Heritage Southeast Bancorporation : Quarterly Report - HSBI Quarterly Earnings 03.31.22

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Financial Highlights

(Unaudited) (in thousands, except per share data)

Three Months EndedMarch 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

March 31, 2021

Earnings:

$

12,727 $ 12,769

Net Interest Income Net Income

Net Income excluding transaction costs

4,146 4,333

Per Share Data: Earnings per share: Basic

12,325 $ 3,840 4,288

12,633 $ 3,108 4,809

13,152 $ 3,503 4,368

2,869 4,333

$ $ $

0.55 $ 0.53 $ 0.59 $

0.45 $ 0.43 $ 0.67 $

0.50 $ 0.49 $ 0.60 $

0.41 $ 0.62

Diluted

0.40 $ 0.60

Diluted excluding transaction costs Weighted average number of shares: Basic

0.57 $ 0.60

7,008

6,979

6,976

6,967 6,956

Diluted

7,225

7,218

7,222

7,212 7,179

Period-end number of shares (1) Book value per share (period-end) Tangible book value per share (period-end)

7,212

7,220

7,220

7,220 7,222

20.92 $

21.32 $

21.09 $

20.65 $ 20.18

Key Ratios (percent):

Return on average assets

$ $

16.02 $

16.40 $

16.13 $

15.65 $ 15.16

0.93% 1.04% 13.21%

0.75% 1.16% 10.61%

0.84% 1.05% 12.15%

0.69% 1.10%

1.00% 1.10%

Return on average assets excluding transaction costs Return on average tangible equity

10.34% 16.28%

Return on average tangible equity excluding transaction costs

14.76%

16.41%

15.15%

14.95% 16.28%

Yield on interest earning assets Cost of funds

3.52%

3.60%

3.78%

3.72% 4.00%

0.27%

0.29%

0.33%

0.36% 0.42%

Net interest margin

3.25%

3.31%

3.45%

3.36% 3.58%

3.20%

3.23%

3.28%

3.26% 3.48%

69.9%

77.4%

72.0%

76.5% 67.2%

Net interest margin, excluding PPP loans Non-interest income as a percent of total revenue Efficiency ratio

25.1%

29.9%

25.4%

26.6% 26.0%

Efficiency ratio excluding transaction costs Tangible common equity to tangible assets

66.3%

63.7%

65.9%

67.2% 67.2%

6.95%

7.31%

7.26%

6.99% 6.81%

Asset Quality (period-end):

Allowance for loan losses to total loans

1.42%

1.44%

1.39%

1.43% 1.41%

Allowance for loan losses to loans, excluding PPP loans Allowance for loan losses to total nonperforming loans Nonperforming assets to total assets

1.43%

1.46%

1.42%

1.52% 1.53%

811.4%

877.7%

692.3%

1113.0% 731.0%

0.16%

0.16%

0.20%

0.18% 0.24%

Net charge-offs (annualized) to average loans

0.04% -0.43%

Net charge-offs (annualized) to average loans, excluding PPP loans

Capital (period-end):

12.32% 12.02%

Heritage Southeast Bank (HSB) risk based capital ratios: CET1

-0.06% -0.06%

-0.15% -0.15%

0.12% 0.13%

0.04% -0.46%

13.57% 13.27%

Tier 1

Total Leverage

Other (period-end):

Branches

12.50% 12.50% 13.69% 9.89%

12.67% 12.67% 13.90% 9.81%

12.29% 12.29% 13.50% 9.40%

12.32% 12.02%

9.01% 9.10%

23 275

23 280

23 278

22 22

FTE

276 278

(1) Includes restricted stock and shares yet to be issued under a supplemental executive retirement plan.

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Income

March 31, 2022

Three Months Ended

December 31, September 30, 2021 2021

June 30, 2021

March 31, 2021

Interest and dividend revenue:

Loans, including fees

$

• 12,247 $

• 12,666 $

• 12,705 $

12,592 $ 12,625

PPP loans, including fees Investment securities

235

428

1,014

1,024 1,071

756

518

564

376 516

Fed funds sold, deposits in banks and other

113

113

107

79 55

Total interest and dividend revenue

13,351

13,725

14,390

14,071 14,267

Interest expense:

Deposits

Fed funds purchased and repurchase agreements Line of credit

656 14 271 -703

760

843 986

8

8

6 10

253

192

124 110

Subordinated notes

47

198

290 310

Junior subordinated debentures

85 1,026

81

80

81 82

Total interest expense

1,092

1,238

1,344 1,498

12,727 12,769

Net interest income Provision for loan losses

Net interest revenue after provision for loan losses

12,727 12,769

Noninterest revenue:

1,453

1,506

1,517

1,665 1,536

12,325 - 12,325

12,633 - 12,633

13,152 - 13,152

-

-

Service charges and fees Interchange and ATM fees Gain on sale of SBA loans Other

1,476

1,608

1,571

1,291 1,285

419

1,521

652

738 906

779

759

741

913 765

Total noninterest revenue

4,127

5,394

4,481

4,607

4,492

Operating expenses:

Salaries and employee benefits

6,551 6,528

Occupancy and equipment

6,341 1,350

6,692 1,394

6,760 1,434

1,443 1,402

Other real estate expenses, including losses on sales and impairments, net

7

93

27

Transaction costs

Other

3,441

3,538

3,634

Total other operating expenses Income before income tax expense

11,743

604

14,197

2,480

12,924

1,069

165 1,612 3,720 13,491

7 - 3,904 11,841

4,709

3,830

4,709

3,843 5,420

Income tax expense

869

722

1,206

974 1,087

Net income

$

3,840

$

3,108

$

3,503

$

2,869

$

4,333

Weighted-average number of shares outstanding:

Basic

7,008 7,225

6,979 7,218

6,976 7,222

6,967 6,956

Diluted

7,212 7,179

Earnings per share:

Basic

$ $

0.55 0.53

$ $

0.45 0.43

$ $

0.50 0.49

$ $

0.41 $ 0.62

Diluted

0.40 $ 0.60

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Consolidated Balance Sheets

(in thousands)

(Unaudited) March 31, 2022

(Unaudited) December 31, 2021

(Unaudited) September 30, 2021

(Unaudited) June 30, 2021

(Unaudited) March 31, 2021

Assets

$

• 30,191 $

• 29,689 $

• 28,201 $

27,722 $ 23,851

Cash and due from banks Interest-bearing deposits with banks

282,852

261,513

259,342

278,360 246,824

Cash and cash equivalents

313,043

291,202

287,543

306,082 270,675

Securities available for sale, at fair value Other investments

188,954

197,309

171,804

173,606 174,785

827 1,078,736 4,171

786 1,044,413 10,912

786 1,044,938 23,051

786

786

Loans:

999,127 994,251

Loans, excluding PPP loans PPP loans

59,233 88,201

Allowance for loan losses

(15,159)

(15,256)

Loans, net

(15,396) 1,067,511

(15,228) 1,040,097

(14,837) 1,053,152

1,043,201 1,067,196

34,400

35,136

35,770

36,114 37,220

857

857

1,128

1,533 1,839

Premises and equipment, net Bank owned life insurance Other real estate owned Goodwill

34,871

34,634

34,404

34,174 33,925

28,275

28,275

28,275

28,275 28,275

7,046

7,283

7,521

7,758 7,995

7,280

6,893

7,366

7,423 8,140

Core deposit intangible, net Deferred tax asset, net Other assets

13,622

12,093

12,261

13,313 14,362

Total Assets

$

1,696,686

$

1,654,565

$

1,640,010

$

1,652,265

$

1,645,198

$

519,305

$

485,754

$

490,341

$

$

271,545

275,115

259,811

457,768

439,965

427,272

220,349

226,604

237,292

Liabilities Deposits: Noninterest-bearing Interest-bearing demand Money market and savings Time

488,877 270,380 425,371 250,839

479,653 269,517 422,904 261,710

Total deposits

1,468,967

1,427,438

1,414,716

1,435,467 1,433,784

27,373

23,988

23,424

15,241 13,413

Securities sold under agreements to repurchase Line of credit

34,688 -

34,188 -

23,688

22,688 14,688

Subordinated notes

8,674

13,165 19,656

Junior subordinated debentures Accrued expenses and other liabilities

9,442

9,403

9,365

9,327 9,288

5,377

5,588

7,862

7,312 8,598

Total liabilities

1,545,847

1,500,605

1,487,729

1,503,200

1,499,427

41,637

37,798

34,689

31,186 28,316

Shareholders' Equity Common stock Additional paid in capital Retained earnings

Other comprehensive income (loss)

702

703

702

702

702

117,307

117,443

117,298

117,151 116,972

(8,807)

(1,984)

(408)

26 (219)

Total Shareholders' Equity

150,839

Total Liabilities and Shareholders' Equity

$

1,696,686

$

1,654,565

$

1,640,010

$

1,652,265

$

1,645,198

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY GAAP to Non-GAAP Reconciliation

Net income (GAAP) Transaction costs

Income tax benefit related to transaction costs Net income excluding transaction costs

$

Three Months Ended
March 31,	December 31,	September 30,	June 30,	March 31,
2022	2021	2021	2021	2021

3,840 $ 604 (156)

3,108 $ 2,480 (779)

3,503 $ 1,069 (204)

2,869 $ 1,612 (335)

4,333 - -$

4,288

$

4,809

$

4,368

$

4,146

$

4,333

Diluted earnings per share: GAAP

$ $

0.53 0.59 7,225

$ $

0.43 0.67 7,218

$ $

0.49 0.60 7,222

$ $

0.40 $ 0.60

Excluding transaction costs

0.57 $ 0.60

Weighted average number of shares - diluted

7,212 7,179

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Loan Portfolio

(Unaudited) (in thousands)

Real estate loans:

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

March 31, 2021

$

• 173,066 $

• 159,630 $

• 154,487 $

144,263 $ 152,889

267,815

265,900

275,220

260,186 266,258

6,487

6,592

13,826

14,017 6,746

Construction and land development Single-family residential Commercial - owner occupied Commercial - other Multifamily

Total real estate loans

151,033

158,667

163,412

162,996 165,362

258,112

239,994

228,229

214,995 198,965

856,513

830,783

835,174

796,457 790,220

212,109

202,966

197,084

190,095 190,365

Commercial loans (not secured by real estate) Consumer loans (not secured by real estate)

11,596

12,081

14,015

13,874 14,861

Gross loans

1,080,218

1,045,830

1,046,273

1,000,426

995,446

Unearned income

(1,482)

(1,417)

(1,335)

(1,299)

(1,195)

Loans, net of unearned income

$

1,078,736

$

1,044,413

$

1,044,938

$

999,127

$

994,251

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021

March 31, 2021

PPP loans:

$

• 209 $

• 644 $

• 2,344 $

7,033 $ 11,718

15,328

26,384 35,498

Up to $50,000 $50,001 - $150,000 $150,001 - $2 million Greater than $2 million

318

804

3,936

15,438 24,231

3,754 -

9,788 -

2,155

11,963 17,953

Total PPP loans (1)

4,281

11,236

23,763

Unearned income

(110)

(324)

(712)

60,818 (1,585)

89,400 (1,199)

PPP loans, net of unearned income

$

4,171

$

$

$

$

(1)

March 31, 2022 includes $4.0 million and $310,000 of loans originated in 2021 and 2020, respectively.

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Asset Quality Information

(Unaudited) (in thousands)

Classified assets:

March 31,	December 31,	September 30,	June 30,	March 31,
2022	2021	2021	2021	2021

$

$

$

1,362 $ 2,087

Nonperforming loans Other real estate owned Total nonperforming assets Accruing classified loans Total classified assets

1,897 857 2,754 327

1,735 857 2,592 676

• 2,143 $ 1,128 3,271 804

1,533 1,839

2,895 811

3,926 835

$

3,081

$

3,268

$

4,075

$

3,706

$

4,761

0.18% 0.24%Classified assets to HSB Tier 1 capital plus ALL Nonperforming assets to total assets

1.7% 0.16%

1.9% 0.16%

2.5% 0.20%

2.3% 3.1%

$

15,256 $ 14,117

Allowance for loan losses: Balance at beginning of period Provision for loan losses Charge-offs

15,228 $ -14,837 $ -15,159 $ -

Recoveries

(99) 267

(295) 686

(403)

81

- (195)

98

- (198) 1,337

Balance at end of period

$

15,396

$

15,228

$

14,837

$

15,159

$

15,256

Loans, excluding PPP loans PPP loans

$

1,078,736

$

1,044,413 $

1,044,938 $

999,127 $ 994,251

4,171

10,912

23,051

59,233 88,201

1.42%

1.44%

1.39%

1.43% 1.41%

Performing past due loans Allowance as % of loans

1,638

1,277

3,541

1,464 2,500

Allowance as % of loans, excluding PPP loans Allowance as a % of nonperforming loans Average loans, excluding PPP loans Average PPP loans

1.43%

1.46%

1.42%

1.52% 1.53%

811.4%

877.7%

692.3%

1113.0% 731.0%

1,056,269

1,044,492

1,017,213

993,346 988,230

8,075

15,164

40,910

77,325 83,489

Net charge-offs (annualized) to average loans Net charge-offs (annualized) to average loans, excluding PPP loans

-0.06% -0.06%

-0.15% -0.15%

0.12% 0.13%

0.04% -0.43%

0.04% -0.46%