income decreased $194,000, or 25.7%, to $562,000 for the three months ended March 31, 2022 from $756,000 for the three months ended March 31, 2021. The decrease was primarily due to gain on sale of mortgage loans into the secondary market of $354,000 for the three months ended March 31, 2022, compared to $539,000 for the three months ended March 31, 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 three months ended March 31,				Change
	2022		2021		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	1,753	$	1,710	$	43			2.5	%
Occupancy and equipment		200		205		(5	)		(2.4	)%
Advertising		60		58		2			3.4	%
Audit and examination		135		119		16			13.4	%
Checking account related expenses		63		42		21			50.0	%
Consulting and advisory fees		40		30		10			33.3	%
Data system conversion costs		—		1		(1	)		(100.0	)%
Data processing fees		112		148		(36	)		(24.3	)%
Director fees		65		84		(19	)		(22.6	)%
Legal		28		24		4			16.7	%
Other real estate loss/(gain) on sale and write-downs		11		—		11			100.0	%
Other		372		366		6			1.6	%
Total non-interest expense	$	2,839	$	2,787	$	52			9.5	%

Other expense increased $52,000, or 9.5%, to $2.8 million for the three months ended March 31, 2022, from $2.8 million for the three months ended March 31, 2021. The increase was due primarily to a $43,000 increase in salaries and employee benefits due to $66,000 in 2022 ESOP expenses, which was established in July 2021 as part of our stock offering, as well as a $21,000 increase in checking account related expense, partially offset by decreases in our data processing fees and director fees of $36,000 and $19,000, respectively.

Income Tax Expense. Income tax expense decreased $17,000 to $214,000 for the three months ended March 31, 2022, compared to $231,000 for the three months ended March 31, 2021. The decrease resulted from the $86,000 decrease in income before income taxes. For the three months ended March 31, 2022, income before taxes was $910,000, compared to $996,000 for the three months ended March 31, 2021. Our effective tax rate was 24% for the three months ended March 31, 2022 and 23% for the three months ended March 31, 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 March 31,
	2022			2022								2021
	Yield/rate			Average			Interest		Average			Average			Interest		Average
	At 3-31			Balance			Earned/		Yield/			Balance			Earned/		Yield/
	2022			Outstanding			Paid		Rate			Outstanding			Paid		Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable		4.21	%	$	273,422		$	3,107		4.61	%	$	263,271		$	3,225		4.97	%
Securities available-for-sale		1.49	%		44,865			162		1.46	%		15,721			57		1.47	%
Interest-earning deposits		0.56	%		47,634			81		0.69	%		55,994			59		0.43	%
Other interest-earning assets		3.70	%		447			2		1.81	%		713			7		3.98	%
Total interest-earning assets		3.64	%		366,368		$	3,352		3.71	%		335,699		$	3,348		4.04	%
Non-interest-earning assets					23,348								19,802
Total assets				$	389,716							$	355,501
Interest-bearing liabilities:
Savings and money market accounts		0.21	%	$	129,201		$	66		0.21	%	$	134,197		$	68		0.21	%
Interest-bearing checking accounts		0.06	%		58,029			13		0.09	%		47,153			10		0.09	%
Certificate accounts		0.47	%		72,866			86		0.48	%		83,940			223		1.08	%
Total interest-bearing deposits		0.21	%		260,096			165		0.26	%		265,290			301		0.46	%
Borrowings		—	%		—			—		—	%		9,347			20		0.87	%
Total interest-bearing liabilities		0.21	%		260,096			165		0.26	%		274,637			321		0.47	%
Non-interest-bearing liabilities					42,733								40,489
Total liabilities					302,829								315,126
Total equity					86,887								40,375
Total liabilities and equity				$	389,716							$	355,501
Net interest income							$	3,187							$	3,027
Net earning assets				$	106,272							$	61,062
Net interest rate spread(1)		3.43	%							3.45	%							3.57	%
Net interest margin(2)										3.53	%							3.66	%
Average interest-earning assets to average interest-bearing liabilities					140.86	%							122.23	%

(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
	March 31,
	2022 vs. 2021
	Increase/
	(decrease)						Total
	due to						increase/
	Volume			Rate			(decrease)
	(In thousands)
Interest-earning assets:
Loans receivable	$	124		$	(242	)	$	(118	)
Securities available for sale		106			(1	)		105
Interest-earning deposits		(9	)		31			22
Other interest-earning assets		(2	)		(3	)		(5	)
Total interest-earning assets		219			(215	)		4
Interest-bearing liabilities:
Savings and money market accounts		(3	)		1			(2	)
Interest-bearing checking accounts		2			1			3
Certificate accounts		(29	)		(108	)		(137	)
Total interest-bearing deposits		(30	)		(106	)		(136	)
Borrowings		(20	)					(20	)
Total interest-bearing liabilities		(50	)		(106	)		(156	)
Change in net interest income	$	269		$	(109	)	$	160

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 three months ended March 31, 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 March 31, 2022, we had $43.6 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 $6.3 million secured borrowing capacity through the Federal Reserve Bank of Atlanta. No amounts were outstanding on these lines of credit at March 31, 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 March 31, 2022, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 16.2%, and total qualifying capital as a percentage of risk-weighted assets was 25.8%. As of March 31, 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 three months ended March 31, 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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.


3.1	Articles of Incorporation of TC Bancshares, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (Commission File No. 333-254212)).

3.2	Amended and Restated Bylaws of TC Bancshares, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company’s Form 8-K (Commission File No. 333-254212) filed June 22, 2021.

10.1	Employment Agreement with N. Higdon (incorporated herein by reference to Exhibit 10.5 of the Company's Form 10-K (Commission File No. 001-40637) filed March 24, 2022


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 March 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language) includes: (i) Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021, (ii) Consolidated Statements of Income for the three months ended March 31, 2022 and 2021 (unaudited), (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021 (unaudited), (vi) Consolidated Statements of Change in Equity for the three months ended March 31, 2022 and 2021 (unaudited), (v) Consolidated Statements of Cash Flows for the three months ended March 31, 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 March 31, 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: May 12, 2022		/s/ Gregory H. Eiford
		Gregory H. Eiford
		Chief Executive Officer

Date: May 12, 2022		/s/ Linda Palmer
		Linda Palmer
		Chief Financial Officer