See notes to consolidated financial statements that are an integral part of these consolidated statements.

For the three months ended September 30,
Accumulated
Nonvested
Additional
other
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
June 30, 2020
7,734,644
77
0-
0-
(1,001
)
108,031
805
108,242
216,154
Net income
-
-
-
-
-
-
-
2,217
2,217
Proceeds from exercise of stock options
250
-
-
-
-
1
-
-
1
Issuance of restricted stock
2,700
-
-
-
(88
)
88
-
-
-
Compensation expense related to restricted stock, net of tax
-
-
-
-
100
-
-
-
100
Compensation expense related to stock options, net of tax
-
-
-
-
-
217
-
-
217
Other comprehensive income (loss)
-
-
-
-
-
-
60
-
60

September 30, 2020
7,737,594
$
77
0-
$
0-
$
(989
)
$
108,337
$
865
$
110,459
$
218,749
June 30, 2021
7,899,931
79
0-
0-
(1,173
)
112,604
400
139,749
251,659
Net income
-
-
-
-
-
-
-
14,017
14,017
Proceeds from exercise of stock options
4,950
-
-
-
-
175
-
-
175
Issurance of restricted stock
8,500
-
-
-
(431
)
431
-
-
-
Compensation expense related to restricted stock, net of tax
-
-
-
-
135
-
-
-
135
Compensation expense related to stock options, net of tax
-
-
-
-
-
291
-
-
291
Other comprehensive income (loss)
-
-
-
-
-
-
(648
)
-
(648
)

September 30, 2021
7,913,381
$
79
0-
$
0-
$
(1,469
)
$
113,501
$
(248
)
$
153,766
$
265,629

For the nine months ended September 30,
Accumulated
Nonvested
Additional
other
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, 2019
7,672,678
77
0-
0-
(803
)
106,152
(298
)
100,732
205,860
Net income
-
-
-
-
-
-
-
9,727
9,727
Proceeds from exercise of stock options
52,716
-
-
-
-
963
-
-
963
Issuance of restricted stock
12,200
-
-
-
(494
)
494
-
-
-
Compensation expense related to restricted stock, net of tax
-
-
-
-
308
-
-
-
308
Compensation expense related to stock options, net of tax
-
-
-
-
-
728
-
-
728
Other comprehensive income (loss)
-
-
-
-
-
-
1,163
-
1,163

September 30, 2020
7,737,594
$
77
0-
$
0-
$
(989
)
$
108,337
$
865
$
110,459
$
218,749
December 31, 2020
7,772,748
78
0-
0-
(698
)
108,831
1,023

119,060
228,294
Net income
-
-
-
-
-
-
-
34,706
34,706
Proceeds from exercise of stock options
117,383
1
-
-
-
2,695
-
-
2,696
Issuance of restricted stock
23,250
-
-
-
(1,120
)
1,120
-
-
-
Compensation expense related to restricted stock, net of tax
-
-
-
-
349
-
-
-
349
Compensation expense related to stock options, net of tax
-
-
-
-
-
855
-
-
855
Other comprehensive income (loss)
-
-
-
-
-
-
(1,271
)
-
(1,271
)

September 30, 2021
7,913,381
$
79
0-
$
0-
$
(1,469
)
$
113,501
$
(248
)
$
153,766
$
265,629

See notes to consolidated financial statements that are an integral part of these consolidated statements.

For the nine months ended
September 30,
(dollars in thousands)
2021

2020
Operating activities

Net income
$
34,706
9,727
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Provision for (reversal of) loan losses
(8,200
)
27,300
Depreciation and other amortization
1,621
1,569
Accretion and amortization of securities discounts and premium, net
713
497
Loss on sale of real estate owned
376
513
Gain on sale of fixed assets
(10
)
0-
Net change in operating leases
266
157
Compensation expense related to stock options and restricted stock grants
1,204
1,036
Gain on sale of loans held for sale
(11,187
)
(14,377
)
Loans originated and held for sale
(406,451
)
(412,069
)
Proceeds from sale of loans held for sale
446,254
389,669
Increase in cash surrender value of bank owned life insurance
(919
)
(810
)
Increase in deferred tax asset
(6,736
)
(2,545
)
Decrease (increase) in other assets
2,698
(7,345
)
Increase (decrease) in other liabilities
(4,531
)
3,419
Net cash provided by (used for) operating activities
49,804
(3,259
)
Investing activities
Increase (decrease) in cash realized from:
Increase in loans, net
(246,421
)
(138,935
)
Purchase of property and equipment
(16,620
)
(3,696
)
Purchase of investment securities:
Available for sale
(37,908
)
(36,609
)
Other investments
(1,000
)
(1,275
)
Payments and maturities, calls and repayments of investment securities:
Available for sale
16,514
17,290
Other investments
1,812
5,634
Purchase of bank owned life insurance
(7,500
)
0-
Proceeds from sale of fixed assets
50
0-
Proceeds from sale of other real estate owned
1,159
0-
Net cash used for investing activities
(289,914
)
(157,591
)
Financing activities
Increase (decrease) in cash realized from:
Increase in deposits, net
290,260
304,932
Decrease in Federal Home Loan Bank advances and other borrowings, net
(25,000
)
(109,946
)
Proceeds from the exercise of stock options
2,696
963
Net cash provided by financing activities
267,956
195,949
Net increase in cash and cash equivalents
27,846
35,099
Cash and cash equivalents at beginning of the period
100,687
127,816
Cash and cash equivalents at end of the period
$
128,533
162,915
Supplemental information
Cash paid for
Interest
$
5,404
14,031
Income taxes
18,357
2,544
Schedule of non-cash transactions
Foreclosure of other real estate
367
0-
Unrealized gain (loss) on securities, net of income taxes
(1,271
)
1,163
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
4,803
2,115

Southern First Bancshares, Inc.~~(the~~ (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “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”). 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.

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~~six- month period ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~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, ~~2020~~2021 as filed with the U.S. Securities and Exchange Commission (“SEC”) on March ~~2, 2021.~~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.

~~In determining proper segment definition,~~The Company, through the ~~Company considers~~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 ~~materiality of a potential segment and components of the business about which financial~~Company’s management periodically reviews limited production information for these revenue streams, that information is ~~available~~not complete as it does not include a full allocation of revenue, costs and ~~regularly evaluated, relative~~capital from key corporate functions. Management will continue to ~~a resource allocation~~evaluate these lines of business for separate reporting as facts 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 10 – Reportable Segments” for further information on the reporting forcircumstances change. Accordingly, the Company’s ~~three business segments.~~various banking operations are not considered by management to constitute more than one reportable operating segment.

The preparation of consolidated financial statements in conformity with 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.

The ~~unprecedented~~impact of the coronavirus (COVID-19) pandemic is fluid and ~~rapid spread~~continues to evolve, adversely affecting many of ~~COVID-19~~the Bank’s clients. While vaccine availability and ~~its variants and~~uptake has increased, the ~~associated impacts~~longer-term macro-economic effects on ~~trade (including~~global supply chains, inflation, labor shortages and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on the Company’s business, financial condition and results of operations.wage increases continue to impact many industries. The ultimate extent of the impact of the COVID-19 pandemic on ~~the Company’s~~our business, financial condition and results of operations is currently uncertain and ~~the timing and pace of recovery~~ will depend on various developments and other factors, including ~~among others,~~increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions; refusals to receive the ~~duration and scope~~vaccines along with concerns related to new strains of the ~~pandemic, as well as governmental, regulatory~~virus; supply chain issues remaining unresolved longer than anticipated; labor shortages; decreases in consumer confidence and ~~private sector initiatives, the effect~~spending; and rising geopolitical tensions.

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.

In addition, due to the COVID-19 pandemic, market interest rates declined significantly with the 10-year Treasury bond falling to a low of 0.52% in early August 2020 but increasing significantly since that time to near 1.50% at September 30, 2021. On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020, making the target federal funds rate range 0% to 0.25%, and this low target rate was still in effect as of September 30, 2021. These reductions in interest rates and other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on Company’s business, financial condition and results of operations. For instance, the pandemic has had negative effects on the Bank’s interest income, provision for loan losses, and certain transaction-based line items of noninterest income. Other financial impacts could occur though such potential impact is unknown at this time.

As of ~~September~~June 30, ~~2021,~~2022, the ~~Company's~~Company’s and the ~~Bank's~~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 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 subsidiary bank. As of ~~September~~June 30, ~~2021,~~2022, the $15.0 million line was unused.

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 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.

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.

Upon adoption of ASC 326, the Company revised the accounting policy for the Allowance for Credit Losses as detailed below.

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.

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 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 repay a loan, the estimated value of any 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. The allowance is increased through provision for credit losses and 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:

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 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.

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 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 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.

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.

In ~~June 2016,~~March 2022, the FASB ~~issued ASU 2016-13, “Financial Instruments –~~ amended the Receivables–Troubled Debt Restructuring by Creditors subtopic and Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking informationsubtopic to form their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for all annual and interim periods beginning after December 31, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments affect a variety of Topics in the Accounting Standards Codification. ~~For~~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, ~~that meet~~ the ~~definition~~amendments require disclosure of ~~a smaller reporting company, such as~~current-period gross write-offs by year of origination for financing receivables and net investments in leases within the ~~Company, 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 ~~any~~an interim period as long as the Company has adopted to amendments in ASU 2016-13. Currently, the Company is evaluating the impact of adoption on its financial statements and is considering early adoption of the ASU as of January 1, 2022. Adoption will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.period. The Company ~~has established a team of individuals from credit, finance and risk management to evaluate the requirements of the new standard and the impact it will have on its processes.~~

~~Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do~~does not ~~require adoption until a future date are not expected~~expect these amendments to have a material ~~impact~~effect on ~~the consolidated~~its financial ~~statements upon adoption.~~statements.

Contractual maturities and yields on the Company’s investment securities at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~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.

The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

At ~~September~~June 30, ~~2021~~2022 the Company had 4376 individual investments with a fair market value of ~~$53.9~~$65.3 million that were in an unrealized loss position for less than 12 months and 1837 individual investments with a fair market value of ~~$17.6~~$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.

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, ~~2021~~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.

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 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, ~~2021,~~2022, mortgage loans held for sale totaled ~~$31.6~~$18.3 million compared to ~~$60.3~~$13.6 million at December 31, ~~2020.~~

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 to investors by the Company, 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. As appropriate, the Company establishes mortgage repurchase reserves related to various representations and warranties that reflect management’s estimate of 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 ~~$4.6~~$6.2 million as of ~~September~~June 30, ~~2021~~2022 and ~~$3.9~~$5.0 million as of December 31, ~~2020.~~2021.

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.

~~On March 27, 2020, President Trump signed~~The following table summarizes the ~~Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act or the “Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected~~loans due after one year by the coronavirus pandemic. The Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. The Act temporarily permits the SBA to guarantee 100% of certain loans under a new program titled the “Paycheck Protection Program” and also provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

We became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of $97.5 million during the second quarter of 2020. On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing partner, ACAP SME LLC, receiving net lender fees of $2.2 million during the three months ended June 30, 2020.

The SBA offered a second round of PPP loans through May 31, 2021; however, we did not originate any new PPP loans. We did, however, receive referral fees of approximately $268,000 during the three months ended June 30, 2021 from The Loan Source Inc. for PPP loans they originated to our clients.

Commercial loans are assessed for estimated losses by grading 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.

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.

~~We manage a consistent process for assessing commercial loan~~The Company tracks credit quality ~~by monitoring~~based on its internal risk ratings. Upon origination, a loan ~~grading trends and past due statistics. All~~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 ~~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~~initially graded, they are ~~also an important indicator of~~monitored regularly for credit quality ~~in the establishment of our allowance for loan losses.~~

~~We categorize our loans into risk categories~~ based on ~~relevant information about the ability of the borrower to service their debt~~many factors, such as ~~current~~payment history, the borrower’s financial ~~information, historical payment experience, credit documentation, public information,~~status, and ~~current economic trends, among other~~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 type.

The following table presents loan balances classified by credit quality indicators by year of origination as of June 30, 2022.

The following table presents loan balances classified by credit ~~risk to average credit risk; however, still have acceptable credit risk.~~ quality indicators and loan categories as of December 31, 2021.

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.

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.

As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, loans 30 days or more past due represented ~~0.49%~~0.10% and ~~0.17%~~0.09% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were ~~0.40%~~0.01% and ~~0.08%~~0.00% of the Company’s total loan portfolio as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~The tables below provide a breakdown of outstanding commercial loans by risk category.~~

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 following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.~~

Consumer loans 30 days or more past due were 0.09% of total loans as of ~~both September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

~~The tables below provide a breakdown of outstanding consumer loans by risk category.~~

~~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.

~~Impaired Loans~~The table below summarizes nonaccrual loans by major categories for the periods presented.

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 losses. The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan~~credit losses.

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.

The allowance for loan losses 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.

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.

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

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.

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.

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.

At ~~September~~June 30, ~~2021,~~2022, the Company had 13 loans totaling ~~$6.8~~$5.8 million compared to 2014 loans totaling ~~$8.4~~$6.3 million at December 31, ~~2020,~~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.

~~A restructuring that results in only a delay in payments that is insignificant is not~~

The were no renewals or modifications to any loans considered ~~an economic concession. In accordance with~~TDRs during the ~~CARES Act, the Company implemented loan modification programs in response to the COVID-19 pandemic,~~three and ~~the Company elected the accounting policy in the CARES Act to not apply TDR accounting to loans modified for borrowers impacted by the COVID-19 pandemic.~~

~~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 for the nine~~six months ended ~~September~~June 30, ~~2020. There were no new TDRs for~~2022. For the three and six months ended ~~September~~June 30, 2021, renewals and ~~new TDRs for the three months ended September 30, 2020 were immaterial. The total TDRs for the nine months ended September 30, 2021~~modifications were not material.

As of ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, there were no loans modified as a TDR for which there was a payment default (60 days past due) within 12 months of the restructuring date.

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, ~~2021~~2022 and December 31, ~~2020.~~2021.

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:

~~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.~~

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.

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 assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 14 of the Company’s ~~2020~~2021 Annual Report on Form 10-K. The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories of loans as disclosed in Note 4 – Loans and Allowance for ~~Loan~~Credit Losses. Loans are considered a Level 3 classification.

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

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 estimated fair values of the Company’s financial instruments at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)”. As of ~~September~~June 30, ~~2021,~~2022, we leased ~~seven~~six of our offices under various operating lease agreements. The lease agreements have maturity dates ranging from ~~February 2022~~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 ~~7.54~~7.39 years as of ~~September~~June 30, ~~2021.~~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 ~~2.48%~~2.28% as of ~~September~~June 30, ~~2021.~~2022.

The total operating lease costs were ~~$711,000~~$768,000 and ~~$616,000~~$640,000 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$2.1~~$1.5 million and ~~$1.8~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The right-of-use (ROU) asset, included in property and equipment, and lease liability, included in other liabilities, ~~were $21.9~~was $23.7 million and ~~$23.0~~$25.3 million as of ~~September~~June 30, ~~2021,~~2022, respectively, compared to ~~$18.8~~$26.6 million and ~~$19.5~~$28.0 million as of December 31, ~~2020,~~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.

Maturities of lease liabilities as of ~~September~~June 30, ~~2021~~2022 were as follows:

The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the ~~three~~three- and ~~nine~~six- month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options that were outstanding at ~~September~~June 30, ~~2021.~~2022. The assumed conversion of stock options can create a difference between basic and dilutive net income per common share. At ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, there were ~~159,029~~162,366 and ~~337,998~~113,239 options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive.

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning purposes by management. The 3 segments include Commercial and Retail Banking, Mortgage Banking, and Corporate. The following schedule presents financial information for each reportable segment.

~~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 of compensation and benefits for certain members of management and interest on parent company debt.~~

Item 2. MANAGEMENT’S DISCUSSION AND Analysis of Financial Condition and Results of Operations.

The following discussion reviews our results of operations for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2021~~2022 as compared to the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and assesses our financial condition as of ~~September~~June 30, ~~2021~~2022 as compared to December 31, ~~2020.~~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, ~~2020~~2021 included in our Annual Report on Form 10-K for that period. Results for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results for the year ending December 31, ~~2021~~2022 or any future period.

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.

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 (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:

·●

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, ~~2020,~~2021, in Part II, Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q, and in our other filings with the 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. 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, except as required by law.

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, ~~2021,~~2022, we had total assets of ~~$2.78~~$3.29 billion, a ~~12.1%~~12.4% increase from total assets of ~~$2.48~~$2.93 billion at December 31, ~~2020.~~2021. The largest ~~components~~component of our total assets ~~are~~is loans which were ~~$2.39~~$2.85 billion and ~~$2.14~~$2.49 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Our liabilities and shareholders’ equity at ~~September~~June 30, ~~2021~~2022 totaled ~~$2.52~~$3.01 billion and ~~$265.6~~$282.6 million, respectively, compared to liabilities of ~~$2.25~~$2.65 billion and shareholders’ equity of ~~$228.3~~$277.9 million at December 31, ~~2020.~~2021. The principal component of our liabilities is deposits which were ~~$2.43~~$2.87 billion and ~~$2.14~~$2.56 billion at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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 ~~$14.0~~$7.2 million and ~~$2.2~~$10.3 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Diluted earnings per share (“EPS”) was ~~$1.75~~$0.90 for the ~~third~~second quarter of ~~2021~~2022 as compared to ~~$0.28~~$1.29 for the same period in ~~2020.~~2021. The ~~increase~~decrease in net income ~~resulted~~was primarily ~~from~~driven by an increase in the provision for credit losses and a ~~$17.1 million~~ decrease in ~~loan loss provision recorded in the third quarter of 2021 compared to the same period in 2020 and a $1.5 million~~mortgage banking income, as well as an increase in ~~net interest income, partially offset by a $3.3 million decrease in~~ noninterest ~~income.~~expense.

Our net income to common shareholders was ~~$34.7~~$15.2 million and ~~$9.7~~$20.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. Diluted EPS was ~~$4.36~~$1.88 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 as compared to ~~$1.24~~$2.60 for the same period in ~~2020.~~2021. The ~~increase~~decrease in net income ~~resulted~~was primarily from a $35.5 million decrease in loan loss provision recorded in the first nine months of 2021 compared to the same period in 2020 and a $6.4 million increase in net interest income, partially offset by a $6.9 million decrease in noninterest income and a $2.5 million increase in noninterest expense.

Our mortgage banking segment reported pre-tax income of $1.1 million and $3.3 million for the three- and nine- month periods ended September 30, 2021, compared to $3.9 million and $8.7 million for the three- and nine- month periods ended September 30, 2020. Noninterest income, which consists mainly of realized and unrealized gains associated with the fair value of commitments and loans held for sale, was $2.8 million for the third quarter of 2021 as compared to $6.3 million for the third quarter of 2020. In addition, noninterest income for the first nine months of 2021 was $9.4 million as compared to $14.7 million for the first nine months of 2020. The $3.4 million and $5.3 million decreases during the 2021 periods were driven by a decline in sales activity combined with a decrease in the fair value of derivatives associated with mortgage loan commitments. Noninterest expense consists mainly of salaries, commissions and benefits of mortgage employees, professional fees and outside services and data processing costs. Noninterest expense was $2.0 million and $7.1 million for the third quarter and first nine months of 2021, respectively, as compared to $2.7 million and $6.8 million for the third quarter and first nine months of 2020, respectively. The $709,000 decrease during the third quarter of 2021 was driven by a decrease in salaries and benefits expense primarily related to commissions paid on sales activity. The $245,000 increase during the first nine months of 2021 relates primarily to an increase in salaries and benefits expense driven by an increase in ~~fixed salaries~~the provision for credit losses and ~~other benefits costs combined with~~a decrease in mortgage banking income, as well as an increase in ~~professional fees.~~noninterest expenses.

~~recent events – covid-19 pandemic~~

~~The COVID-19 pandemic has had significant impact on~~In addition, during the second quarter of 2022, we relocated our ~~business, industry and clients. Twelve months ago, unemployment rates were at historical highs, our bank lobbies were closed~~headquarters in Greenville, South Carolina to ~~guests, and the majority of our team was working remotely.~~a newly constructed, 107,000 square foot building. As of September 30, 2021, normalcy has begun to return as unemployment rates have continued to decrease to near pre-COVID levels, our bank lobbies have re-opened, and our team members have returned to the office. Our digital technology channels are also stronger and better utilized as a result of the ~~pandemic.~~

~~Beginning in March 2020,~~relocation, we ~~began granting loan modifications or deferrals to certain borrowers affected by the pandemic~~disposed of assets with a book value of $489,000, including leasehold improvements and furniture and fixtures, and recorded a net loss on ~~a short-term basis~~disposal of ~~three to six months. As of September 30, 2021, all of these loans are under a normal payment structure.~~

We continue to monitor credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our commercial clients. In doing so, we believe that the hospitality and tourism industry is still at risk for credit loss due to reduced business and recreational travel in our regions.

~~Hotel portfolio as of September 30, 2021:~~

	·	~~22 loans totaled $115.8 million~~
	·	~~0 loans remain under a deferral arrangement~~
	·	~~0% of hotel loans were 30 days or more past due~~
	·	~~0% of hotel loans were on nonaccrual~~
	·	~~Four hotel loans totaling $48.4 million were downgraded to special mention during the first quarter of 2021~~
	·	~~Seven hotel loans totaling $26.1 million were downgraded to substandard during the first quarter of 2021~~

As of September 30, 2021 our classified asset ratio (defined as classified assets divided by the sum of tier one capital plus the allowance for loan losses) was 14.90% compared to 8.18% at December 31, 2020 and 7.00% at September 30, 2020. The increase from the prior periods was driven by the $26.2 million of hotel loans we$394,000.

~~downgraded to substandard during the first quarter of 2021. We will continue to closely monitor these loans as we believe they currently represent our most at-risk clients.~~RESULTS OF OPERATIONS

As of September 30, 2021, all of our capital ratios, and the Bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, our regulatory capital ratios could be adversely impacted by further credit losses. We maintain 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 Bank.

~~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 ~~$22.2~~$24.9 million for the ~~third~~second quarter of ~~2021,~~2022, a ~~7.4%~~16.1% increase over net interest income of ~~$20.6~~$21.4 million for the ~~third~~second quarter of 2021, driven by an increase in interest income on loans as a result of loan growth during the ~~prior year, resulting primarily from lower deposit costs and growth in interest-earning assets, partially offset by lower yields on our interest-earning assets.~~past 12 months. In addition, our net interest margin, on a tax-equivalent basis (TE), was ~~3.38%~~3.35% for the ~~third~~second quarter of ~~2021~~2022 compared to ~~3.52%~~3.50% for the same period in ~~2020.~~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, ~~2021~~2022 and ~~2020.~~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.

Table of Contents

The following tables entitled “Average Balances, Income and Expenses, Yield and Rates” ~~sets~~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,
2021 2020
(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 $  145,899 $     68 0.18% $  162,092 $     63 0.15%
Investment securities, taxable 93,428 301 1.28% 77,365 261 1.34%
Investment securities, nontaxable⁽²⁾ 10,974 70 2.54% 7,136 64 3.55%
Loans⁽³⁾ 2,351,467 23,063 3.89% 2,088,746 23,042 4.39%
  Total interest-earning assets 2,601,768 23,502 3.58% 2,335,339 23,430 3.99%
Noninterest-earning assets 132,929 104,065
  Total assets $2,734,697 $2,439,404
Interest-bearing liabilities
NOW accounts $   316,775 48 0.06% $   264,786 50 0.08%
Savings & money market 1,209,991 651 0.21% 1,021,850 1,176 0.46%
Time deposits 161,300 235 0.58% 296,186 1,167 1.57%
Total interest-bearing deposits 1,688,066 934 0.22% 1,582,822 2,393 0.60%
Subordinated debentures 36,062 380 4.18% 35,954 385 4.26%
Total interest-bearing liabilities 1,724,128 1,314 0.30% 1,618,776 2,778 0.68%
Noninterest-bearing liabilities 753,901 601,896
Shareholders’ equity 256,668 218,732
Total liabilities and shareholders’ equity $2,734,697 $2,439,404
Net interest spread 3.28% 3.31%
Net interest income (tax equivalent) / margin $22,188 3.38% $20,652 3.52%
Less:  tax-equivalent adjustment⁽²⁾ (16) 15
Net interest income $22,172 $20,637


	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.

Table of Contents

Our net interest margin (TE) decreased 1415 basis points to ~~3.38%~~3.35% during the ~~third~~second quarter of ~~2021,~~2022, compared to the ~~third~~second quarter of ~~2020,~~2021, primarily due to a reduction in yield on our interest-earning assets ~~partially offset by the decreased cost of~~combined with higher costs on our interest-bearing liabilities. Our average interest-earning assets grew by ~~$266.4~~$528.7 million during the ~~third~~second quarter of ~~2021,~~2022, while the average yield on these assets decreased by 41five basis points to ~~3.58%~~3.66% during the same period. In addition, our average interest-bearing liabilities grew by ~~$105.4~~$382.6 million during the ~~third~~second quarter of ~~2021,~~2022, while the rate on these liabilities ~~decreased 38~~increased 15 basis points to ~~0.30%~~0.47%.

The increase in average interest-earning assets for the ~~third~~second quarter of ~~2021~~2022 related primarily to an increase of ~~$262.7~~$555.0 million in our average loan ~~balances, combined with a $19.9 million increase in investment securities, partially offset by a $16.2 million decrease in federal funds sold and interest-bearing deposits with banks.~~balances. The decrease in yield on our ~~interest earning~~interest-earning assets was driven by a 5019 basis point decrease in loan yield as our loan portfolio ~~continues to show~~has repriced at rates lower than historic rates for the ~~impact~~majority of the past 12 months. Following the Federal Reserve’s ~~aggregate 225~~recent interest rate hikes, our loan yield has begun to increase, resulting in a five basis point ~~interest rate reduction since August 2019. These rate reductions resulted~~gain from 3.77% in the ~~decreased loan yield, a decrease in yield on our federal funds sold and interest bearing-deposits with banks and a decrease in yield on our investment securities.~~first quarter of 2022.

The increase in our average interest-bearing liabilities during the ~~third~~second quarter of ~~2021~~2022 resulted primarily from a ~~$105.2~~$329.4 million increase in our interest-bearing deposits and a $53.1 million increase in FHLB advances and other borrowings, while the 3815 basis point ~~decrease~~increase in rate on our interest-bearing liabilities resulted primarily from a 3815 basis point ~~decrease~~increase in deposit rates.

Our net interest spread was ~~3.28%~~3.19% for the ~~third~~second quarter of ~~2021~~2022 compared to ~~3.31%~~3.39% for the same period in ~~2020.~~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 decrease in ~~both~~ the yield on our interest-earning assets and the increase in the rate on our interest-bearing liabilities resulted in a ~~three~~20 basis point decrease in our net interest spread for the ~~2021~~2022 period. We anticipate continued pressure on our net interest spread and net interest margin in future periods as a significant portion of our loan ~~yield continues to decline due to new and renewed loans pricing~~portfolio is at fixed rates ~~lower than~~which do not move with the Federal Reserve’s interest rate increases, while our ~~current portfolio rate.~~deposit accounts reprice much more quickly.

Table of Contents

Average Balances, Income and Expenses, Yields and Rates

For the Nine Months Ended September 30,
2021 2020
(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 $   118,417 $     167 0.19% $    102,951 $      218 0.28%
Investment securities, taxable 87,981 759 1.15% 69,966 979 1.87%
Investment securities, nontaxable⁽²⁾ 11,197 217 2.59% 6,854 144 2.81%
Loans⁽³⁾ 2,267,611 67,938 4.01% 2,081,034 69,963 4.49%
  Total interest-earning assets 2,485,206 69,081 3.72% 2,260,805 71,304 4.21%
Noninterest-earning assets 117,679 107,472
  Total assets $2,602,885 $2,368,277
Interest-bearing liabilities
NOW accounts $   298,785 141 0.06% $   248,373 309 0.17%
Savings & money market 1,142,409 1,817 0.21% 984,794 6,614 0.90%
Time deposits 183,239 1,051 0.77% 314,288 4,272 1.82%
Total interest-bearing deposits 1,624,433 3,009 0.25% 1,547,455 11,195 0.97%
FHLB advances and other borrowings 941 4 0.57% 41,305 335 1.08%
Junior subordinated debentures 36,035 1,143 4.24% 35,927 1,234 4.59%
Total interest-bearing liabilities 1,661,409 4,156 0.33% 1,624,687 12,764 1.05%
Noninterest-bearing liabilities 697,533 529,200
Shareholders’ equity 243,943 214,390
Total liabilities and shareholders’ equity $2,602,885 $2,368,277
Net interest spread 3.39% 3.16%
Net interest income (tax equivalent) / margin $64,925 3.49% $58,540 3.46%
Less:  tax-equivalent adjustment⁽²⁾ (50) 33
Net interest income $64,875 $58,507

~~(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.~~


	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 ~~nine~~six months of ~~2021,~~2022, our net interest margin (TE) ~~improved~~decreased by ~~three~~19 basis points to ~~3.49%~~3.36%, compared to ~~3.46%~~3.55% for the first ~~nine~~six months of ~~2020,~~2021, driven by the decrease in ~~rate on our interest-bearing liabilities, partially offset by the lower~~ yield on our interest-earning ~~assets.~~assets, combined with the higher yield on our interest-bearing liabilities. Our average interest-earning assets grew by ~~$224.4~~$461.2 million ~~during~~from the ~~first nine months of 2021,~~prior year, with the average yield decreasing by 4918 basis ~~points.~~points to 3.61%. In addition, our average interest-bearing liabilities grew by ~~$36.7~~$312.5 million, ~~during the 2021 period,~~ while the rate on these liabilities ~~decreased 72~~increased three basis points ~~resulting in the slight improvement in net interest margin.~~to 0.38%.

The increase in average ~~interest earning~~interest-earning assets for the first ~~nine months~~half of ~~2021~~2022 related primarily to a ~~$186.6~~$460.3 million increase in our average loan ~~balances combined with a $22.4 million increase in our average investment securities.~~balances. The decrease in yield on our interest-earning assets was driven by a 4827 basis point decrease in our loan yield primarily related to the interest rate reductions by the Federal ~~Reserve.~~Reserve which occurred during 2020. Recently, the yield on our loan portfolio has begun to increase as the Federal Reserve has raised interest rates by 150 basis points during the first six months of 2022.

~~In addition, our~~

Table of Contents

The increase in average interest-bearing liabilities ~~increased by $36.7 million during~~for the first ~~nine months~~half of ~~2021,~~2022 was driven by ~~a $77.0 million~~an increase in interest-bearing deposits ~~partially offset by~~of $278.8 million and a ~~$40.4~~$33.6 million ~~decrease~~increase in FHLB advances and other ~~borrowings. The decrease~~borrowings, while the increase in cost ~~of our interest-bearing liabilities~~ was driven by a 72five basis point ~~decrease~~increase on our interest-bearing deposits.

Our net interest spread was ~~3.39%~~3.23% for the first ~~nine months~~half of ~~2021~~2022 compared to ~~3.16%~~3.44% for the same period ~~of 2020.~~in 2021. The 2321 basis point ~~increase~~decrease in our net interest spread was ~~a result of the 72 basis point decrease in cost on our interest-bearing liabilities, partially offset~~driven by the 4918 basis point decrease in yield on our interest-earning assets.

Rate/Volume Analysis

Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following ~~two~~ 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, 2021 vs. 2020 September 30, 2020 vs. 2019
Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $  2,898 (2,556) (321) 21 $  3,078 (2,514) (339) 225
Investment securities 73 (23) (5) 45 (25) (252) 11 (266)
Federal funds sold and interest-bearing deposits with banks (6) 13 (2) 5 304 (620) (284) (600)
Total interest income 2,965 (2,566) (328) 71 3,357 (3,386) (612)   (641)
Interest expense
Deposits 276 (1,556) (179) (1,459) 893 (4,309) (600) (4,016)
FHLB advances and other borrowings - - - - (218) - - (218)
Subordinated debentures 1 (6) - (5) 245 (4) (6) 235
Total interest expense 277 (1,562) (179) (1,464) 920 (4,313) (606) (3,999)
Net interest income $  2,688 (1,004) (149) 1,535 $  2,437 927 (6) 3,358


	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 ~~$22.2~~$24.9 million for the ~~third~~second quarter of 2022 and $21.4 million for the second quarter of 2021, ~~and $20.6 million for the third quarter of 2020,~~ a ~~$1.5~~$3.5 million, or ~~7.4%~~16.2%, increase. The increase during ~~2021~~2022 was driven by a ~~$1.5~~$4.5 million ~~decrease~~increase in interest ~~expense~~income primarily due to ~~lower rates on our interest-bearing liabilities.~~higher volume of loans. In addition, interest ~~income remained stable as the~~expense increased by $1.1 million due to an increase in ~~loan~~ volume ~~offset the impact~~ of ~~a decrease in yield across all interest earning assets.~~FHLB advances and other borrowings at decreased rates.

Nine Months Ended
September 30, 2021 vs. 2020 September 30, 2020 vs. 2019
Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $ 4,994 (6,565) (454) (2,025) $ 11,246 (6,067) (1,020) 4,159
Investment securities 281 (354) (91) (164) (100) (505) 31 (574)
Federal funds sold and interest-bearing deposits with banks 3 (53) (1) (51) 565 (1,136) (499) (1,070)
Total interest income 5,278 (6,972) (546) (2,240) 11,711 (7,708) (1,488) 2,515
Interest expense
Deposits 966 (8,425) (727) (8,186) 2,672 (8,212) (1,224) (6,764)
FHLB advances and other borrowings (324) (220) 212 (332) 360 (470) (245) (355)
Subordinated debentures 3 (93) - (90) 783 (8) (12) 763
Total interest expense 645 (8,738) (515) (8,608) 3,815 (8,690) (1,481) (6,356)
Net interest income $ 4,633 1,766 (31) 6,368 $ 7,896 982 (7) 8,871

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 first ~~nine months~~half of ~~2021~~2022 was ~~$64.9~~$48.0 million compared to ~~$58.5~~$42.7 million for ~~2020,~~2021, a ~~$6.4~~$5.3 million, or ~~10.9%~~12.5%, increase. The increase in net interest income during ~~2021~~2022 was driven by ~~an $8.6~~a $6.2 million ~~decrease in interest expense related to reduced rates on our deposit balances. In contrast, the decrease~~increase in interest income, ~~was driven by lower rates on our~~related primarily to loan ~~portfolio which was partially offset by growth in loan balances compared to the 2020 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 included in Note 1 – Summary of Significant Accounting Policies and Note 4 – Loans and Allowance for ~~Loan~~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 the three and nine months ended September 30, 2021, we~~We recorded a ~~reversal of~~$1.8 million provision for ~~loan~~credit losses ~~expense~~in the second quarter of ~~$6.0~~2022, compared to a $1.9 million and $8.2 million which resulted in an allowance for loan losses of $36.1 million, or 1.51% of gross loans. Comparatively, our provision for loan losses was $11.1 million and $27.3 million for the three and nine months ended September 30, 2020 which resulted in an allowance for loan losses of $42.2 million, or 2.03% of gross loans. The reversal of provision expense in the second quarter of 2021. We recorded a provision expense of $2.9 million and a provision reversal of $2.2 million for the six months ended June 30, 2022 and June 30, 2021, ~~periods~~respectively. The $1.8 million provision in 2022, which included a $250,000 provision for unfunded commitments, was driven by ~~a reduction~~$184.5 million in qualitative adjustment factors related to the overall improvement in economic and business conditions such as unemployment and hotel occupancy rates as well as a reduction in the historical loss percentages of our various loan ~~categories due to the low charge-off percentage~~growth during the ~~year. In addition, we downgraded~~second quarter, combined with a ~~significant portion of our hotel loan portfolio during~~$52.2 million increase in unfunded commitments. The $2.9 million provision expense for the first ~~quarter~~half of ~~2021 as we believe the tourism and hospitality industry remains at risk~~2022 included a $330,000 provision for unfunded commitments.

Table of credit losses due to the pandemic, which partially offset the reduction in qualitative adjustments as an increased provision was required for these loans. Our nonperforming assets and loans 30 days or more past due increased during the third quarter of 2021 due to one client relationship which includes two commercial and one consumer real estate properties. We do not believe the increase in nonperforming and past due loans is systemic or indicative of the credit quality of our remaining portfolio.Contents

Noninterest Income

The following table sets forth information related to our noninterest income.


	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

Three months ended
September 30,

Nine months ended
September 30,
(dollars in thousands) 2021 2020 2021 2020
Mortgage banking income $ 2,829 6,277 9,445 14,721
Service fees on deposit accounts 199 211 557 670
ATM and debit card income 542 465 1,532 1,258
Income from bank owned life insurance 321 270 919 810
Net lender and referral fees on PPP loans - - 268 2,247
Other income 348 361 1,043 1,002
Total noninterest income $ 4,239 7,584 13,764 20,708

Noninterest income decreased ~~$3.3~~$1.4 million, or ~~44.1%~~37.5%, for the ~~third~~second quarter of ~~2021~~2022 as compared to the same period in ~~2020.~~2021. The decrease in total noninterest income resulted primarily from the following:

·●

Mortgage banking income decreased by ~~$3.4 million,~~$799,000, or ~~54.9%~~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 second quarter of 2021, while there were no fees received during the current period.

●

Loss on disposal of assets of $394,000 was recorded during the second quarter of 2022 as we completed construction and relocated our headquarters in Greenville, South Carolina.

Partially offsetting the above decrease was an increase in ATM and debit card income of $77,000, or 16.6%, due to an increase in debit card transactions. In addition, income from bank owned life insurance increased $51,000 as we purchased an additional $7.5 million in life insurance policies earlier in the year.

Noninterest income decreased ~~$6.9~~$4.3 million, or ~~33.5%~~45.5%, during the first ~~nine months~~half of ~~2021~~2022 as compared to ~~the same period of 2020.~~2021. The decrease in total noninterest income resulted primarily from decreases in mortgage banking income ~~service fees on deposit accounts,~~ and ~~net lender and referral fees on PPP loans which declined $2.0 million as we originated and sold~~the disposal of fixed assets from our ~~PPP loans to a third party during the second quarter of 2020. Partially offsetting the above decreases was a $274,000 increase in ATM and debit card income.~~prior headquarters building.

Noninterest expenses

The following table sets forth information related to our noninterest expenses.

Three months ended
September 30,

Nine months ended
September 30,
(dollars in thousands) 2021 2020 2021 2020
Compensation and benefits $ 7,468 6,666 20,974 19,450
Mortgage production costs 1,956 2,666 7,086 6,841
Occupancy 1,684 1,601 4,871 4,631
Real estate owned (income) expenses (3) 673 385 673
Outside service and data processing costs 1,229 1,046 3,609 3,170
Insurance 244 377 807 995
Professional fees 561 395 1,479 1,270
Marketing 240 165 623 481
Other 660 594 1,861 1,687
Total noninterest expense $14,039 14,183 41,695 39,198


	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

Table of Contents

Noninterest expense was ~~$14.0~~$15.8 million for the ~~third~~second quarter of ~~2021,~~2022, a ~~$144,000,~~$2.3 million, or ~~10.2%~~17.0%, ~~decrease~~increase from noninterest expense of ~~$14.2~~$13.5 million for the ~~third~~second quarter of ~~2020.~~2021. The ~~decrease~~increase in noninterest ~~expenses~~expense was driven primarily by the following:

~~Mortgage production costs decreased by $710,000, or 26.7%, due primarily to less mortgage volume in the third quarter of 2021.~~

~~Real estate owned expenses decreased by $676,000, or 100.45%, due to a large write-down on one piece of property during the prior year.~~

~~Partially offsetting the above decreases were the following:~~

·●

Compensation and benefits expense increased ~~$801,000,~~$1.2 million, or ~~12.0%~~13.7%, relating primarily to ~~an increase in salaries~~annual salary increases and ~~incentive compensation. We hired 24~~compensation and benefits expense related to the hiring of new team ~~members~~members.

●

Occupancy costs increased $667,000, or 43.0%, driven by increased rent expense and depreciation on our new office in Charlotte, North Carolina, as well as additional costs associated with the relocation of our headquarters.

●

Insurance costs increased $105,000, or 40.1%, during the ~~last 12 months, eight~~second quarter of ~~which were hired in conjunction with the opening of our new Charlotte office.~~2022 related to higher FDIC insurance premiums.

·●

Outside service and data processing costs increased ~~$183,000,~~$137,000, or ~~17.5%~~9.8%, ~~primarily~~during the second quarter of 2022 related to increased item processing and electronic banking costs due to increased ~~software licensing costs and ATM/debit card related expenses.~~transactions.

·●

~~Professional fees~~Marketing expenses increased ~~$166,000,~~$121,000, or ~~42.0%~~58.2%, ~~driven by increases~~due to an increase in ~~director fees, legal fees,~~community outreach and ~~other professional fees.~~sponsorships.

~~Other noninterest expense increased by $66,000, or 11.1%, driven by increased business meals and dues and subscriptions.~~

Noninterest expense was ~~$41.7~~$30.5 million for the first ~~nine months~~half of ~~2021,~~2022, a ~~$2.5~~$2.8 million, or ~~6.4%~~10.2%, increase from noninterest expense of $27.7 million for the ~~prior year.~~first half of 2021. The increase in ~~total~~ noninterest expense ~~resulted~~was driven primarily ~~from~~by increases in compensation and benefits, ~~mortgage production costs,~~ occupancy, ~~and~~ outside ~~service~~services and data processing ~~costs.~~costs and marketing expenses as discussed above. Partially offsetting these increases was a decrease in real estate owned expenses during the 2022 period.

Our efficiency ratio was ~~53.2%~~58.2% for the ~~third~~second quarter of 2022, compared to 53.9% for the second quarter of 2021 ~~compared to 50.3%~~and 57.2% for the ~~third quarter~~first half of ~~2020 and~~2022 compared to 53.0% for the first ~~nine months~~half of ~~2021 compared to 49.5% for the same period in 2020.~~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 higher ratio during the ~~third~~second quarter of ~~2021,~~2022, compared to the ~~third~~second quarter of ~~2020,~~2021, relates primarily to the decrease in mortgage banking income, while the higher ratio for the first nine months of 2021, compared to the same period of 2020, relates to the decrease in mortgage banking income, combined with the increase in noninterest expenses.income.

We incurred income tax expense of ~~$4.4~~$2.3 million and ~~$721,000~~$3.1 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$10.4~~$4.7 million and ~~$3.0~~$6.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our effective tax rate was ~~23.1%~~23.5% and ~~23.5%~~22.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~lower~~higher tax rate ~~for~~during the ~~2021 period~~first six months of 2022 relates to the ~~favorable tax~~lesser impact of ~~certain~~ equity compensation ~~transactions.~~transactions during the period.

Balance Sheet Review

Investment Securities

At ~~September~~June 30, ~~2021,~~2022, the ~~$116.6~~$104.1 million in our investment securities portfolio represented approximately ~~4.2%~~3.2% of our total assets. Our available for sale investment portfolio included ~~U.S. treasury securities, U.S.~~corporate bonds, US treasuries, US government agency ~~securities, SBA~~ securities, state and political subdivisions, asset-backed securities and mortgage-backed securities with a fair value of ~~$113.8~~$99.0 million and an amortized cost of ~~$114.1~~$111.8 million, resulting in an unrealized loss of ~~$314,000.~~$12.8 million. At December 31, ~~2020,~~2021, the ~~$98.4~~$124.3 million in our investment securities portfolio represented approximately ~~4.0%~~4.2% of our total assets, including investment securities with a fair value of ~~$94.7~~$120.3 million and an amortized cost of ~~$93.4~~$121.2 million for an unrealized ~~gain~~loss of ~~$1.3 million.~~$937,000.

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, 2022 and 2021 ~~and 2020~~ were ~~$2.23~~$2.67 billion and ~~$2.08~~$2.21 billion, respectively. Before the allowance for ~~loan~~credit losses, total loans outstanding at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$2.35~~$2.85 billion and ~~$2.04~~$2.49 billion, respectively.

The principal component of our loan portfolio is loans secured by real estate mortgages. As of ~~September~~June 30, ~~2021,~~2022, our loan portfolio included ~~$2.05~~$2.43 billion, or ~~85.7%~~85.3%, of real estate loans, compared to ~~$1.81~~$2.13 billion, or ~~84.6%~~85.5%, at December 31, ~~2020.~~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, 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. Home equity lines of credit totaled ~~$155.0~~$161.5 million as of ~~September~~June 30, ~~2021,~~2022, of which approximately 50% were in a first lien position, while the remaining balance was second liens. At December 31, ~~2020,~~2021, our home equity lines of credit totaled ~~$157.0~~$154.8 million, of which approximately ~~45%~~49% were in first lien positions, while the remaining balance was in second liens. The average home equity loan had a balance of approximately ~~$81,000~~$80,000 and a loan to value of ~~60%~~71% as of ~~September~~June 30, ~~2021,~~2022, compared to an average loan balance of ~~$83,000~~$81,000 and a loan to value of approximately 62% as of December 31, ~~2020.~~2021. Further, ~~1.0%~~0.87% and ~~0.2%~~1.0% of our total home equity lines of credit were over 30 days past due as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. ~~The increase in the past due percentage is related primarily to one loan.~~

Following is a summary of our loan composition at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. During the first ~~nine~~six months of ~~2021,~~2022, our loan portfolio increased by ~~$246.2~~$355.3 million, or ~~11.5%~~14.3%, with a ~~18.4%~~13.8% increase in ~~consumer~~commercial loans while ~~commercial~~consumer loans increased by ~~7.7%~~15.1% during the period. The majority of the increase was in loans secured by real 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 ~~$447,000,~~$468,000, a term of 22 years, and an average rate of 3.48% as of June 30, 2022, compared to a principal balance of $454,000, a term of 21 years, and an average rate of ~~3.51% as of September 30, 2021, compared to a principal balance of $429,000, a term of 19 years, and an average rate of 3.82%~~3.47% as of December 31, ~~2020.~~2021.


	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

Table of Contents

September 30, 2021 December 31, 2020
(dollars in thousands) Amount %  of Total Amount %  of Total
Commercial
Owner occupied RE $    470,614 19.7% $   433,320 20.2%
Non-owner occupied RE 628,521 26.3% 585,269 27.3%
Construction 87,892 3.7% 61,467 2.9%
Business 307,969 12.9% 307,599 14.4%
Total commercial loans 1,494,996 62.6% 1,387,655 64.8%

Consumer

Real estate 648,276 27.1% 536,311 25.0%
Home equity 155,049 6.5% 156,957 7.3%
Construction 57,419 2.4% 40,525 1.9%
Other 33,307 1.4% 21,419 1.0%
Total consumer loans 894,051 37.4% 755,212 35.2%
Total gross loans, net of deferred fees     2,389,047 100.0% 2,142,867 100.0%
Less—allowance for loan losses (36,075) (44,149)
Total loans, net $ 2,352,972 $2,098,718

Nonperforming assets

~~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, ~~2021~~2022 and December 31, ~~2020,~~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, 2021 December 31, 2020
Commercial $ 8,869 1,477
Consumer 2,279 3,083
Nonaccruing troubled debt restructurings 2,730 3,509
Total nonaccrual loans 13,878 8,069
Other real estate owned - 1,169
Total nonperforming assets $ 13,878 9,238


(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, ~~2021,~~2022, nonperforming assets were ~~$13.9~~$2.9 million, or ~~0.50%~~0.09% of total assets and ~~0.58%~~0.10% of gross loans. Comparatively, nonperforming assets were ~~$9.2~~$4.9 million, or ~~0.37%~~0.17% of total assets and ~~0.43%~~0.20% of gross loans at December 31, ~~2020.~~2021. Nonaccrual loans ~~increased $5.8~~decreased $1.9 million during the first ~~nine~~six months of ~~2021~~2022 due primarily to ~~$9.6 million in additions of loans on nonaccrual status, partially offset by $2.4 million~~$724,000 of loans paid or charged off and ~~$366,000~~$1.1 million of loans ~~moved~~returning to ~~other real estate owned.~~ The increase during the current period relates primarily to one client relationship which includes two commercial and one consumer real estate properties. On October 29, 2021 we sold the two commercial notes related to this relationship to a third-party at a discounted purchase price of $7.8 million which resulted in a combined charge-off of $812,000 on the two loans.accruing status.

The amount of foregone interest income on ~~the~~ nonaccrual loans in the first ~~nine~~six months of 2022 and 2021 was ~~immaterial, while foregone interest income for the same period in 2020 was approximately $204,000.~~not material. At ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the allowance for ~~loan~~credit losses represented ~~260.0%~~1,166.70% and ~~482.4%~~619.47% of the total amount of nonperforming loans, respectively. A significant portion, or approximately ~~95%~~92%, of nonperforming loans at ~~September~~June 30, ~~2021,~~

2022, was secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses.

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 ten years. As a result, when a loan reaches its maturity we frequently renew the loan and thus extend its maturity using 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 nonaccrual after evaluating the loan’s collateral value and financial strength of its guarantors. Nonaccrual loans are renewed at terms generally consistent with the ultimate source of repayment and rarely at reduced rates. In these cases, 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, we will typically seek performance under the guarantee.

In addition, at ~~September~~June 30, ~~2021, 85.7%~~2022, 85.3% of our loans were collateralized by real estate and ~~95%~~92.2% of our impaired loans were secured by real estate. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require 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, ~~2021,~~2022, we did 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.

Table of Contents

At ~~September~~June 30, ~~2021,~~2022, impaired loans totaled ~~$17.9~~$5.0 million, for which ~~$3.7~~$4.7 million of these loans had a reserve of approximately ~~$1.2~~$1.0 million allocated in the allowance. During the first ~~nine~~six months of 2022, the average recorded investment in impaired loans was approximately $7.0 million. Comparatively, impaired loans totaled $8.2 million at December 31, 2021 for which $2.9 million of these loans had a reserve of approximately $836,000 allocated in the allowance. During 2021, the average recorded investment in impaired loans was approximately ~~$13.6~~$12.5 million. Comparatively, impaired loans totaled $13.0 million at December 31, 2020 for which $5.1 million of these loans had a reserve of approximately $1.7 million allocated in the allowance. During 2020, the average recorded investment in impaired loans was approximately $14.6 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, ~~2021,~~2022, we determined that we had loans totaling ~~$6.8~~$5.8 million that we considered TDRs compared to ~~$8.4~~$6.3 million as of December 31, ~~2020. The decrease during the first nine months of 2021 was driven by eight client relationships with loans totaling $1.4 million that were paid off or removed from TDR status during the period.~~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 ~~$36.1~~$41.9 million, ~~and $42.2 million at September 30, 2021 and 2020, respectively,~~ or ~~1.51%~~1.86% of outstanding loans ~~at September 30, 2021~~ and ~~2.03%~~619.47% of ~~outstanding loans at September 30, 2020. At December 31, 2020, our allowance for loan losses was $44.1 million, or 2.06%~~nonperforming loans. The adoption of ~~outstanding loans.~~

~~During the nine months ended September 30, 2021, we charged-off $658,000 of loans and recorded $784,000 of recoveries~~CECL on loans previously charged-off, for net recoveries of $126,000. Comparatively, we charged-off $2.4 million of loans and recorded $690,000 of recoveries on loans previously charged-off, resulting in net charge-offs of $1.7 million for the first nine months of 2020. The $8.1 million decrease inJanuary 1, 2022 increased the allowance for ~~loan~~credit losses by $1.5 million. In addition, we recorded a provision for credit losses of $1.5 million during the ~~first nine months~~second quarter of ~~2021 was~~2022 driven by ~~a reduction in qualitative adjustment factors related to~~ the improvement in economic conditions at both the national and regional levels at September 30, 2021 and lower historical loss percentages applied to the various loan categories driven by fewer charge-offs. Partially offsetting these decreases were downgradesgrowth in our ~~hotel~~ loan ~~portfolio as we believe the tourism and hospitality industry remains at risk of credit losses due to the pandemic.~~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) 2021 2020 December 31, 2020
Balance, beginning of period $ 44,149 16,642 16,642
Provision for (reversal of) loan losses (8,200) 27,300 29,600
Loan charge-offs (658) (2,413) (3,414)
Loan recoveries 784 690 1,321
Net loan (charge-offs) recoveries 126 (1,723) (2,093)
Balance, end of period $ 36,075 42,219 44,149


	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. In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available in our local market. Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to 20% of total deposits. In addition, we do not obtain time deposits of $100,000 or more through the Internet. These guidelines allow us to take advantage of the attractive terms that wholesale funding can offer while mitigating the related inherent risk.

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Our retail deposits represented ~~$2.43~~$2.68 billion, or ~~100%~~93.5% of total deposits, while our wholesale deposits represented $187.5 million, or 6.5%, of total deposits at ~~September~~June 30, ~~2021.~~2022. At December 31, ~~2020,~~2021, retail deposits represented ~~$2.12~~$2.56 billion, or ~~99.0% of our total deposits, and brokered CDs were $22.0 million, representing 1.0%~~100%, of our total deposits. Our loan-to-deposit ratio was ~~98%~~99% at ~~September~~June 30, ~~2021~~2022 and ~~100%~~97% at December 31, ~~2020.~~2021.

The following is a detail of our deposit accounts:

September 30, December 31,
(dollars in thousands) 2021 2020
Non-interest bearing $    720,444 $  576,610
Interest bearing:
   NOW accounts 331,167 268,739
   Money market accounts 1,188,666 1,042,745
   Savings 34,018 27,254
   Time, less than $100,000 28,469 36,454
   Time and out-of-market deposits, $100,000 and over 130,254 190,956
     Total deposits $ 2,433,018 $2,142,758


	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 ~~$2.37~~$2.59 billion and ~~$2.01~~$2.48 billion at ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively.

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

Nine months ended
September 30,
2021 2020
(dollars in thousands) Amount Rate Amount Rate
Noninterest-bearing demand deposits $ 648,930 -% $ 490,343 -%
Interest-bearing demand deposits 298,785 0.06% 248,373 0.17%
Money market accounts 1,110,579 0.22% 963,885 1.92%
Savings accounts 31,830 0.05% 20,909 0.05%
Time deposits less than $100,000 39,136 0.48% 42,649 1.49%
Time deposits greater than $100,000 144,103 0.87% 272,026 1.86%
Total deposits $ 2,273,363 0.18% $ 2,038,185 0.73%


	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 first ~~nine~~six months of ~~2021,~~2022, our average transaction account balances increased by ~~$366.6~~$427.1 million, or ~~21.3%~~19.3%, from the prior year, while our average time deposit balances ~~decreased~~increased by ~~$131.4 million,~~$24,000, or ~~41.87%~~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, ~~2021~~2022 was as follows:


~~(dollars in thousands)~~	~~September 30, 2021~~
~~Three months or less~~	~~$ 38,735~~
~~Over three through six months~~	~~38,216~~
~~Over six through twelve months~~	~~26,026~~
~~Over twelve months~~	~~27,277~~
~~Total~~	~~$ 130,254~~


(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, ~~2021~~2022 and December 31, ~~2020~~2021 were ~~$86.5~~$282.2 million and ~~$130.9~~$84.4 million, respectively.

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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. ~~We have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic.~~

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 our cash and cash equivalents totaled ~~$128.5~~$182.1 million and ~~$100.7~~$167.2 million, respectively, or ~~4.6%~~5.5% and ~~4.1%~~5.7% of total assets, respectively. Our investment securities at ~~September~~June 30 ~~2021~~2022 and December 31, ~~2020~~2021 amounted to ~~$116.6~~$104.1 million and ~~$98.4~~$124.3 million, respectively, or ~~4.2%~~3.2% and ~~4.0%~~4.2% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely 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 five federal funds purchased lines of credit with correspondent banks totaling $118.5 million for which there were no borrowings against the lines of credit at ~~September~~June 30, ~~2021.~~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, ~~2021~~2022 was ~~$552.1~~$556.6 million, based primarily on the Bank’s 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, ~~2021~~2022 and December 31, ~~2020~~2021 we had ~~$243.1~~$315.2 million and ~~$206.2~~$254.5 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits.

We also have a line of credit with another financial institution for $15.0 million, which was unused at ~~September~~June 30, ~~2021.~~2022. The line of credit ~~has~~was renewed on December 21, 2021 at an interest rate of ~~LIBOR~~One Month CME Term SOFR plus ~~3.50%~~3.5% and a maturity date of December ~~31, 2021.~~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 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 ~~$265.6~~$282.6 million at ~~September~~June 30, ~~2021~~2022 and ~~$228.3~~$277.9 million at December 31, ~~2020.~~2021. The ~~$37.3~~$4.7 million increase from December 31, ~~2020~~2021 is primarily related to net income of ~~$34.7~~$15.2 million during the first ~~nine~~six months of ~~2021,~~2022 and stock option exercises and equity compensation expenses of ~~$3.9~~$1.7 million, partially offset by a ~~$1.3~~$9.4 million decrease in other comprehensive ~~loss.~~loss and the tax-effected impact of $2.8 million of expense related to the adoption of CECL recorded as an adjustment to retained earnings.

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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, ~~2021~~2022 and the year ended December 31, ~~2020.~~2021. Since our inception, we have not paid cash dividends.

September 30, 2021 December 31, 2020
Return on average assets 1.78 % 0.76 %
Return on average equity 19.02 % 8.49 %
Return on average common equity 19.02 % 8.49 %
Average equity to average assets ratio 9.37 % 9.01 %
Tangible common equity to assets ratio 9.54 % 9.20 %


	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 unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet 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 consists of Tier 1 capital plus the general reserve for loan losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.

Regulatory capital rules, ~~adopted in July 2013 and fully-phased in as of January 1, 2019,~~ which we refer to Basel III, impose 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 consolidated assets of less than $3 billion (such as the Company). Although we had over $3 billion in assets at June 30, 2022, under Federal Reserve guidance, the Company will maintain its status as a “small bank holding company” until March 2023. 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 our minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets.

To be considered “well-capitalized” for purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio of at least 5%. As of ~~September~~June 30, ~~2021,~~2022, our capital ratios exceed these ratios and we remain “well capitalized.”

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The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.


	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	%

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September 30, 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) $ 317,659 14.34% $ 232,567 10.50% $ 221,492 10.00%
Tier 1 Capital (to risk weighted assets) 289,869 13.09% 188,268 8.50% 177,194 8.00%
Common Equity Tier 1 Capital (to risk weighted assets) 289,869 13.09% 155,044 7.00% 143,970 6.50%
Tier 1 Capital (to average assets) 289,869 10.60% 109,360 4.00% 136,700 5.00%

December 31, 2020
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) $ 279,414 13.92% $ 160,554 8.00% $ 200,693 10.00%
Tier 1 Capital (to risk weighted assets) 254,092 12.66% 120,416 6.00% 160,554 8.00%
Common Equity Tier 1 Capital (to risk weighted assets) 254,092 12.66% 90,312 4.50% 130,451 6.50%
Tier 1 Capital (to average assets) 254,092 10.26% 99,094 4.00% 123,867 5.00%

The following table summarizes the capital amounts and ratios of the Company and the minimum regulatory requirements.

September 30, 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) $ 329,667 14.88% $ 232,556 10.50% N/A N/A
Tier 1 Capital (to risk weighted assets) 278,877 12.59% 188,515 8.50% N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 265,877 12.00% 155,037 7.00% N/A N/A
Tier 1 Capital (to average assets) 278,877 10.20% 109,381 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, 2020
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) $ 288,593 14.38% $ 160,554 8.00% N/A N/A
Tier 1 Capital (to risk weighted assets) 240,271 11.97% 120,416 6.00% N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 227,271 11.32% 90,312 4.50% N/A N/A
Tier 1 Capital (to average assets) 240,271 9.70% 99,094 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.

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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, ~~2021,~~2022, unfunded commitments to extend credit were ~~$574.7~~$738.6 million, of which ~~$182.8~~$273.8 million were at fixed rates and ~~$391.9~~$465.0 million were at variable rates. At December 31, ~~2020,~~2021, unfunded commitments to extend credit were ~~$480.1~~$618.7 million, of which approximately ~~$114.6~~$205.4 million were at fixed rates and ~~$365.5~~$413.3 million were at variable rates. A significant portion of the unfunded commitments related to commercial business loans and consumer home equity lines of credit. 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. Following the adoption of CECL on January 1, 2022, we recorded a reserve for unfunded commitments of $2.0 million, or 0.31% of total unfunded commitments. As of June 30, 2022, the reserve for unfunded commitments was $2.3 million or 0.32% of total unfunded commitments.

At ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were commitments under letters of credit for ~~$10.1~~$12.3 million and ~~$8.7~~$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.

At September 30, 2021, there were commitments of $35.4 million related to the construction of a new headquarters building of which $18.4 million had been paid through the end of the third quarter of 2021.

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~~Critical Accounting Estimates

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 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.

As of September 30, 2021, 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.

~~Interest rate scenario~~		Change in net interest income from base
~~Up 300 basis points~~		~~17.55%~~
~~Up 200 basis points~~		~~11.88%~~
~~Up 100 basis points~~		~~6.01%~~
~~Base~~		-
~~Down 100 basis points~~		~~(2.09)%~~
~~Down 200 basis points~~		~~(3.18)%~~
~~Down 300 basis points~~		~~(3.84)%~~

~~Critical Accounting Policies~~

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, 2020, 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 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. ~~A brief discussion~~Of the significant accounting policies used in the preparation of ~~each~~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 ~~these areas appears~~Financial Condition and Results of Operations—Critical Accounting Estimates” in our ~~2020~~ Annual Report on Form ~~10-K. During~~10-K for the ~~first three months~~year ended December 31, 2021, for a description our significant accounting policies that use critical accounting estimates.

Table of ~~2021,~~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 ~~did not~~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 ~~alter the manner in which we applied~~impact our ~~Critical~~allowance and provision for credit losses. See Note 1 – Summary of Significant Accounting Policies ~~or developed related assumptions and estimates.~~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

See Note 1 – ~~Nature~~Summary of ~~Business and Basis of Presentation~~Significant Accounting Policies in the accompanying ~~condensed~~ notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our consolidated 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.

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As of June 30, 2022, the following table summarizes the forecasted impact on net interest income using a ~~"smaller reporting company"~~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 ~~defined by Item 10~~a result of ~~Regulation S-K, the Company is not required to provide information required by this Item.~~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, ~~2021,~~2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 1A. RISK FACTORS.

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~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 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, ~~2020.~~2021.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Not applicable.

(b)

Not applicable.

(c)

Issuer Purchases of Registered Equity Securities

The following table reflects share repurchase activity during the ~~third~~second quarter of ~~2021:~~2022:

(d) Maximum

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

~~July 1 – July 31~~

~~388,612~~

~~August~~April 1, 2022 – ~~August 31~~April 30, 2022

~~388,612~~

~~September~~May 1, 2022 – ~~September 30~~May 31, 2022

~~388,612~~

~~Total~~June 1, 2022 – June 30, 2022

388,612*

399,026*

Total

399,026*

*On ~~March 9, 2021,~~June 21, 2022, the Company announced a share repurchase plan allowing us to repurchase up to ~~388,612~~399,026 shares of our common stock (the “Repurchase Plan”). As of ~~September~~June 30, ~~2021,~~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, ~~2021~~2022 would require additional approval of our Board of Directors and the Federal Reserve.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. OTHER INFORMATION.

None.

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.

INDEX TO EXHIBITS


Exhibit Number		Description

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, ~~2021,~~2022, formatted in iXBRL (Inline eXtensible Business Reporting 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: ~~November~~August 2, ~~2021~~2022		/s/ R. Arthur Seaver, Jr.
		R. Arthur Seaver, Jr.
		Chief Executive Officer ~~(Principal~~ (Principal Executive Officer)


Date: ~~November~~August 2, ~~2021~~2022		/s/ Michael D. Dowling
		Michael D. Dowling
		Chief Financial Officer ~~(Principal~~ (Principal Financial and Accounting Officer)

0001090009 sfst:HomeEquitysMember sfst:RecognizedInterestIncomeMember 2021-01-01 2021-12-31 iso4217:USD xbrli:shares


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

~~100~~6 Verdae Boulevard ~~Suite 100~~ ~~Greenville,~~ ~~S.C.~~		~~29607~~
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)~~

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock	~~SFST~~	SFST		The Nasdaq Global Market

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller Reporting Company	☒ ☐
		Emerging growth company	☐


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2829

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4548

Item 4.	Controls and Procedures	4649

PART II – OTHER INFORMATION		50

Item 1.	Legal Proceedings	4650

Item 1A.	Risk Factors	4650

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

Item 3.	Defaults upon Senior Securities	4750

Item 4.	Mine Safety Disclosures	4750

Item 5.	Other Information	4750

Item 6.	Exhibits	4751


	September 30,			December 31,				June 30,			December 31,
(dollars in thousands, except share data)	2021				2020			2022			2021
	(Unaudited)				(Audited)			(Unaudited)			(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	17,944				12,920		$	21,090			21,770
Federal funds sold		47,440				21,744			124,462			86,882
Interest-bearing deposits with banks		63,149				66,023			36,538			58,557
Total cash and cash equivalents		128,533				100,687			182,090			167,209
Investment securities:
Investment securities available for sale		113,802				94,729			98,991			120,281
Other investments		2,820				3,635			5,065			4,021
Total investment securities		116,622				98,364			104,056			124,302
Mortgage loans held for sale		31,641				60,257			18,329			13,556
Loans		2,389,047				2,142,867			2,845,205			2,489,877
Less allowance for loan losses		(36,075	)			(44,149	)
Less allowance for credit losses									(34,192	)		(30,408	)
Loans, net		2,352,972				2,098,718			2,811,013			2,459,469
Bank owned life insurance		49,521				41,102			50,463			49,833
Property and equipment, net		78,456				60,236			96,674			92,370
Deferred income taxes		16,591				9,518
Deferred income taxes, net									15,078			8,397
Accrued interest receivable									7,433			7,624
Other assets		9,840				13,705			2,527			2,788
Total assets	$	2,784,176				2,482,587		$	3,287,663			2,925,548
LIABILITIES
Deposits	$	2,433,018				2,142,758		$	2,870,158			2,563,826
Federal Home Loan Bank advances and other borrowings		0-				25,000
FHLB advances and related debt									50,000			-
Subordinated debentures		36,079				35,998			36,160			36,106
Other liabilities		49,450				50,537			48,708			47,715
Total liabilities		2,518,547				2,254,293			3,005,026			2,647,647
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized		0-				0-			-			-
Common stock, par value $.01 per share, 10,000,000 shares authorized, 7,913,381 and 7,772,748 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively		79				78
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		(1,469	)			(698	)		(3,230	)		(1,435	)
Additional paid-in capital		113,501				108,831			117,714			114,226
Accumulated other comprehensive income (loss)		(248	)			1,023
Accumulated other comprehensive loss									(10,143	)		(740	)
Retained earnings		153,766				119,060			178,216			165,771
Total shareholders’ equity		265,629				228,294			282,637			277,901
Total liabilities and shareholders’ equity	$	2,784,176				2,482,587		$	3,287,663			2,925,548


PART I – CONSOLIDATED FINANCIAL INFORMATION	Page

Item 1.	Consolidated Financial Statements	1

	Consolidated Balance Sheets	31

	Consolidated Statements of Income	42

	Consolidated Statements of Comprehensive Income	53

	Consolidated Statements of Shareholders’ Equity	64

	Consolidated Statements of Cash Flows	75

	Notes to Unaudited Consolidated Financial Statements	86


							For the three months						For the six months
	For the three months ended September 30,				For the nine months ended September 30,		ended June 30,						ended June 30,
(dollars in thousands, except share data)	2021			2020	2021	2020	2022			2021			2022			2021
Interest income
Loans	$	23,063		23,042	67,938	69,963	$	26,610			22,409			50,541			44,875
Investment securities		355		310	926	1,090		448			269			922			570
Federal funds sold and interest-bearing deposits with banks		68		63	167	218		180			53			239			99
Total interest income		23,486		23,415	69,031	71,271		27,238			22,731			51,702			45,544
Interest expense
Deposits		934		2,393	3,009	11,195		1,844			920			2,752			2,075
Borrowings		380		385	1,147	1,569		510			381			902			766
Total interest expense		1,314		2,778	4,156	12,764		2,354			1,301			3,654			2,841
Net interest income		22,172		20,637	64,875	58,507		24,884			21,430			48,048			42,703
Provision for (reversal of) loan losses		(6,000)		11,100	(8,200)	27,300
Net interest income after provision for loan losses		28,172		9,537	73,075	31,207
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		2,829		6,277	9,445	14,721		1,184			1,983			2,678			6,616
Service fees on deposit accounts		199		211	557	670		209			173			400			358
ATM and debit card income		542		465	1,532	1,258		563			521			1,092			991
Income from bank owned life insurance		321		270	919	810		315			331			630			598
Net lender and referral fees on PPP loans		0-		0-	268	2,247		-			268			-			268
Loss on disposal of fixed assets								(394	)		-			(394	)		10
Other income		348		361	1,043	1,002		388			346			788			685
Total noninterest income		4,239		7,584	13,764	20,708		2,265			3,622			5,194			9,526
Noninterest expenses
Compensation and benefits		7,468		6,666	20,974	19,450		9,915			8,724			19,371			17,834
Mortgage production costs		1,956		2,666	7,086	6,841
Occupancy		1,684		1,601	4,871	4,631		2,219			1,552			3,997			3,190
Other real estate owned (income) expenses		(3	)	673	385	673
Other real estate owned expenses								-			1			-			388
Outside service and data processing costs		1,229		1,046	3,609	3,170		1,528			1,391			3,062			2,704
Insurance		244		377	807	995		367			262			628			563
Professional fees		561		395	1,479	1,270		693			615			1,292			1,210
Marketing		240		165	623	481		329			208			596			398
Other		660		594	1,861	1,687		737			742			1,528			1,370
Total noninterest expenses		14,039		14,183	41,695	39,198		15,788			13,495			30,474			27,657
Income before income tax expense		18,372		2,938	45,144	12,717		9,586			13,457			19,888			26,772
Income tax expense		4,355		721	10,438	2,990		2,346			3,134			4,678			6,083
Net income available to common shareholders	$	14,017		2,217	34,706	9,727
Net income							$	7,240			10,323			15,210			20,689
Earnings per common share
Basic	$	1.78		0.29	4.43	1.26	$	0.91			1.32			1.91			2.65
Diluted		1.75		0.28	4.36	1.24		0.90			1.29			1.88			2.60
Weighted average common shares outstanding
Basic		7,873,868		7,732,293	7,832,330	7,711,181		7,957,631			7,847,516			7,944,814			7,811,217
Diluted		8,001,028		7,815,265	7,966,065	7,820,345		8,054,910			7,987,615			8,075,496			7,948,294


	For the three months ended September 30,					For the nine months ended September 30,				For the three months ended June 30,						For the six months ended June 30,
(dollars in thousands)	2021			2020		2021		2020		2022			2021			2022			2021
Net income	$	14,017		2,217		34,706		9,727		$	7,240			10,323			15,210			20,689
Other comprehensive income:
Unrealized gain on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax		(819	)	77		(1,609	)	1,472
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		171		(17	)	338		(309	)		(1	)		-			2			-
Other comprehensive income (loss)		(648	)	60		(1,271	)	1,163
Other comprehensive (loss) income											(3,750	)		490			(9,403	)		(623	)
Comprehensive income	$	13,369		2,277		33,435		10,890		$	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 three months ended September 30,
												Accumulated
							Nonvested			Additional		other
	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
June 30, 2020	7,734,644		77	0-		0-		(1,001	)		108,031		805			108,242		216,154
Net income	-		-	-		-		-			-		-			2,217		2,217
Proceeds from exercise of stock options	250		-	-		-		-			1		-			-		1
Issuance of restricted stock	2,700		-	-		-		(88	)		88		-			-		-
Compensation expense related to restricted stock, net of tax	-		-	-		-		100			-		-			-		100
Compensation expense related to stock options, net of tax	-		-	-		-		-			217		-			-		217
Other comprehensive income (loss)	-		-	-		-		-			-		60			-		60

September 30, 2020	7,737,594	$	77	0-	$	0-	$	(989	)	$	108,337	$	865		$	110,459	$	218,749
June 30, 2021	7,899,931		79	0-		0-		(1,173	)		112,604		400			139,749		251,659
Net income	-		-	-		-		-			-		-			14,017		14,017
Proceeds from exercise of stock options	4,950		-	-		-		-			175		-			-		175
Issurance of restricted stock	8,500		-	-		-		(431	)		431		-			-		-
Compensation expense related to restricted stock, net of tax	-		-	-		-		135			-		-			-		135
Compensation expense related to stock options, net of tax	-		-	-		-		-			291		-			-		291
Other comprehensive income (loss)	-		-	-		-		-			-		(648	)		-		(648	)

September 30, 2021	7,913,381	$	79	0-	$	0-	$	(1,469	)	$	113,501	$	(248	)	$	153,766	$	265,629


	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	)


	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


	December 31, 2020
	Amortized		Gross Unrealized				Fair
	Cost		Gains		Losses		Value
Available for sale
US government agencies	$	6,500		1		8		6,493
SBA securities		504		0-		19		485
State and political subdivisions		18,614		804		30		19,388
Asset-backed securities		11,587		15		73		11,529
Mortgage-backed securities
FHLMC		12,157		206		47		12,316
FNMA		35,893		507		91		36,309
GNMA		8,179		53		23		8,209
Total mortgage-backed securities		56,229		766		161		56,834
Total	$	93,434		1,586		291		94,729


															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, 2021
	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		9	$	11,846	$	157		2	$	1,929	$	71		11	$	13,775	$	228
State and political subdivisions		9		7,280		168		5		2,565		58		14		9,845		226
Asset-backed securities		0-		0-		0-		2		1,794		13		2		1,794		13
Mortgage-backed securities		25		34,823		664		9		11,296		244		34		46,119		908
Total		43	$	53,949	$	989		18	$	17,584	$	386		61	$	71,533	$	1,375


	September 30, 2021
			After one
	One year		but within		After five
(dollars in thousands)	or less		five years		years		Total
Commercial
Owner occupied RE	$	17,069		121,176		332,369		470,614
Non-owner occupied RE		32,463		315,742		280,316		628,521
Construction		11,666		22,095		54,131		87,892
Business		61,534		145,862		100,573		307,969
Total commercial loans		122,732		604,875		767,389		1,494,996
Consumer
Real estate		14,126		46,753		587,397		648,276
Home equity		3,099		22,683		129,267		155,049
Construction		703		1,831		54,885		57,419
Other		8,180		21,292		3,835		33,307
Total consumer loans		26,108		92,559		775,384		894,051
Total gross loans, net of deferred fees	$	148,840		697,434		1,542,773		2,389,047
Loans maturing after one year with:
Fixed interest rates							$	1,883,823
Floating interest rates								356,384


	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


	September 30, 2021
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Current	$	470,351		621,383		87,892		305,804		1,485,430
30-59 days past due		263		0-		0-		696		959
60-89 days past due		0-		7,138		0-		1,469		8,607
Greater than 90 Days		0-		0-		0-		0-		0-
	$	470,614		628,521		87,892		307,969		1,494,996


	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


	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


			September 30, 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		loan losses		loan losses		loan losses
Commercial
Owner occupied RE	$	1,269		1,269		1,269		0-		0-
Non-owner occupied RE		9,283		8,238		7,400		838		167
Construction		0-		0-		0-		0-		0-
Business		3,333		3,303		1,469		1,834		788
Total commercial		13,885		12,810		10,138		2,672		955
Consumer
Real estate		3,035		2,936		2,109		828		139
Home equity		2,190		2,049		1,992		56		56
Construction		0-		0-		0-		0-		0-
Other		126		126		0-		126		15
Total consumer		5,351		5,111		4,101		1,010		210
Total	$	19,236		17,921		14,239		3,682		1,165


	Three months ended September 30, 2021					Three months ended September 30, 2020
	Average		Recognized		Average		Recognized
	recorded		interest		recorded		interest
(dollars in thousands)	investment		income		investment		income
Commercial
Owner occupied RE	$	1,269		17		2,985		40
Non-owner occupied RE		5,125		227		3,880		63
Construction		0-		0-		72		2
Business		2,665		61		2,506		51
Total commercial		9,059		305		9,443		156
Consumer
Real estate		3,609		0-		3,063		58
Home equity		1,859		30		2,540		22
Construction		0-		0-		0-		0-
Other		127		1		139		1
Total consumer		5,595		31		5,742		81
Total	$	14,654		336		15,185		237


	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


	Nine months ended					Nine months ended				Year ended
	September 30, 2021					September 31, 2020				December 31, 2020
	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	$	1,419		49		2,617		73		2,423		88
Non-owner occupied RE		3,643		321		4,724		165		4,217		221
Construction		69		0-		36		2		56		6
Business		2,497		115		2,270		98		2,306		243
Total commercial		7,628		485		9,647		338		9,002		558
Consumer
Real estate		3,911		102		3,207		98		3,372		170
Home equity		1,944		64		2,067		39		2,128		5
Construction		0-		0-		0-		0-		0-		0-
Other		130		3		143		3		141		79
Total consumer		5,985		169		5,417		140		5,641		254
Total	$	13,613		654		15,064		478		14,643		812


								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	%


	Three months ended September 30, 2021
	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	$	7,099			13,223			951		6,722			10,028			2,562			753			574			41,912
Provision for loan losses		(1,159	)		(1,558	)		149		(1,246	)		(1,469	)		(598	)		(28	)		(91	)		(6,000	)
Loan charge-offs		0-			(159	)		0-		(84	)		0-			0-			0-			0-			(243	)
Loan recoveries		0-			129			0-		58			18			193			0-			8			406
Net loan recoveries (charge-offs)		0-			(30	)		0-		(26	)		18			193			0-			8			163
Balance, end of period	$	5,940			11,635			1,100		5,450			8,577			2,157			725			491			36,075
Net charge-offs (recoveries) to average loans (annualized)																									(0.03	%)
Allowance for loan losses to gross loans																									1.51	%
Allowance for loan losses to nonperforming loans																									259.95	%


														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	%

	Nine months ended September 30, 2021
	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	$	8,145			12,049			1,154		7,845			10,453		3,249			747			507			44,149
Provision for loan losses		(2,299	)		(509	)		(54	)	(2,256	)		(1,894	)	(1,149	)		(22	)		(17	)		(8,200	)
Loan charge-offs		0-			(158	)		0-		(353	)		0-		(139	)		0-			(8	)		(658	)
Loan recoveries		94			253			0-		214			18		196			0-			9			784
Net loan recoveries (charge-offs)		94			95			0-		(139	)		18		57			0-			1			126
Balance, end of period	$	5,940			11,635			1,100		5,450			8,577		2,157			725			491			36,075
Net charge-offs (recoveries) to average loans (annualized)																								(0.01	%)

	Nine months ended September 30, 2020
	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	$	2,835	4,304		541	3,692		3,278		1,447			268	277			16,642
Provision for loan losses		5,070	8,081		653	4,562		6,187		1,976			434	337			27,300
Loan charge-offs		0-	(1,508	)	0-	(735	)	0-		(100	)		0-	(70	)		(2,413	)
Loan recoveries		0-	554		0-	46		11		68			0-	11			690
Net loan recoveries (charge-offs)		0-	(954	)	0-	(689	)	11		(32	)		0-	(59	)		(1,723	)
Balance, end of period	$	7,905	11,431		1,194	7,565		9,476		3,391			702	555			42,219
Net charge-offs to average loans (annualized)																	0.11	%


	September 30, 2021
	Allowance for loan losses				Recorded investment in loans
(dollars in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	955	210	1,165	12,810	5,111	17,921
Collectively evaluated		23,170	11,740	34,910	1,482,186	888,940	2,371,126
Total	$	24,125	11,950	36,075	1,494,996	894,051	2,389,047


	For the nine months ended September 30, 2020
											Pre-		Post-
											modification		modification
	Renewals		Reduced or		Converted		Maturity		Total		outstanding		outstanding
	deemed a		deferred		to interest		date		Number		recorded		recorded
(dollars in thousands)	concession		payments		only		extensions		of loans		investment		investment
Commercial
Business		1		0-		0-		0-		1	$	1,037	$	1,037
Consumer
Real estate		2		0-		0-		0-		2		647		647
Home equity		3		0-		0-		0-		3		1,852		1,852
Total loans		6		0-		0-		0-		6	$	3,536	$	3,536