UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

☒

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

For the Quarterly Period Ended ~~September~~June 30, ~~2017~~
2022
OR
☐ 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 000-27719
Southern First Bancshares, Inc.
(Exact name of registrant as specified in its charter)
☐
South Carolina
~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934~~58-2459561
~~For the Transition Period from                 to~~
~~Commission file number 000-27719~~

~~Southern First Bancshares, Inc.~~
~~(Exact name of registrant as specified in its charter)~~

~~South Carolina~~ ~~58-2459561~~
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

~~100 Verdae Boulevard, Suite 100~~
~~Greenville, S.C.~~6 Verdae Boulevard ~~29606~~
Greenville, S.C. 29607
(Address of principal executive offices) (Zip Code)

864-679-9000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class ~~864-679-9000~~ Trading Symbol(s) Name of each exchange on which registered
~~(Registrant’s telephone number, including area code)~~Common Stock
SFST ~~Not Applicable~~
~~(Former name, former address, and former fiscal year, if changed since last report)~~ The Nasdaq Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller Reporting Company ☐
☐ ~~(Do not check if a smaller reporting company)~~ ~~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 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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~7,319,098~~
7,991,644 shares of common stock, par value $0.01 per share, were issued and outstanding as of ~~October 25, 2017.~~July 29, 2022.
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
~~September~~
June 30, ~~2017~~2022 Form 10-Q
INDEX
PART I – CONSOLIDATED FINANCIAL INFORMATION Page

Item 1. Consolidated Financial Statements 1
~~Consolidated Balance Sheets~~ 3
~~Consolidated Statements of Income~~ 4
~~Consolidated Statements of Comprehensive Income~~ 5
~~Consolidated Statements of Shareholders’ Equity~~ 6
~~Consolidated Statements of Cash Flows~~ 7

Consolidated Balance Sheets ~~Notes to Unaudited Consolidated Financial Statements~~ 81

Consolidated Statements of Income 2

Consolidated Statements of Comprehensive Income 3
Consolidated Statements of Shareholders’ Equity 4
Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
~~Item 3.~~ ~~Quantitative and Qualitative Disclosures about Market Risk~~ 46
~~Item 4.~~ ~~Controls and Procedures~~ 46
~~PART II – OTHER INFORMATION~~ 29

Item 1.3. Quantitative and Qualitative Disclosures about Market Risk ~~Legal Proceedings~~ 4648

Item ~~1A.~~4. Controls and Procedures ~~Risk Factors~~ 4649

PART II – OTHER INFORMATION 50

Item 1. Legal Proceedings 50
Item 1A. Risk Factors 50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 4650

Item 3. Defaults upon Senior Securities 4650

Item 4. Mine Safety Disclosures 4650

Item 5. Other Information 4650

Item 6. Exhibits ~~Exhibits~~ 4651

i
Table of Contents
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

September 30, December 31,
(dollars in thousands, except share data) 2017       2016
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 18,942 11,574
Federal funds sold 34,016 24,039
Interest-bearing deposits with banks 21,654 10,939
Total cash and cash equivalents 74,612 46,552
Investment securities:
Investment securities available for sale 78,440 64,480
Other investments 3,064 5,742
Total investment securities 81,504 70,222
Mortgage loans held for sale 9,124 7,801
Loans 1,327,739 1,163,644
Less allowance for loan losses (15,579 ) (14,855 )
Loans, net 1,312,160 1,148,789
Bank owned life insurance 32,911 25,471
Property and equipment, net 31,549 28,362
Deferred income taxes 9,085 6,825
Other assets 6,739 6,886
Total assets $ 1,557,684 1,340,908
LIABILITIES
Deposits $ 1,342,577 1,091,151
Federal Home Loan Bank advances and other borrowings 39,200 115,200
Junior subordinated debentures 13,403 13,403
Other liabilities 15,055 11,282
Total liabilities 1,410,235 1,231,036
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized, no shares issued and outstanding - -
Common stock, par value $.01 per share, 10,000,000 shares authorized, 7,319,098 and 6,463,789 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 73 65
Nonvested restricted stock (500 ) (600 )
Additional paid-in capital 99,464 73,371
Accumulated other comprehensive income (loss) (93 ) (504 )
Retained earnings 48,505 37,540
Total shareholders’ equity 147,449 109,872
Total liabilities and shareholders’ equity $ 1,557,684 1,340,908
~~See notes to consolidated financial statements that are an integral part of these consolidated statements.~~

~~SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY~~
~~CONSOLIDATED STATEMENTS OF INCOME~~
~~(Unaudited)~~

For the three months For the nine months
ended September 30, ended September 30,
(dollars in thousands, except share data) 2017 2016 2017 2016
Interest income
Loans $ 15,282 12,486 43,089 36,280
Investment securities 443 395 1,208 1,342
Federal funds sold 230 31 548 122
Total interest income 15,955 12,912 44,845 37,744
Interest expense
Deposits 2,084 957 5,073 2,891
Borrowings 562 1,075 2,504 3,153
Total interest expense 2,646 2,032 7,577 6,044
Net interest income 13,309 10,880 37,268 31,700
Provision for loan losses 500 825 1,500 2,025
Net interest income after provision for loan losses 12,809 10,055 35,768 29,675
Noninterest income
Mortgage banking income 1,403 2,003 4,063 5,685
Service fees on deposit accounts 324 269 886 732
Income from bank owned life insurance 224 187 590 553
Gain on sale of investment securities - 106 2 431
Loss on disposal of fixed assets - - (50 ) -
Other income 591 452 1,665 1,320
Total noninterest income 2,542 3,017 7,156 8,721
Noninterest expenses
Compensation and benefits 5,698 4,948 16,496 14,353
Occupancy 1,043 908 3,042 2,670
Real estate owned expenses 28 81 38 725
Outside service and data processing costs 794 690 2,362 1,916
Insurance 258 227 845 678
Professional fees 334 326 1,029 864
Marketing 199 195 605 625
Other 452 425 1,512 1,339
Total noninterest expenses 8,806 7,800 25,929 23,170
Income before income tax expense 6,545 5,272 16,995 15,226
Income tax expense 2,295 1,839 6,030 5,481
Net income available to common shareholders $ 4,250 3,433 10,965 9,745
Earnings per common share
Basic $ 0.58 0.54 1.59 1.55
Diluted $ 0.55 0.51 1.50 1.45
Weighted average common shares outstanding
Basic 7,281,594 6,322,073 6,905,017 6,299,009
Diluted 7,668,476 6,740,751 7,291,164 6,702,475

June 30, December 31,
(dollars in thousands, except share data) 2022 2021
(Unaudited) (Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 21,090 21,770
Federal funds sold 124,462 86,882
Interest-bearing deposits with banks 36,538 58,557
Total cash and cash equivalents 182,090 167,209
Investment securities:
Investment securities available for sale 98,991 120,281
Other investments 5,065 4,021
Total investment securities 104,056 124,302
Mortgage loans held for sale 18,329 13,556
Loans 2,845,205 2,489,877
Less allowance for credit losses (34,192 ) (30,408 )
Loans, net 2,811,013 2,459,469
Bank owned life insurance 50,463 49,833
Property and equipment, net 96,674 92,370
Deferred income taxes, net 15,078 8,397
Accrued interest receivable 7,433 7,624
Other assets 2,527 2,788
Total assets $ 3,287,663 2,925,548
LIABILITIES
Deposits $ 2,870,158 2,563,826
FHLB advances and related debt 50,000 -
Subordinated debentures 36,160 36,106
Other liabilities 48,708 47,715
Total liabilities 3,005,026 2,647,647
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized - -
Common stock, par value $.01 per share, 10,000,000 shares authorized,
7,985,644 and 7,925,819 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 80 79
Nonvested restricted stock (3,230 ) (1,435 )
Additional paid-in capital 117,714 114,226
Accumulated other comprehensive loss (10,143 ) (740 )
Retained earnings 178,216 165,771
Total shareholders’ equity 282,637 277,901
Total liabilities and shareholders’ equity $ 3,287,663 2,925,548
See notes to consolidated financial statements that are an integral part of these consolidated statements.

1
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME

(Unaudited)

For the three months For the nine months
ended September 30, ended September 30,
(dollars in thousands)       2017       2016 2017       2016
Net income $ 4,250 3,433 10,965 9,745
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax 130 (222 ) 626 1,552
Tax (expense) benefit (43 ) 75 (213 ) (528 )
Reclassification of realized gain - (106 ) (2 ) (431 )
Tax expense - 37 - 147
Other comprehensive income (loss) 87 (216 ) 411 740
Comprehensive income $ 4,337 3,217 11,376 10,485

For the three months For the six months
ended June 30, ended June 30,
(dollars in thousands, except share data) 2022 2021 2022 2021
Interest income
Loans $ 26,610 22,409 50,541 44,875
Investment securities 448 269 922 570
Federal funds sold and interest-bearing deposits with banks 180 53 239 99
Total interest income 27,238 22,731 51,702 45,544
Interest expense
Deposits 1,844 920 2,752 2,075
Borrowings 510 381 902 766
Total interest expense 2,354 1,301 3,654 2,841
Net interest income 24,884 21,430 48,048 42,703
Provision for (reversal of) credit losses 1,775 (1,900 ) 2,880 (2,200 )
Net interest income after provision for credit losses 23,109 23,330 45,168 44,903
Noninterest income
Mortgage banking income 1,184 1,983 2,678 6,616
Service fees on deposit accounts 209 173 400 358
ATM and debit card income 563 521 1,092 991
Income from bank owned life insurance 315 331 630 598
Net lender and referral fees on PPP loans - 268 - 268
Loss on disposal of fixed assets (394 ) - (394 ) 10
Other income 388 346 788 685
Total noninterest income 2,265 3,622 5,194 9,526
Noninterest expenses
Compensation and benefits 9,915 8,724 19,371 17,834
Occupancy 2,219 1,552 3,997 3,190
Other real estate owned expenses - 1 - 388
Outside service and data processing costs 1,528 1,391 3,062 2,704
Insurance 367 262 628 563
Professional fees 693 615 1,292 1,210
Marketing 329 208 596 398
Other 737 742 1,528 1,370
Total noninterest expenses 15,788 13,495 30,474 27,657
Income before income tax expense 9,586 13,457 19,888 26,772
Income tax expense 2,346 3,134 4,678 6,083
Net income $ 7,240 10,323 15,210 20,689
Earnings per common share
Basic $ 0.91 1.32 1.91 2.65
Diluted 0.90 1.29 1.88 2.60
Weighted average common shares outstanding
Basic 7,957,631 7,847,516 7,944,814 7,811,217
Diluted 8,054,910 7,987,615 8,075,496 7,948,294
See notes to consolidated financial statements that are an integral part of these consolidated statements.

2
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS’ EQUITY~~
COMPREHENSIVE INCOME~~FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016~~

(Unaudited)

                        Accumulated
Nonvested Additional other
(dollars in thousands, except share data) Common stock Preferred stock restricted paid-in       comprehensive Retained
Shares       Amount Shares       Amount stock capital income (loss) earnings Total
December 31, 2015 6,289,038 $ 63 - - $ (360 ) $ 70,037 $ (4 )       $ 24,504       $ 94,240
Net income - - - - - - - 9,745 9,745
Proceeds from exercise of stock options 71,628 1 - - - 533 - - 534
Issuance of restricted stock 22,000 - - - (526 ) 526 - - -
Amortization of deferred compensation on restricted stock - - - - 211 - - - 211
Compensation expense related to stock options, net of tax - - - - - 553 - - 553
Other comprehensive income - - - - - - 740 - 740
September 30, 2016 6,382,666 $ 64 - $ - $ (675 ) $ 71,649 $ 736 $ 34,249 $ 106,023
December 31, 2016 6,463,789 65 - - (600 ) 73,371 (504 ) 37,540 109,872
Net income - - - - - - - 10,965 10,965
Net issuance of common stock 805,000 8 - - - 24,750 - - 24,758
Proceeds from exercise of stock options 47,184 - - - - 454 - - 454
Issuance of restricted stock 3,125 - - - (146 ) 146 - - -
Amortization of deferred compensation on restricted stock - - - - 246 - - - 246
Compensation expense related to stock options, net of tax - - - - - 743 - - 743
Other comprehensive income - - - - - - 411 - 411
September 30, 2017 7,319,098 $ 73 - $ - $ (500 ) $ 99,464 $ (93 ) $ 48,505 $ 147,449

For the three months
ended June 30, For the six months
ended June 30,
(dollars in thousands) 2022 2021 2022 2021
Net income $ 7,240 10,323 15,210 20,689
Other comprehensive income:
Unrealized gain (loss) on securities available for sale:
Unrealized holding (loss) gain arising during the period, pretax (4,749 ) 619 (11,890 ) (790 )
Tax benefit (expense) 997 (129 ) 2,497 167
Reclassification of realized gain (loss) 3 - (12 ) -
Tax (expense) benefit (1 ) - 2 -
Other comprehensive (loss) income (3,750 ) 490 (9,403 ) (623 )
Comprehensive income $ 3,490 10,813 5,807 20,066
See notes to consolidated financial statements that are an integral part of these consolidated statements.

3
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~
SHAREHOLDERS’ EQUITY
(Unaudited)

For the nine months ended September 30,
(dollars in thousands)       2017       2016
Operating activities
Net income $ 10,965 $ 9,745
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses 1,500 2,025
Depreciation and other amortization 1,053 939
Accretion and amortization of securities discounts and premium, net 422 433
Gain on sale of investment securities available for sale (2 ) (431 )
Loss on sale of real estate owned 3 51
Loss on disposal of fixed assets 50 -
Write-down of real estate owned 7 389
Compensation expense related to stock options and grants 989 764
Gain on sale of loans held for sale (4,520 ) (5,704 )
Loans originated and held for sale (144,622 ) (198,601 )
Proceeds from sale of loans held for sale 147,819 200,122
Increase in cash surrender value of bank owned life insurance (590 ) (553 )
(Increase) decrease in deferred tax asset (2,472 ) 552
Increase in other assets, net (72 ) (606 )
Increase in other liabilities 3,773 1,328
Net cash provided by operating activities 14,303 10,453
Investing activities
Increase (decrease) in cash realized from:
Origination of loans, net (165,160 ) (110,576 )
Purchase of property and equipment (4,290 ) (4,079 )
Purchase of investment securities:
Available for sale (20,675 ) (16,852 )
Other (1,811 ) (806 )
Payments and maturities, calls and repayments of investment securities:
Available for sale 6,918 18,448
Other 4,489 -
Proceeds from sale of investment securities available for sale - 22,185
Purchase of life insurance policies (6,850 ) -
Proceeds from sale of real estate owned 498 395
Net cash used for investing activities (186,881 ) (91,285 )
Financing activities
Increase (decrease) in cash realized from:
Increase in deposits, net 251,426 59,342
Decrease in Federal Home Loan Bank advances and other borrowings, net (76,000 ) -
Proceeds from issuance of common stock 24,758 -
Proceeds from the exercise of stock options and warrants 454 534
Net cash provided by financing activities 200,638 59,876
Net increase (decrease) in cash and cash equivalents 28,060 (20,956 )
Cash and cash equivalents at beginning of the period 46,552 62,866
Cash and cash equivalents at end of the period $ 74,612 $ 41,910
Supplemental information
Cash paid for
Interest $ 7,404 $ 5,951
Income taxes 5,490 4,930
Schedule of non-cash transactions
Real estate acquired in settlement of loans 289 245
Unrealized gain on securities, net of income taxes 413 1,024

For the three months ended June 30,

Common stock Preferred stock Nonvested
restricted Additional
paid-in Accumulated
other
comprehensive Retained
(dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total
March 31, 2021 7,853,096 $ 79 - $ - $ (1,075 ) $ 111,181 $ (90 ) $ 129,426 $ 239,521
Net income - - - - - - - 10,323 10,323
Proceeds from exercise of stock options 42,835 - - - - 943 - - 943
Issuance of restricted stock 4,000 - - - (212 ) 212 - - -
Compensation expense related to restricted stock, net of tax - - - - 114 - - - 114
Compensation expense related to stock options, net of tax - - - - - 268 - - 268
Other comprehensive income - - - - - - 490 - 490

June 30, 2021
7,899,931 $ 79 - $ - $ (1,173 ) $ 112,604 $ 400 $ 139,749 $ 251,659
March 31, 2022 7,980,519 80 - - (3,425 ) 117,286 (6,393 ) 170,976 278,524
Net income - - - - - - - 7,240 7,240
Proceeds from exercise of stock options 3,625 - - - - 128 - - 128
Issuance of restricted stock 1,500 - - - (71 ) 71 - - -
Compensation expense related to restricted stock, net of tax - - - - 266 - - - 266
Compensation expense related to stock options, net of tax - - - - - 229 - - 229
Other comprehensive loss - - - - - - (3,750 ) - (3,750 )

June 30, 2022 7,985,644 $ 80 - $ - $ (3,230 ) $ 117,714 $ (10,143 ) $ 178,216 $ 282,637

For the six months ended June 30,

Common stock Preferred stock Nonvested
restricted Additional
paid-in Accumulated
other
comprehensive Retained
(dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total
December 31, 2020 7,772,748 $ 78 - $ - $ (698 ) $ 108,831 $ 1,023 $ 119,060 $ 228,294
Net income - - - - - - - 20,689 20,689
Proceeds from exercise of stock options 112,433 1 - - - 2,520 - - 2,521
Issuance of restricted stock 14,750 - - - (689 ) 689 - - -
Compensation expense related to restricted stock, net of tax - - - - 214 - - - 214
Compensation expense related to stock options, net of tax - - - - - 564 - - 564
Other comprehensive loss - - - - - - (623 ) - (623 )

June 30, 2021 7,899,931 $ 79 - $ - $ (1,173 ) $ 112,604 $ 400 $ 139,749 $ 251,659
December 31, 2021 7,925,819 79 - - (1,435 ) 114,226 (740 ) 165,771 277,901
Adoption of ASU 2016-13 - - - - - - - (2,765 ) (2,765 )
Net income - - - - - - - 15,210 15,210
Proceeds from exercise of stock options 21,750 1 - - - 706 - - 707
Issuance of restricted stock 38,075 - - - (2,305 ) 2,305 - - -
Compensation expense related to restricted stock, net of tax - - - - 510 - - - 510
Compensation expense related to stock options, net of tax - - - - - 477 - - 477
Other comprehensive loss - - - - - - (9,403 ) - (9,403 )
June 30, 2022 7,985,644 $ 80 - $ - $ (3,230 ) $ 117,714 $ (10,143 ) $ 178,216 $ 282,637
See notes to consolidated financial statements that are an integral part of these consolidated statements.

4
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the six months ended
June 30,
(dollars in thousands) 2022 2021
Operating activities
Net income $ 15,210 20,689
Adjustments to reconcile net income to cash provided by operating activities:
Provision for (reversal of) credit losses 2,880 (2,200 )
Depreciation and other amortization 1,341 1,092
Accretion and amortization of securities discounts and premium, net 399 518
Loss on sale of real estate owned - 380
(Gain) Loss on sale of fixed assets 394 (10 )
Gain on sale of securities (12 ) -
Net change in operating leases 172 165
Compensation expense related to stock options and restricted stock grants 987 778
Gain on sale of loans held for sale (1,446 ) (8,153 )
Loans originated and held for sale (145,513 ) (303,889 )
Proceeds from sale of loans held for sale 142,185 335,872
Increase in cash surrender value of bank owned life insurance (630 ) (598 )
Decrease in deferred tax asset (3,446 ) (15,341 )
Increase in other assets 452 2,589
Increase in other liabilities 1,400 1,949
Net cash provided by operating activities 14,373 33,841
Investing activities
Increase (decrease) in cash realized from:
Increase in loans, net (355,594 ) (111,672 )
Purchase of property and equipment (8,989 ) (11,105 )
Purchase of investment securities:
Available for sale (10,094 ) (10,338 )
Other investments (11,078 ) (1,000 )
Payments and maturities, calls and repayments of investment securities:
Available for sale 19,095 12,526
Other investments 10,034 1,865
Purchase of bank owned life insurance - (7,500 )
Proceeds from sale of fixed assets 95 50
Proceeds from sale of other real estate owned - 788
Net cash used for investing activities (356,531 ) (126,386 )
Financing activities
Increase (decrease) in cash realized from:
Increase in deposits, net 306,332 168,134
Increase (decrease) in Federal Home Loan Bank advances and other borrowings, net 50,000 (25,000 )
Proceeds from the exercise of stock options 707 2,521
Net cash provided by financing activities 357,039 145,655
Net increase in cash and cash equivalents 14,881 53,110
Cash and cash equivalents at beginning of the period 167,209 100,687
Cash and cash equivalents at end of the period $ 182,090 153,797
Supplemental information
Cash paid for
Interest $ 3,745 3,843
Income taxes 5,950 15,342
Schedule of non-cash transactions
Foreclosure of other real estate - 366
Unrealized loss on securities, net of income taxes (11,902 ) (623 )
See notes to consolidated financial statements that are an integral part of these consolidated statements.
5
Table of Contents
SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business ~~and Basis of Presentation~~
~~Business Activity~~
Southern First Bancshares, Inc. (the ~~"Company"~~“Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the ~~"Bank"~~“Bank”) and all of the stock of Greenville First Statutory ~~Trust~~Trusts I and II (collectively, the ~~"Trusts"~~“Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The ~~Bank's~~Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the ~~"FDIC"~~“FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and ~~nine-month periods~~six- month period ended ~~September~~June 30, ~~2017~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2022. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on March ~~3, 2017.~~4, 2022. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated.
Business Segments
The Company, through the Bank, provides a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. These services include demand, time and savings deposits; lending services; ATM processing and mortgage banking services. While the Company’s management periodically reviews limited production information for these revenue streams, that information is not complete as it does not include a full allocation of revenue, costs and capital from key corporate functions. Management will continue to evaluate these lines of business for separate reporting as facts and circumstances change. Accordingly, the Company’s various banking operations are not considered by management to constitute more than one reportable operating segment.
Use of Estimates
The preparation of consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States of America~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for ~~loan~~credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, evaluating other-than-temporary-impairment of investment securities and valuation of deferred tax assets.
~~Business Segments~~
Risks and Uncertainties
The impact of the coronavirus (COVID-19) pandemic is fluid and continues to evolve, adversely affecting many of the Bank’s clients. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions; refusals to receive the vaccines along with concerns related to new strains of the virus; supply chain issues remaining unresolved longer than anticipated; labor shortages; decreases in consumer confidence and spending; and rising geopolitical tensions.
6
Table of Contents
The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.
As of June 30, 2022, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our reported and regulatory capital ratios could be adversely impacted by further credit losses.
The Company ~~began reporting its activities as three business segments – Commercial and Retail Banking, Mortgage Banking and Corporate – in 2016. In determining proper segment definition,~~maintains access to multiple sources of liquidity, including a $15.0 million holding company line of credit with another bank which could be used to support capital ratios at the ~~Company considers~~subsidiary bank. As of June 30, 2022, the materiality of a potential segment and components of the business about which financial information is available and regularly evaluated, relative to a resource allocation and performance assessment. The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were generated to third parties, that is, at current market prices. Please refer to “Note 9 – Reportable Segments” for further information on the reporting for the Company’s three business segments.$15.0 million line was unused.
Reclassifications
Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
Adoption of New Accounting Standard
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU introduces a new credit loss methodology, the Current Expected Credit Loss (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. It also applies to off-balance sheet credit exposures, such as unfunded commitments to extend credit. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk.
On January 1, 2022, the Company adopted the guidance prospectively with a cumulative adjustment to retained earnings. Results for reporting periods beginning after January 1, 2022 are presented under CECL while prior period amounts continue to be reported in accordance with the previously applicable incurred loss accounting methodology. The transition adjustment for the adoption of CECL included an increase in the allowance for credit losses on loans of $1.5 million and an increase in the reserve for unfunded loan commitments of $2.0 million, which is recorded within other liabilities. The adoption of CECL had an insignificant impact on the Company’s investment securities portfolio. The Company recorded a net decrease to retained earnings of $2.8 million as of January 1, 2022 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect to use this optional relief.
Significant Accounting Policy Changes
Upon adoption of ASC 326, the Company revised the accounting policy for the Allowance for Credit Losses as detailed below.
7
Table of Contents
Allowance for Credit Losses - Securities Available for Sale
For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a direct write down of the security under Incurred Loss. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Changes in the allowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2022, there was no allowance for credit losses related to the available-for-sale portfolio.
Accrued interest receivable on available for sale debt securities totaled $438,000 at June 30, 2022 and was excluded from the estimate of credit losses.
Allowance for Credit Losses - Loans
Under the current expected credit loss model, the allowance for credit losses on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.
Management ~~performed an~~assesses the adequacy of the allowance on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management’s evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to ~~determine whether there have been~~repay a loan, the estimated value of any ~~subsequent events since~~underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet ~~date~~date. The allowance is increased through provision for credit losses and ~~determined~~decreased by charge-offs, net of recoveries of amounts previously charged-off.
The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:
Commercial loans
● Owner occupied real estate - Owner occupied commercial mortgages consist of loans to purchase or re-finance owner occupied nonresidential properties. This includes office buildings, other commercial facilities, and farmland. Commercial mortgages secured by owner occupied properties are primarily dependent on the ability of borrowers to achieve business results consistent with those projected at loan origination. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
● Non-owner occupied real estate - Non-owner occupied commercial mortgages consist of loans to purchase or refinance investment nonresidential properties. This includes office buildings and other facilities rented or leased to unrelated parties, as well as farmland and multifamily properties. The primary risk associated with income producing commercial mortgage loans is the ability of the income-producing property that collateralizes the loan to produce adequate cash flow to service the debt. While these loans and leases are collateralized by real property in an effort to mitigate risk, it is possible the liquidation of collateral will not fully satisfy the obligation.
8
Table of Contents
● Construction - Construction loans consist of loans to finance land for development of commercial or residential real property and construction of multifamily apartments or other commercial properties. These loans are highly dependent on the supply and demand for commercial real estate as well as the demand for newly constructed residential homes and lots acquired for development. Deterioration in demand could result in decreased collateral values, which could make repayments of outstanding loans difficult for customers.
● Commercial business - Commercial business loans consist of loans or lines of credit to finance accounts receivable, inventory or other general business needs, business credit cards, and lease financing agreements for equipment, vehicles, or other assets. The primary risk associated with commercial and industrial and lease financing loans is the ability of borrowers to achieve business results consistent with those projected at origination. Failure to achieve these projections presents risk the borrower will be unable to service the debt consistent with the contractual terms of the loan or lease.
Consumer loans
● Real estate - Residential mortgages consist of loans to purchase or refinance the borrower’s primary dwelling, second residence or vacation home and are often secured by 1-4 family residential property. Significant and rapid declines in real estate values can result in borrowers having debt levels in excess of the current market value of the collateral.
● Home equity – Home equity loans consist of home equity lines of credit and other lines of credit secured by first or second liens on the borrower’s primary residence. These loans are secured by both senior and junior liens on the residential real estate and are particularly susceptible to declining collateral values. This risk is elevated for loans secured by junior lines as a substantial decline in value could render the junior lien position effectively unsecured.
● Construction - Construction loans consist of loans to construct a borrower’s primary or secondary residence or vacant land upon which the owner intends to construct a dwelling at a future date. These loans are typically secured by undeveloped or partially developed land in anticipation of completing construction of a 1-4 family residential property. There is risk these construction and development projects can experience delays and cost overruns exceeding the borrower’s financial ability to complete the project. Such cost overruns can result in foreclosure of partially completed and unmarketable collateral.
● Other - Consumer loans consist of loans to finance unsecured home improvements, student loans, automobiles and revolving lines of credit that can be secured or unsecured. The value of the underlying collateral within this class is at risk of potential rapid depreciation which could result in unpaid balances in excess of the collateral.
For all loan pools, the Company uses a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that ~~no subsequent events occurred requiring accrual~~a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculates lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data.
9
Table of Contents
Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management, but measured by objective measurements period over period. The data for each measurement may be obtained from internal or ~~disclosure.~~external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. These adjustments are based upon quarterly trend assessments in certain economic factors as well as associate retention and turnover, portfolio concentrations, and growth characteristics. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated loan pools. Individual loan evaluations are generally performed for impaired loans, which includes nonaccrual loans and loans modified in a troubled debt restructuring (“TDR”). Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral. The Company has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of collateral, which considers selling costs in the event sale of the collateral is expected. Loans for which terms have been modified in a TDR are evaluated using these same individual evaluation methods. In the event the discounted cash flow method is used for a TDR, the original interest rate is used to discount expected cash flows.
While the Company’s policies and procedures used to estimate the allowance for credit losses, as well as the resultant provision for credit losses charged to income, are considered adequate by management and are reviewed periodically by regulators, model validators and internal audit, they are necessarily approximate and imprecise. There are factors beyond the Company’s control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses and thus the resulting provision for credit losses.
Accrued Interest Receivable
Accrued interest receivable related to loans totaled $7.0 million at June 30, 2022 and was reported in accrued interest receivable on the consolidated balance sheets. The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectable interest.
Unfunded Commitments
Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company. The allowance for off-balance sheet credit exposures, which is reflected within other liabilities on the consolidated balance sheet, is adjusted for as an increase or decrease to the provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.
The Company’s CECL allowances will fluctuate over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios.
10
Table of Contents
Newly Issued, But Not Yet Effective Accounting Standards
In March 2022, the FASB amended the Receivables–Troubled Debt Restructuring by Creditors subtopic and Financial Instruments–Credit Losses subtopic to the Accounting Standards Codification. The amendments eliminate the accounting guidance for TDRs by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments require disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendments is permitted if ASU 2016-13 has been adopted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.
NOTE 2 – Investment Securities
The amortized costs and fair value of investment securities are as follows:

September 30, 2017
Amortized Gross Unrealized       Fair
(dollars in thousands) Cost Gains Losses Value
Available for sale
US government agencies $ 8,754 14 58 8,710
SBA securities 4,357 - 18 4,339
State and political subdivisions 20,088 329 60 20,357
Mortgage-backed securities 45,381 15 362 45,034
Total investment securities available for sale $ 78,580 358 498 78,440

December 31, 2016
Amortized Gross Unrealized Fair
Cost Gains Losses Value
Available for sale
US government agencies $ 6,271 1 113 6,159
SBA securities 1,453 - 16 1,437
State and political subdivisions 20,625 141 292 20,474
Mortgage-backed securities 36,895 21 506 36,410
Total investment securities available for sale $ 65,244 163 927 64,480

June 30, 2022
Amortized Gross Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
Available for sale
Corporate bonds $ 2,185 - 204 1,981
US treasuries 999 - 94 905
US government agencies 13,005 - 1,752 11,253
State and political subdivisions 23,071 4 3,096 19,979
Asset-backed securities 7,922 - 169 7,753
Mortgage-backed securities
FHLMC 21,809 - 2,835 18,974
FNMA 36,865 - 4,200 32,665
GNMA 5,974 - 493 5,481
Total mortgage-backed securities 64,648 - 7,528 57,120
Total investment securities available for sale $ 111,830 4 12,843 98,991
During the first nine months of 2017, there were $915,000 of investment securities either sold or called, resulting in a gain on sale of $2,000. During the first nine months of 2016, approximately $33.5 million of investment securities were either sold or called, subsequently resulting in a gain on sale of $431,000.
December 31, 2021
Amortized Gross Unrealized Fair
Cost Gains Losses Value
Available for sale
Corporate bonds $ 2,198 - 10 2,188
US treasuries 999 - 7 992
US government agencies 14,504 1 336 14,169
SBA securities 429 9 - 438
State and political subdivisions 24,887 549 260 25,176
Asset-backed securities 10,136 45 17 10,164
Mortgage-backed securities
FHLMC 23,057 102 494 22,665
FNMA 40,924 235 660 40,499
GNMA 4,084 3 97 3,990
Total mortgage-backed securities 68,065 340 1,251 67,154
Total investment securities available for sale $ 121,218 944 1,881 120,281
Contractual maturities and yields on the Company’s investment securities at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2017
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands)    Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield    Amount    Yield
Available for sale
US government agencies $ 997 1.15 % 1,517 2.04 % 6,196 2.39 % - - 8,710 2.19 %
SBA securities - - - - - - 4,339 2.48 % 4,339 2.48 %
State and political subdivisions - - 3,668 1.64 % 11,730 2.44 % 4,959 2.88 % 20,357 2.40 %
Mortgage-backed securities 790 1.30 % - - 12,005 1.80 % 32,239 2.04 % 45,034 1.97 %
Total $ 1,787 1.21 % 5,185 1.59 % 29,931 2.18 % 41,537 2.23 % 78,440 2.13 %

December 31, 2016
Less than one year One to five years Five to ten years Over ten years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
US government agencies $ - - 997 1.15 % 5,162 2.23 % - - 6,159 2.06 %
SBA securities - - - - - - 1,437 1.32 % 1,437 1.32 %
State and political subdivisions - - 2,271 1.73 % 12,287 2.35 % 5,916 2.77 % 20,474 2.40 %
Mortgage-backed securities - - - - 8,527 1.64 % 27,883 1.68 % 36,410 1.67 %
Total $ - - 3,268 1.55 % 25,976 2.10 % 35,236 1.85 % 64,480 1.93 %

11
Table of Contents

June 30, 2022
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds $ - - - - 1,981 1.99 % - - 1,981 1.99 %
US treasuries - - - - 905 1.27 % - - 905 1.27 %
US government agencies - - 2,445 0.83 % 8,001 1.49 % 807 1.48 % 11,253 1.34 %
State and political subdivisions - - 468 2.13 % 4,571 1.62 % 14,940 2.19 % 19,979 2.05 %
Asset-backed securities - - - - 1,246 3.33 % 6,507 2.03 % 7,753 2.23 %
Mortgage-backed securities - - 3,280 1.20 % 4,976 1.43 % 48,864 1.60 % 57,120 1.56 %
Total investment securities $ - - 6,193 1.12 % 21,680 1.64 % 71,118 1.76 % 98,991 1.69 %
December 31, 2021
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds $ - - - - 2,188 1.98 % - - 2,188 1.98 %
US treasuries - - - - 992 1.27 % - - 992 1.27 %
US government agencies - - 2,481 0.36 % 8,756 1.31 % 2,932 1.79 % 14,169 1.24 %
SBA securities - - - - - - 438 1.01 % 438 1.01 %
State and political subdivisions - - 471 2.13 % 4,282 1.61 % 20,423 2.21 % 25,176 2.11 %
Asset-backed securities - - - - 1,614 1.79 % 8,550 0.97 % 10,164 1.10 %
Mortgage-backed securities 387 2.10 % 4,411 1.29 % 9,121 1.59 % 53,235 1.38 % 67,154 1.40 %
Total investment securities $ 387 2.10 % 7,363 1.03 % 26,953 1.53 % 85,578 1.55 % 120,281 1.52 %
12
Table of Contents
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

September 30, 2017
Less than 12 months 12 months or longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
(dollars in thousands) #     value losses #     value losses #     value losses
Available for sale
US government agencies 6 $ 5,250 $ 40 1 $ 740 $ 18 7 $ 5,990 $ 58
SBA securities 1 2,937 12 1 1,402 6 2 4,339 18
State and political subdivisions 8 3,652 12 6 2,910 48 14 6,562 60
Mortgage-backed securities 25 29,392 230 8 9,839 132 33 39,231 362
Total 40 $ 41,231 $ 294 16 $ 14,891 $ 204 56 $ 56,122 $ 498

    December 31, 2016
Less than 12 months 12 months or longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
#     value     losses     #     value     losses     #     value     losses
Available for sale
US government agencies 5 $ 5,144 $ 113 - $ - $ - 5 $ 5,144 $ 113
SBA securities 1 1,437 16 - - - 1 1,437 16
State and political subdivisions 32 13,936 292 - - - 32 13,936 292
Mortgage-backed securities 25 27,292 476 2 3,991 30 27 31,283 506
Total 63 $ 47,809 $ 897 2 $ 3,991 $ 30 65 $ 51,800 $ 927

June 30, 2022
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds 1 $ 1,981 $ 204 - $ - $ - 1 $ 1,981 $ 204
US treasures 1 905 94 - - - 1 905 94
US government agencies 4 6,069 942 6 5,184 810 10 11,253 1,752
State and political subdivisions 22 15,137 2,194 9 4,601 902 31 19,738 3,096
Asset-backed 6 5,496 126 2 1,502 43 8 6,998 169
Mortgage-backed securities
FHLMC 14 14,335 1,990 5 4,640 845 19 18,975 2,835
FNMA 24 17,522 2,028 12 15,133 2,172 36 32,655 4,200
GNMA 4 3,805 301 3 1,676 192 7 5,481 493
Total investment securities 76 $ 65,250 $ 7,879 37 $ 32,736 $ 4,964 113 $ 97,986 $ 12,843
December 31, 2021
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds 1 $ 2,188 $ 10 - $ - $ - 1 $ 2,188 $ 10
US treasures 1 992 7 - - - 1 992 7
US government agencies 7 9,831 173 4 3,837 163 11 13,668 336
State and political subdivisions 9 7,821 193 6 2,909 67 15 10,730 260
Asset-backed 2 1,751 9 2 1,717 7 4 3,468 16
Mortgage-backed securities
FHLMC 10 13,705 303 4 4,644 192 14 18,349 495
FNMA 11 16,098 296 9 11,264 364 20 27,362 660
GNMA 2 655 4 3 3,215 93 5 3,870 97
Total investment securities 43 $ 53,041 $ 995 28 $ 27,586 $ 886 71 $ 80,627 $ 1,881
13
Table of Contents
At ~~September~~June 30, ~~2017,~~2022 the Company had 4076 individual investments with a fair market value of ~~$41.2~~$65.3 million that were in an unrealized loss position for less than 12 months and 1637 individual investments with a fair market value of ~~$14.9~~$32.7 million that were in an unrealized loss position for 12 months or longer. The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality. The individual securities are each investment grade securities. The Company considers the length of time and extent to which the fair value of available-for-sale debt securities have been less than cost to conclude that such securities are not other-than-temporarily impaired. The Company also considers other factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. ~~As the~~The Company ~~has no intent~~does not intend to sell these securities, ~~with unrealized losses~~ and it is more likely than not ~~more-likely-than-not~~ that the Company will not be required to sell these securities before recovery of the amortized ~~cost, the Company has concluded that these securities are not impaired on an other-than-temporary basis.~~cost.
Other investments are comprised of the following and are recorded at cost which approximates fair value.

(dollars in thousands) September 30, 2017 December 31, 2016
Federal Home Loan Bank stock $ 2,479 5,173
Investment in Trust Preferred securities 403 403
Other investments 182 166
Total other investments $ 3,064 5,742

(dollars in thousands) June 30, 2022 December 31, 2021
Federal Home Loan Bank stock $ 3,632 1,241
Other nonmarketable investments 1,030 2,377
Investment in Trust Preferred subsidiaries 403 403
Total other investments $ 5,065 4,021
The Company has evaluated ~~the Federal Home Loan Bank (“FHLB”) stock~~other investments for impairment and determined that the ~~investment in the FHLB stock is~~other investments are not ~~other than temporarily~~ impaired as of ~~September~~June 30, ~~2017~~2022 and that ultimate recoverability of the par value of ~~this investment~~the investments is probable. All of the FHLB stock is used to collateralize advances with the FHLB.
At September 30, 2017, $9.8 million of securities were pledged as collateral for repurchase agreements from brokers and no securities were pledged to secure client deposits. At December 31, 2016, $21.0 million of securities were pledged as collateral for repurchase agreements from brokers, and approximately $21.1 million of securities were pledged to secure client deposits.

NOTE 3 – Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option ~~which was adopted by the Company on April 1, 2016,~~ with changes in fair value recognized in current period earnings. At the date of funding of the mortgage loan held for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. At ~~September~~June 30, ~~2017,~~2022, mortgage loans held for sale totaled ~~$9.1~~$18.3 million compared to ~~$7.8~~$13.6 million at December 31, ~~2016.~~2021.
Mortgage loans held for sale are considered de-recognized, or sold, when the Company surrenders control over the financial assets. Control is considered to have been surrendered when the transferred assets have been isolated from the Company, beyond the reach of the Company and its creditors; the purchaser obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets; and the Company does not maintain effective control over the transferred assets through an agreement that both entitles and obligates the Company to repurchase or redeem the transferred assets before their maturity or the ability to unilaterally cause the holder to return specific assets.
Gains and losses from the sale of mortgage loans are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and are recorded in mortgage banking income in the statement of income. Mortgage banking income also includes the unrealized gains and losses associated with the loans held for sale and the realized and unrealized gains and losses from derivatives.
Mortgage loans sold by the Company to investors and which were believed to have met investor and agency underwriting guidelines at the time of sale may be subject to repurchase or indemnification in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met. The Company may, upon mutual agreement, agree to repurchase the loans or indemnify the investor against future losses on such loans. In such cases, the Company bears any subsequent credit loss on the loans.
NOTE 4 – Loans and Allowance for ~~Loan~~Credit Losses
The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled ~~$2.2~~$6.2 million as of ~~September~~June 30, ~~2017~~2022 and ~~$2.0~~$5.0 million as of December 31, ~~2016.~~2021.

      September 30, 2017       December 31, 2016
(dollars in thousands) Amount % of Total Amount % of Total
Commercial
Owner occupied RE $ 317,262 23.9 % $ 285,938 24.6 %
Non-owner occupied RE 301,360 22.7 % 239,574 20.6 %
Construction 32,332 2.4 % 33,393 2.9 %
Business 214,898 16.2 % 202,552 17.4 %
Total commercial loans 865,852 65.2 % 761,457 65.5 %
Consumer
Real estate 250,483 18.9 % 215,588 18.5 %
Home equity 150,371 11.3 % 137,105 11.8 %
Construction 38,766 2.9 % 31,922 2.7 %
Other 22,267 1.7 % 17,572 1.5 %
Total consumer loans 461,887 34.8 % 402,187 34.5 %
Total gross loans, net of deferred fees 1,327,739 100.0 % 1,163,644 100.0 %
Less—allowance for loan losses (15,579 ) (14,855 )
Total loans, net $ 1,312,160 $ 1,148,789

June 30, 2022 December 31, 2021
(dollars in thousands) Amount % of Total Amount % of Total
Commercial
Owner occupied RE 551,544 19.4 % $ 488,965 19.6 %
Non-owner occupied RE 741,263 26.1 % 666,833 26.8 %
Construction 84,612 3.0 % 64,425 2.6 %
Business 389,790 13.7 % 333,049 13.4 %
Total commercial loans 1,767,209 62.2 % 1,553,272 62.4 %
Consumer
Real estate 812,130 28.5 % 694,401 27.9 %
Home equity 161,512 5.6 % 154,839 6.2 %
Construction 76,878 2.7 % 59,846 2.4 %
Other 27,476 1.0 % 27,519 1.1 %
Total consumer loans 1,077,996 37.8 % 936,605 37.6 %
Total gross loans, net of deferred fees 2,845,205 100.0 % 2,489,877 100.0 %
Less—allowance for credit losses (34,192 ) (30,408 )
Total loans, net $ 2,811,013 $ 2,459,469
14
Table of Contents
Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

September 30, 2017
            After one
One year but within After five
(dollars in thousands) or less five years years Total
Commercial
Owner occupied RE $ 24,771 165,019 127,472 317,262
Non-owner occupied RE 47,778 155,987 97,595 301,360
Construction 6,908 6,492 18,932 32,332
Business 63,391 109,003 42,504 214,898
Total commercial loans 142,848 436,501 286,503 865,852
Consumer
Real estate 23,864 62,991 163,628 250,483
Home equity 10,441 25,930 114,000 150,371
Construction 19,312 635 18,819 38,766
Other 5,875 12,082 4,310 22,267
Total consumer loans 59,492 101,638 300,757 461,887
Total gross loans, net of deferred fees $ 202,340 538,139 587,260 1,327,739
Loans maturing after one year with:
Fixed interest rates $ 851,998
Floating interest rates 273,401

December 31, 2016
After one
One year but within After five
or less five years years Total
Commercial
Owner occupied RE $ 26,062 145,419 114,457 285,938
Non-owner occupied RE 34,685 142,261 62,628 239,574
Construction 5,881 9,558 17,954 33,393
Business 66,361 99,255 36,936 202,552
Total commercial loans 132,989 396,493 231,975 761,457
Consumer
Real estate 26,342 49,832 139,414 215,588
Home equity 7,142 29,041 100,922 137,105
Construction 14,103 627 17,192 31,922
Other 5,049 9,305 3,218 17,572
Total consumer 52,636 88,805 260,746 402,187
Total gross loan, net of deferred fees $ 185,625 485,298 492,721 1,163,644
Loans maturing after one year with:
Fixed interest rates $ 733,892
Floating interest rates 244,127
~~Portfolio Segment Methodology~~
~~Commercial~~
~~Commercial~~

June 30, 2022
(dollars in thousands) One year
or less After one
but within
five years After five but
within fifteen
years After
fifteen
years Total
Commercial
Owner occupied RE $ 13,891 117,631 377,520 42,502 551,544
Non-owner occupied RE 38,324 347,550 327,641 27,748 741,263
Construction 4,763 23,348 44,728 11,773 84,612
Business 77,526 159,130 148,909 4,225 389,790
Total commercial loans 134,504 647,659 898,798 86,248 1,767,209
Consumer
Real estate $ 8,016 43,504 207,090 553,520 812,130
Home equity 1,554 22,238 132,251 5,469 161,512
Construction 1,102 591 14,226 60,959 76,878
Other 3,867 19,360 3,461 788 27,476
Total consumer loans 14,539 85,693 357,028 620,736 1,077,996
Total gross loans, net of deferred fees $ 149,043 733,352 1,255,826 706,984 2,845,205
December 31, 2021
(dollars in thousands) One year
or less After one
but within
five years After five
but within
fifteen years After
fifteen
years Total
Commercial
Owner occupied RE $ 16,858 120,480 316,261 35,366 488,965
Non-owner occupied RE 47,453 329,085 263,317 26,978 666,833
Construction 4,882 16,393 29,310 13,840 64,425
Business 66,833 152,732 109,008 4,476 333,049
Total commercial loans 136,026 618,690 717,896 80,660 1,553,272
Consumer
Real estate 14,632 45,219 162,655 471,895 694,401
Home equity 2,178 21,280 125,427 5,954 154,839
Construction 961 594 8,956 49,335 59,846
Other 8,071 15,711 3,341 396 27,519
Total consumer 25,842 82,804 300,379 527,580 936,605
Total gross loan, net of deferred fees $ 161,868 701,494 1,018,275 608,240 2,489,877
15
Table of Contents
The following table summarizes the loans due after one year by category.

June 30, 2022 December 31, 2021
Interest Rate Interest Rate
(dollars in thousands) Fixed Floating or
Adjustable Fixed Floating or
Adjustable
Commercial
   Owner occupied RE $ 534,364 3,289 463,589 8,518
   Non-owner occupied RE 631,885 71,054 533,565 85,815
   Construction 74,537 5,312 57,139 2,404
   Business 240,839 71,425 191,522 74,694
     Total commercial loans 1,481,625 151,080 1,245,815 171,431
Consumer
   Real estate 804,102 12 679,756 13
   Home equity 11,946 148,012 12,850 139,811
   Construction 75,776 - 58,884 -
   Other 17,522 6,087 13,220 6,228
     Total consumer loans 909,346 154,111 764,710 146,052
Total gross loans, net of deferred fees $ 2,390,971 305,191 2,010,525 317,483
Credit Quality Indicators
The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are ~~assessed~~initially graded, they are monitored regularly for ~~estimated losses by grading~~credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan using various risk factors identified through periodic reviews. The Company applies historic grade-specific loss factors to each loan class. In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.type.

~~Consumer~~
For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss. The Company pools loans, generally by loan class with similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.
~~Credit Quality Indicators~~
~~Commercial~~
We manage a consistent process for assessing commercial loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by our banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for credit losses.
We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:
●
●
Pass—These loans range from minimal to average credit risk ~~to average~~ however still have acceptable credit risk.
●
Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.
●
Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
●
Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
16
Table of Contents
The ~~tables below provide a breakdown~~following table presents loan balances classified by credit quality indicators by year of ~~outstanding commercial loans~~origination as of June 30, 2022.

June 30, 2022
(dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Revolving
Converted
to Term Total
Commercial
Owner occupied RE
Pass $ 84,469 134,506 90,382 75,694 37,899 127,229 - - 550,179
Special Mention - 159 - - - 156 - - 315
Substandard - - 648 - 294 108 - - 1,050
Total Owner occupied RE 84,469 134,665 91,030 75,694 38,193 127,493 - - 551,544

Non-owner occupied RE
Pass 135,632 175,361 118,012 74,974 79,186 130,248 603 - 714,016
Special Mention - 204 - 310 5,494 5,533 - - 11,541
Substandard - 139 - 13,659 306 1,602 - - 15,706
Total Non-owner occupied RE 135,632 175,704 118,012 88,943 84,986 137,383 603 - 741,263

Construction
Pass 17,630 54,916 8,762 2,771 - 533 - - 84,612
Special Mention - - - - - - - - -
Substandard - - - - - - - - -
Total Construction 17,630 54,916 8,762 2,771 - 533 - - 84,612

Business
Pass 63,532 65,669 35,262 25,887 37,371 34,691 122,374 625 385,411
Special Mention 961 - 394 - - 165 113 183 1,816
Substandard - - 1,065 182 345 946 25 - 2,563
Total Business 64,493 65,669 36,721 26,069 37,716 35,802 122,512 808 389,790
Total Commercial loans 302,224 430,954 254,525 193,477 160,895 301,211 123,115 808 1,767,209

Consumer
Real estate
Pass 143,204 260,391 193,806 77,863 41,377 86,659 - - 803,300
Special Mention - 1,105 1,376 1,191 564 1,094 - - 5,330
Substandard - 895 229 418 406 1,552 - - 3,500
Total Real estate 143,204 262,391 195,411 79,472 42,347 89,305 - - 812,130

Home equity
Pass - - - - - - 156,910 - 156,910
Special Mention - - - - - - 2,122 - 2,122
Substandard - - - - - - 2,480 - 2,480
Total Home equity - - - - - - 161,512 - 161,512

Construction
Pass 19,945 42,828 13,799 - - - - - 76,572
Special Mention - - - 306 - - - - 306
Substandard - - - - - - - - -
Total Construction 19,945 42,828 13,799 306 - - - - 76,878

Other
Pass 2,726 2,706 2,076 1,778 639 3,590 13,801 - 27,316 ��
Special Mention 5 - 7 34 56 6 32 - 140
Substandard - - - 9 - - 11 - 20
Total Other 2,731 2,706 2,083 1,821 695 3,596 13,844 - 27,476
Total Consumer loans 165,880 307,925 211,293 81,599 43,042 92,901 175,356 - 1,077,996
  Total loans $ 468,104 738,879 465,818 275,076 203,937 394,112 298,471 808 2,845,205
17
Table of Contents
The following table presents loan balances classified by ~~risk category.~~credit quality indicators and loan categories as of December 31, 2021.

September 30, 2017
Owner Non-owner
(dollars in thousands) occupied RE occupied RE Construction Business Total
Pass $ 312,878 294,934 32,332 204,694 844,838
Special mention 2,020 2,039 - 4,587 8,646
Substandard 2,364 4,387 - 5,617 12,368
Doubtful - - - - -
$ 317,262 301,360 32,332 214,898 865,852

                        December 31, 2016
Owner Non-owner
occupied RE occupied RE Construction Business Total
Pass $ 282,055 234,957 33,393 193,517 743,922
Special mention 1,097 975 - 2,489 4,561
Substandard 2,786 3,642 - 6,546 12,974
Doubtful - - - - -
$ 285,938 239,574 33,393 202,552 761,457

December 31, 2021

Commercial Consumer
(dollars in thousands) Owner
occupied
RE Non-owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total
Pass $ 487,422 589,280 64,425 328,371 684,923 148,933 59,846 27,365 2,390,565
Special mention 327 48,310 - 1,530 4,294 2,986 - 129 57,576
Substandard 1,216 29,243 - 3,148 5,184 2,920 - 25 41,736
  Total loans $ 488,965 666,833 64,425 333,049 694,401 154,839 59,846 27,519 2,489,877
The following tables ~~provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.~~present loan balances by payment status.

                        September 30, 2017
Owner Non-owner
(dollars in thousands) occupied RE occupied RE Construction Business Total
Current $ 317,019 300,720 32,332 213,394 863,465
30-59 days past due - - - 1,381 1,381
60-89 days past due - - - - -
Greater than 90 Days 243 640 - 123 1,006
$ 317,262 301,360 32,332 214,898 865,852

December 31, 2016
Owner Non-owner
occupied RE occupied RE Construction Business Total
Current $ 284,700 238,346 33,393 200,624 757,063
30-59 days past due 981 - - 1,423 2,404
60-89 days past due 257 56 - - 313
Greater than 90 Days - 1,172 - 505 1,677
$ 285,938 239,574 33,393 202,552 761,457

June 30, 2022
(dollars in thousands) Accruing 30-59
days past due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total
Commercial
Owner occupied RE $ - - - - 551,544 551,544
Non-owner occupied RE - - - 981 740,282 741,263
Construction - - - - 84,612 84,612
Business 91 - - - 389,699 389,790
Consumer
Real estate 482 697 - 552 810,399 812,130
Home equity - - - 1,398 160,114 161,512
Construction - - - - 76,878 76,878
Other - - - - 27,476 27,476
Total loans $ 573 697 - 2,931 2,839,806 2,845,205

December 31, 2021

(dollars in thousands) Accruing 30-59
days past due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total
Commercial
Owner occupied RE $ - - - - 488,965 488,965
Non-owner occupied RE - - - 1,069 665,764 666,833
Construction - - - - 64,425 64,425
Business - - - - 333,049 333,049
Consumer
Real estate 136 - - 1,750 692,515 694,401
Home equity 417 174 - 2,045 152,203 154,839
Construction - - - - 59,846 59,846
Other 5 - - - 27,514 27,519
Total loans $ 558 174 - 4,864 2,484,281 2,489,877
As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, loans 30 days or more past due represented ~~0.36%~~0.10% and ~~0.55%~~0.09% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were ~~0.18%~~0.01% and ~~0.38%~~0.00% of the Company’s total loan portfolio as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.
Consumer
The Company manages a consistent process for assessing consumer loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. The Company’s categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of the allowance for loan losses.
~~The tables below provide a breakdown of outstanding consumer loans by risk category.~~

September 30, 2017
(dollars in thousands) Real estate Home equity Construction Other       Total
Pass $ 246,962 147,570 38,766 22,172 455,470
Special mention 719 126 - 7 852
Substandard 2,802 2,675 - 88 5,565
Doubtful - - - - -
Loss - - - - -
$ 250,483 150,371 38,766 22,267 461,887


December 31, 2016
Real estate Home equity Construction Other       Total
Pass $ 211,563 134,124 31,922 17,485 395,094
Special mention 1,064 2,109 - 16 3,189
Substandard 2,961 872 - 71 3,904
Doubtful - - - - -
Loss - - - - -
$ 215,588 137,105 31,922 17,572 402,187
~~The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.~~

September 30, 2017
(dollars in thousands) Real estate Home equity Construction Other       Total
Current $ 248,907 149,978 38,493 22,175 459,553
30-59 days past due 132 90 - 92 314
60-89 days past due 1,172 180 273 - 1,625
Greater than 90 Days 272 123 - - 395
$ 250,483 150,371 38,766 22,267 461,887

December 31, 2016
Real estate Home equity Construction Other Total
Current $ 214,228 136,638 31,922 17,427 400,215
30-59 days past due 1,041 210 - 126 1,377
60-89 days past due 282 - - 6 288
Greater than 90 Days 37 257 - 13 307
$ 215,588 137,105 31,922 17,572 402,187
~~As of September 30, 2017 and December 31, 2016, consumer~~ loans 30 days or more past due were ~~0.18% and 0.17%~~0.09% of total loans ~~respectively.~~as of June 30, 2022 and December 31, 2021.
Nonperforming assets
~~The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans.~~
Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when the Company believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.

~~Following is a summary of our~~ The following table shows the nonperforming assets ~~including nonaccruing TDRs.~~and the related percentage of nonperforming assets to total assets and gross loans.

(dollars in thousands) September 30, 2017 December 31, 2016
Commercial
Owner occupied RE $ 244 276
Non-owner occupied RE 2,049 2,711
Construction - -
Business 1,116 686
Consumer
Real estate 1,267 550
Home equity 195 256
Construction - -
Other 2 13
Nonaccruing troubled debt restructurings 730 990
Total nonaccrual loans, including nonaccruing TDRs 5,603 5,482
Other real estate owned 420 639
Total nonperforming assets $ 6,023 6,121
Nonperforming assets as a percentage of:
Total assets 0.39% 0.46%
Gross loans 0.45% 0.53%
Total loans over 90 days past due 1,401 1,984
Loans over 90 days past due and still accruing - -
Accruing troubled debt restructurings $ 6,954 5,675
~~Impaired Loans~~
18
Table of Contents

(dollars in thousands) June 30, 2022 December 31, 2021
Nonaccrual loans $ 642 -
Nonaccruing TDRs 2,289 2,952
Total nonaccrual loans, including nonaccruing TDRs 2,931 4,864
Other real estate owned - -
Total nonperforming assets $ 2,931 4,864
Nonperforming assets as a percentage of:
Total assets 0.09 % 0.17 %
Gross loans 0.10 % 0.20 %
Total loans over 90 days past due $ - 554
Loans over 90 days past due and still accruing - -
Accruing troubled debt restructurings 3,558 3,299
The table below summarizes nonaccrual loans by major categories for the periods presented.

CECL Incurred loss
June 30, 2022 December 31, 2021
Nonaccrual Nonaccrual
loans loans Total Total
with no with an nonaccrual nonaccrual
(dollars in thousands) allowance allowance loans loans
Commercial
Owner occupied RE - - - -
Non-owner occupied RE $ 121 860 981 1,070
Construction - - - -
Business - - - -
Total commercial 121 860 981 1,070
Consumer
Real estate - 552 552 1,750
Home equity 200 1,198 1,398 2,044
Construction - - - -
Other - - - -
Total consumer 200 1,750 1,950 3,794
Total $ 321 2,610 2,931 4,864
19
Table of Contents
The table below summarizes key information for ~~impaired loans. The Company’s impaired~~loans individually evaluated for impairment loans under the incurred loss methodology. These loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These ~~impaired~~ loans may have estimated impairment which is included in the allowance for ~~loan~~credit losses. ~~The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.~~

      September 30, 2017
            Recorded investment
Impaired loans
Unpaid with related Related
Principal Impaired allowance for allowance for
(dollars in thousands) Balance loans loan losses loan losses
Commercial
Owner occupied RE $ 2,232 2,177 830 192
Non-owner occupied RE 7,854 4,299 3,704 948
Construction - - - -
Business 4,488 3,355 2,090 1,140
Total commercial 14,574 9,831 6,624 2,280
Consumer
Real estate 2,382 2,357 2,357 1,304
Home equity 203 195 195 133
Construction - - - -
Other 175 174 174 25
Total consumer 2,760 2,726 2,726 1,462
Total $   17,334 12,557 9,350 3,742


December 31, 2016
Recorded investment
Impaired loans
Unpaid with related Related
Principal Impaired allowance for allowance for
Balance loans loan losses loan losses
Commercial
Owner occupied RE $ 2,284 2,243 2,224 263
Non-owner occupied RE 7,238 4,031 1,638 457
Construction - - - -
Business 3,699 2,593 1,610 1,154
Total commercial 13,221 8,867 5,472 1,874
Consumer
Real estate 1,853 1,843 1,843 682
Home equity 207 257 - -
Construction - - - -
Other 261 190 177 88
Total consumer 2,321 2,290 2,020 770
Total $ 15,542 11,157 7,492 2,644

December 31, 2021

Recorded investment
Impaired loans Impaired loans
Unpaid with no related with related Related
Principal Impaired allowance for allowance for allowance for
(dollars in thousands) Balance loans credit losses credit losses credit losses
Commercial
Owner occupied RE $ 1,261 1,261 1,261 - -
Non-owner occupied RE 2,012 1,070 270 800 171
Construction - - - - -
Business 1,104 1,104 - 1,104 452
Total commercial 4,377 3,435 1,531 1,904 623
Consumer
Real estate 2,638 2,561 1,743 818 144
Home equity 2,206 2,044 1,989 55 55
Construction - - - - -
Other 123 123 - 123 14
Total consumer 4,967 4,728 3,732 996 213
Total gross loans $ 9,344 8,163 5,263 2,900 836
The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.

Three months ended Three months ended
September 30, 2017 September 30, 2016
Average       Recognized Average       Recognized
recorded interest recorded interest
(dollars in thousands) investment income investment income
Commercial
Owner occupied RE $ 2,182 25 2,000 30
Non-owner occupied RE 4,322 57 5,515 39
Construction - - - -
Business 3,498 58 5,072 71
Total commercial 10,002 140 12,587 140
Consumer
Real estate 2,361 40 1,573 16
Home equity 196 2 207 -
Construction - - - -
Other 176 1 257 2
Total consumer 2,733 43 2,037 18
Total $ 12,735 183 14,624 158


Nine months ended Nine months ended Year ended
September 30, 2017 September 30, 2016 December 31, 2016
Average Recognized Average Recognized Average Recognized
recorded       interest recorded       interest recorded interest
(dollars in thousands) investment income investment income investment income
Commercial
Owner occupied RE $ 2,198 78 2,009 72 2,263 112
Non-owner occupied RE 4,503 154 5,594 124 4,106 200
Construction - - - - - -
Business 3,585 165 5,134 199 2,873 135
Total commercial 10,286 397 12,737 395 9,242 447
Consumer
Real estate 2,370 73 1,578 49 1,854 81
Home equity 196 4 257 1 257 2
Construction - - - - - -
Other 178 4 208 5 203 6
Total consumer 2,744 81 2,043 55 2,314 89
Total $ 13,030 478 14,780 450 11,556 536

Three months ended
June 30, 2022 Three months ended
June 30, 2021
(dollars in thousands) Average
recorded
investment Recognized
interest
income Average
recorded
investment Recognized
interest
income
Commercial
Owner occupied RE $ 1,247 11 1,379 16
Non-owner occupied RE 874 36 2,073 32
Construction - - 68 -
Business 1,051 10 2,118 20
Total commercial 3,172 57 5,638 68
Consumer
Real estate 1,908 17 4,337 60
Home equity 1,611 (3 ) 1,679 18
Construction - - - -
Other 118 1 131 1
Total consumer 3,637 15 6,147 79
Total gross loans $ 6,809 72 11,785 147

Six months ended
June 30, 2022 Six months ended
June 30, 2021 Year ended
December 31, 2021
(dollars in thousands) Average
recorded
investment Recognized
interest
income Average
recorded
investment Recognized
interest
income Average
recorded
investment Recognized
interest
income
Commercial
Owner occupied RE $ 1,253 32 1,469 32 1,387 65
Non-owner occupied RE 896 78 2,111 94 3,128 182
Construction - - 91 2 55 -
Business 1,070 28 2,229 54 2,218 62
Total commercial 3,219 138 5,900 182 6,788 309
Consumer
Real estate 2,045 39 4,235 103 3,641 98
Home equity 1,621 21 1,910 34 1,964 85
Construction - - - - - -
Other 120 2 132 2 129 4
Total consumer 3,786 62 6,277 139 5,734 187
Total gross loans $ 7,005 200 12,177 321 12,522 496
20
Table of Contents

Allowance for ~~Loan~~Credit Losses

The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The Company has an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in the portfolio. While the Company attributes portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The Company’s process involves procedures to appropriately consider the unique risk characteristics of the commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. The Company’s allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

The following table summarizes the activity related to the allowance for credit losses for the six months ended June 30, 2022 under the CECL methodology.


								Three months ended June 30, 2022
	Commercial										Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE		Construction		Business			Real Estate		Home Equity			Construction		Other			Total
Balance, beginning of period	$	4,898			9,973		929		6,217			7,602		2,197			844		284			32,944
Provision for credit losses		(69	)		37		131		524			390		407			7		98			1,525
Loan charge-offs		-			-		-		(55	)		-		(170	)		-		(91	)		(316	)
Loan recoveries		-			-		-		31			-		8			-		-			39
Net loan recoveries (charge-offs)		-			-		-		(24	)		-		(162	)		-		(91	)		(277	)
Balance, end of period	$	4,829			10,010		1,060		6,717			7,992		2,442			851		291			34,192
Net charge-offs to average loans (annualized)																						0.04	%
Allowance for credit losses to gross loans																						1.20	%
Allowance for credit losses to nonperforming loans																						1166.70	%


									Six months ended June 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction		Other			Total
Balance, beginning of period	$	4,700			10,518			625		4,887			7,083			1,697			578		320			30,408
Adjustment for CECL		(313	)		333			154		1,057			(294	)		438			130		(5	)		1,500
Provision for credit losses		442			(841	)		281		683			1,203			572			143		67			2,550
Loan charge-offs		-			-			-		(55	)		-			(339	)		-		(91	)		(485	)
Loan recoveries		-			-			-		145			-			74			-		-			219
Net loan recoveries (charge-offs)		-			-			-		90			-			(265	)		-		(91	)		(266	)
Balance, end of period	$	4,829			10,010			1,060		6,717			7,992			2,442			851		291			34,192
Net charge-offs (recoveries) to average loans (annualized)																								0.02	%
Allowance for credit losses to gross loans																								1.20	%
Allowance for credit losses to nonperforming loans																								1166.70	%

Table of Contents

Prior to the adoption of ASC 326 on January 1, 2022, the Company calculated the allowance for loan losses ~~by commercial and consumer portfolio segments:~~under the incurred loss methodology. The following two tables are disclosures related to the allowance for loan losses in prior periods under this methodology.

Three months ended September 30, 2017
Commercial Consumer
     Owner Non-owner
occupied      occupied           Real Home
(dollars in thousands) RE RE Construction Business Estate equity Construction Other Total
Balance, beginning of period $ 2,964 2,981 350 3,857 3,061 1,608                328 295 15,444
Provision for loan losses (141 ) 634                (122 ) 213 160 (196 ) (47 ) (1 ) 500
Loan charge-offs - - - (388 ) - - - (11 ) (399 )
Loan recoveries - 1 - 31 1 - - 1 34
Net loan charge-offs - 1 - (357 ) 1 - - (10 ) (365 )
Balance, end of period $ 2,823 3,616 228 3,713 3,222 1,412 281 284 15,579
Net charge-offs to average loans (annualized) 0.11%
Allowance for loan losses to gross loans 1.17%
Allowance for loan losses to nonperforming loans 278.05%

Three months ended September 30, 2016
     Commercial      Consumer
Owner      Non-owner
occupied occupied Real Home
(dollars in thousands) RE RE Construction Business Estate equity Construction Other Total
Balance, beginning of period $ 2,797 3,011                350 4,019 2,302 1,296                212 330 14,317
Provision for loan losses 98 47 (53 ) 337 215 119 (5 ) 67 825
Loan charge-offs - (25 ) - (515 ) - (43 ) - (100 ) (683 )
Loan recoveries - 5 - 13 - - - 1 19
Net loan charge-offs - (20 ) - (502 ) - (43 ) - (99 ) (664 )
Balance, end of period $ 2,895 3,038 297 3,854 2,517 1,372 207 298 14,478
Net charge-offs to average loans (annualized) 0.24%
Allowance for loan losses to gross loans 1.30%
Allowance for loan losses to nonperforming loans 258.3%

Nine months ended September 30, 2017
Commercial Consumer
Owner Non-owner
occupied occupied Real Home
(dollars in thousands) RE RE Construction Business Estate equity Construction Other Total
Balance, beginning of period $ 2,843 2,778                295 4,123 2,780 1,475                252 309 14,855
Provision for loan losses (20 ) 1,257 (67 ) 31 359 (75 ) 29 (14 ) 1,500
Loan charge-offs - (433 ) - (518 ) - - - (11 ) (962 )
Loan recoveries - 14 - 77 83 12 - - 186
Net loan charge-offs - (419 ) - (441 ) 83 12 - (11 ) (776 )
Balance, end of period $ 2,823 3,616 228 3,713 3,222 1,412 281 284 15,579
Net charge-offs to average loans (annualized) 0.08%

Nine months ended September 30, 2016
Commercial Consumer
Owner Non-owner
occupied occupied Real Home
(dollars in thousands) RE RE Construction Business Estate equity Construction Other Total
Balance, beginning of period $ 2,347 3,187                338 3,800 2,070 1,202 313 372 13,629
Provision for loan losses 553 (81 ) 2 666 641 236               (106 ) 114 2,025
Loan charge-offs (5 ) (100 ) (43 ) (862 ) (194 ) (66 ) - (192 ) (1,462 )
Loan recoveries - 32 - 250 - - - 4 286
Net loan charge-offs (5 ) (68 ) (43 ) (612 ) (194 ) (66 ) - (188 ) (1,176 )
Balance, end of period $ 2,895 3,038 297 3,854 2,517 1,372 207 298 14,478
Net charge-offs to average loans (annualized) 0.15%


														Three months ended June 30, 2021
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non-owner occupied RE			Construction		Business			Real Estate		Home equity			Construction		Other			Total
Balance, beginning of period	$	7,154			15,195			827		6,848			9,666		2,688			685		436			43,499
Provision for loan losses		(149	)		(2,096	)		124		(226	)		362		(129	)		68		146			(1,900	)
Loan charge-offs		-			-			-		-			-		-			-		(8	)		(8	)
Loan recoveries		94			124			-		100			-		3			-		-			321
Net loan recoveries (charge-offs)		94			124			-		100			-		3			-		(8	)		313
Balance, end of period	$	7,099			13,223			951		6,722			10,028		2,562			753		574			41,912
Net charge-offs (recoveries) to average loans (annualized)																							(0.06	%)
Allowance for loan losses to gross loans																							1.86	%
Allowance for loan losses to nonperforming loans																							619.47	%

												Six months ended June 30, 2021
	Commercial																	Consumer
(dollars in thousands)	Owner occupied RE			Non-owner occupied RE		Construction			Business			Real Estate			Home Equity			Construction		Other			Total
Balance, beginning of period	$	8,145			12,049		1,154			7,845			10,453			3,249			747	��	507			44,149
Provision for loan losses		(1,140	)		1,050		(203	)		(1,011	)		(425	)		(552	)		6		75			(2,200	)
Loan charge-offs		-			-		-			(268	)		-			(139	)		-		(8	)		(415	)
Loan recoveries		94			124		-			156			-			4			-		-			378
Net loan recoveries (charge-offs)		94			124		-			(112	)		-			(135	)		-		(8	)		(37	)
Balance, end of period	$	7,099			13,223		951			6,722			10,028			2,562			753		574			41,912
Net charge-offs to average loans (annualized)																								0.00	%

The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology under the incurred loss methodology.

September 30, 2017
Allowance for loan losses Recorded investment in loans
(dollars in thousands) Commercial Consumer Total Commercial Consumer Total
Individually evaluated $ 2,280 1,462 3,742 9,831 2,726 12,557
Collectively evaluated 8,100 3,737 11,837 856,021 459,161 1,315,182
Total $ 10,380 5,199 15,579 865,852 461,887 1,327,739

December 31, 2016
Allowance for loan losses Recorded investment in loans
Commercial Consumer Total Commercial Consumer Total
Individually evaluated $ 1,874 770 2,644 8,867 2,290 11,157
Collectively evaluated 8,165 4,046 12,211 752,590 399,897 1,152,487
Total $ 10,039 4,816 14,855 761,457 402,187 1,163,644


									December 31, 2021
	Allowance for loan losses						Recorded investment in loans
(dollars in thousands)	Commercial		Consumer		Total		Commercial		Consumer		Total
Individually evaluated	$	623		213		836		3,435		4,728		8,163
Collectively evaluated		20,107		9,465		29,572		1,549,837		931,877		2,481,714
Total	$	20,730		9,678		30,408		1,553,272		936,605		2,489,877

									June 30, 2021
	Allowance for loan losses						Recorded investment in loans
(dollars in thousands)	Commercial		Consumer		Total		Commercial		Consumer		Total
Individually evaluated	$	1,454		134		1,588		5,308		6,079		11,387
Collectively evaluated		26,536		13,788		40,324		1,415,635		827,113		2,242,748
Total	$	27,995		13,917		41,912		1,420,943		833,192		2,254,135

Table of Contents

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

The following table presents an analysis of collateral-dependent loans of the Company as of June 30, 2022.

					June 30, 2022
	Real		Business
(dollars in thousands)	estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		121		-		-		121
Construction		-		-		-		-
Business		-		-		-		-
Total commercial		121		-		-		121
Consumer
Real estate		-		-		-		-
Home equity		200		-		-		200
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		200		-		-		200
Total	$	321		-		-		321

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan’s collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

Allowance for Credit Losses - Unfunded Loan Commitments

The allowance for credit losses for unfunded loan commitments was $2.3 million at June 30, 2022 and is separately classified on the balance sheet within other liabilities. Prior to the adoption of CECL, the Company’s reserve for unfunded commitments was not material. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the six months ended June 30, 2022.


	Six months ended
(dollars in thousands)	June 30, 2022
Balance, beginning of period		-
Adjustment for adoption of CECL	$	2,000
Provision for loan losses		330
Balance, end of period	$	2,330

NOTE 5 – Troubled Debt Restructurings

At ~~September~~June 30, ~~2017,~~2022, the Company had 1913 loans totaling ~~$7.7~~$5.8 million compared to 1714 loans totaling ~~$6.7~~$6.3 million at December 31, ~~2016,~~2021, which were considered as TDRs. The Company considers a loan to be a TDR when the debtor experiences financial difficulties and the Company grants a concession to the debtor that it would not normally consider. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of the workout plan for individual loan relationships, the Company may restructure loan terms to assist borrowers facing financial challenges in the current economic environment. ~~To date, the Company has restored four commercial~~

The were no renewals or modifications to any loans ~~previously classified as~~considered TDRs ~~to accrual status.~~

~~The following table summarizes the concession at the time of modification and the recorded investment in the Company’s TDRs before and after their modification~~ during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2022. For the three and ~~2016, respectively.~~six months ended June 30, 2021, renewals and modifications were not material.

For the nine months ended September 30, 2017
Pre- Post-
modification modification
Renewals Reduced Converted Maturity Total outstanding outstanding
deemed a or deferred to interest date Number recorded recorded
(dollars in thousands) concession payments only extensions of loans investment investment
Commercial
Non-owner occupied RE 1 - - - 1 $ 976 $ 976
Business 1 1 - - 2 378 387
Total loans 2 1 - - 3 $ 1,354 $ 1,363

For thenine months ended September 30, 2016
Pre- Post-
modification modification
Renewals Reduced Converted Maturity Total outstanding outstanding
deemed a or deferred to interest date Number recorded recorded
(dollars in thousands) concession payments only extensions of loans investment investment
Commercial
Owner occupied 1 - - - 1 $ 18 $ 22
Business 1 - - - 1 2,381 2,381
Consumer
Real estate 1 - - - 1 188 188
Other 1 - - - 1 26 30
Total loans 4 - - - 4 $ 2,613 $ 2,621

As of ~~September~~June 30, ~~2017~~2022 and 2021, there were no loans modified as ~~TDRs~~a TDR for which there was a payment default (60 days past due) within 12 months of the restructuring date. ~~There was one such loan at September 30, 2016 with a recorded investment~~

Table of ~~$30,000.~~Contents

NOTE 6 – Derivative Financial Instruments

The Company utilizes derivative financial instruments primarily to hedge its exposure to changes in interest rates. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value. The Company accounts for all of its derivatives as free-standing derivatives and does not designate any of these instruments for hedge accounting. Therefore, the gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change.

The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses.

The Company manages the interest rate and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge.

The following table summarizes the Company’s outstanding financial derivative instruments at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021.

September 30, 2017
Fair Value
(dollars in thousands) Notional Balance Sheet Location Asset/(Liability)
Mortgage loan interest rate lock commitments $ 29,258 Other assets $ 343
MBS forward sales commitments 18,000 Other assets 46
Total derivative financial instruments $ 47,258 $ 389

December 31, 2016
Fair Value
(dollars in thousands) Notional Balance Sheet Location Asset/(Liability)
Mortgage loan interest rate lock commitments $ 17,986 Other assets $ 256
MBS forward sales commitments 14,250 Other assets (3 )
Total derivative financial instruments $ 32,236 $ 253


				June 30, 2022
				Fair Value
(dollars in thousands)	Notional		Balance Sheet Location	Asset/(Liability)
Mortgage loan interest rate lock commitments	$	23,136	Other assets	$	250
MBS forward sales commitments		15,000	Other liabilities		(31	)
Total derivative financial instruments	$	38,136		$	219

				December 31, 2021
				Fair Value
(dollars in thousands)	Notional		Balance Sheet Location	Asset/(Liability)
Mortgage loan interest rate lock commitments	$	32,478	Other assets	$	425
MBS forward sales commitments		21,000	Other liabilities		(41	)
Total derivative financial instruments	$	53,478		$	384

NOTE 7 – Fair Value Accounting

FASB ASC 820, “Fair Value Measurement and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

~~Level 1 – Quoted market price in active markets~~
~~Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.~~

	Level 1 – Quoted market price in active markets
	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.

~~Level 2 – Significant other observable inputs~~
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term

Table of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain impaired loans.Contents

~~Level 3 – Significant unobservable inputs~~

	Level 2 – Significant other observable inputs
	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain impaired loans.

Level 3 – Significant unobservable inputs

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data.

The methods of determining the fair value of ~~the assets or liabilities. Level 3~~ assets and liabilities ~~include financial instruments whose value is determined using pricing models, discounted cash flow~~presented in this note are consistent with our methodologies ~~or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result~~disclosed in ~~a significant portion~~Note 14 of the ~~fair value being derived from unobservable data.~~

~~Following is a description of valuation methodologies used for assets recorded at fair value.~~

~~Investment Securities~~
~~Securities available for sale are valued~~Company’s 2021 Annual Report on a recurring basis at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange or U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities and debentures issued by government sponsored entities, municipal bonds and corporate debt securities. In certain cases where there is limited activity or less transparency around inputs to valuations, securities are classified as Level 3 within the valuation hierarchy. Securities held to maturity are valued at quoted market prices or dealer quotes similar to securities available for sale. The carrying value of Other Investments, such as FHLB stock, approximates fair value based on their redemption provisions.

~~Mortgage Loans Held for Sale~~
Loans held for sale include mortgage loans which are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2.

~~Loans~~
The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses may be established. Loans for which it is probable that payment of interest and 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 the impairment in accordance with FASB ASC 310, “Receivables.” The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value, 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. In accordance with FASB ASC 820, “Fair Value Measurement and Disclosures,” impaired loans where 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 or a current appraised value, the Company considers the impaired loan as nonrecurring Level 2.Form 10-K. The Company’s ~~current~~ loan ~~and appraisal policies require the Bank to obtain updated appraisals on an “as is” basis at renewal, or in the case of an impaired loan, on an annual basis, either through~~portfolio is initially fair valued using a new external appraisal or an appraisal evaluation. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the impaired loan as nonrecurring Level 3. The fair value of impaired loans may also be estimatedsegmented approach, using the ~~present value~~eight categories of ~~expected future cash flows to be realized on the loan, which is also~~loans as disclosed in Note 4 – Loans and Allowance for Credit Losses. Loans are considered a Level 3 valuation. These fair value estimates are subject to fluctuations in assumptions about the amount and timing of expected cash flows as well as the choice of discount rate used in the present value calculation.classification.

~~Other Real Estate Owned (“OREO”)~~
OREO, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for estimated selling costs (Level 2). At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. Gains or losses on sale and generally any subsequent adjustments to the value are recorded as a component of real estate owned activity. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company considers the OREO as nonrecurring Level 3.

~~Derivative Financial Instruments~~
The Company estimates the fair value of IRLCs based on the value of the underlying mortgage loan, quoted MBS prices and an estimate of the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expenses (Level 2). The Company estimates the fair value of forward sales commitments based on quoted MBS prices (Level 2).

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021.

September 30, 2017
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale
US government agencies $ - 8,710 - 8,710
SBA securities - 4,339 - 4,339
State and political subdivisions - 20,357 - 20,357
Mortgage-backed securities - 45,034 - 45,034
Mortgage loans held for sale - 9,124 - 9,124
Interest rate lock commitments - 343 - 343
MBS forward sales commitments - 46 - 46
Total assets measured at fair value on a recurring basis $ - 87,953 - 87,953

December 31, 2016
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale:
US government agencies $ - 6,159 - 6,159
SBA securities - 1,437 - 1,437
State and political subdivisions - 20,474 - 20,474
Mortgage-backed securities - 36,410 - 36,410
Mortgage loans held for sale - 7,801 - 7,801
Interest rate lock commitments - 256 - 256
Total assets measured at fair value on a recurring basis $ - 72,537 - 72,537

Liabilities
MBS forward sales commitments $ - 3 - 3
Total liabilities measured at fair value on a recurring basis $ - 3 - 3

~~The Company has no liabilities carried at fair value or measured at fair value on a recurring basis as~~


	June 30, 2022
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Securities available for sale
Corporate bonds	$	-		1,981		-		1,981
US treasuries		-		905		-		905
US government agencies		-		11,253		-		11,253
State and political subdivisions		-		19,979		-		19,979
Asset-backed securities		-		7,753		-		7,753
Mortgage-backed securities		-		57,120		-		57,120
Mortgage loans held for sale		-		18,329		-		18,329
Mortgage loan interest rate lock commitments		-		250		-		250
Total assets measured at fair value on a recurring basis	$	-		117,570		-		117,570

Liabilities
MBS forward sales commitments	$	-		31		-		31
Total liabilities measured at fair value on a recurring basis	$	-		31		-		31

Table of ~~September 30, 2017.~~Contents

December 31, 2021
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale:
Corporate bonds $ - 2,188 - 2,188
US treasuries - 992 - 992
US government agencies - 14,169 - 14,169
SBA securities - 438 - 438
State and political subdivisions - 25,176 - 25,176
Asset-backed securities - 10,164 - 10,164
Mortgage-backed securities - 67,154 - 67,154
Mortgage loans held for sale - 13,556 - 13,556
Mortgage loan interest rate lock commitments - 425 - 425
Total assets measured at fair value on a recurring basis $ - 134,262 - 134,262

Liabilities
MBS forward sales commitments $ - 41 - 41
Total liabilities measured at fair value on a recurring basis $ - 41 - 41

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company is predominantly an asset based lender with real estate serving as collateral on more than 80% of loans as of September 30, 2017. Loans which are deemed to be impaired are valued net of the allowance for loan losses, and other real estate owned is valued at the lower of cost or net realizable value of the underlying real estate collateral. Such market values are generally obtained using independent appraisals, which the Company considers to be level 2 inputs.

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021.

As of September 30, 2017
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Impaired loans $ - 2,669 6,146 8,815
Other real estate owned - 307 113 420
Total assets measured at fair value on a nonrecurring basis $ - 2,976 6,259 9,235

As of December 31, 2016
Level 1 Level 2 Level 3 Total
Assets
Impaired loans $ - 4,075 4,438 8,513
Other real estate owned - 526 113 639
Total assets measured at fair value on a nonrecurring basis $ - 4,601 4,551 9,152


	As of June 30, 2022
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Individually assessed loans	$	-		321		3,688		4,009
Total assets measured at fair value on a nonrecurring basis	$	-		321		3,688		4,009

	As of December 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Impaired loans	$	-		5,262		2,065		7,327
Total assets measured at fair value on a nonrecurring basis	$	-		5,262		2,065		7,327

The Company ~~has~~had no liabilities carried at fair value or measured at fair value on a nonrecurring ~~basis as of September 30, 2017 and December 31, 2016.~~basis.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of September 30, 2017, the significant unobservable inputs used in the fair value measurements were as follows:

	~~Valuation Technique~~	~~Significant Unobservable Inputs~~	~~Range of Inputs~~
~~Impaired loans~~	~~Appraised Value/~~ ~~Discounted Cash Flows~~	~~Discounts to appraisals or cash~~ ~~flows for estimated holding and/or~~ ~~selling costs or age of appraisal~~	~~0-25%~~

~~Other real estate owned~~	~~Appraised Value/~~ ~~Comparable Sales~~	~~Discounts to appraisals for~~ ~~estimated holding or selling costs~~	~~0-25%~~

Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.

~~The following is a description~~

Table of ~~valuation methodologies used to estimate fair value for certain other financial instruments.~~Contents

Fair value approximates carrying value for the following financial instruments due to the short-term nature of the instrument: cash and due from banks, federal funds sold, federal funds purchased, and securities sold under agreement to repurchase.

~~Deposits –~~Fair value for demand deposit accounts and interest-bearing accounts with no fixed maturity date is equal to the carrying value. The fair value of certificate of deposit accounts are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.

~~FHLB Advances and Other Borrowings –~~~~Fair value for FHLB advances and other borrowings are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.~~

~~Junior subordinated debentures~~ ~~– Fair value for junior subordinated debentures are estimated by discounting cash flows from expected maturities using current interest rates on similar instruments.~~

The Company has used management’s best estimate of fair value based on the above assumptions. Thus, the fair values presented may not be the amounts that could be realized in an immediate sale or settlement of the instrument. In addition, any income taxes or other expenses, which would be incurred in an actual sale or settlement, are not taken into consideration in the fair value presented.

The estimated fair values of the Company’s financial instruments at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 are as follows:

September 30, 2017
Carrying Fair
(dollars in thousands) Amount Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 3,064 3,064 - - 3,064
Loans, net 1,312,160 1,315,125 - 2,669 1,312,456
Financial Liabilities:
Deposits 1,342,577 1,246,252 - 1,246,252 -
FHLB and other borrowings 39,200 40,452 - 40,452 -
Junior subordinated debentures 13,403 12,595 - 12,595 -

December 31, 2016
Carrying Fair
Amount Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 5,742 5,742 - - 5,742
Loans, net 1,148,789 1,149,527 - 4,075 1,145,452
Financial Liabilities:
Deposits 1,091,151 1,004,923 - 1,004,923 -
FHLB and other borrowings 115,200 115,825 - 115,825 -
Junior subordinated debentures 13,403 12,026 - 12,026 -

June 30, 2022
(dollars in thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 5,065 5,065 - - 5,065
Loans¹ 2,804,524 2,688,356 - - 2,688,356
Financial Liabilities:
Deposits 2,822,594 2,419,809 - 2,419,809 -
Subordinated debentures 36,160 36,651 - 36,651 -
December 31, 2021
(dollars in thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 4,021 4,021 - - 4,021
Loans¹ 2,451,306 2,422,621 - - 2,422,621
Financial Liabilities:
Deposits 2,563,826 2,327,055 - 2,327,055 -
Subordinated debentures 36,106 33,936 - 33,936 -
¹ Carrying amount is net of the allowance for credit losses or loan losses, as applicable, and previously presented individually assessed or impaired loans.
NOTE 8 – Leases
Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)”. As of June 30, 2022, we leased six of our offices under various operating lease agreements. The lease agreements have maturity dates ranging from August 2028 to February 2032, some of which include options for multiple five-year extensions. The weighted average remaining life of the lease term for these leases was 7.39 years as of June 30, 2022.
The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term as of January 1, 2019 for leases that existed at adoption and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate for leases was 2.28% as of June 30, 2022.
The total operating lease costs were $768,000 and $640,000 for the three months ended June 30, 2022 and 2021, respectively, and $1.5 million and $1.4 million for the six months ended June 30, 2022 and 2021, respectively. The right-of-use (ROU) asset, included in property and equipment, and lease liability, included in other liabilities, was $23.7 million and $25.3 million as of June 30, 2022, respectively, compared to $26.6 million and $28.0 million as of December 31, 2021, respectively. The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments over the lease term.
27
Table of Contents
Maturities of lease liabilities as of June 30, 2022 were as follows:

Operating
(dollars in thousands) Leases
2022 $ 377
2023 1,938
2024 1,990
2025 2,045
2026 2,096
Thereafter 24,093
Total undiscounted lease payments 32,539
Discount effect of cash flows 7,263
Total lease liability $ 25,276
NOTE 89 – Earnings Per Common Share
The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the ~~three~~three- and ~~nine months~~six- month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options that were outstanding at ~~September~~June 30, ~~2017.~~2022. The assumed conversion of stock options can create a difference between basic and dilutive net income per common share. At ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, there were ~~109,450~~162,366 and ~~108,457~~113,239 options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive.

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands, except share data) 2017       2016 2017       2016
Numerator:
Net income available to common shareholders $ 4,250 3,433 10,965 9,745
Denominator:
Weighted-average common shares outstanding – basic 7,281,594 6,322,073 6,905,017 6,299,009
Common stock equivalents 386,882 418,678 386,147 403,466
Weighted-average common shares outstanding – diluted 7,668,476 6,740,751 7,291,164 6,702,475
Earnings per common share:
Basic $ 0.58 0.54 1.59 1.55
Diluted $ 0.55 0.51 1.50 1.45
~~NOTE 9 – Reportable Segments~~
The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The three segments include Commercial and Retail Banking, Mortgage Banking, and Corporate. The following schedule presents financial information for each reportable segment.


Three months ended Three months ended
September 30, 2017 September 30, 2016
Commercial     Commercial
and Retail Mortgage Elimin- Consol- and Retail Mortgage Elimin- Consol-
(dollars in thousands) Banking Banking Corporate ations idated Banking Banking Corporate ations idated
Interest income $ 15,868 87 2 (2 ) 15,955 12,824 87 1 - 12,912
Interest expense 2,529 - 119 (2 ) 2,646 1,932 - 100 - 2,032
Net interest income (loss) 13,339 87 (117 ) - 13,309 10,892 87 (99 ) - 10,880
Provision for loan losses 500 - - - 500 825 - - - 825
Noninterest income 1,139 1,403 - - 2,542 1,014 2,003 - - 3,017
Noninterest expense 7,776 970 60 - 8,806 6,484 1,256 60 - 7,800
Net income (loss) before taxes 6,202 520 (177 ) - 6,545 4,597 834 (159 ) - 5,272
Income tax (provision) benefit (2,165 ) (192 ) 62 - (2,295 ) (1,596 ) (299 ) 56 - (1,839 )
Net income (loss) $ 4,037 328 (115 ) - 4,250 3,001 535 (103 ) - 3,433
Total assets $ 1,548,771 8,476 160,905 (160,468 ) 1,557,684 1,277,213 9,678 119,431 (116,576 ) 1,289,746

Nine months ended Nine months ended
September 30, 2017 September 30, 2016
Commercial Commercial
and Retail Mortgage Elimin- Consol- and Retail Mortgage Elimin- Consol-
(dollars in thousands) Banking Banking Corporate ations idated Banking Banking Corporate ations idated
Interest income $ 44,612 233 9 (9 ) 44,845 37,501 243 1 (1 ) 37,744
Interest expense 7,193 - 393 (9 ) 7,577 5,750 - 295 (1 ) 6,044
Net interest income (loss) 37,419 233 (384 ) - 37,268 31,751 243 (294 ) - 31,700
Provision for loan losses 1,500 - - - 1,500 2,025 - - - 2,025
Noninterest income 3,093 4,063 - - 7,156 3,036 5,685 - - 8,721
Noninterest expense 22,890 2,853 186 - 25,929 19,516 3,471 183 - 23,170
Net income before taxes 16,122 1,443 (570 ) - 16,995 13,246 2,457 (477 ) - 15,226
Income tax (provision) benefit (5,695 ) (534 ) 199 - (6,030 ) (4,686 ) (909 ) 114 - (5,481 )
Net income (loss) $ 10,427 909 (371 ) - 10,965 8,560 1,548 (363 ) - 9,745
Total assets $ 1,548,771 8,476 160,905 (160,468 ) 1,557,684 1,277,213 9,678 119,431 (116,576 ) 1,289,746

Three months ended
June 30, Six months ended
June 30,
(dollars in thousands, except share data) 2022 2021 2022 2021
Numerator:
Net income available to common shareholders $ 7,240 10,323 15,210 20,689
Denominator:
Weighted-average common shares outstanding – basic 7,957,631 7,847,516 7,944,814 7,811,217
Common stock equivalents 97,279 140,099 130,682 137,077
Weighted-average common shares outstanding – diluted 8,054,910 7,987,615 8,075,496 7,948,294
Earnings per common share:
Basic $ 0.91 1.32 1.91 2.65
Diluted $ 0.90 1.29 1.88 2.60
~~Commercial and retail banking.The Company’s primary business is to provide traditional deposit and lending products and services to its commercial and retail banking clients.~~
~~Mortgage banking.~~ ~~The mortgage banking segment provides mortgage loan origination services for loans that will be sold in the secondary market to investors.~~
~~Corporate.~~ ~~Corporate is comprised primarily~~28
Table of ~~compensation and benefits for certain members of management and interest on parent company debt.~~Contents
Item 2. MANAGEMENT’S DISCUSSION AND ~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~Analysis of Financial Condition and Results of Operations.
The following discussion reviews our results of operations for the ~~three-~~three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2017~~2022 as compared to the ~~three-~~three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2016~~2021 and assesses our financial condition as of ~~September~~June 30, ~~2017~~2022 as compared to December 31, ~~2016.~~2021. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, ~~2016~~2021 included in our Annual Report on Form 10-K for that period. Results for the ~~three-~~three and ~~nine-month~~six month periods ended ~~September~~June 30, ~~2017~~2022 are not necessarily indicative of the results for the year ending December 31, ~~2017~~2022 or any future period.

C~~AUTIONARY~~W~~ARNING~~R~~EGARDING FORWARD~~-~~LOOKING STATEMENTS~~
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” or similar references mean Southern First Bancshares, Inc. and its consolidated subsidiary. References to the “Bank” refer to Southern First Bank.
Cautionary Warning Regarding forward-looking statements
This ~~report, including information included or incorporated by reference in this~~ report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of ~~1934.~~1934 (the “Exchange Act”). Forward-looking statements may relate to our financial condition, results of operations, plans, objectives, or future performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited ~~to, those described under Item 1A- Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2016, as well as the following:~~to:
● The continuing impact of COVID-19 and its variants on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act), and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;
● Restrictions or conditions imposed by our regulators on our operations;
●
Increases in competitive pressure in the banking and financial services industries;
●
Our ability to identify and retain individuals with experience and relationships in the markets in which we intend to expand, including our recently announced Raleigh, North Carolina and Atlanta, Georgia markets;
●
The time and costs of evaluating new markets, hiring or retaining experienced local management, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion;
●
Changes in access to funding or increased regulatory requirements with regard to funding;
●
Changes in deposit flows;
●
Credit losses as a result of declining real estate values, increasing interest rates, increasing unemployment, changes in payment behavior or other factors;
●
Credit losses due to loan concentration;
●
Changes in the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market;
●
Our ability to successfully execute our business strategy;
●
Our ability to attract and retain key personnel;
● The success and costs of our expansion into the Charlotte, North Carolina, Greensboro, North Carolina and Atlanta, Georgia markets and into potential new markets;
● Risks with respect to future mergers or acquisitions, including our ability to successfully expand and integrate the businesses and operations that we acquire and realize the anticipated benefits of the mergers or acquisitions;
● Changes in the interest rate environment which could reduce anticipated or actual margins;
29
Table of Contents
●
Changes in political conditions or the legislative or regulatory environment, including new governmental initiatives affecting the financial services industry;
●
Changes in economic conditions resulting in, among other things, a deterioration in credit quality;
●
Changes occurring in business conditions and inflation;
●
~~Cybersecurity breaches,~~Increased cybersecurity risk, including potential business disruptions or financial losses;
● Changes in technology;
● The adequacy of the level of our allowance for ~~loan~~credit losses and the amount of loan loss provisions required in future periods;
●
Examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for ~~loan~~credit losses or write-down assets;
●
Changes in monetary and tax policies;
●
The rate of delinquencies and amounts of loans charged-off;
●
The rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;
●
Our ability to maintain appropriate levels of capital and to comply with our capital ratio requirements;
●
Adverse changes in asset quality and resulting credit risk-related losses and expenses;
●
Changes in accounting ~~policies~~standards, rules and ~~practices;~~interpretations and
the related impact on our financial statements, including the effects from our adoption of the current expected credit losses (“CECL”) model on January 1, 2022;
● Risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others;
● Adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed;
● The potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including COVID-19), war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs; and
● Other risks and uncertainties detailed in Part I,. Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2021, in Part II, Item 1A, “Risk Factors” of ~~this~~our Quarterly ~~Report~~Reports on Form 10-Q, and ~~from time to time~~ in our other filings with the ~~Securities and Exchange Commission (the “SEC”).~~
SEC.

If any of these risks or uncertainties materialize, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. For information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016 and “Risk Factors” under Part II, Item 1A of this Quarterly Report on Form 10-Q. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. We make these forward-looking statements as of the date of this document and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking ~~statements.~~statements, except as required by law.
30
Table of Contents
OVERVIEW
Our business model continues to be client-focused, utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs. The purpose of this structure is to provide a consistent and superior level of professional service, and we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer to as ~~"ClientFIRST."~~“ClientFIRST.”
At ~~September~~June 30, ~~2017,~~2022, we had total assets of ~~$1.6~~$3.29 billion, a ~~16.2%~~12.4% increase from total assets of ~~$1.3~~$2.93 billion at December 31, ~~2016.~~2021. The largest ~~components~~component of our total assets ~~are net~~is loans ~~and securities~~ which were ~~$1.3~~$2.85 billion and ~~$81.5 million, respectively,~~$2.49 billion at ~~September~~June 30, ~~2017. Comparatively, our net loans~~2022 and ~~securities totaled $1.2 billion and $70.2 million, respectively, at~~ December 31, ~~2016.~~2021, respectively. Our liabilities and shareholders’ equity at ~~September~~June 30, ~~2017~~2022 totaled ~~$1.4~~$3.01 billion and ~~$147.4~~$282.6 million, respectively, compared to liabilities of ~~$1.2~~$2.65 billion and shareholders’ equity of ~~$109.9~~$277.9 million at December 31, ~~2016.~~2021. The principal component of our liabilities is deposits which were ~~$1.3~~$2.87 billion and ~~$1.1~~$2.56 billion at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.
During the second quarter of 2017, we issued a total of 805,000 shares of our common stock at $32.75 per share in a public offering. Proceeds from the offering were used to improve our capital structure, including to repay our former $10 million holding company line of credit, to fund future organic growth, and for working capital and other general corporate purposes.
Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread. In addition to earning interest on our loans and investments, we earn income through fees and other charges to our clients.
Our net income to common shareholders was ~~$4.3~~$7.2 million and ~~$3.4~~$10.3 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively, an increase of $817 thousand, or 23.8%.~~2021, respectively. Diluted earnings per share (“EPS”) was ~~$0.55~~$0.90 for the ~~third~~second quarter of ~~2017~~2022 as compared to ~~$0.51~~$1.29 for the same period in ~~2016.~~2021. The ~~increase~~decrease in net income ~~resulted~~was primarily ~~from~~driven by an increase in ~~net interest income, partially offset by~~the provision for credit losses and a decrease in ~~noninterest~~mortgage banking income, ~~and~~as well as an increase in noninterest expense.
Our net income to common shareholders was ~~$11.0~~$15.2 million and ~~$9.7~~$20.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively, an increase of $1.2 million, or 12.5%.~~2021. Diluted EPS was ~~$1.50~~$1.88 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 as compared to ~~$1.45~~$2.60 for the same period in ~~2016.~~2021. The ~~increase~~decrease in net income ~~resulted~~was primarily ~~from~~driven by an increase in ~~net interest income, partially offset by~~the provision for credit losses and a decrease in ~~noninterest~~mortgage banking income, ~~and~~as well as an increase in noninterest ~~expense.~~expenses.

~~Economic conditions, competition, and~~
In addition, during the ~~monetary and fiscal policies~~second quarter of 2022, we relocated our headquarters in Greenville, South Carolina to a newly constructed, 107,000 square foot building. As a result of the ~~Federal government significantly affect most financial institutions,~~relocation, we disposed of assets with a book value of $489,000, including ~~the Bank. Lending~~leasehold improvements and ~~deposit activities~~furniture and ~~fee income generation are influenced by levels~~fixtures, and recorded a net loss on disposal of business spending and investment, consumer income, consumer spending and savings, capital market activities, and competition among financial institutions, as well as customer preferences, interest rate conditions and prevailing market rates on competing products in our market areas.$394,000.
RESULTS OF OPERATIONS
Net Interest Income and Margin
Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. Our net interest income was ~~$13.3~~$24.9 million for the ~~three-month period ended September 30, 2017,~~second quarter of 2022, a ~~22.3%~~16.1% increase over net interest income of ~~$10.9~~$21.4 million for the second quarter of 2021, driven by an increase in interest income on loans as a result of loan growth during the past 12 months. In addition, our net interest margin, on a tax-equivalent basis (TE), was 3.35% for the second quarter of 2022 compared to 3.50% for the same period in 2016. In comparison, our average earning assets increased 22.8%, or $274.5 million, during the third quarter of 2017 compared to the third quarter of 2016, while our average interest-bearing liabilities increased by $188.6 million during the same period. Our net interest income was $37.3 million for the nine-month period ended September 30, 2017, a 17.6% increase over net interest income of $31.7 million for the same period in 2016. In comparison, our average earning assets increased 20.6%, or $240.2 million, during the first nine months of 2017 compared to the first nine months of 2016, while our average interest-bearing liabilities increased by $149.8 million during the same period. The increase in average earning assets is primarily related to an increase in average loans and federal funds sold, while the increase in average interest-bearing liabilities is primarily a result of an increase in interest-bearing deposits, partially offset by a decrease in our FHLB advances and other borrowings.2021.
We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the ~~three-~~three and ~~nine-~~six month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” ~~table demonstrates~~tables demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts.
31
Table of Contents
The following tables entitled “Average Balances, Income and Expenses, Yield and Rates” set forth information related to our average balance sheets, average yields on assets, and average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments owned have an original maturity of over one year. Nonaccrual loans are included in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.

Average Balances, Income and Expenses, Yields and Rates

For the Three Months Ended September 30,
                  2017                   2016
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate⁽¹⁾ Balance Expense Rate⁽¹⁾
Interest-earning assets
Federal funds sold $ 69,907 $ 230 1.31% $ 22,611 $ 31 0.55%
Investment securities, taxable 63,258 327 2.05% 60,219 267 1.76%
Investment securities, nontaxable⁽²⁾ 20,222 187 3.67% 21,095 206 3.89%
Loans⁽³⁾ 1,322,193 15,282 4.59% 1,097,201 12,486 4.53%
Total interest-earning assets 1,475,580 16,026 4.31% 1,201,126 12,990 4.30%
Noninterest-earning assets 74,295 60,801
Total assets $ 1,549,875 $ 1,261,927

Interest-bearing liabilities
NOW accounts $ 214,929 98 0.18% $ 205,795 78 0.15%
Savings & money market 518,918 1,098 0.84% 326,722 329 0.40%
Time deposits 326,732 888 1.08% 267,609 550 0.82%
Total interest-bearing deposits 1,060,579 2,084 0.78% 800,126 957 0.48%
FHLB advances and other borrowings 50,418 446 3.51% 122,308 980 3.19%
Junior subordinated debentures 13,403 116 3.43% 13,403 95 2.82%
Total interest-bearing liabilities 1,124,400 2,646 0.93% 935,837 2,032 0.86%
Noninterest-bearing liabilities 280,181 221,797
Shareholders’ equity 145,294 104,293
Total liabilities and shareholders’ equity $ 1,549,875 $ 1,261,927
Net interest spread 3.38% 3.44%
Net interest income (tax equivalent) / margin $ 13,380 3.60% $ 10,958 3.63%
Less: tax-equivalent adjustment⁽²⁾ 71 78
Net interest income $ 13,309 $ 10,880
Average Balances, Income and Expenses, Yields and Rates

For the Three Months Ended June 30,
2022 2021
(dollars in thousands) Average
Balance Income/
Expense Yield/
Rate⁽¹⁾ Average
Balance Income/
Expense Yield/
Rate⁽¹⁾
Interest-earning assets
Federal funds sold and interest-bearing deposits with banks $ 80,909 $ 180 0.89 % $ 119,211 $ 53 0.18 %
Investment securities, taxable 98,527 404 1.64 % 85,306 212 1.00 %
Investment securities, nontaxable⁽²⁾ 10,382 56 2.16 % 11,599 74 2.56 %
Loans⁽³⁾ 2,795,274 26,610 3.82 % 2,240,236 22,409 4.01 %
Total interest-earning assets 2,985,092 27,250 3.66 % 2,456,352 22,748 3.71 %
Noninterest-earning assets 154,659 117,836
Total assets $ 3,139,751 $ 2,574,188
Interest-bearing liabilities
NOW accounts $ 389,563 144 0.15 % $ 298,446 46 0.06 %
Savings & money market 1,267,174 1,200 0.38 % 1,131,391 580 0.21 %
Time deposits 278,101 500 0.72 % 175,612 294 0.67 %
Total interest-bearing deposits 1,934,838 1,844 0.38 % 1,605,449 920 0.23 %
FHLB advances and other borrowings 53,179 105 0.79 % 44 2 18.23 %
Subordinated debentures 36,143 405 4.49 % 36,035 379 4.22 %
Total interest-bearing liabilities 2,024,160 2,354 0.47 % 1,641,528 1,301 0.32 %
Noninterest-bearing liabilities 833,943 688,576
Shareholders’ equity 281,648 244,084
Total liabilities and shareholders’ equity $ 3,139,751 $ 2,574,188
Net interest spread 3.19 % 3.39 %
Net interest income (tax equivalent) / margin $ 24,896 3.35 % $ 21,447 3.50 %
Less:  tax-equivalent adjustment⁽²⁾ (12 ) 17
Net interest income $ 24,884 $ 21,430
(1) Annualized for the three month period.
(2) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.
(3) Includes mortgage loans held for sale.
32
Table of Contents
Our net interest margin ~~on a tax-equivalent~~(TE) decreased 15 basis ~~was 3.60% for~~points to 3.35% during the ~~three months ended September 30, 2017~~second quarter of 2022, compared to ~~3.63% for~~ the ~~third~~second quarter of ~~2016. The three basis point decline~~2021, primarily due to a reduction in ~~net interest margin was primarily driven by the increased rate~~yield on our interest-earning assets combined with higher costs on our interest-bearing ~~deposits compared to the prior year.~~liabilities. Our average interest-earning assets grew by ~~$274.5~~$528.7 million during the ~~third~~second quarter of ~~2017 as compared to the same period in 2016, and~~2022, while the average yield on these assets ~~slightly increased as well. However,~~decreased by five basis points to 3.66% during the same period. In addition, our average interest-bearing liabilities grew by ~~$188.6~~$382.6 million during the ~~2017 period as compared to the same period in 2016,~~second quarter of 2022, while the rate on these liabilities increased ~~seven~~15 basis points to ~~0.93% for the three months ended September 30, 2017.~~0.47%.
The ~~$274.5 million~~ increase in average interest-earning assets for the ~~three months ended September 30, 2017,~~second quarter of 2022 related primarily to an increase of $555.0 million in our average loan balances. The decrease in yield on our interest-earning assets was driven by a 19 basis point decrease in loan yield as ~~compared~~our loan portfolio has repriced at rates lower than historic rates for the majority of the past 12 months. Following the Federal Reserve’s recent interest rate hikes, our loan yield has begun to increase, resulting in a five basis point gain from 3.77% in the ~~same~~first quarter ~~in 2016, primarily related to a $225.0 million~~of 2022.
The increase in our average loan balances and a $47.3 million increase in federal funds sold. The slight increase in yield on these assets was driven by the increase in our average loan balances with higher yields on new loans originated and renewedinterest-bearing liabilities during the quarter than when compared to the past. The increase in yield was partially offset due to the increase in federal funds sold. The increase of federal funds sold is a result of our efforts to improve our liquidity position for future cash needs.
~~In addition, our average interest-bearing liabilities increased by $188.6 million during the third~~second quarter of ~~2017 as compared to the third quarter of 2016, while the cost of our interest-bearing liabilities increased by seven basis points during the same period. The increased rate during the 2017 period~~2022 resulted primarily from a ~~$260.5~~$329.4 million increase in our interest-bearing deposits ~~at an average rate of 0.78%,~~and a 30$53.1 million increase in FHLB advances and other borrowings, while the 15 basis point increase ~~from the third quarter of 2016. In addition, the cost of~~in rate on our ~~other~~ interest-bearing liabilities ~~the majority of which are at variable rates tied to Libor, increased~~resulted primarily from a 15 basis point increase in ~~relation to current market rates and trends.~~deposit rates.

Our net interest spread was ~~3.38%~~3.19% for the ~~three months ended September 30, 2017~~second quarter of 2022 compared to ~~3.44%~~3.39% for the same period in ~~2016.~~2021. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The ~~one basis point increase~~decrease in the yield on our interest-earning assets and the ~~seven basis point~~ increase in the rate on our interest-bearing liabilities resulted in a ~~six~~20 basis point decrease in our net interest spread for the ~~2017~~2022 period.

For the Nine Months Ended September 30,
                  2017                   2016
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate(1) Balance Expense Rate(1)
Interest-earning assets
Federal funds sold $ 65,026 $ 548 1.13% $ 27,746 $ 122 0.59%
Investment securities, taxable 55,545 850 2.05% 64,502 949 1.97%
Investment securities, nontaxable (2) 19,984 577 3.86% 20,745 634 4.08%
Loans 1,265,408 43,089 4.55% 1,052,804 36,280 4.60%
Total interest-earning assets 1,405,963 45,064 4.29% 1,165,797 37,985 4.35%
Noninterest-earning assets 68,852 70,827
Total assets $ 1,474,815 $ 1,236,624
Interest-bearing liabilities
NOW accounts $ 220,066 304 0.18% $ 201,257 242 0.16%
Savings & money market 451,490 2,471 0.73% 325,271 999 0.41%
Time deposits 309,679 2,298 0.99% 269,780 1,650 0.82%
Total interest-bearing deposits 981,235 5,073 0.69% 796,308 2,891 0.48%
Note payable and other borrowings 82,810 2,172 3.51% 117,934 2,873 3.25%
Junior subordinated debentures 13,403 332 3.31% 13,403 280 2.79%
Total interest-bearing liabilities 1,077,448 7,577 0.94% 927,645 6,044 0.87%
Noninterest-bearing liabilities 267,365 208,396
Shareholders’ equity 130,002 100,583
Total liabilities and shareholders’ equity $ 1,474,815 $ 1,236,624
Net interest spread 3.35% 3.48%
Net interest income (tax equivalent) / margin $ 37,487 3.56% $ 31,941 3.66%
Less: tax-equivalent adjustment (2) 219 241
Net interest income $ 37,268 $ 31,700
~~(1)~~ ~~Annualized for the nine month period.~~
~~(2)~~ ~~The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.~~
~~(3)~~ ~~Includes mortgage loans held for sale.~~
~~Our~~ We anticipate continued pressure on our net interest spread and net interest margin onin future periods as a ~~tax-equivalent~~significant portion of our loan portfolio is at fixed rates which do not move with the Federal Reserve’s interest rate increases, while our deposit accounts reprice much more quickly.
33
Table of Contents
Average Balances, Income and Expenses, Yields and Rates

For the Six Months Ended June 30,
2022 2021
(dollars in thousands) Average
Balance Income/
Expense Yield/
Rate⁽¹⁾ Average
Balance Income/
Expense Yield/
Rate⁽¹⁾
Interest-earning assets
Federal funds sold and interest-bearing deposits with banks $ 84,980 $ 239 0.57 % $ 104,449 $ 99 0.19 %
Investment securities, taxable 105,771 829 1.58 % 85,222 458 1.08 %
Investment securities, nontaxable⁽²⁾ 11,139 121 2.19 % 11,300 147 2.62 %
Loans⁽³⁾ 2,685,237 50,541 3.80 % 2,224,987 44,875 4.07 %
Total interest-earning assets 2,887,127 51,730 3.61 % 2,425,958 45,579 3.79 %
Noninterest-earning assets 153,618 109,928
Total assets $ 3,040,745 $ 2,535,886
Interest-bearing liabilities
NOW accounts $ 397,763 259 0.13 % $ 289,640 93 0.06 %
Savings & money market 1,254,768 1,818 0.29 % 1,108,059 824 0.15 %
Time deposits 218,741 675 0.62 % 194,781 1,087 1.13 %
Total interest-bearing deposits 1,871,272 2,752 0.30 % 1,592,480 2,004 0.25 %
FHLB advances and other borrowings 35,004 118 0.68 % 1,419 78 11.08 %
Subordinated debentures 36,130 784 4.38 % 36,022 759 4.25 %
Total interest-bearing liabilities 1,942,406 3,654 0.38 % 1,629,921 2,841 0.35 %
Noninterest-bearing liabilities 818,207 668,491
Shareholders’ equity 280,132 237,474
Total liabilities and shareholders’ equity $ 3,040,745 $ 2,535,886
Net interest spread 3.23 % 3.44 %
Net interest income (tax equivalent) / margin $ 48,076 3.36 % $ 42,738 3.55 %
Less:  tax-equivalent adjustment⁽²⁾ (28 ) 35
Net interest income $ 48,048 $ 42,703
During the first six months of 2022, our net interest margin (TE) decreased by 19 basis ~~was 3.56% for the nine months ended September 30, 2017~~points to 3.36%, compared to ~~3.66%~~3.55% for the first ~~nine~~six months of ~~2016. The ten basis point~~2021, driven by the decrease in ~~net interest margin as compared to the same period in 2016 was driven primarily by a six basis point reduction in the~~ yield on our interest-earning assets, combined with ~~a seven basis point increase in~~ the ~~cost of~~higher yield on our interest-bearing liabilities.
Our average interest-earning assets grew by $461.2 million from the prior year, with the average yield decreasing by 18 basis points to 3.61%. In addition, our average interest-bearing liabilities grew by $312.5 million, while the rate on these liabilities increased ~~by $240.2 million as compared~~three basis points to 0.38%.
The increase in average interest-earning assets for the ~~2016 period~~first half of 2022 related primarily to a ~~$212.6~~$460.3 million increase in our average loan ~~balances for the 2017 period. However, the~~balances. The decrease in yield on our interest-earning assets ~~decreased~~was driven by ~~six basis points due primarily to~~ a ~~five~~27 basis point decrease in our loan yield ~~combined with an increase in our average federal funds sold balances~~primarily related to the interest rate reductions by the Federal Reserve which occurred during 2020. Recently, the ~~period which yielded a lower rate when compared to our loan portfolio and other investments. The decline in~~ yield on our loan portfolio ~~was driven primarily~~has begun to increase as the Federal Reserve has raised interest rates by ~~loans being originated or renewed during the 2017 period at market rates which are lower than those in the past.~~
In addition, our average interest-bearing liabilities increased by $149.8 million during the nine months ended September 30, 2017 as compared to the first nine months of 2016. The cost of our interest-bearing liabilities increased seven150 basis points during the ~~same period,~~first six months of 2022.
34
Table of Contents
The increase in average interest-bearing liabilities for the first half of 2022 was driven by an increase in interest-bearing deposits of $278.8 million and a $33.6 million increase in FHLB advances and other borrowings, while the increase in cost was driven by a ~~$184.9 million~~five basis point increase inon our ~~average~~ interest-bearing ~~deposits at a rate 21 basis points higher than in the third quarter of 2016.~~deposits.

Our net interest spread was ~~3.35%~~3.23% for the ~~nine months ended September 30, 2017~~first half of 2022 compared to ~~3.48%~~3.44% for the same period in ~~2016.~~2021. The 1321 basis point decrease in our net interest spread ~~for the 2017 period~~ was driven by the ~~six~~18 basis point ~~reduction~~decrease in yield on our interest-earning ~~assets paired with the seven basis point increase in cost on our interest-bearing liabilities.~~assets.
Rate/Volume Analysis
Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following ~~table sets~~tables set forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.

      Three Months Ended
      September 30, 2017 vs. 2016             September 30, 2016 vs. 2015
Increase (Decrease) Due to Increase (Decrease) Due to
Rate/       Rate/
(dollars in thousands) Volume Rate Volume Total Volume Rate Volume Total
Interest income
Loans $ 2,599 164 33 2,796 1,343 (195 ) (24 ) 1,124
Investment securities 11 36 1 48 116 (69 ) (23 ) 24
Federal funds sold 65 43 91 199 (18 ) 32 (16 ) (2 )
Total interest income 2,675 243 125 3,043 1,441 (232 ) (63 ) 1,146
Interest expense
Deposits 304 626 197 1,127 85 (63 ) (6 ) 16
FHLB advances and other borrowings (576 ) 96 (54 ) (534 ) 54 21 1 76
Junior subordinated debt - 21 - 21 - 12 - 12
Total interest expense (272 ) 743 143 614 139 (30 ) (5 ) 104
Net interest income $ 2,947 (500 ) (18 ) 2,429 1,302 (202 ) (58 ) 1,042

Three Months Ended
June 30, 2022 vs. 2021 June 30, 2021 vs. 2020
Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $ 5,417 (979 ) (237 ) 4,201 $ 980 (2,040 ) (85 ) (1,145 )
Investment securities 33 130 16 179 110 (175 ) (50 ) (115 )
Federal funds sold and interest-bearing deposits with banks (17 ) 212 (68 ) 127 10 (9 ) (1 ) -
Total interest income 5,433 (637 ) (289 ) 4,507 1,100 (2,224 ) (136 ) (1,260 )
Interest expense
Deposits 195 602 127 924 318 (2,781 ) (244 ) (2,707 )
FHLB advances and other borrowings 2,415 (2 ) (2,309 ) 104 (175 ) 3,501 (3,500 ) (174 )
Subordinated debentures 1 24 - 25 1 (36 ) - (35 )
Total interest expense 2,611 624 (2,182 ) 1,053 144 684 (3,744 ) (2,916 )
Net interest income $ 2,822 (1,261 ) 1,893 3,454 $ 956 (2,908 ) 3,608 1,656
Net interest income, the largest component of our income, was ~~$13.3~~$24.9 million for the ~~three-month period ended September 30, 2017~~second quarter of 2022 and ~~$10.9~~$21.4 million for the ~~three months ended September 30, 2016,~~second quarter of 2021, a ~~$2.4~~$3.5 million, or ~~22.3%~~16.2%, increase. The increase during 2022 was driven by a $4.5 million increase in interest income primarily due to higher volume of loans. In addition, interest expense increased by $1.1 million due to an increase in volume of FHLB advances and other borrowings at decreased rates.
35
Table of Contents

Six Months Ended
June 30, 2022 vs. 2021 June 30, 2021 vs. 2020
Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $ 9,012 (2,786 ) (560 ) 5,666 $ 3,557 (5,230 ) (373 ) (2,046 )
Investment securities 120 191 41 352 254 (351 ) (113 ) (210 )
Federal funds sold and interest-bearing deposits with banks (18 ) 195 (37 ) 140 67 (86 ) (37 ) (56 )
Total interest income 9,114 (2,400 ) (556 ) 6,158 3,878 (5,667 ) (523 ) (2,312 )
Interest expense
Deposits 400 232 45 677 1,016 (7,005 ) (808 ) (6,797 )
FHLB advances and other borrowings 70 2 40 112 (327 ) 3,096 (3,025 ) (256 )
Subordinated debentures 2 22 - 24 3 (94 ) (1 ) (92 )
Total interest expense 472 256 85 813 692 (4,003 ) (3,834 ) (7,145 )
Net interest income $ 8,642 (2,656 ) (641 ) 5,345 $ 3,186 (1,664 ) 3,311 4,833

Net interest income for the ~~third quarter~~first half of ~~2017.~~2022 was $48.0 million compared to $42.7 million for 2021, a $5.3 million, or 12.5%, increase. The increase in net interest income ~~is due to~~during 2022 was driven by a ~~$3.0~~$6.2 million increase in interest income, ~~partially offset by a $614,000 increase in interest expense. During the third quarter of 2017, the primary driver of the increase in net interest income was the $225.0 million increase in our average~~related primarily to loan ~~balances as compared to the third quarter of 2016.~~

Nine Months Ended
September 30, 2017 vs. 2016 September 30, 2016 vs. 2015
Increase (Decrease) Due to Increase (Decrease) Due to
Rate/ Rate/
(dollars in thousands) Volume Rate Volume Total Volume Rate Volume Total
Interest income
Loans $ 7,455 (538 ) (108 ) 6,809 3,713 (122 ) (14 ) 3,577
Investment securities (149 ) 17 (2 ) (134 ) 495 (175 ) (80 ) 240
Federal funds sold 165 112 149 426 (17 ) 76 (16 ) 43
Total interest income 7,471 (409 ) 39 7,101 4,191 (221 ) (110 ) 3,860
Interest expense
Deposits 712 1,181 289 2,182 382 (47 ) (7 ) 328
FHLB advances and other borrowings (848 ) 210 (63 ) (701 ) (10 ) 206 (1 ) 195
Junior subordinated debt - 52 - 52 - 36 - 36
Total interest expense (136 ) 1,443 226 1,533 372 195 (8 ) 559
Net interest income $ 7,607 (1,852 ) (187 ) 5,568 3,819 (416 ) (102 ) 3,301
Net interest income for the nine months ended September 30, 2017 was $37.3 million compared to $31.7 million for the first nine months ended September 30, 2016, a $5.6 million, or 17.6% increase during the first nine months of 2017 compared to the same period in 2016. The increase in net interest income is due to a $7.1 million increase in interest income, offset in part by a $1.5 million increase in interest expense. The $212.6 million increase in average loan balances during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was the primary driver of the increase in net interest income during the 2017 period.growth.

Provision for ~~Loan~~Credit Losses
~~We have established an allowance~~The provision for ~~loan~~credit losses, ~~through~~which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses at a level consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. On January 1, 2022, we adopted the Current Expected Credit Loss (CECL) methodology for estimating credit losses, ~~charged~~which resulted in an increase of $1.5 million in our allowance for credit losses and an increase of $2.0 million in our reserve for unfunded commitments. The tax-effected impact of these two items amounted to $2.8 million and was recorded as an ~~expense on~~adjustment to our ~~consolidated statements~~retained earnings as of ~~income.~~January 1, 2022. We review ~~our loan portfolio periodically to evaluate our outstanding loans and to measure both the performance of the portfolio and~~ the adequacy of the allowance for ~~loan losses.~~credit losses on a quarterly basis. Please see the discussion ~~below under “Balance Sheet Review~~included in Note 1 – Summary of Significant Accounting Policies and Note 4 – Loans and Allowance for ~~Loan Losses”~~Credit Losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.
~~For~~
We recorded a $1.8 million provision for credit losses in the ~~three~~second quarter of 2022, compared to a $1.9 million reversal of provision expense in the second quarter of 2021. We recorded a provision expense of $2.9 million and ~~nine~~a provision reversal of $2.2 million for the six months ended ~~September~~June 30, ~~2017, we incurred~~2022 and June 30, 2021, respectively. The $1.8 million provision in 2022, which included a ~~noncash expense related to the~~$250,000 provision for unfunded commitments, was driven by $184.5 million in loan ~~losses~~growth during the second quarter, combined with a $52.2 million increase in unfunded commitments. The $2.9 million provision expense for the first half of $500,000 and $1.5 million, respectively, which resulted in an allowance for loan losses of $15.6 million, or 1.17% of gross loans, as of September 30, 2017. For the three and nine months ended September 30, 2016, our2022 included a $330,000 provision for ~~loan losses~~unfunded commitments.
36
Table of $825,000 and $2.0 million, respectively, resulted in an allowance for loan losses of $14.5 million, or 1.30% of gross loans, as of September 30, 2016. During the past 12 months, our loan balances increased by $213.6 million, while the amount of our nonperforming loans and classified loans declined. Factors such as these are also considered in determining the amount of loan loss provision necessary to maintain our allowance for loan losses at an adequate level.Contents
Noninterest Income
The following table sets forth information related to our noninterest income.

      Three months ended       Nine months ended
September 30, September 30,
(dollars in thousands) 2017       2016 2017       2016
Mortgage banking income $ 1,403 2,003 4,063 5,685
Service fees on deposit accounts 324 269 886 732
Income from bank owned life insurance 224 187 590 553
Gain on sale of investment securities - 106 2 431
Loss on disposal of fixed assets - - (50 ) -
Other income 591 452 1,665 1,320
Total noninterest income $ 2,542 3,017 7,156 8,721

Three months ended
June 30, Six months ended
June 30,
(dollars in thousands) 2022 2021 2022 2021
Mortgage banking income $ 1,184 1,983 2,678 6,616
Service fees on deposit accounts 209 173 400 358
ATM and debit card income 563 521 1,092 991
Income from bank owned life insurance 315 331 630 598
Net lender and referral fees on PPP loans - 268 - 268
Loss on disposal of fixed assets (394 ) - (394 ) -
Other income 388 346 788 695
Total noninterest income $ 2,265 3,622 5,194 9,526
Noninterest income decreased ~~$475,000,~~$1.4 million, or ~~15.7%~~37.5%, for the ~~third~~second quarter of ~~2017~~2022 as compared to the same period in ~~2016.~~2021. The decrease in total noninterest income ~~during the 2017 period~~ resulted primarily from the following:
● Mortgage banking income decreased by ~~$600,000,~~$799,000, or ~~30.0%~~40.3%, driven by low inventory in the housing market, lower refinance volumes, and a decrease in margin on loan sales. We do not expect mortgage origination volume to continue at levels seen in the prior year which will reduce the amount of mortgage banking income recorded in future periods in comparison to prior periods.
● Net lender and referral fees on PPP loans were $268,000 during the ~~third~~second quarter ~~due to an overall increase in~~of 2021, while there were no fees received during the ~~average market rate for new mortgage loan originations.~~current period.
● ~~There were no gains/losses recognized~~Loss on disposal of assets of $394,000 was recorded during the ~~sale of investment securities in the third~~second quarter of ~~2017 while there was a $106,000 gain recognized during the same period~~2022 as we completed construction and relocated our headquarters in ~~2016.~~Greenville, South Carolina.
Partially offsetting these decreases in noninterest income was a $55,000 increase in service fees on deposit accounts, driven by non-sufficient funds (“NSF”) fee income, and a $139,000 increase in other income due to increased loan fee income, including late charges, and ATM/debit card exchange income.
Noninterest income decreased ~~$1.6~~$4.3 million, or ~~17.9%~~45.5%, during the ~~nine months ended September 30, 2017~~first half of 2022 as compared to ~~the same period in 2016.~~2021. The decrease in total noninterest income ~~during the nine months ended September 30, 2017~~ resulted primarily from ~~a $1.6 million decrease~~decreases in mortgage banking income and ~~a $429,000 decrease in gain on sale~~the disposal of ~~investment securities as compared to the~~fixed assets from our prior period. Partially offsetting these decreases in noninterest income, was a $154,000 increase in service fees on deposit accounts and a $345,000 increase in other income which consists primarily of ATM/debit card transactions as well as wire transfer fees.headquarters building.

In accordance with the requirements set forth under the Dodd-Frank Wall Street Reform and Consumer Protection Act, in June 2011, the Federal Reserve approved a final rule which caps an issuer's base interchange fee at 21 cents per transaction and allows an additional 5 basis point charge per transaction to help cover fraud losses. Although the rule does not apply to institutions with less than $10 billion in assets, such as our Bank, there is concern that the price controls may harm community banks, which could be pressured by the marketplace to lower their own interchange rates. Our ATM/Debit card fee income is included in other noninterest income and was $295,000 and $220,000 for the three months ended September 30, 2017 and 2016, respectively, and $847,000 and $641,000 for the nine months ended September 30, 2017 and 2016, respectively, the majority of which related to interchange fee income.
Noninterest expenses
The following table sets forth information related to our noninterest expenses.

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2017       2016 2017       2016
Compensation and benefits $ 5,698 4,948 16,496 14,353
Occupancy 1,043 908 3,042 2,670
Real estate owned expenses 28 81 38 725
Outside service and data processing 794 690 2,362 1,916
Insurance 258 227 845 678
Professional fees 334 326 1,029 864
Marketing 199 195 605 625
Other 452 425 1,512 1,339
Total noninterest expense $ 8,806 7,800 25,929 23,170

Three months ended
June 30, Six months ended
June 30,
(dollars in thousands) 2022 2021 2022 2021
Compensation and benefits $ 9,915 8,724 19,371 17,834
Occupancy 2,219 1,552 3,997 3,190
Real estate owned expenses - 1 - 388
Outside service and data processing costs 1,528 1,391 3,062 2,704
Insurance 367 262 628 563
Professional fees 693 615 1,292 1,210
Marketing 329 208 596 398
Other 737 742 1,528 1,370
Total noninterest expense $ 15,788 13,495 30,474 27,657
37
Table of Contents
Noninterest expense was ~~$8.8~~$15.8 million for the ~~three months ended September 30, 2017,~~second quarter of 2022, a ~~$1.0~~$2.3 million, or ~~12.9%~~17.0%, increase from noninterest expense of ~~$7.8~~$13.5 million for the ~~three months ended September 30, 2016. Significant fluctuations~~second quarter of 2021. The increase in noninterest ~~expenses resulted from~~expense was driven primarily by the following:
●
Compensation and benefits expense increased ~~$750,000,~~$1.2 million, or ~~15.1%~~13.7%, relating primarily to annual salary increases ~~in base compensation, incentive~~and compensation and benefits expenses. Base compensation increased by $492,000 driven by the cost of 21 additional employees compared to the prior year, six of which were hired in conjunction with the opening of our new offices in Raleigh, North Carolina and Atlanta, Georgia; six of which were hired as additional team leaders or mortgage executives in our existing markets; and the remainder of which were hired to support loan and deposit growth. Incentive compensation increased by $50,000 and benefits expense ~~increased by $233,000 during the 2017 period. The increase in incentive compensation~~ related to the ~~additional number~~hiring of ~~employees at September 30, 2017 while the increase in benefits expenses was~~new team members.
● Occupancy costs increased $667,000, or 43.0%, driven by ~~an increase~~increased rent expense and depreciation on our new office in ~~payroll taxes and group insurance~~Charlotte, North Carolina, as well as additional costs ~~for~~associated with the ~~2017 period.~~
relocation of our headquarters.
●
~~Occupancy expenses~~Insurance costs increased ~~by $135,000,~~$105,000, or ~~14.9%~~40.1%, ~~driven primarily by increased depreciation, property taxes and other building~~during the second quarter of 2022 related ~~expenses on the properties we own.~~
to higher FDIC insurance premiums.
●
Outside service and data processing costs increased ~~by $104,000,~~$137,000, or ~~15.1%~~9.8%, ~~driven by~~during the second quarter of 2022 related to increased item processing and electronic banking ~~and ATM/debit card related expenses as well as bank service charges.~~
costs due to increased transactions.
● Marketing expenses increased $121,000, or 58.2%, due to an increase in community outreach and sponsorships.
~~Partially offsetting~~
Noninterest expense was $30.5 million for the ~~increases~~first half of 2022, a $2.8 million, or 10.2%, increase from noninterest expense of $27.7 million for the first half of 2021. The increase in noninterest expense was driven primarily by increases in compensation and benefits, occupancy, outside services and data processing costs and marketing expenses as discussed above. Partially offsetting these increases was a decrease in real estate owned expenses ~~of $53,000, or 65.4%, due primarily to a loss on sale of property~~ during the ~~2016~~2022 period.
Noninterest expense for the nine months ended September 30, 2017 increased 11.9%, or $2.8 million, as compared to the nine months ended September 30, 2016. The increase was driven primarily by the $2.1 million increase in compensation and benefits expense, $446,000 in outside service and data processing fees, and $372,000 in occupancy fees. Partially offsetting the increases in noninterest expense was a decrease of $687,000 in real estate owned expenses during the first nine months of 2017.

Our efficiency ratio was ~~55.5%~~58.2% for the ~~third~~second quarter of ~~2017~~2022, compared to ~~56.1%~~53.9% for the ~~same period in 2016.~~second quarter of 2021 and 57.2% for the first half of 2022 compared to 53.0% for the first half of 2021. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The ~~decrease~~higher ratio during the ~~2017 period~~second quarter of 2022, compared to the second quarter of 2021, relates primarily to the ~~increase in interest income partially offset by the increase in noninterest expense as well as a~~ decrease in ~~noninterest income compared to the prior year.~~mortgage banking income.
We incurred income tax expense of $2.3 million and ~~$1.8~~$3.1 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$6.0~~$4.7 million and ~~$5.5~~$6.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. Our effective tax rate was ~~35.1%~~23.5% and ~~34.9%~~22.7% for the ~~three~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, respectively, and 35.5% and 36.0% for the nine months ended September 30, 2017 and 2016,~~2021, respectively. InThe higher tax rate during the first ~~quarter~~six months of ~~2017, we adopted~~2022 relates to the ~~new FASB guidance which simplified several aspects~~lesser impact of equity compensation transactions during the ~~accounting for share-based payment award transactions, including income tax consequences. As a result, our income tax expense was reduced by $207,000 for the nine months ended September 30, 2017.~~period.
Balance Sheet Review
Investment Securities
At ~~September~~June 30, ~~2017,~~2022, the ~~$81.5~~$104.1 million in our investment securities portfolio represented approximately ~~5.2%~~3.2% of our total ~~assets.Our~~assets. Our available for sale investment portfolio included corporate bonds, US treasuries, US government agency ~~securities, SBA~~ securities, state and political subdivisions, asset-backed securities and mortgage-backed securities ~~witha~~with a fair value of ~~$78.4~~$99.0 million and an amortized cost of ~~$78.6~~$111.8 million, resulting in an unrealized loss of ~~$140,000.~~$12.8 million. At December 31, ~~2016,~~2021, the ~~$70.2~~$124.3 million in our investment securities portfolio represented approximately ~~5.2%~~4.2% of our total ~~assets. At December 31, 2016, we held~~assets, including investment securities ~~available for sale~~ with a fair value of ~~$64.5~~$120.3 million and an amortized cost of ~~$65.2~~$121.2 million for an unrealized loss of ~~$764,000.~~$937,000.
38
Table of Contents
Loans
Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans, excluding mortgage loans held for sale, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were ~~$1.3~~$2.67 billion and ~~$1.1~~$2.21 billion, respectively. Before the allowance for ~~loan~~credit losses, total loans outstanding at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were ~~$1.3~~$2.85 billion and ~~$1.2~~$2.49 billion, respectively.
The principal component of our loan portfolio is loans secured by real estate mortgages. As of ~~September~~June 30, ~~2017,~~2022, our loan portfolio included ~~$1.1~~$2.43 billion, or ~~82.1%~~85.3%, of real estate ~~loans. As of~~loans, compared to $2.13 billion, or 85.5%, at December 31, ~~2016, real estate loans made up 81.1% of our loan portfolio and totaled $943.5 million.~~2021. Most of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available ~~collateral. This~~ collateral, ~~is taken~~in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types. We do not generally originate traditional long term residential mortgages to hold in our loan portfolio, but we do issue traditional second mortgage residential real estate loans and home equity lines of credit. Home equity lines of credit totaled ~~$150.4~~$161.5 million as of ~~September~~June 30, ~~2017,~~2022, of which approximately ~~42%~~50% were in a first lien position, while the remaining balance was second ~~liens, compared to $137.1 million as of~~liens. At December 31, ~~2016, with~~2021, our home equity lines of credit totaled $154.8 million, of which approximately ~~39%~~49% were in first lien positions, ~~and~~while the remaining balance was in second liens. The average home equity loan had a balance of approximately ~~$89,000~~$80,000 and a loan to value of 71% as of ~~September~~June 30, ~~2017,~~2022, compared to an average loan balance of ~~$91,000~~$81,000 and a loan to value of approximately ~~73%~~62% as of December 31, ~~2016.~~2021. Further, ~~0.3%~~0.87% and 1.0% of our total home equity lines of credit were over 30 days past due as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively.

Following is a summary of our loan composition at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021. During the first ~~nine~~six months of ~~2017,~~2022, our loan portfolio increased by ~~$164.1~~$355.3 million, or ~~14.1%. Our commercial and consumer loan portfolios each experienced growth during the nine months ended September 30, 2017~~14.3%, with a ~~13.7%~~13.8% increase in commercial loans ~~and a 14.8% increase in~~while consumer loans increased by 15.1% during the period. ~~Of the $164.1 million in loan growth during the first nine months of 2017, $147.1 million~~The majority of the increase was in loans secured by real ~~estate, $12.3 million in commercial business loans, and $4.7 million in other consumer loans.~~estate. Our consumer real estate portfolio grew by $117.7 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of ~~$358,000,~~$468,000, a term of ~~ten~~22 years, and an average rate of ~~4.34%~~3.48% as of ~~September~~June 30, ~~2017,~~2022, compared to a ~~$341,000~~ principal balance of $454,000, a term of ~~nine~~21 years, and an average rate of ~~4.34%~~3.47% as of December 31, ~~2016.~~2021.

      September 30, 2017       December 31, 2016
(dollars in thousands) Amount       % of Total Amount       % of Total
Commercial
Owner occupied RE $ 317,262 23.9% $ 285,938 24.6%
Non-owner occupied RE 301,360 22.7% 239,574 20.6%
Construction 32,332 2.4% 33,393 2.9%
Business 214,898 16.2% 202,552 17.4%
Total commercial loans 865,852 65.2% 761,457 65.5%

Consumer
Real estate 250,483 18.9% 215,588 18.5%
Home equity 150,371 11.3% 137,105 11.8%
Construction 38,766 2.9% 31,922 2.7%
Other 22,267 1.7% 17,572 1.5%
Total consumer loans 461,887 34.8% 402,187 34.5%
Total gross loans, net of deferred fees 1,327,739 100.0% 1,163,644 100.0%
Less—allowance for loan losses (15,579 ) (14,855 )
Total loans, net $ 1,312,160 $ 1,148,789

June 30, 2022 December 31, 2021
(dollars in thousands) Amount %  of Total Amount %  of Total
Commercial
Owner occupied RE $ 551,544 19.39 % $ 488,965 19.6 %
Non-owner occupied RE 741,263 26.05 % 666,833 26.8 %
Construction 84,612 2.97 % 64,425 2.6 %
Business 389,790 13.70 % 333,049 13.4 %
Total commercial loans 1,767,209 62.11 % 1,553,272 62.4 %
Consumer
Real estate 812,130 28.54 % 694,401 27.9 %
Home equity 161,512 5.68 % 154,839 6.2 %
Construction 76,878 2.70 % 59,846 2.4 %
Other 27,476 0.97 % 27,519 1.1 %
Total consumer loans 1,077,996 37.89 % 936,605 37.6 %
Total gross loans, net of deferred fees 2,845,205 100.0 % 2,489,877 100.0 %
Less—allowance for credit losses (34,192 ) (30,408 )
Total loans, net $ 2,811,013 $ 2,459,469
39
Table of Contents
Nonperforming assets
Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, we had no loans 90 days past due and still accruing.
Following is a summary of our nonperforming assets, including nonaccruing TDRs.

(dollars in thousands)       September 30, 2017       December 31, 2016
Commercial $ 3,409 3,673
Consumer 1,464 819
Nonaccruing troubled debt restructurings 730 990
Total nonaccrual loans 5,603 5,482
Other real estate owned 420 639
Total nonperforming assets $ 6,023 6,121

(dollars in thousands) June 30,
2022 December 31,
2021
Commercial $ 259 270
Consumer 383 1,642
Nonaccruing troubled debt restructurings 2,289 2,952
Total nonaccrual loans 2,931 4,864
Other real estate owned - -
Total nonperforming assets $ 2,931 4,864
At ~~September~~June 30, ~~2017,~~2022, nonperforming assets were ~~$6.0~~$2.9 million, or ~~0.39%~~0.09% of total assets and ~~0.45%~~0.10% of gross loans. Comparatively, nonperforming assets were ~~$6.1~~$4.9 million, or ~~0.46%~~0.17% of total assets and ~~0.53%~~0.20% of gross loans at December 31, ~~2016.~~2021. Nonaccrual loans ~~were $5.6~~decreased $1.9 million ~~at September 30, 2017, a $121,000 increase from December 31, 2016. During~~during the first ~~nine~~six months of ~~2017, six~~2022 due primarily to $724,000 of loans ~~were put on nonaccrual status and 12 nonaccrual loans were either~~ paid or ~~charged-off.~~ charged off and $1.1 million of loans returning to accruing status.
The amount of foregone interest income on ~~the~~ nonaccrual loans in the first ~~nine~~six months of ~~2017~~2022 and ~~2016~~2021 was ~~approximately $251,000~~not material. At June 30, 2022 and ~~$341,000, respectively.~~

Nonperforming assets include other real estate owned which totaled $420,000 at September 30, 2017, a $219,000 decrease from December 31, 2016. The balance at September 30, 2017 includes six commercial properties totaling $367,000 and two residential properties totaling $53,000. All of these properties are located in the Upstate of South Carolina. We believe that these properties are appropriately valued at the lower of cost or market as of September 30, 2017.
~~At September 30, 2017 and 2016,~~2021, the allowance for ~~loan~~credit losses represented ~~278.1%~~1,166.70% and ~~258.3%~~619.47% of the total amount of nonperforming loans, respectively. A significant portion, or ~~79%~~approximately 92%, of nonperforming loans at ~~September~~June 30, ~~2017 is~~2022, was secured by real estate. ~~Our nonperforming loans have been written down to approximately 54% of their original nonperforming balance.~~ We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses. ~~Based on the level of coverage on nonperforming loans and analysis of our loan portfolio, we believe the allowance for loan losses of $15.6 million as of September 30, 2017 to be adequate.~~
As a general practice, most of our commercial loans and a portion of our consumer loans are originated with relatively short maturities of less than 10ten years. As a result, when a loan reaches its maturity we frequently renew the loan and thus extend its maturity using ~~the same~~similar credit standards as those used when the loan was first originated. Due to these loan practices, we may, at times, renew loans which are classified as ~~nonperforming~~nonaccrual after evaluating the loan’s collateral value and financial strength of its guarantors. ~~Nonperforming~~Nonaccrual loans are renewed at terms generally consistent with the ultimate source of repayment and rarely at reduced rates. In these cases, ~~the Company~~we will generally seek additional credit enhancements, such as additional collateral or additional guarantees to further protect the loan. When a loan is no longer performing in accordance with its stated terms, ~~the Company~~we will typically seek performance under the guarantee.
In addition, at ~~September~~June 30, ~~2017, 82.1%~~2022, 85.3% of our loans ~~are~~were collateralized by real estate and ~~80.0%~~92.2% of our impaired loans ~~are~~were secured by real estate. ~~The Company utilizes~~We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require ~~the Company~~us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Impaired loans are individually reviewed on a quarterly basis to determine the level of impairment. As of ~~September~~June 30, ~~2017,~~2022, we dodid not have any impaired real estate loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for impaired loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.
40
Table of Contents
At ~~September~~June 30, ~~2017,~~2022, impaired loans totaled ~~$12.6~~$5.0 million, for which ~~$9.4~~$4.7 million of these loans ~~have~~had a reserve of approximately ~~$3.7~~$1.0 million allocated in the allowance. During the first ~~nine~~six months of ~~2017,~~2022, the average recorded investment in impaired loans was approximately ~~$13.0~~$7.0 million. Comparatively, impaired loans totaled ~~$11.2~~$8.2 million at December 31, ~~2016, and $7.5~~2021 for which $2.9 million of these loans had a reserve of approximately ~~$2.6 million~~$836,000 allocated in the allowance. During ~~2016,~~2021, the average recorded investment in impaired loans was approximately ~~$11.6~~$12.5 million.
We consider a loan to be a TDR when the debtor experiences financial difficulties and we provide concessions such that we will not collect all principal and interest in accordance with the original terms of the loan agreement. Concessions can relate to the contractual interest rate, maturity date, or payment structure of the note. As part of our workout plan for individual loan relationships, we may restructure loan terms to assist borrowers facing challenges in the current economic environment. As of ~~September~~June 30, ~~2017,~~2022, we determined that we had loans totaling ~~$7.7~~$5.8 million that we considered ~~TDRs. As~~TDRs compared to $6.3 million as of December 31, ~~2016, we had loans totaling $6.7 million that we considered TDRs.~~2021.
Allowance for ~~Loan~~Credit Losses
On January 1, 2022, we adopted CECL for estimating credit losses, which resulted in an increase of $1.5 million in our allowance for credit losses and an increase of $2.0 million in our reserve for unfunded commitments, which is recorded within other liabilities. The tax-effected impact of those two items amounted to $2.8 million and was recorded as an adjustment to our retained earnings as of January 1, 2022. The allowance for loan loss accounting in effect at December 31, 2021 and all prior periods was based on our estimate of probable incurred loan losses as of the reporting date.
The allowance for credit losses was $34.2 million, representing 1.20% of outstanding loans and providing coverage of 1,166.7%, of nonperforming loans at June 30, 2022 compared to $30.4 million, or 1.22% of outstanding loans and 625.22% of nonperforming loans at December 31, 2021. At June 30, 2021, the allowance for loan losses was $15.6 million and $14.5 million at September 30, 2017 and 2016, respectively, or 1.17% of outstanding loans at September 30, 2017 and 1.30% of outstanding loans at September 30, 2016. At December 31, 2016, our allowance for loan losses was $14.9$41.9 million, or ~~1.28%~~1.86% of outstanding loans and 619.47% of nonperforming loans. The adoption of CECL on January 1, 2022 increased the allowance for credit losses by $1.5 million. In addition, we ~~had net loans charged-off~~recorded a provision for credit losses of ~~$1.1 million for the year ended December 31, 2016.~~
During the nine months ended September 30, 2017, we charged-off $962,000 of loans and recorded $186,000 of recoveries on loans previously charged-off, for net charge-offs of $776,000, or 0.08% of average loans, annualized. Comparatively, we charged-off $1.5 million during the second quarter of ~~loans and recorded $286,000 of recoveries on loans previously charged-off, resulting~~2022 driven by the growth in ~~net charge-offs of $1.2 million, or 0.15% of average loans, annualized, for the first nine months of 2016.~~our loan portfolio.

Following is a summary of the activity in the allowance for ~~loan~~credit losses.

Nine months ended
September 30, Year ended
(dollars in thousands)       2017       2016       December 31, 2016
Balance, beginning of period $ 14,855 13,629 13,629
Provision 1,500 2,025 2,300
Loan charge-offs (962 ) (1,462 ) (1,648 )
Loan recoveries 186 286 574
Net loan charge-offs (776 ) (1,176 ) (1,074 )
Balance, end of period $ 15,579 14,478 14,855

Six months ended
June 30, Year ended
December 31,
(dollars in thousands) 2022 2021 2021
Balance, beginning of period $ 30,408 44,149 44,149
Adjustment for adoption of CECL 1,500 - -
Provision for (reversal of) credit losses 2,550 (2,200 ) (12,400 )
Loan charge-offs (485 ) (414 ) (2,166 )
Loan recoveries 219 377 825
Net loan (charge-offs) (266 ) (37 ) (1,341 )
Balance, end of period $ 34,192 41,912 30,408
Deposits and Other Interest-Bearing Liabilities
Our primary source of funds for loans and investments is our deposits and advances from the ~~FHLB, and structured repurchase agreements.~~FHLB. In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in ~~orderto~~order to obtain longer term deposits than are readily available in our local market. ~~We have adopted~~Our internal guidelines regarding ~~our~~the use of brokered CDs ~~that~~ limit our brokered CDs to 20% of total deposits. In addition, we do not obtain time deposits ~~and dictate that our current interest rate risk profile determines~~of $100,000 or more through the ~~terms.~~Internet. These guidelines allow us to take advantage of the attractive terms that wholesale funding can offer while mitigating the related inherent risk.
41
Table of Contents
Our retail deposits represented ~~$1.3~~$2.68 billion, or ~~95.7%~~93.5% of total deposits, while our wholesale deposits represented $187.5 million, or 6.5%, of total deposits at ~~September~~June 30, ~~2017, while our out-of-market, or brokered, deposits represented $57.3 million, or 4.3% of our total deposits at September 30, 2017.~~2022. At December 31, ~~2016,~~2021, retail deposits represented ~~$1.0~~$2.56 billion, or ~~94.6% of our total deposits, and brokered CDs were $59.1 million, representing 5.4%~~100%, of our total deposits. Our loan-to-deposit ratio was 99% at ~~September~~June 30, ~~2017~~2022 and ~~107%~~97% at December 31, ~~2016.~~2021.
The following is a detail of our deposit accounts:

September 30, December 31,
(dollars in thousands)       2017       2016
Non-interest bearing $ 272,758 235,538
Interest bearing:
NOW accounts 209,607 234,949
Money market accounts 533,575 345,117
Savings 15,659 14,942
Time, less than $100,000 54,133 48,638
Time and out-of-market deposits, $100,000 and over 256,845 211,967
Total deposits $ 1,342,577 1,091,151

June 30, December 31,
(dollars in thousands) 2022 2021
Non-interest bearing $ 799,169 768,650
Interest bearing:
NOW accounts 364,189 401,788
Money market accounts 1,320,329 1,201,099
Savings 41,944 39,696
Time, less than $250,000 62,340 68,179
Time and out-of-market deposits, $250,000 and over 282,187 84,414
Total deposits $ 2,870,158 2,563,826
During the past 12 months, we continued our focus on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were ~~$1.2~~$2.59 billion and ~~$937.5 million~~$2.48 billion at ~~September~~June 30, ~~2017,~~2022, and December 31, ~~2016,~~2021, respectively.

The following table shows the average balance amounts and the average rates paid on deposits.

Nine months ended
September 30,
2017 2016
(dollars in thousands)       Amount       Rate       Amount       Rate
Noninterest bearing demand deposits $ 256,731 -% 198,166 -%
Interest bearing demand deposits 220,066 0.18% 201,257 0.16%
Money market accounts 435,939 0.76% 312,833 0.42%
Savings accounts 15,551 0.05% 12,438 0.05%
Time deposits less than $100,000 50,345 0.81% 56,034 0.73%
Time deposits greater than $100,000 259,258 1.03% 213,746 0.84%
Total deposits $ 1,237,890 0.55% 994,474 0.39%

Six months ended
June 30,
2022 2021
(dollars in thousands) Amount Rate Amount Rate
Noninterest-bearing demand deposits $ 769,844 0.00 % $ 621,934 0.00 %
Interest-bearing demand deposits 397,763 0.13 % 289,640 0.06 %
Money market accounts 1,214,062 0.30 % 1,077,309 0.22 %
Savings accounts 40,707 0.05 % 30,750 0.05 %
Time deposits less than $100,000 23,406 0.30 % 32,393 0.52 %
Time deposits greater than $100,000 195,334 0.39 % 161,997 0.91 %
Total deposits $ 2,641,116 0.19 % $ 2,214,023 0.19 %
During the ~~nine~~first six months ~~ended September 30, 2017,~~of 2022, our average transaction account balances increased by ~~$203.6~~$427.1 million, or ~~28.1%~~19.3%, from the ~~nine months ended September 30, 2016,~~prior year, while our average time deposit balances increased by ~~$39.8 million during the same nine month period.~~$24,000, or 12.5%.
All of our time deposits are certificates of deposits. The maturity distribution of our time deposits ~~of $100,000~~$250,000 or more at ~~September~~June 30, ~~2017~~2022 was as follows:

(dollars in thousands) September 30, 2017
Three months or less $ 54,404
Over three through six months 69,842
Over six through twelve months 72,512
Over twelve months 60,087
Total $ 256,845
~~Included in time deposits of $100,000 or more at September 30, 2017 is $57.3 million of wholesale CDs scheduled to mature within the next 12 months at a weighted average rate of 1.08%.~~

(dollars in thousands) June 30, 2022
Three months or less $ 125,510
Over three through six months 69,975
Over six  through twelve months 74,329
Over twelve months 12,373
   Total $ 282,187
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were ~~$181.7~~$282.2 million and ~~$153.7~~$84.4 million, respectively.
42
Table of Contents
Liquidity and Capital Resources
Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss, and the ability to raise additional funds by increasing liabilities. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.
At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021 our ~~liquid assets, consisting of~~ cash and ~~due from banks and federal funds sold, amounted to $74.6~~cash equivalents totaled $182.1 million and ~~$46.6~~$167.2 million, respectively, or ~~4.8%~~5.5% and ~~3.5%~~5.7% of total assets, respectively. Our investment securities at ~~September~~June 30 ~~2017~~2022 and December 31, ~~2016~~2021 amounted to ~~$81.5~~$104.1 million and ~~$70.2~~$124.3 million, respectively, or ~~5.2%~~3.2% and 4.2% of total assets, ~~for both periods. The increase in cash and cash equivalents is primarily attributable to our effort to increase the amount of on balance sheet liquidity. In addition, investment~~respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner; however, approximately 12.5% of these securities are pledged against outstanding debt. Therefore, the related debt would need to be repaid prior to the securities being sold in order for these securities to be converted to cash.manner.

Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain ~~four~~five federal funds purchased lines of credit with correspondent banks totaling ~~$72.0~~$118.5 million for which there were no borrowings against the lines of credit at ~~September~~June 30, ~~2017.~~2022.
We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at ~~September~~June 30, ~~2017~~2022 was ~~$243.0~~$556.6 million, based primarily on the Bank’s ~~$2.5 million investment in FHLB stock, as well as~~ qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 we had ~~$188.8~~$315.2 million and ~~$130.1~~$254.5 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.
We ~~entered into~~also have a ~~new, unsecured interest only~~ line of credit ~~for $15.0 million~~ with another financial institution ~~effective~~for $15.0 million, which was unused at June 30, ~~2017.~~2022. The line of credit ~~bears~~was renewed on December 21, 2021 at an interest ~~at LIBOR~~rate of One Month CME Term SOFR plus ~~2.50%~~3.5% and ~~matures on June 30, 2020. As~~a maturity date of ~~September 30, 2017, the line of credit was unused. The loan agreement contains various financial covenants related to capital, earnings and asset quality.~~December 20, 2023.
We believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, and borrowings from the FHLB ~~and short-term repurchase agreements~~ will enable us to successfully meet our long-term liquidity needs. However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio to meet those needs.
Total shareholders’ equity was ~~$147.4~~$282.6 million at ~~September~~June 30, ~~2017~~2022 and ~~$109.9~~$277.9 million at December 31, ~~2016.~~2021. The ~~$37.6~~$4.7 million increase from December 31, ~~2016~~2021 is primarily related to ~~the issuance of 805,000 shares of common stock on May 2, 2017 in a public offering. The common stock was issued at $32.75 per share for~~ net proceeds of $24.8 million. Proceeds from the offering were used to improve our capital structure, including to repay our former $10 million line of credit with another financial institution, to fund future organic growth, and for working capital and other general corporate purposes. Net income of ~~$11.0~~$15.2 million ~~for~~during the first ~~nine~~six months of ~~2017 also contributed~~2022 and stock option exercises and equity compensation expenses of $1.7 million, partially offset by a $9.4 million decrease in other comprehensive loss and the tax-effected impact of $2.8 million of expense related to the ~~increase in shareholders’ equity.~~adoption of CECL recorded as an adjustment to retained earnings.
43
Table of Contents
The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets) annualized for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and the year ended December 31, ~~2016.~~2021. Since our inception, we have not paid cash dividends.

      September 30, 2017       December 31, 2016
Return on average assets 0.99% 1.04%
Return on average equity 11.28% 12.73%
Return on average common equity 11.28% 12.73%
Average equity to average assets ratio 8.81% 8.16%
Tangible common equity to assets ratio 9.47% 8.19%
~~At both the holding company and Bank level, we are subject to various regulatory capital requirements administered by the federal banking agencies.~~

June 30, 2022 December 31, 2021
Return on average assets 1.01 % 1.75 %
Return on average equity 10.95 % 18.64 %
Return on average common equity 10.95 % 18.64 %
Average equity to average assets ratio 9.21 % 9.39 %
Tangible common equity to assets ratio 8.60 % 9.50 %
Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding the ~~regulatory framework~~unrealized gain or loss on securities available for ~~prompt corrective action, we must meet specific capital guidelines that involve quantitative measures~~sale, minus certain intangible assets. In determining the amount of risk-weighted assets, ~~liabilities, and~~all assets, including certain off-balance sheet ~~items as calculated under regulatory accounting practices. Our~~assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital ~~amounts and classifications~~consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also ~~subject~~required to ~~qualitative judgments by~~maintain capital at a minimum level based on total average assets, which is known as the regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.Tier 1 leverage ratio.

Regulatory capital rules, ~~released in July 2013~~which we refer to ~~implement capital standards referred to as~~ Basel III, ~~and developed by an international body known as the Basel Committee on Banking Supervision,~~ impose ~~higher~~ minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies,” generally holding companies with ~~more~~consolidated assets of less than $1$3 billion (such as the Company). Although we had over $3 billion in ~~total consolidated assets. The requirements in~~assets at June 30, 2022, under Federal Reserve guidance, the ~~rule began to phase in for us on January 1, 2015 and~~Company will ~~be fully phased in by January 1, 2019.~~
~~The rule includes certain new and higher risk-based capital and leverage requirements than those currently in place. Specifically, the following minimum capital requirements apply to us:~~
●
~~a new common equity Tier 1 risk-based capital ratio of 4.5%;~~
●
~~a Tier 1 risk-based capital ratio of 6% (increased from the former 4% requirement);~~
●
~~a total risk-based capital ratio of 8% (unchanged from the former requirement); and~~
●
~~a leverage ratio of 4% (also unchanged from the former requirement).~~
Under the rule, Tier 1 capital is redefined to include two components: Common Equity Tier 1 capital and additional Tier 1 capital. The new and highest form of capital, Common Equity Tier 1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital includes other perpetual instruments historically included in Tier 1 capital, such as noncumulative perpetual preferred stock. Tier 2 capital consists of instruments that currently qualify in Tier 2 capital plus instruments that the rule has disqualified from Tier 1 capital treatment. Cumulative perpetual preferred stock, formerly includable in Tier 1 capital, is now included only in Tier 2 capital. Accumulated other comprehensive income (AOCI) is presumptively included in Common Equity Tier 1 capital and often would operate to reduce this category of capital. The rule provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI. We made this opt-out election and,maintain its status as a ~~result, will retain the pre-existing treatment for AOCI.~~
“small bank holding company” until March 2023. In ~~addition, in~~ order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of ~~its~~our minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1, ~~Common Equity,~~ but the buffer applies to all three measurements ~~(Common Equity~~(common equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer ~~will be phased in incrementally over time, becoming fully effective on January 1, 2019, and will consist~~consists of an additional amount of ~~common equity~~CET1 equal to 2.5% of risk-weighted assets. As
To be considered “well-capitalized” for purposes of ~~January 1, 2016, we are required to hold~~certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ~~conservation buffer~~ratio of ~~0.625%~~at least 10%, ~~increasing by that amount each successive year until 2019.~~
In general, the rules have had the effect of increasing capital requirements by increasing the risk weights on certain assets, including high volatility commercial real estate, certain loans past due 90 days or more or in nonaccrual status, mortgage servicing rights not includable in Common Equitya total Tier 1 capital ratio of at least 8%, a common equity ~~exposures,~~Tier 1 capital ratio of at least 6.5%, and ~~claims on securities firms, that are used in the denominator~~a leverage ratio of ~~the three risk-based~~at least 5%. As of June 30, 2022, our capital ~~ratios.~~ratios exceed these ratios and we remain “well capitalized.”
~~It is management’s belief that, as~~
44
Table of ~~September 30, 2017, the Company and the Bank would have met all capital adequacy requirements under Basel III on a fully phased-in basis if such requirements were currently effective.~~Contents
The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.

September 30, 2017
To be well capitalized
under prompt
For capital corrective
adequacy purposes action provisions
Actual minimum minimum
(dollars in thousands)     Amount      Ratio      Amount      Ratio      Amount      Ratio
Total Capital (to risk weighted assets) $ 172,876 13.33% 103,772 8.00% 129,715 10.00%
Tier 1 Capital (to risk weighted assets) 157,297 12.13% 77,829 6.00% 103,772 8.00%
Common Equity Tier 1 Capital (to risk weighted assets) 157,297 12.13% 58,372 4.50% 84,314 6.50%
Tier 1 Capital (to average assets) 157,297 10.15% 61,992 4.00% 77,490 5.00%

June 30, 2022
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 347,708 13.45 % $ 271,451 10.50 % $ 258,525 10.00 %
Tier 1 Capital (to risk weighted assets) 315,369 12.20 % 219,746 8.50 % 206,820 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 315,369 12.20 % 180,967 7.00 % 168,041 6.50 %
Tier 1 Capital (to average assets) 315,369 10.01 % 125,964 4.00 % 157,455 5.00 %

December 31, 2021
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 331,052 14.36 % $ 242,048 10.50 % $ 230,522 10.00 %
Tier 1 Capital (to risk weighted assets) 302,217 13.11 % 195,944 8.50 % 184,418 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 302,217 13.11 % 161,365 7.00 % 149,839 6.50 %
Tier 1 Capital (to average assets) 302,217 10.55 % 114,537 4.00 % 143,172 5.00 %
45
Table of Contents
The following table summarizes the capital amounts and ratios of the Company and the minimum regulatory requirements.

September 30, 2017
To be well capitalized
under prompt
For capital corrective
adequacy purposes action provisions
Actual minimum minimum
(dollars in thousands)       Amount       Ratio       Amount       Ratio       Amount       Ratio
Total Capital (to risk weighted assets) $ 176,121 13.58% 103,772 8.00% N/A N/A
Tier 1 Capital (to risk weighted assets) 160,542 12.38% 77,829 6.00% N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 147,542 11.37% 58,372 4.50% N/A N/A
Tier 1 Capital (to average assets) 160,542 10.36% 62,010 4.00% N/A N/A

June 30, 2022
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 361,119 13.97 % $ 271,451 10.50 % N/A N/A
Tier 1 Capital (to risk weighted assets) 305,780 11.83 % 219,746 8.50 % N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 292,780 11.33 % 180,967 7.00 % N/A N/A
Tier 1 Capital (to average assets) 305,780 9.71 % 125,980 4.00 % N/A N/A

December 31, 2021
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 343,476 14.90 % $ 242,048 10.50 % N/A N/A
Tier 1 Capital (to risk weighted assets) 291,641 12.65 % 195,944 8.50 % N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 278,641 12.09 % 161,365 7.00 % N/A N/A
Tier 1 Capital (to average assets) 291,641 10.18 % 114,555 4.00 % N/A N/A
⁽¹⁾ Under the Federal Reserve’s Small Bank Holding Company Policy Statement, the Company is not subject to the minimum capital adequacy and capital conservation buffer capital requirements at the holding company level, unless otherwise advised by the Federal Reserve (such capital requirements are applicable only at the Bank level). Although the minimum regulatory capital requirements are not applicable to the Company, we calculate these ratios for our own planning and monitoring purposes.
The ability of the Company to pay cash dividends is dependent upon receiving cash in the form of dividends from the Bank. The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements. Since our inception, we have not paid cash dividends.
46
Table of Contents
Effect of Inflation and Changing Prices
The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.
Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.
Off-Balance Sheet Risk
Commitments to extend credit are agreements to lend money to a client as long as the client has not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At ~~September~~June 30, ~~2017,~~2022, unfunded commitments to extend credit were ~~$265.2~~$738.6 million, of which ~~$68.2~~$273.8 million ~~was~~were at fixed rates and ~~$197.0~~$465.0 million ~~was~~were at variable rates. At December 31, ~~2016,~~2021, unfunded commitments to extend credit were ~~$226.6~~$618.7 million, of which approximately ~~$57.8~~$205.4 million ~~was~~were at fixed rates and ~~$168.8~~$413.3 million ~~was~~were at variable rates. A significant portion of the unfunded commitments related to commercial business loans and consumer home equity lines of credit. ~~Based on historical experience, we anticipate that a significant portion of these lines of credit will not be funded.~~ We evaluate each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate. ~~As disclosed in Note 6 – Derivative Financial Instruments,~~Following the adoption of CECL on January 1, 2022, we ~~had mortgage loan interest rate lock~~recorded a reserve for unfunded commitments of ~~$29.3~~$2.0 million, ~~and $18.0~~or 0.31% of total unfunded commitments. As of June 30, 2022, the reserve for unfunded commitments was $2.3 million asor 0.32% of ~~September~~total unfunded commitments.
At June 30, ~~2017~~2022 and December 31, ~~2016, respectively.~~
~~At September 30, 2017 and December 31, 2016,~~2021, there were commitments under letters of credit for ~~$6.0~~$12.3 million and ~~$4.4~~$10.2 million, respectively. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.
Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.

~~Market Risk and Interest Rate Sensitivity~~
Market risk is the risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.
We actively monitor and manage our interest rate risk exposure in order to control the mix and maturities of our assets and liabilities utilizing a process we call asset/liability management. The essential purposes of asset/liability management are to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest rates. Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate risk. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.
As of September 30, 2017, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated Financial Statements. Therefore, management’s assumptions may or may not prove valid. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes in market conditions.
~~Change in net interest~~
~~Interest rate scenario~~ ~~income from base~~
~~Up 300 basis points~~ ~~7.01~~ %
~~Up 200 basis points~~ ~~5.35~~ %
~~Up 100 basis points~~ ~~3.12~~ %
~~Base~~ -
~~Down 100 basis points~~ ~~(4.39~~ )%
~~Down 200 basis points~~ ~~(5.26~~ )%
~~Down 300 basis points~~                     ~~(7.22~~ )%
Critical Accounting ~~Policies~~Estimates
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. ~~Our significant accounting policies are described in the footnotes to our audited consolidated financial statements as of December 31, 2016, as filed in our Annual Report on Form 10-K.~~
Certain accounting policies inherently involve ~~significant~~a greater reliance on the use of estimates, assumptions and judgments and, ~~assumptions by us that~~as such, have a ~~material impact on the carrying value~~greater possibility of ~~certain assets and liabilities. We consider these accounting policies to~~producing results that could be ~~critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors,~~materially different than originally reported, which we believe to be reasonable under the circumstances. Our Critical Accounting Policies are the allowance for loan losses, fair value of financial instruments, other-than-temporary impairment analysis, other real estate owned, and income taxes. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021, for a description our significant accounting policies that use critical accounting estimates.

47
Table of Contents
We have historically identified the determination of the allowance for loan losses as a significant accounting policy that uses critical accounting estimates. On January 1, 2022, we adopted the new CECL accounting methodology that requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans and other financial assets measured at amortized cost. In prior periods, our allowance was based on the incurred loss methodology where we recognized an allowance for loan losses based on probable incurred losses. We believe that the accounting estimates relating to the allowance for credit losses is also a “critical accounting policy” as:
● changes in the provision for credit losses can materially affect our financial results;
● estimates relating to the allowance for credit losses require us to project future borrower performance, including cash flows, delinquencies and charge-offs, along with, when applicable, collateral values, based on a reasonable and supportable forecast period utilizing forward-looking economic scenarios in order to estimate lifetime probability of default and loss given default;
● the allowance for credit losses is influenced by factors outside of our control such as changes in projected economic conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the allowance for credit losses; and
● considerable judgment is required to determine whether the models used to generate the allowance for credit losses produce an estimate that is sufficient to encompass the current view of lifetime expected credit losses.
Because our estimates of the allowance for credit losses involve judgment and are influenced by factors outside our control, there is uncertainty inherent in these estimates. Our estimate of lifetime expected credit losses is inherently uncertain because it is highly sensitive to changes in economic conditions and other factors outside of our control. Changes in such estimates could significantly impact our allowance and provision for credit losses. See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for a discussion of our Allowance for Credit Losses.
Accounting, Reporting, and Regulatory Matters
~~Recently Issued~~
See Note 1 – Summary of Significant Accounting ~~Standards~~
~~The following is a summary of recent authoritative pronouncements that could affect accounting, reporting, and disclosure of financial information by us:~~
~~In May 2014,~~Policies in the ~~FASB issued guidance~~accompanying notes to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2017.
The Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of our revenues will not be affected. The Company is currently assessing our revenue contracts related to revenue streams that are within the scope of the standard. Our accounting policies will not change materially since the principles of revenue recognition from the ASU are largely consistent with existing guidance and current practices applied by our businesses. We have not identified material changes to the timing or amount of revenue recognition. Based on the updated guidance, we do anticipate changes in our disclosures associated with our revenues.
In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments will be effective forconsolidated financial statements included elsewhere in this report for details of recently issued ~~for annual periods beginning after December 15, 2016,~~accounting pronouncements and interim periods within those annual periods, with early adoption permitted as of the beginning of an interim or annual reporting period. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2016, the FASB amended the Financial Instruments topic of the ASC to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.
In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years
We expect to adopt the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We have started an initial evaluation of our leasing contracts and activities. We have also started developing our methodology to estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments (the December 31, 2016 future minimum lease payments were $10.2 million). We do not expect a material change to the timing of expense recognition, but we are early in the implementation process and will continue to evaluate the impact. We are evaluating our existing disclosures and may need to provide additional information as a result of adoption of the ASU.
In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them to apply a practical expedient to estimate thetheir expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. These amendments did not have a material effect on the Company’s financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for all organizations for periods beginning after December 15, 2018.
The Company will apply the amendments to the ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, we do not expect to elect that option. We are evaluating the impact ~~of the ASU~~ on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.
In August 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows, and in November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify the presentation and classification how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its financial statements.
In November 2016, the FASB amended the Statement of Cash Flows topic of the Accounting Standards Codification to clarify how restricted cash is presented and classified in the statement of cash flows. The amendments will be effective for the Company for fiscal years beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
In January 2017, the FASB updated the Accounting Changes and Error Corrections and the Investments—Equity Method and Joint Ventures Topics of the Accounting Standards Codification. The ASU incorporates into the Accounting Standards Codification recent SEC guidance about disclosing, under SEC SAB Topic 11.M, the effect on financial statements of adopting the revenue, leases, and credit losses standards. The ASU was effective upon issuance. The Company is currently evaluating the impact on additional disclosure requirements as each of the standards is adopted, however it does not expect these amendments to have a material effect on its financial position, results of operations or cash flows.
In May 2017, the FASB amended the requirements in the Compensation—Stock Compensation Topic of the Accounting Standards Codification related to changes to the terms or conditions of a share-based payment award. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The amendments will be effective for the Company for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
~~See Item 2. Management’s Discussion~~
Market risk is the risk of loss from adverse changes in market prices and ~~Analysis~~rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.
We actively monitor and manage our interest rate risk exposure in order to control the mix and maturities of our assets and liabilities utilizing a process we call asset/liability management. The essential purposes of asset/liability management are to seek to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest rates. Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate risk. We have both an internal ALCO consisting of senior management that meets at various times during each month and a board ALCO that meets monthly. The ALCOs are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.
48
Table of Contents
As of June 30, 2022, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated Financial ~~Condition~~Statements. Therefore, management’s assumptions may or may not prove valid. No assurance can be given that changing economic conditions and ~~Results~~other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of ~~Operations – Market Risk and Interest Rate Sensitivity and – Liquidity Risk.~~changes in market conditions.
Interest rate scenario Change in net interest
income from base
Up 300 basis points (0.25 )%
Up 200 basis points 0.17 %
Up 100 basis points 0.49 %
Base -
Down 100 basis points (4.85 )%
Down 200 basis points (7.09 )%
Down 300 basis points (8.01 )%
Item 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
49
Table of Contents
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, would have a material adverse impact on the company’s financial position, results of operations or cash flows.
Item 1A1A. RISK FACTORS.
Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2021, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Warning Regarding Forward-Looking Statements” set forth in Part 1,I, Item 2 of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q, and in our other filings with the SEC.
There have been no material changes to the risk factors disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
~~Not applicable~~
(a) Not applicable.
(b) Not applicable.
(c) Issuer Purchases of Registered Equity Securities
The following table reflects share repurchase activity during the second quarter of 2022:
(d) Maximum
(c) Total Number (or
Number of Approximate
Shares (or Dollar Value) of
Units) Shares (or
(a) Total Purchased as Units) that May
Number of Part of Publicly Yet Be
Shares (or (b) Average Announced Purchased
Units) Price Paid per Plans or Under the Plans
Period Purchased Share (or Unit) Programs or Programs
April 1, 2022 – April 30, 2022       - - - -
May 1, 2022 – May 31, 2022 - - - -
June 1, 2022 – June 30, 2022       - - - 399,026*
Total - - - 399,026*
*On June 21, 2022, the Company announced a share repurchase plan allowing us to repurchase up to 399,026 shares of our common stock (the “Repurchase Plan”). As of June 30, 2022, we have not repurchased any of the shares authorized for repurchase under the Repurchase Plan. The Company is not obligated to purchase any such shares under the Repurchase Plan, and the Repurchase Plan may be discontinued, suspended or restarted at any time; however, repurchases under the Repurchase Plan after December 31, 2022 would require additional approval of our Board of Directors and the Federal Reserve.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
~~Not applicable~~
None.
Item 4. MINE SAFETY DISCLOSURES.
Not ~~applicable~~applicable.
Item 5. OTHER INFORMATION.
~~Not applicable~~
None.
50
Table of Contents
Item 6. EXHIBITS.
The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Index to Exhibits attached hereto and are incorporated herein by reference.

~~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.~~INDEX TO EXHIBITS
Exhibit
Number ~~SOUTHERN FIRST BANCSHARES, INC.~~
~~Registrant~~Description

~~Date: October 30, 2017~~ ~~/s/R. Arthur Seaver, Jr.~~
~~R. Arthur Seaver, Jr.~~
~~Chief Executive Officer (Principal Executive Officer)~~

~~Date: October 30, 2017~~ ~~/s/Michael D. Dowling~~
~~Michael D. Dowling~~
~~Chief Financial Officer (Principal Financial and Accounting Officer)~~

~~INDEX TO EXHIBITS~~
~~Exhibit~~
~~Number~~
~~Description~~
~~1.1~~ Loan and Security Agreement, dated as of June 30, 2017, by and between Southern First Bancshares, Inc. and CenterState Bank, National Association (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed July 3, 2017).

~~1.2~~ Promissory Note, dated as of June 30, 2017, by and between Southern First Bancshares, Inc. and CenterState Bank, National Association (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed July 3, 2017).
31.1
~~1.3~~ Pledge Agreement, dated as of June 30, 2017, by and between Southern First Bancshares, Inc. and CenterState Bank, National Association (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed July 3, 2017).
~~31.1~~
Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2
Rule 13a-14(a) Certification of the Principal Financial Officer.

32
Section 1350 Certifications.

101
The following materials from the Quarterly Report on Form 10-Q of Southern First Bancshares, Inc. for the quarter ended ~~September~~June 30, ~~2017,~~2022, formatted in iXBRL (Inline eXtensible Business Reporting ~~Language (XBRL)~~Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
______ ________________________________________________
48
51
Table of Contents
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.
SOUTHERN FIRST BANCSHARES, INC.
Registrant
Date: August 2, 2022 /s/ R. Arthur Seaver, Jr.
R. Arthur Seaver, Jr.
Chief Executive Officer
(Principal Executive Officer)
Date: August 2, 2022 /s/ Michael D. Dowling
Michael D. Dowling
Chief Financial Officer
(Principal Financial and Accounting Officer)
52
0001090009 sfst:HomeEquitysMember sfst:RecognizedInterestIncomeMember 2021-01-01 2021-12-31 iso4217:USD xbrli:shares

☐
South Carolina		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934~~58-2459561 ~~For the Transition Period from to~~ ~~Commission file number 000-27719~~


	~~Southern First Bancshares, Inc.~~
	~~(Exact name of registrant as specified in its charter)~~

~~South Carolina~~		~~58-2459561~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~100 Verdae Boulevard, Suite 100~~
~~Greenville, S.C.~~6 Verdae Boulevard		~~29606~~
Greenville, S.C.		29607
(Address of principal executive offices)		(Zip Code)

Title of each class	~~864-679-9000~~	Trading Symbol(s)	Name of each exchange on which registered
	~~(Registrant’s telephone number, including area code)~~Common Stock
SFST	~~Not Applicable~~
	~~(Former name, former address, and former fiscal year, if changed since last report)~~	The Nasdaq Global Market

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

PART I – CONSOLIDATED FINANCIAL INFORMATION			Page

Item 1.		Consolidated Financial Statements		1

		~~Consolidated Balance Sheets~~		3

		~~Consolidated Statements of Income~~		4

		~~Consolidated Statements of Comprehensive Income~~		5

		~~Consolidated Statements of Shareholders’ Equity~~		6

		~~Consolidated Statements of Cash Flows~~		7

	Consolidated Balance Sheets	~~Notes to Unaudited Consolidated Financial Statements~~		81

	Consolidated Statements of Income	2

	Consolidated Statements of Comprehensive Income	3

	Consolidated Statements of Shareholders’ Equity	4

	Consolidated Statements of Cash Flows	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		26

~~Item 3.~~		~~Quantitative and Qualitative Disclosures about Market Risk~~		46

~~Item 4.~~		~~Controls and Procedures~~		46

~~PART II – OTHER INFORMATION~~				29

Item 1.3.	Quantitative and Qualitative Disclosures about Market Risk	~~Legal Proceedings~~		4648

Item ~~1A.~~4.	Controls and Procedures	~~Risk Factors~~		4649

PART II – OTHER INFORMATION		50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		4650

Item 3.		Defaults upon Senior Securities		4650

Item 4.		Mine Safety Disclosures		4650

Item 5.		Other Information		4650

Item 6.	Exhibits	~~Exhibits~~		4651


	September 30,			December 31,
(dollars in thousands, except share data)	2017			2016
		(Unaudited)		(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	18,942		11,574
Federal funds sold		34,016		24,039
Interest-bearing deposits with banks		21,654		10,939
Total cash and cash equivalents		74,612		46,552
Investment securities:
Investment securities available for sale		78,440		64,480
Other investments		3,064		5,742
Total investment securities		81,504		70,222
Mortgage loans held for sale		9,124		7,801
Loans		1,327,739		1,163,644
Less allowance for loan losses		(15,579	)	(14,855	)
Loans, net		1,312,160		1,148,789
Bank owned life insurance		32,911		25,471
Property and equipment, net		31,549		28,362
Deferred income taxes		9,085		6,825
Other assets		6,739		6,886
Total assets	$	1,557,684		1,340,908
LIABILITIES
Deposits	$	1,342,577		1,091,151
Federal Home Loan Bank advances and other borrowings		39,200		115,200
Junior subordinated debentures		13,403		13,403
Other liabilities		15,055		11,282
Total liabilities		1,410,235		1,231,036
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized, no shares issued and outstanding		-		-
Common stock, par value $.01 per share, 10,000,000 shares authorized, 7,319,098 and 6,463,789 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		73		65
Nonvested restricted stock		(500	)	(600	)
Additional paid-in capital		99,464		73,371
Accumulated other comprehensive income (loss)		(93	)	(504	)
Retained earnings		48,505		37,540
Total shareholders’ equity		147,449		109,872
Total liabilities and shareholders’ equity	$	1,557,684		1,340,908


		For the three months		For the nine months
		ended September 30,		ended September 30,
(dollars in thousands, except share data)	2017		2016	2017		2016
Interest income
Loans	$	15,282	12,486	43,089		36,280
Investment securities		443	395	1,208		1,342
Federal funds sold		230	31	548		122
Total interest income		15,955	12,912	44,845		37,744
Interest expense
Deposits		2,084	957	5,073		2,891
Borrowings		562	1,075	2,504		3,153
Total interest expense		2,646	2,032	7,577		6,044
Net interest income		13,309	10,880	37,268		31,700
Provision for loan losses		500	825	1,500		2,025
Net interest income after provision for loan losses		12,809	10,055	35,768		29,675
Noninterest income
Mortgage banking income		1,403	2,003	4,063		5,685
Service fees on deposit accounts		324	269	886		732
Income from bank owned life insurance		224	187	590		553
Gain on sale of investment securities		-	106	2		431
Loss on disposal of fixed assets		-	-	(50	)	-
Other income		591	452	1,665		1,320
Total noninterest income		2,542	3,017	7,156		8,721
Noninterest expenses
Compensation and benefits		5,698	4,948	16,496		14,353
Occupancy		1,043	908	3,042		2,670
Real estate owned expenses		28	81	38		725
Outside service and data processing costs		794	690	2,362		1,916
Insurance		258	227	845		678
Professional fees		334	326	1,029		864
Marketing		199	195	605		625
Other		452	425	1,512		1,339
Total noninterest expenses		8,806	7,800	25,929		23,170
Income before income tax expense		6,545	5,272	16,995		15,226
Income tax expense		2,295	1,839	6,030		5,481
Net income available to common shareholders	$	4,250	3,433	10,965		9,745
Earnings per common share
Basic	$	0.58	0.54	1.59		1.55
Diluted	$	0.55	0.51	1.50		1.45
Weighted average common shares outstanding
Basic		7,281,594	6,322,073	6,905,017		6,299,009
Diluted		7,668,476	6,740,751	7,291,164		6,702,475


	June 30,			December 31,
(dollars in thousands, except share data)	2022			2021
	(Unaudited)			(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	21,090			21,770
Federal funds sold		124,462			86,882
Interest-bearing deposits with banks		36,538			58,557
Total cash and cash equivalents		182,090			167,209
Investment securities:
Investment securities available for sale		98,991			120,281
Other investments		5,065			4,021
Total investment securities		104,056			124,302
Mortgage loans held for sale		18,329			13,556
Loans		2,845,205			2,489,877
Less allowance for credit losses		(34,192	)		(30,408	)
Loans, net		2,811,013			2,459,469
Bank owned life insurance		50,463			49,833
Property and equipment, net		96,674			92,370
Deferred income taxes, net		15,078			8,397
Accrued interest receivable		7,433			7,624
Other assets		2,527			2,788
Total assets	$	3,287,663			2,925,548
LIABILITIES
Deposits	$	2,870,158			2,563,826
FHLB advances and related debt		50,000			-
Subordinated debentures		36,160			36,106
Other liabilities		48,708			47,715
Total liabilities		3,005,026			2,647,647
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized		-			-
Common stock, par value $.01 per share, 10,000,000 shares authorized, 7,985,644 and 7,925,819 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		80			79
Nonvested restricted stock		(3,230	)		(1,435	)
Additional paid-in capital		117,714			114,226
Accumulated other comprehensive loss		(10,143	)		(740	)
Retained earnings		178,216			165,771
Total shareholders’ equity		282,637			277,901
Total liabilities and shareholders’ equity	$	3,287,663			2,925,548


	For the three months						For the six months
	ended June 30,						ended June 30,
(dollars in thousands, except share data)	2022			2021			2022			2021
Interest income
Loans	$	26,610			22,409			50,541			44,875
Investment securities		448			269			922			570
Federal funds sold and interest-bearing deposits with banks		180			53			239			99
Total interest income		27,238			22,731			51,702			45,544
Interest expense
Deposits		1,844			920			2,752			2,075
Borrowings		510			381			902			766
Total interest expense		2,354			1,301			3,654			2,841
Net interest income		24,884			21,430			48,048			42,703
Provision for (reversal of) credit losses		1,775			(1,900	)		2,880			(2,200	)
Net interest income after provision for credit losses		23,109			23,330			45,168			44,903
Noninterest income
Mortgage banking income		1,184			1,983			2,678			6,616
Service fees on deposit accounts		209			173			400			358
ATM and debit card income		563			521			1,092			991
Income from bank owned life insurance		315			331			630			598
Net lender and referral fees on PPP loans		-			268			-			268
Loss on disposal of fixed assets		(394	)		-			(394	)		10
Other income		388			346			788			685
Total noninterest income		2,265			3,622			5,194			9,526
Noninterest expenses
Compensation and benefits		9,915			8,724			19,371			17,834
Occupancy		2,219			1,552			3,997			3,190
Other real estate owned expenses		-			1			-			388
Outside service and data processing costs		1,528			1,391			3,062			2,704
Insurance		367			262			628			563
Professional fees		693			615			1,292			1,210
Marketing		329			208			596			398
Other		737			742			1,528			1,370
Total noninterest expenses		15,788			13,495			30,474			27,657
Income before income tax expense		9,586			13,457			19,888			26,772
Income tax expense		2,346			3,134			4,678			6,083
Net income	$	7,240			10,323			15,210			20,689
Earnings per common share
Basic	$	0.91			1.32			1.91			2.65
Diluted		0.90			1.29			1.88			2.60
Weighted average common shares outstanding
Basic		7,957,631			7,847,516			7,944,814			7,811,217
Diluted		8,054,910			7,987,615			8,075,496			7,948,294


												Accumulated
							Nonvested			Additional		other
(dollars in thousands, except share data)	Common stock			Preferred stock			restricted			paid-in		comprehensive			Retained
(dollars in thousands, except share data)	Shares	Amount		Shares	Amount		stock			capital		income (loss)			earnings		Total
December 31, 2015	6,289,038	$	63	-		-	$	(360	)	$	70,037	$	(4	)	$	24,504	$	94,240
Net income	-		-	-		-		-			-		-			9,745		9,745
Proceeds from exercise of stock options	71,628		1	-		-		-			533		-			-		534
Issuance of restricted stock	22,000		-	-		-		(526	)		526		-			-		-
Amortization of deferred compensation on restricted stock	-		-	-		-		211			-		-			-		211
Compensation expense related to stock options, net of tax	-		-	-		-		-			553		-			-		553
Other comprehensive income	-		-	-		-		-			-		740			-		740
September 30, 2016	6,382,666	$	64	-	$	-	$	(675	)	$	71,649	$	736		$	34,249	$	106,023
December 31, 2016	6,463,789		65	-		-		(600	)		73,371		(504	)		37,540		109,872
Net income	-		-	-		-		-			-		-			10,965		10,965
Net issuance of common stock	805,000		8	-		-		-			24,750		-			-		24,758
Proceeds from exercise of stock options	47,184		-	-		-		-			454		-			-		454
Issuance of restricted stock	3,125		-	-		-		(146	)		146		-			-		-
Amortization of deferred compensation on restricted stock	-		-	-		-		246			-		-			-		246
Compensation expense related to stock options, net of tax	-		-	-		-		-			743		-			-		743
Other comprehensive income	-		-	-		-		-			-		411			-		411
September 30, 2017	7,319,098	$	73	-	$	-	$	(500	)	$	99,464	$	(93	)	$	48,505	$	147,449


	For the three months ended June 30,						For the six months ended June 30,
(dollars in thousands)	2022			2021			2022			2021
Net income	$	7,240			10,323			15,210			20,689
Other comprehensive income:
Unrealized gain (loss) on securities available for sale:
Unrealized holding (loss) gain arising during the period, pretax		(4,749	)		619			(11,890	)		(790	)
Tax benefit (expense)		997			(129	)		2,497			167
Reclassification of realized gain (loss)		3			-			(12	)		-
Tax (expense) benefit		(1	)		-			2			-
Other comprehensive (loss) income		(3,750	)		490			(9,403	)		(623	)
Comprehensive income	$	3,490			10,813			5,807			20,066

	For the three months ended June 30,
	Common stock				Preferred stock				Nonvested restricted			Additional paid-in		Accumulated other comprehensive			Retained
(dollars in thousands, except share data)	Shares		Amount		Shares		Amount		stock			capital		income (loss)			earnings		Total
March 31, 2021		7,853,096	$	79		-	$	-	$	(1,075	)	$	111,181	$	(90	)	$	129,426	$	239,521
Net income		-		-		-		-		-			-		-			10,323		10,323
Proceeds from exercise of stock options		42,835		-		-		-		-			943		-			-		943
Issuance of restricted stock		4,000		-		-		-		(212	)		212		-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		114			-		-			-		114
Compensation expense related to stock options, net of tax		-		-		-		-		-			268		-			-		268
Other comprehensive income		-		-		-		-		-			-		490			-		490

June 30, 2021		7,899,931	$	79		-	$	-	$	(1,173	)	$	112,604	$	400		$	139,749	$	251,659
March 31, 2022		7,980,519		80		-		-		(3,425	)		117,286		(6,393	)		170,976		278,524
Net income		-		-		-		-		-			-		-			7,240		7,240
Proceeds from exercise of stock options		3,625		-		-		-		-			128		-			-		128
Issuance of restricted stock		1,500		-		-		-		(71	)		71		-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		266			-		-			-		266
Compensation expense related to stock options, net of tax		-		-		-		-		-			229		-			-		229
Other comprehensive loss		-		-		-		-		-			-		(3,750	)		-		(3,750	)

June 30, 2022		7,985,644	$	80		-	$	-	$	(3,230	)	$	117,714	$	(10,143	)	$	178,216	$	282,637

	For the six months ended June 30,
	Common stock				Preferred stock				Nonvested restricted			Additional paid-in		Accumulated other comprehensive			Retained
(dollars in thousands, except share data)	Shares		Amount		Shares		Amount		stock			capital		income (loss)			earnings			Total
December 31, 2020		7,772,748	$	78		-	$	-	$	(698	)	$	108,831	$	1,023		$	119,060		$	228,294
Net income		-		-		-		-		-			-		-			20,689			20,689
Proceeds from exercise of stock options		112,433		1		-		-		-			2,520		-			-			2,521
Issuance of restricted stock		14,750		-		-		-		(689	)		689		-			-			-
Compensation expense related to restricted stock, net of tax		-		-		-		-		214			-		-			-			214
Compensation expense related to stock options, net of tax		-		-		-		-		-			564		-			-			564
Other comprehensive loss		-		-		-		-		-			-		(623	)		-			(623	)

June 30, 2021		7,899,931	$	79		-	$	-	$	(1,173	)	$	112,604	$	400		$	139,749		$	251,659
December 31, 2021		7,925,819		79		-		-		(1,435	)		114,226		(740	)		165,771			277,901
Adoption of ASU 2016-13		-		-		-		-		-			-		-			(2,765	)		(2,765	)
Net income		-		-		-		-		-			-		-			15,210			15,210
Proceeds from exercise of stock options		21,750		1		-		-		-			706		-			-			707
Issuance of restricted stock		38,075		-		-		-		(2,305	)		2,305		-			-			-
Compensation expense related to restricted stock, net of tax		-		-		-		-		510			-		-			-			510
Compensation expense related to stock options, net of tax		-		-		-		-		-			477		-			-			477
Other comprehensive loss		-		-		-		-		-			-		(9,403	)		-			(9,403	)
June 30, 2022		7,985,644	$	80		-	$	-	$	(3,230	)	$	117,714	$	(10,143	)	$	178,216		$	282,637


	For the six months ended June 30,
(dollars in thousands)	2022			2021
Operating activities
Net income	$	15,210			20,689
Adjustments to reconcile net income to cash provided by operating activities:
Provision for (reversal of) credit losses		2,880			(2,200	)
Depreciation and other amortization		1,341			1,092
Accretion and amortization of securities discounts and premium, net		399			518
Loss on sale of real estate owned		-			380
(Gain) Loss on sale of fixed assets		394			(10	)
Gain on sale of securities		(12	)		-
Net change in operating leases		172			165
Compensation expense related to stock options and restricted stock grants		987			778
Gain on sale of loans held for sale		(1,446	)		(8,153	)
Loans originated and held for sale		(145,513	)		(303,889	)
Proceeds from sale of loans held for sale		142,185			335,872
Increase in cash surrender value of bank owned life insurance		(630	)		(598	)
Decrease in deferred tax asset		(3,446	)		(15,341	)
Increase in other assets		452			2,589
Increase in other liabilities		1,400			1,949
Net cash provided by operating activities		14,373			33,841
Investing activities
Increase (decrease) in cash realized from:
Increase in loans, net		(355,594	)		(111,672	)
Purchase of property and equipment		(8,989	)		(11,105	)
Purchase of investment securities:
Available for sale		(10,094	)		(10,338	)
Other investments		(11,078	)		(1,000	)
Payments and maturities, calls and repayments of investment securities:
Available for sale		19,095			12,526
Other investments		10,034			1,865
Purchase of bank owned life insurance		-			(7,500	)
Proceeds from sale of fixed assets		95			50
Proceeds from sale of other real estate owned		-			788
Net cash used for investing activities		(356,531	)		(126,386	)
Financing activities
Increase (decrease) in cash realized from:
Increase in deposits, net		306,332			168,134
Increase (decrease) in Federal Home Loan Bank advances and other borrowings, net		50,000			(25,000	)
Proceeds from the exercise of stock options		707			2,521
Net cash provided by financing activities		357,039			145,655
Net increase in cash and cash equivalents		14,881			53,110
Cash and cash equivalents at beginning of the period		167,209			100,687
Cash and cash equivalents at end of the period	$	182,090			153,797
Supplemental information
Cash paid for
Interest	$	3,745			3,843
Income taxes		5,950			15,342
Schedule of non-cash transactions
Foreclosure of other real estate		-			366
Unrealized loss on securities, net of income taxes		(11,902	)		(623	)


				September 30, 2017
	Amortized		Gross Unrealized		Fair
(dollars in thousands)	Cost		Gains	Losses	Value
Available for sale
US government agencies	$	8,754	14	58	8,710
SBA securities		4,357	-	18	4,339
State and political subdivisions		20,088	329	60	20,357
Mortgage-backed securities		45,381	15	362	45,034
Total investment securities available for sale	$	78,580	358	498	78,440

				December 31, 2016
	Amortized		Gross Unrealized		Fair
	Cost		Gains	Losses	Value
Available for sale
US government agencies	$	6,271	1	113	6,159
SBA securities		1,453	-	16	1,437
State and political subdivisions		20,625	141	292	20,474
Mortgage-backed securities		36,895	21	506	36,410
Total investment securities available for sale	$	65,244	163	927	64,480


	June 30, 2022
	Amortized		Gross Unrealized				Fair
(dollars in thousands)	Cost		Gains		Losses		Value
Available for sale
Corporate bonds	$	2,185		-		204		1,981
US treasuries		999		-		94		905
US government agencies		13,005		-		1,752		11,253
State and political subdivisions		23,071		4		3,096		19,979
Asset-backed securities		7,922		-		169		7,753
Mortgage-backed securities
FHLMC		21,809		-		2,835		18,974
FNMA		36,865		-		4,200		32,665
GNMA		5,974		-		493		5,481
Total mortgage-backed securities		64,648		-		7,528		57,120
Total investment securities available for sale	$	111,830		4		12,843		98,991


	September 30, 2017
	Less than one year				One to five years			Five to ten years			Over ten years			Total
(dollars in thousands)	Amount		Yield		Amount	Yield		Amount	Yield		Amount	Yield		Amount	Yield
Available for sale
US government agencies	$	997	1.15	%	1,517	2.04	%	6,196	2.39	%	-	-		8,710	2.19	%
SBA securities		-	-		-	-		-	-		4,339	2.48	%	4,339	2.48	%
State and political subdivisions		-	-		3,668	1.64	%	11,730	2.44	%	4,959	2.88	%	20,357	2.40	%
Mortgage-backed securities		790	1.30	%	-	-		12,005	1.80	%	32,239	2.04	%	45,034	1.97	%
Total	$	1,787	1.21	%	5,185	1.59	%	29,931	2.18	%	41,537	2.23	%	78,440	2.13	%

	December 31, 2016
	Less than one year				One to five years			Five to ten years			Over ten years			Total
	Amount		Yield		Amount	Yield		Amount	Yield		Amount	Yield		Amount	Yield
Available for sale
US government agencies	$	-	-		997	1.15	%	5,162	2.23	%	-	-		6,159	2.06	%
SBA securities		-	-		-	-		-	-		1,437	1.32	%	1,437	1.32	%
State and political subdivisions		-	-		2,271	1.73	%	12,287	2.35	%	5,916	2.77	%	20,474	2.40	%
Mortgage-backed securities		-	-		-	-		8,527	1.64	%	27,883	1.68	%	36,410	1.67	%
Total	$	-	-		3,268	1.55	%	25,976	2.10	%	35,236	1.85	%	64,480	1.93	%


															June 30, 2022
	Less than one year				One to five years					Five to ten years					Over ten years					Total
(dollars in thousands)	Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available for sale
Corporate bonds	$	-		-		-		-			1,981		1.99	%		-		-			1,981		1.99	%
US treasuries		-		-		-		-			905		1.27	%		-		-			905		1.27	%
US government agencies		-		-		2,445		0.83	%		8,001		1.49	%		807		1.48	%		11,253		1.34	%
State and political subdivisions		-		-		468		2.13	%		4,571		1.62	%		14,940		2.19	%		19,979		2.05	%
Asset-backed securities		-		-		-		-			1,246		3.33	%		6,507		2.03	%		7,753		2.23	%
Mortgage-backed securities		-		-		3,280		1.20	%		4,976		1.43	%		48,864		1.60	%		57,120		1.56	%
Total investment securities	$	-		-		6,193		1.12	%		21,680		1.64	%		71,118		1.76	%		98,991		1.69	%


	September 30, 2017
	Less than 12 months					12 months or longer					Total
		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(dollars in thousands)	#	value		losses		#	value		losses		#	value		losses
Available for sale
US government agencies	6	$	5,250	$	40	1	$	740	$	18	7	$	5,990	$	58
SBA securities	1		2,937		12	1		1,402		6	2		4,339		18
State and political subdivisions	8		3,652		12	6		2,910		48	14		6,562		60
Mortgage-backed securities	25		29,392		230	8		9,839		132	33		39,231		362
Total	40	$	41,231	$	294	16	$	14,891	$	204	56	$	56,122	$	498

	December 31, 2016
	Less than 12 months					12 months or longer					Total
		Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	#	value		losses		#	value		losses		#	value		losses
Available for sale
US government agencies	5	$	5,144	$	113	-	$	-	$	-	5	$	5,144	$	113
SBA securities	1		1,437		16	-		-		-	1		1,437		16
State and political subdivisions	32		13,936		292	-		-		-	32		13,936		292
Mortgage-backed securities	25		27,292		476	2		3,991		30	27		31,283		506
Total	63	$	47,809	$	897	2	$	3,991	$	30	65	$	51,800	$	927


	June 30, 2022
	Less than 12 months						12 months or longer						Total
(dollars in thousands)	#		Fair value		Unrealized losses		#		Fair value		Unrealized losses		#		Fair value		Unrealized losses
Available for sale
Corporate bonds		1	$	1,981	$	204		-	$	-	$	-		1	$	1,981	$	204
US treasures		1		905		94		-		-		-		1		905		94
US government agencies		4		6,069		942		6		5,184		810		10		11,253		1,752
State and political subdivisions		22		15,137		2,194		9		4,601		902		31		19,738		3,096
Asset-backed		6		5,496		126		2		1,502		43		8		6,998		169
Mortgage-backed securities
FHLMC		14		14,335		1,990		5		4,640		845		19		18,975		2,835
FNMA		24		17,522		2,028		12		15,133		2,172		36		32,655		4,200
GNMA		4		3,805		301		3		1,676		192		7		5,481		493
Total investment securities		76	$	65,250	$	7,879		37	$	32,736	$	4,964		113	$	97,986	$	12,843


				September 30, 2017
			After one
	One year		but within	After five
(dollars in thousands)	or less		five years	years	Total
Commercial
Owner occupied RE	$	24,771	165,019	127,472		317,262
Non-owner occupied RE		47,778	155,987	97,595		301,360
Construction		6,908	6,492	18,932		32,332
Business		63,391	109,003	42,504		214,898
Total commercial loans		142,848	436,501	286,503		865,852
Consumer
Real estate		23,864	62,991	163,628		250,483
Home equity		10,441	25,930	114,000		150,371
Construction		19,312	635	18,819		38,766
Other		5,875	12,082	4,310		22,267
Total consumer loans		59,492	101,638	300,757		461,887
Total gross loans, net of deferred fees	$	202,340	538,139	587,260		1,327,739
Loans maturing after one year with:
Fixed interest rates					$	851,998
Floating interest rates						273,401

				December 31, 2016
			After one
	One year		but within	After five
	or less		five years	years	Total
Commercial
Owner occupied RE	$	26,062	145,419	114,457		285,938
Non-owner occupied RE		34,685	142,261	62,628		239,574
Construction		5,881	9,558	17,954		33,393
Business		66,361	99,255	36,936		202,552
Total commercial loans		132,989	396,493	231,975		761,457
Consumer
Real estate		26,342	49,832	139,414		215,588
Home equity		7,142	29,041	100,922		137,105
Construction		14,103	627	17,192		31,922
Other		5,049	9,305	3,218		17,572
Total consumer		52,636	88,805	260,746		402,187
Total gross loan, net of deferred fees	$	185,625	485,298	492,721		1,163,644
Loans maturing after one year with:
Fixed interest rates					$	733,892
Floating interest rates						244,127


	June 30, 2022
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	13,891		117,631		377,520		42,502		551,544
Non-owner occupied RE		38,324		347,550		327,641		27,748		741,263
Construction		4,763		23,348		44,728		11,773		84,612
Business		77,526		159,130		148,909		4,225		389,790
Total commercial loans		134,504		647,659		898,798		86,248		1,767,209
Consumer
Real estate	$	8,016		43,504		207,090		553,520		812,130
Home equity		1,554		22,238		132,251		5,469		161,512
Construction		1,102		591		14,226		60,959		76,878
Other		3,867		19,360		3,461		788		27,476
Total consumer loans		14,539		85,693		357,028		620,736		1,077,996
Total gross loans, net of deferred fees	$	149,043		733,352		1,255,826		706,984		2,845,205


	June 30, 2022				December 31, 2021
	Interest Rate						Interest Rate
(dollars in thousands)	Fixed		Floating or Adjustable		Fixed		Floating or Adjustable
Commercial
Owner occupied RE	$	534,364		3,289		463,589		8,518
Non-owner occupied RE		631,885		71,054		533,565		85,815
Construction		74,537		5,312		57,139		2,404
Business		240,839		71,425		191,522		74,694
Total commercial loans		1,481,625		151,080		1,245,815		171,431
Consumer
Real estate		804,102		12		679,756		13
Home equity		11,946		148,012		12,850		139,811
Construction		75,776		-		58,884		-
Other		17,522		6,087		13,220		6,228
Total consumer loans		909,346		154,111		764,710		146,052
Total gross loans, net of deferred fees	$	2,390,971		305,191		2,010,525		317,483


●	Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.


●	Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.


					September 30, 2017
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE	Construction	Business	Total
Pass	$	312,878	294,934	32,332	204,694	844,838
Special mention		2,020	2,039	-	4,587	8,646
Substandard		2,364	4,387	-	5,617	12,368
Doubtful		-	-	-	-	-
	$	317,262	301,360	32,332	214,898	865,852


	June 30, 2022
(dollars in thousands)	Accruing 30-59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	-		-		-		-		551,544		551,544
Non-owner occupied RE		-		-		-		981		740,282		741,263
Construction		-		-		-		-		84,612		84,612
Business		91		-		-		-		389,699		389,790
Consumer
Real estate		482		697		-		552		810,399		812,130
Home equity		-		-		-		1,398		160,114		161,512
Construction		-		-		-		-		76,878		76,878
Other		-		-		-		-		27,476		27,476
Total loans	$	573		697		-		2,931		2,839,806		2,845,205


					September 30, 2017
(dollars in thousands)	Real estate		Home equity	Construction	Other	Total
Pass	$	246,962	147,570	38,766	22,172	455,470
Special mention		719	126	-	7	852
Substandard		2,802	2,675	-	88	5,565
Doubtful		-	-	-	-	-
Loss		-	-	-	-	-
	$	250,483	150,371	38,766	22,267	461,887


	CECL						Incurred loss
	June 30, 2022						December 31, 2021
	Nonaccrual		Nonaccrual
	loans		loans		Total		Total
	with no		with an		nonaccrual		nonaccrual
(dollars in thousands)	allowance		allowance		loans		loans
Commercial
Owner occupied RE		-		-		-		-
Non-owner occupied RE	$	121		860		981		1,070
Construction		-		-		-		-
Business		-		-		-		-
Total commercial		121		860		981		1,070
Consumer
Real estate		-		552		552		1,750
Home equity		200		1,198		1,398		2,044
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		200		1,750		1,950		3,794
Total	$	321		2,610		2,931		4,864