2021 Shareholder's Letter

Dear Shareholders,

Last Spring, I made a bank presentation to the fourth generation of Anderson shareholders, the 4G's. A section of my presentation was entitled "Skipping through History", which included a handful of watershed years considered important milestones in our 88 year history. I think it's worth memorializing. Below is a repeat performance with two new additions: 2020 and 2033.

1933: The Beginning

Brothers Bishop and Ernest Anderson set up shop for their new bank, reportedly in the back of a tobacco warehouse. Both were Mullins businessmen with interest in the tobacco market and other local businesses. Two local banks had gone under during the Great Depression and the town badly needed a bank mainly to support our tobacco market by providing financing to pay farmers upon the sale of their tobacco.

Naming the bank after themselves was not an act of ego but rather a demonstration of accountability. Back then there was no FDIC, bank examiners or accounting standards to rely on, so putting your name on the door let the community know who was accountable for the safety of their deposits.

1979: Getting Started

I started my career at ABB in December of 1979. Deregulation of banking would begin in the following year so I got a glimpse of banking that few remember. Regulation prohibited the payment of interest on checking accounts, passbook savings accounts earned 5% and "golden passbook savings" earned 5.25% but you had to give 90 days' notice before withdrawal. You could get any CD's you liked as long as it matured in 30 months and earned at 7% or 60 month maturity at 7.5%, again, as decreed by regulation.

You could deposit or withdrawal $100,000 cash, no questions asked, no reports filed. Individual checking account balances were updated manually. Fancy "personalized checks" with account numbers were on the horizon but for the moment we accepted "counter checks" and identified the account by signature. We bought our first computer in 1981. Concerned this might be misinterpreted as getting above our raising and losing the personal touch, we launched an ad campaign with the theme "Our computer cares." Not kidding.

1993: The Divorce

The 50-50 partnership model worked well for 60 years until it didn't. We resolved our issues by making the only deal either side could with the Ernest Anderson family acquiring 100% interest in the bank.

2000: The Merger

Following a board meeting of Anderson State Bank in 1998, Neal proposed we merge Anderson Brothers Bank and Anderson State Bank. Delayed by Y2K, (yes, it was that big a deal) we merged in June 2000 with total assets of $160 million.

The Formative Years

This was a seven year epoch of biblical importance. These were our formative years ending in 2012, which I consider the beginning of the "modern era" of ABB history. It began in 2005 with an FDIC exam by a team from Boston, rather than the familiar home team from Columbia. Oil and water. To their northern ears, they thought us as dumb as we sounded and, unfortunately, we gave them good reason.

We were growing like a weed but with less design. We just opened branches and put money on the street. Easy money, or so I thought. To address the FDIC criticisms, we hired the premiere community bank consulting firm, Sheshunoff Consultants, to help design and build a new management structure for the bank.

2008

We had just gotten a few critical new positions in place, Rusty Richardson was named Chief Credit Administrator and Dean Goewey Financial Officer. They would be critical in dealing with the tsunami of defaults and credit losses on the horizon. We hired our first credit analyst and a retired FDIC examiner came on board to develop our credit underwriting process.

After months of debate and resistance, we acquiesced to the consultants and installed an automated underwriting system to process the thousands of indirect auto loans we were handling manually. This would be critical in ramping up our consumer loan portfolio in 2010 to offset our losses in real estate loans.

The proverbial you know what hit the fan and thus began parallel campaigns to continue to develop the management team while de-risking our real estate loan portfolio. De-risking is a euphemism for dealing with poor credit decisions in a weak economy. It's an expensive process.

We absorbed $75 million in credit cost, aka loan losses, aka stupidity, all mine, 2008-2012 with hardly a dint to capital. What could have been an existential threat was offset by ramping up our high yielding indirect auto portfolio from $25 million to $65 million in 2010. (Thanks, Micki) The earnings from these loans enabled us to absorb the losses on our real estate loans and live to prosper another day.

2012

Its Mission Accomplished, or so we thought, as we returned to profitability with a $500 million bank poised for high performance. It was at this unlikely point the FDIC decided we should be placed under an official mandate, euphemistically referred to as Consent Order. The CO decreed that we do all the things we had just spent 4 years doing with the added insult of requiring we sell $46 million of the auto loans we'd just produced that saved our bacon.

I now realize how lucky we were the Order wasn't put on us when we deserved it in 2009 which would have prevented us from ramping up our consumer portfolio to generate the income to absorb our losses. We would have been crippled in addressing our credit problems, adding years and doubt to our recovery.

2016: The Re-organization

Prior to 2016, we were a team of talented and capable people but poorly organized. We were doing well financially but not meeting our potential nor exhibiting the strength we were capable of. We re-organized our corporate structure into Chiefs on the inside to run the bank and Regionals on the outside to conquer the world. This was a game changer and has enabled us to tap in to our deep talent pool to maximize our performance with strength and resiliency so beautifully demonstrated in 2020. I don't think another bank or CEO could be better served by their leaders.

2020: The Transformation

As the saying goes, "I say all that to say this." 2020 was one hell of a year.

We discovered our uncommon mettle.

We distinguished ourselves from other banks, both big and small.

We achieved unimaginable financial performance in growth and profitability.

2020 was a transformational year.

Mettle is the ability to cope with demanding situations, here's what we discovered about our mettle. On Friday, April 3 we had been flooded with $16 million in PPP applications received in the previous week but no SBA credentials and therefore no means to submit the applications to the SBA. We were adrift, hopelessly. Nonetheless, in a feat of unparalleled tenacity and competence, by the early morning hours the following day, Saturday, Chief Operating Officer Rusty Richardson had cracked into the SBA portal and assembled a team that would work late into the night submitting PPP applications to the SBA.

Thus it began. We were closing PPP loans on Monday before many banks had decided to participate in the program. We ended up making over $90 million in PPP loans, 40% to non ABB customers, dissatisfied with their bank and drawn to us as we earned the reputation of "going the extra mile" and dealing competently and expeditiously in trying circumstances. We distinguished ourselves among other banks and proved our mettle.

Churn is a term bankers use to describe the switching of accounts from one bank to another. Just as our reputation was growing from our PPP performance, three of our competitors were acquired which magnified the churn. Again, due to our growing reputation, we're getting more than our share of the churn with account openings running about 30% higher than last year. (As I write this, our deposits are up almost 40% on an annualized basis in the first quarter!)

2033: Happy 100th!

In 12 short years, we'll celebrate 100 years in business. I hope to still be around but the 4G's and their teammates will be running the show. I include this aspirational watershed year to demonstrate our commitment to the long term and our "preservation by performance" ethos that has served our shareholders so well. We intend to be around for many years as no "liquidity event" can match the long term wealth potential, stakeholder value creation or pleasure of being a part of Team ABB.

Our numbers support this narrative. Total bank assets increased from $876 million to $1.1 billion, an increase of 27%!

Bank net income rose 26%. Our return on equity of 17.62%, is the highest of all banks charted in SC and over twice the state average of 7.40%.

Our performance is reflected in the appraised value of our stock which increased almost 18% to $498 from $424. From our initial appraisal in 1995 to now, we've enjoyed an average of 14% annual increase in our appraised value and 18% average annual increase in the "modern era," since 2012. We continue to acquire shares for those wishing to sell, just let us know and we'll make every effort to make it happen.

Our performance relative to our peers, brings up the obvious question: How are we doing it? There are two answers:

• We are a high performing "conventional community bank." A song from the musical "Annie Get Your Gun" comes to mind. "Anything you can do, I can do better'' describes our conventional community bank; commercial loans, deposit products, treasury services etc. all the things banks are expected to do, we do
• We are a subprime consumer lender. Before you clutch your pearls, let me explain. This territory is rarely, if ever, serviced by banks but normally serviced by finance companies. For example, the December 31, 2020 Uniform Bank Performance Report indicates our peer banks had less than 3% of their loans in non­ real estate consumer loans while we had over 34%. This is not new. It has been a focus of ours for decades. It is a line of business for us but for peer banks it is an accommodation for their deposit and commercial customers. We know how to do it profitably. Plus, our rates are typically half or less of what finance companies charge providing thousands in savings for our customers! We're doing well by doing good!

Professor Michael Porter is famous for teaching the objective of strategy is not to be the best but to be different in a way that provides an economic advantage. Mission accomplished, Professor Porter!

Legendary management guru Peter Drucker famously wrote "Culture eats strategy for breakfast." We agree and support our culture with our Values, Vision and Mission Statements.

• Bank Ownership: We are a closely held, closely managed bank. Five of our eight directors are employees. We see the impact of our                        decisions  in real time and quickly adjust as needed. This is a huge advantage in serving our employees and customers. 
• Business Unit Ownership: We provide the platform, our leaders provide the success. We trust and therefore empower our leaders to run              their departments, branches and regions according to our shared values, like they own it.                      

As important as our Values, Vision and Mission are in forming our culture, to borrow from Peter Drucker, "People eat culture for breakfast." Without the best bankers giving their best effort, they are just words on paper. It's our team that give these words life and power to create the culture and value we envision.

Here are some noteworthy 2020 projects:

• We just completed our new 6,000 square foot Training Center in Mullins directly across from the Main office. This is a welcomed and needed addition to our bank and to our Main Street.
• Construction has begun on a new Call Center directly behind our Aynor branch. Our call center's 16 agents handle as many as 40,000 calls each month (the record is 65,800!) and will relocate from a leased facility in Conway. When you consider we have twelve times the number of consumer loans of a typical bank and many of these customers live all over North and South Carolina, this department is essential for our strategy.
• We opened two new branches in Murrells Inlet and Florence, bringing our branch total to 25, more than any other SC charted bank. (While I'm bragging, we also have more employees, 327, and a multiple more consumer loans.) Our branch strategy is opportunistic and leader based. When we find a bank leader that shares our values in a new market, a branch is likely to follow.

April 1, 2021