GrandSouth Bancorporation : reports second quarter 2022 results

GrandSouth Bancorporation reports second quarter 2022 results

GREENVILLE, SC, July 18, 2022

GrandSouth Bancorporation (GRRB:OTCQX) (the "Company" or "GrandSouth"), the holding company for GrandSouth Bank announced today that net income for the second quarter of 2022 was $3.7 million.

The Board of Directors declared a quarterly cash dividend of $0.13 per common share ($0.1365 per Series A preferred share) payable on August 18, 2022 to shareholders of record on August 4, 2022.

Second Quarter 2022 Highlights - For and during the quarter ended June 30, 2022:

• Net Income was $3.7 million, a decrease of $0.3 million, or 6.81%, from the same quarter in 2021.
• Basic and diluted earnings per share were $0.67 and $0.65, respectively.
• The annualized returns on average assets and average equity were 1.18% and 15.22%, respectively.
• Total assets increased $0.8 million, or 0.06%, to $1.3 billion.
• Gross loans increased by $16.6 million, or an annualized rate of 7.12%, to $952.8 million.
• Total deposits increased $2.2 million, or an annualized rate of 0.79%, to $1.1 billion.
• Cost of funds decreased by six basis points, or 12.50%, from the same quarter in 2021.
• 0.01% of Core Bank loans (gross loans excluding specialty floor plan loans) were 30 days past due as of June 30, 2022. The annualized net recovery ratio for the quarter was 0.01%.
• The efficiency ratio was 64.38%, up from 58.40% in the prior quarter and 57.44% in the same quarter in 2021.

JB Schwiers, the Company's President, said, "We are proud to report another quarter of solid earnings in the second quarter of 2022. As announced on June 21st, we have agreed to a proposed merger with First Bancorp, a banking company headquartered in North Carolina with over $10 billion in assets, that, pending regulatory and our shareholder approval, is projected to close late this year or the first quarter of 2023. The proposed merger with First Bancorp will allow us to continue to operate as a community bank. The culture of the two companies is very similar, emphasizing great service to our customers. We are excited about what the future holds for our customers, our employees, and our shareholders."

During the second quarter, we recognized $0.9 million in merger related noninterest expenses resulting from this proposed transaction. Absent these expenses and adjusted for taxes, our second quarter return on average assets and return on average equity were 1.40% and 18.01%, respectively. We have remained focused on the changing economic environment, and we believe our balance sheet is well positioned for a rising rate environment. The net interest margin expanded to 4.42% in the second quarter compared to 4.38% in the second quarter of 2021. Thirty‐three percent of our loan balances are variable rate loans and 85% of our fixed rate portfolio matures in less than five years. Our credit quality remains excellent with non‐performing assets at 0.09% and an annualized net recovery rate of 0.01%.

Core bank loan growth rebounded in the second quarter, growing at an annualized growth rate of 9.2% after contracting in the first quarter of this year. Total deposits increased $2.2 million during the second quarter. The deposit mix continues a favorable trend as noninterest bearing deposits have increased

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19.6% since the second quarter of 2021 compared to total deposits growth of 9.3% since the second quarter of 2021."

Specialty Floor Plan Loans

Specialty floor plan loans finished the quarter ended June 30, 2022 at $107.7 million, down from $109.8 million at March 31, 2022 and up from $98.3 million at December 31, 2021. The average balance of such loans outstanding for the quarters ending June 30, 2022 and 2021 were $109.0 million and $82.8 million, respectively. The 2020 pandemic‐related negative trends have reversed and average outstanding balances increased by 31.62% in the second quarter of 2022 when compared to the second quarter of 2021. The losses from specialty floor plan loan defaults remain low resulting in a 0.25% annualized net charge off rate in the second quarter of 2022, as compared to a 0.68% annualized net charge off rate in the first quarter of 2022 and a 0.07% annualized net recovery rate in the second quarter of 2021.

Net Interest Income

Net interest income was $13.4 million for the quarter ended June 30, 2022, up $1.3 million, or 10.44%, from the same period in 2021. For the six months ended June 30, 2022, net interest income increased $2.2 million, or 9.27%, to $26.4 million from $24.2 million during the same period in 2021. These increases were primarily driven by an increase in interest and fees on loans, an increase in interest on investments and a decrease in deposit interest expense.

Noninterest Income

Noninterest income was $0.6 million for the second quarter of 2022, a decrease of $0.1 million, or 17.06%, from the second quarter of 2021. Year to date through June 30, 2022, noninterest income decreased $0.1 million, or 5.96%, from in the same period in 2021. These changes were primarily driven by an increase in service charges on deposit accounts partially offset by a decrease in other noninterest income.

Noninterest Expense

Noninterest expense increased $1.6 million, or 21.94%, in the second quarter of 2022 when compared to the same period in 2021. For the year to date through June 30, 2022, noninterest expense increased $1.9 million, or 12.89%, over the same period in 2021. The increases were primarily attributable to increases in compensation and employee benefits expenses and professional and advisory expenses. Of professional and advisory expenses during the quarter and year to date, $0.9 million were related to the Company's pending merger with First Bancorp.

Loan Portfolio

The Company's gross loan portfolio increased $16.6 million, or an annualized rate of 7.12%, during the second quarter of 2022 and $19.3 million, or an annualized rate of 4.18%, for the year to date through June 30, 2022. Specialty floor plan loans decreased by $2.1 million, or an annualized rate of 7.72% for the quarter and increased $9.4 million, or an annual rate of 19.27%, for the year to date through June 30, 2022. Core Bank loans grew by $19.0 million, or an annual rate of 9.24%, and $10.6 million, or an annual rate of 2.56%, during the same periods, respectively.

Following our sale of $24.6 million of the purchased student loans during the fourth quarter of 2021, as of December 31, 2021, our balance of purchased student loans was $0.7 million, which decreased to zero as of June 30, 2022.

The composition of the loan portfolio consisted of the following on June 30, 2022, March 31, 2022 and December 31, 2021:

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		June 30,			March 31,		December 31,
		2022			2022			2021
		(Dollars in thousands)
Commercial, financial and agricultural	$	143,549	$	134,639	$	135,438
Specialty floor plan loans		107,718			109,832			98,324
Commercial PPP loans		‐			98			1,274
Real estate ‐ construction, land development
and other		118,272			117,386			114,100
Real estate - mortgage		576,875			567,769			577,083
Purchased student loans		‐			297			651
Installment loans to individuals		6,399			6,169			6,605
Loans, gross		952,813			936,190			933,475
Allowance for loan losses		(14,100)			(13,949)			(13,723)
Loans, net	$	938,713	$	922,241	$	919,752

Loan Loss Provision and Asset Quality

For the quarter ended June 30, 2022, the provision for loan losses was $0.1 million, a decrease of $0.2 million, or 61.49%, from the same quarter a year ago. Year to date through June 30, 2022, the provision for loan losses was $0.4 million, a decrease of $0.1 million, or 22.50%, over the same period a year ago. Net recoveries for the second quarter of 2022 were $33 thousand compared to $56 thousand for the same period in 2021. Net charge offs for the year to date through June 30, 2022 were $50 thousand compared to net recoveries of $202 thousand during the same period in 2021.

The allowance for loan losses as a percentage of total gross loans was 1.48% at June 30, 2022, down from 1.49% at March 31, 2022 and up from 1.47% at December 31, 2021. The Company's management believes the allowance is adequate to absorb losses that are inherent in the loan portfolio as of June 30, 2022, and management will continue to closely monitor credit quality and activity.

Other real estate owned was $0.8 million at June 30, 2022, with no change from March 31, 2022 and December 31, 2021. Nonaccrual loans decreased to $0.3 million at June 30, 2022 from $0.6 million at March 31, 2022 and $1.3 million at December 31, 2021.

Securities Portfolio

Investment securities available‐for‐sale were $116.1 million at June 30, 2022, down $7.0 million, or 5.71%, from $123.2 million at March 31, 2022 and up $4.2 million, or 3.73%, from $112.0 million at December 31, 2021.

Investment securities held to maturity, all of which were purchased during the second quarter of 2022, were $6.0 million at June 30, 2022, up $6.0 million from zero at March 31, 2022 and December 31, 2021.

Securities in the investment portfolio as of June 30, 2022 were as follows:

• asset backed securities totaling $2.2 million;
• residential government‐sponsored mortgage‐backed securities totaling $28.0 million;
• collateralized mortgage obligations totaling $23.1 million;
• taxable municipal bonds totaling $11.7 million;
• nontaxable municipal bonds totaling $10.7 million;

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• corporate debt securities totaling $14.4 million; and
• treasury securities totaling $32.0 million.

During the second quarter of 2022, three securities totaling $6.5 million were purchased and no securities were sold.

Deposits

Total deposits increased $2.2 million, or an annual rate of 0.79%, during the second quarter of 2022 and $52.1 million, or an annual rate of 9.91%, for the year to date through June 30, 2022 to $1.1 billion at quarter end. Noninterest bearing deposits increased $17.8 million, or an annual rate of 25.17%, during the quarter and $20.8 million, or an annual rate of 14.96%, for the year to date through June 30, 2022. During the quarter and year to date, combined demand deposit, money market, and savings accounts grew, respectively, by $16.5 million, or an annual rate of 7.25%, and $77.3 million, or an annualized rate of 18.33% to $927.4 million, respectively. This growth offset the decrease during the same periods in certificate of deposit, IRAs and CDARS of $14.3 million, or an annual rate of 28.92%, and $25.2 million, or an annual rate of 24.32%, respectively, to $183.7 million.

Borrowings

As of June 30, 2022, the Company had $5.0 million of Federal Home Loan Bank advances and $35.9 million of junior subordinated notes outstanding.

Shareholders' Equity

Shareholders' equity was $96.1 million at June 30, 2022, a decrease of $0.3 million, or 0.32%, for the quarter and $1.3 million, or 1.32%, for the year to date through June 30, 2022. The balance was increased by the normal retention of earnings and exercise of stock options. Offsetting the increase were declines in the fair value of investments due to rising interest rates.

Tier 1 Risk Based Capital Ratios were 10.72% and 12.75% for the Company and the Bank, respectively, at June 30, 2022.

About GrandSouth Bancorporation

GrandSouth Bancorporation is a bank holding company with assets of $1.3 billion at June 30, 2022. GrandSouth Bank provides a range of financial services to individuals and small and medium sized businesses. GrandSouth Bank has eight branches in South Carolina, located in Greenville, Fountain Inn, Anderson, Greer, Columbia, Orangeburg and Charleston.

Press contact: JB Schwiers 864‐770‐1000

Website: www.grandsouth.com

Non‐GAAP Measures

This press release includes financial information determined by methods other than in accordance with generally accepted accounting principles ("GAAP"). This financial information includes certain operating performance measures. Such measures include: "Tangible book value per common share, outstanding," "Tangible book value per share, adjusted for the conversion of Series A preferred stock," "Tangible book value, adjusted for the conversion of Series A preferred stock," and "Common tangible book value."

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Management has included these non‐GAAP measures because it believes these measures may provide useful supplemental information for evaluating the Company's underlying performance trends. Further, management uses these measures in managing and evaluating the Company's business and intends to refer to them in discussions about our operations and performance. Operating performance measures should be viewed in addition to, and not as an alternative to or substitute for, measures determined in accordance with GAAP, and are not necessarily comparable to non‐GAAP measures that may be presented by other companies.

Forward‐Looking Statements

This press release contains forward‐looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that relate to future events or the future performance of the Company, including statements related to the expected timing of the closing of the proposed merger with First Bancorp and the expected returns and other benefits of the proposed merger to shareholders. Forward‐looking statements are not guarantees of performance or results. These forward‐looking statements are based on the current beliefs and expectations of the Company's management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond management's control. In addition, these forward‐looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed or implied in these forward‐looking statements because of numerous possible uncertainties. Words like "may," "plan," "contemplate," "anticipate," "believe," "intend," "future," "continue," "expect," "project," "predict," "estimate," "could," "should," "would," "will," and similar expressions, should be considered as identifying forward‐looking statements, although other phrasing may be used. Such forward‐looking statements involve risks and uncertainties beyond the Company's control and may not be realized due to a variety of factors. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward‐looking statements: (1) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third‐ party relationships and revenues; (2) the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations may be different than expected; (3) the rate of delinquencies and amounts of charge‐offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk‐related losses and expenses; (4) changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action; (5) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) could have a negative impact on the Company; (6) changes in interest rates, which may affect the Company's net income, interest expense, prepayment penalty income, and other future cash flows, or the market value of the Company's assets, including its investment securities; (7) changes in accounting principles, policies, practices, or guidelines; (8) that the proposed merger may not be timely completed, if at all; (9) that prior to completion of the merger or thereafter, the parties' respective businesses may not perform as expected due to transaction‐related uncertainties or other factors; (10) that the parties are unable to implement successful integration strategies; (11) that the required regulatory, shareholder, or other closing conditions are not satisfied in a timely manner, or at all; (12) reputational risks and the reaction of the parties' customers to the proposed merger; (13) diversion of management time to merger‐related issues; and (14) deposit attrition, operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected. Additional factors that could cause actual results to differ materially from those expressed in

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