UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period from ___________ to ___________


For the quarterly period ended						Commission file
September 30, ~~2020~~ 2021						number ~~001~~‑~~39215~~ 001-39215

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


~~Florida~~		FL			46-5144312
	(State or other jurisdiction of		~~(I.R.S. Employer~~
incorporation or organization)				(I.R.S. Employer Identification Number)

396 Alhambra Circle, Suite 255,

Coral Gables, FL 33134 ~~(786)~~786 483-1757

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Class A Common Stock

PFHD

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒xYes ☐oNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒xYes ☐oNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐ o	Accelerated filer	☐ o

Non-accelerated filer	☒ x	Smaller reporting company	☒ x

		Emerging growth company	☒
	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐oYes ☒xNo

Number of shares of common stock outstanding as of November ~~12, 2020: 13,485,768~~

9, 2021: 13,426,141

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. ~~Condensed~~ Consolidated Financial Statements (unaudited).

PROFESSIONAL HOLDING CORP.

~~CONDENSED~~

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)

September 30,

December 31,

2020

2019
ASSETS




Cash and due from banks

$
36,176

$
21,408
Interest-bearing deposits

251,664

150,572
Federal funds sold

26,696

26,970
Cash and cash equivalents

314,536

198,950
Securities available for sale, at fair value

97,067

28,441
Securities held to maturity (fair value September 30, 2020 – $1,605, December 31, 2019 – $224)

1,589

214
Equity securities

995

971
Loans, net of allowance of $15,035 and $6,548 as of September 30, 2020 and December 31, 2019, respectively

1,589,010

785,167
Federal Home Loan Bank stock, at cost

3,654

2,994
Federal Reserve Bank stock, at cost

4,762

2,074
Accrued interest receivable

6,547

2,498
Premises and equipment, net

4,655

4,307
Bank owned life insurance

17,236

16,858
Goodwill

15,651

—
Core deposit intangibles

3,603

—
Other assets

17,618

10,667

$
2,076,923

$
1,053,141
LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Demand – non-interest bearing

$
489,757

$
184,211
Demand – interest bearing

840,418

599,318
Time deposits

236,968

109,344
Total deposits

1,567,143

892,873
Federal Home Loan Bank advances

50,000

55,000
Subordinated debt

10,197

—
Official checks

4,752

6,191
Line of credit

—

9,999
PPPLF advances

224,341

—
Accrued interest and other liabilities

16,375

9,776
Total liabilities

1,872,808

973,839
Commitments and contingent liabilities

Stockholders’ equity

Preferred stock, 10,000,000 shares authorized, none issued

—

—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 13,641,187 and outstanding 13,080,893 shares as of September 30, 2020 and authorized 50,000,000 shares, issued 5,360,262 and outstanding 5,115,262 shares at December 31, 2019

135

53
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, 401,633 shares issued and outstanding at September 30, 2020 and 752,184 shares issued and outstanding at December 31, 2019

4

7
Treasury stock, at cost

(9,132)

(4,155)
Additional paid-in capital

203,041

77,019
Retained earnings

9,215

6,451
Accumulated other comprehensive income (loss)

852

(73)
Total stockholders’ equity

204,115

79,302

$
2,076,923

$
1,053,141

September 30,
2021 December 31,
2020
ASSETS
Cash and due from banks $ 40,074 $ 62,305
Interest-bearing deposits 680,333 129,291
Federal funds sold 23,736 25,376
Cash and cash equivalents 744,143 216,972
Securities available for sale, at fair value - taxable 94,218 65,110
Securities available for sale, at fair value - tax exempt 19,462 22,398
Securities held to maturity (fair value September 30, 2021 – $269, December 31, 2020 – $1,561) 259 1,547
Equity securities 6,703 6,005
Loans, net of allowance of $11,478 and $16,259 as of September 30, 2021, and December 31, 2020, respectively 1,675,773 1,641,422
Loans held for sale 284 1,270
Federal Home Loan Bank stock, at cost 2,341 3,229
Federal Reserve Bank stock, at cost 5,416 4,762
Accrued interest receivable 5,336 6,666
Premises and equipment, net 3,807 4,370
Bank owned life insurance 38,204 37,360
Deferred tax asset 9,283 10,525
Goodwill 24,621 24,621
Core deposit intangibles 1,212 1,422
Other assets 15,174 9,591
Total assets $ 2,646,236 $ 2,057,270
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – noninterest bearing $ 799,389 $ 475,598
Demand – interest bearing 328,667 232,367
Money market and savings 959,066 715,003
Time deposits 267,624 236,575
Total deposits 2,354,746 1,659,543
Official checks 4,194 4,447
Federal Home Loan Bank advances 35,000 40,000
Other borrowings — 114,573
Subordinated debt 10,016 10,153
Accrued interest and other liabilities 14,259 12,989
Total liabilities 2,418,215 1,841,705
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued — —
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,323,965 and outstanding 13,416,667 shares as of September 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares on December 31, 2020 143 141
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2021, and December 31, 2020 — —
Treasury stock, at cost (15,246) (9,209)
Additional paid-in capital 210,898 208,995
Retained earnings 32,160 14,756
Accumulated other comprehensive income 66 882
Total stockholders’ equity 228,021 215,565
Total liabilities and stockholders' equity $ 2,646,236 $ 2,057,270

Table of Contents

PROFESSIONAL HOLDING CORP.

~~CONDENSED~~

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

(Dollar amounts in thousands, except share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019


2020

2019
Interest income

Loans, including fees

$
18,488

$
9,502

$
46,400

$
26,289
Taxable securities

433

172

1,093

504
Dividend income on restricted stock

103

73

313

200
Other

77

583

837

1,607
Total interest income

19,101

10,330

48,643

28,600

Interest expense




Deposits

1,165

2,789

5,408

7,200
Federal Home Loan Bank advances

197

288

762

795
Other borrowings

279

—

661

—
Total interest expense

1,641

3,077

6,831

7,995

Net interest income

17,460

7,253

41,812

20,605
Provision for loan losses

5,957

380

8,552

762
Net interest income after provision for loan losses

11,503

6,873

33,260

19,843

Non-interest income




Service charges on deposit accounts

319

399

848

542
Income from Bank owned life insurance

123

136

378

278
Gain on sale and call of securities

1

—

16

3
Other

520

309

1,545

1,304
Total non-interest income

963

844

2,787

2,127

Non-interest expense




Salaries and employee benefits

6,433

4,662

18,608

13,534
Occupancy and equipment

1,196

701

3,051

1,824
Data processing

374

165

971

489
Marketing

435

128

723

400
Professional fees

562

524

1,723

1,106
Acquisition expenses

1,078

—

3,301

—
Regulatory assessments

250

46

764

353
Other

1,385

815

3,606

2,382
Total non-interest expense

11,713

7,041

32,747

20,088

Income before income taxes

753

676

3,300

1,882
Income tax provision (benefit)

(197)

182

536

534
Net income

950

494

2,764

1,348

Earnings (loss) per share:




Basic

$
0.07

$
0.09

$
0.24

$
0.23
Diluted

$
0.07

$
0.08

$
0.21

$
0.22

Other comprehensive income:




Unrealized holding gain on securities available for sale

171

1

1,240

485
Tax effect

(43)

—

(315)

(123)
Other comprehensive gain, net of tax

128

1

925

362
Comprehensive income

$
1,078

$
495

$
3,689

$
1,710

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Interest income
Loans, including fees $ 20,209 $ 18,488 $ 57,753 $ 46,400
Investment securities - taxable 186 209 526 663
Investment securities - tax exempt 177 224 569 430
Dividend income on restricted stock 96 103 290 313
Other 222 77 486 837
Total interest income 20,890 19,101 59,624 48,643
Interest expense
Deposits 1,476 1,165 4,223 5,408
Federal Home Loan Bank advances 182 197 568 762
Subordinated debt 128 79 335 324
Other borrowings — 200 313 337
Total interest expense 1,786 1,641 5,439 6,831
Net interest income 19,104 17,460 54,185 41,812
Provision for loan losses 1,060 5,957 2,860 8,552
Net interest income after provision for loan losses 18,044 11,503 51,325 33,260
Non-interest income
Service charges on deposit accounts 643 319 2,237 848
Income from Bank owned life insurance 281 123 844 378
SBA origination fees 21 — 166 114
SWAP fee income 208 149 781 622
Third party loan sales 161 252 462 519
Gain on sale and call of securities 1 1 23 16
Other 161 119 384 290
Total non-interest income 1,476 963 4,897 2,787
Non-interest expense
Salaries and employee benefits 7,350 6,433 21,233 18,608
Occupancy and equipment 935 1,196 2,942 3,051
Data processing 303 374 869 971
Marketing 420 435 738 723
Professional fees 689 562 2,087 1,723
Acquisition expenses — 1,078 684 3,301
Regulatory assessments 481 250 1,248 764
Other 1,446 1,385 4,565 3,606
Total non-interest expense 11,624 11,713 34,366 32,747
Income before income taxes 7,896 753 21,856 3,300
Income tax provision (benefit) 1,608 (197) 4,452 536
Net income 6,288 950 17,404 2,764
Earnings per share:
Basic $ 0.48 $ 0.07 $ 1.30 $ 0.24
Diluted $ 0.45 $ 0.07 $ 1.25 $ 0.21
Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale (288) 171 (1,081) 1,240
Tax effect 71 (43) 265 (315)
Other comprehensive gain (loss), net of tax (217) 128 (816) 925
Comprehensive income $ 6,071 $ 1,078 $ 16,588 $ 3,689

Table of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Dollar amounts in thousands, except share data)

Accumulated

Additional

Other

Common Stock

Treasury

Paid-in

Retained

Comprehensive

Shares

Amount

Stock

Capital

Earnings

Income (Loss)

Total
Balance at July 1, 2020

13,444,635

$
139

$
(9,132)

$
202,438

$
8,265

$
724

$
202,434
Issuance of common stock, net of issuance cost

37,891

—

—

346

—

—

346
Treasury stock

—

—

—

—

—

—

—
Employee stock purchase plan

—

—

—

24

—

—

24
Net income

—

—

—

—

950

—

950
Other comprehensive income

—

—

—

—

—

128

128
Stock based compensation

—

—

—

233

—

—

233
Balance at September 30, 2020

13,482,526

$
139

$
(9,132)

$
203,041

$
9,215

$
852

$
204,115

Balance at July 1, 2019

5,937,987

$
60

$
(655)

$
76,612

$
4,969

$
(64)

$
80,922
Issuance of common stock, net of issuance cost

—

—

—

—

—

—

—
Treasury stock

(200,000)

—

(3,500)

—

—

—

(3,500)
Employee stock purchase plan

—

—

—

30

—

—

30
Net income

—

—

—

—

494

—

494
Other comprehensive income

—

—

—

—

—

1

1
Stock based compensation

2,499

—

—

25

—

—

25
Balance at September 30, 2019

5,740,486

$
60

$
(4,155)

$
76,667

$
5,463

$
(63)

$
77,972

Balance at January 1, 2020

5,867,446

$
60

$
(4,155)

$
77,019

$
6,451

$
(73)

$
79,302
Issuance of common stock, net of issuance cost

3,702,558

37

—

60,567

—

—

60,604
Treasury stock

(315,294)

—

(4,977)

(9)

—

—

(4,986)
Marquis Bancorp (MBI) acquisition

4,227,816

42

—

64,657

—

—

64,699
Employee stock purchase plan

—

—

—

82

—

—

82
Net income

—

—

—

—

2,764

—

2,764
Other comprehensive income

—

—

—

—

—

925

925
Stock based compensation

—

—

—

725

—

—

725
Balance at September 30, 2020

13,482,526

139

(9,132)

203,041

9,215

852

204,115

Balance at January 1, 2019

5,923,884

$
59

$
(220)

$
76,152

$
4,115

$
(425)

$
79,681
Issuance of common stock, net of issuance cost

39,103

1

—

385

—

—

386
Treasury stock

(225,000)

—

(3,935)

—

—

—

(3,935)
Employee stock purchase plan

2,499

—

—

130

—

—

130
Net income

—

—

—

—

1,348

—

1,348
Other comprehensive income

—

—

—

—

—

362

362
Stock based compensation

—

—

—

—

—

—

—
Balance at September 30, 2019

5,740,486

$
60

$
(4,155)

$
76,667

$
5,463

$
(63)

$
77,972

Common Stock Treasury
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Shares Amount
Balance on July 1, 2020 13,444,635 $ 139 $ (9,132) $ 202,438 $ 8,265 $ 724 $ 202,434
Issuance of common stock, net of issuance cost 37,891 — — 346 — — 346
Employee stock purchase plan — — — 24 — — 24
Stock based compensation — — — 233 — — 233
Treasury stock — — — — — — —
Net income — — — — 950 — 950
Other comprehensive income — — — — — 128 128
Balance on September 30, 2020 13,482,526 $ 139 $ (9,132) $ 203,041 $ 9,215 $ 852 $ 204,115
Balance on July 1, 2021 13,475,781 $ 143 $ (13,544) $ 210,274 $ 25,872 $ 283 $ 223,028
Issuance of common stock, net of issuance cost 28,296 — — 268 — — 268
Employee stock purchase plan — — — — — — —
Stock based compensation 6,189 — — 359 — — 359
Treasury stock (93,599) — (1,702) (3) — — (1,705)
Net income — — — — 6,288 — 6,288
Other comprehensive income — — — — — (217) (217)
Balance on September 30, 2021 13,416,667 $ 143 $ (15,246) $ 210,898 $ 32,160 $ 66 $ 228,021
Balance on January 1, 2020 5,867,446 $ 60 $ (4,155) $ 77,019 $ 6,451 $ (73) $ 79,302
Issuance of common stock, net of issuance cost 3,702,558 37 — 60,567 — — 60,604
Marquis Bancorp (MBI) acquisition 4,227,816 42 — 64,657 — — 64,699
Employee stock purchase plan — — — 82 — — 82
Stock based compensation — — — 725 — — 725
Treasury stock (315,294) — (4,977) (9) — — (4,986)
Net income — — — — 2,764 — 2,764
Other comprehensive income — — — — — 925 925
Balance on September 30, 2020 13,482,526 $ 139 $ (9,132) $ 203,041 $ 9,215 $ 852 $ 204,115
Balance on January 1, 2021 13,534,829 $ 141 $ (9,209) $ 208,995 $ 14,756 $ 882 $ 215,565
Issuance of common stock, net of issuance cost 89,500 1 — 811 — — 812
Employee stock purchase plan 1,851 — — 34 — — 34
Stock based compensation 131,854 1 — 1,068 — — 1,069
Treasury stock (341,367) — (6,037) (10) — — (6,047)
Net income — — — — 17,404 — 17,404
Other comprehensive income — — — — — (816) (816)
Balance on September 30, 2021 13,416,667 $ 143 $ (15,246) $ 210,898 $ 32,160 $ 66 $ 228,021

Table of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollar amounts in thousands, except share data)

Nine Months Ended September 30,


2020

2019
Cash flows from operating activities




Net income (loss)

$
2,764

$
1,348
Adjustments to reconcile net income to net cash from operating activities




Provision for loan losses

8,552

762
Deferred income tax benefit

(2,981)

199
Depreciation and amortization

1,132

948
Gain on sale of securities

(4)

3
Gain on call of securities

(12)

—
Equity unrealized change in market value

(24)

(33)
Net amortization of securities

(287)

(107)
Net amortization of deferred loan fees

(2,371)

487
Employee stock purchase plan

82

87
Stock compensation

725

—
Income from bank owned life insurance

(378)

(279)
Changes in operating assets and liabilities:




Accrued interest receivable

(2,524)

(472)
Other assets

3,110

(656)
Official checks, accrued interest, interest payable and other liabilities

(2,054)

(1,557)
Net cash provided by operating activities

5,730

730

Cash flows from investing activities




Proceeds from maturities and paydowns of securities available for sale

10,407

4,247
Proceeds from calls of securities available for sale

8,500

—
Proceeds from paydowns of securities held to maturity

84

34
Purchase of securities available for sale

(60,693)

(17,008)
Sale of securities available for sale

1,739

4,501
Loans originations, net of principal repayments

(299,867)

(164,432)
Proceeds from sale of loans

10,540

—
Purchase of Federal Reserve Bank stock

(2,688)

(529)
Purchase of Federal Home Loan Bank Stock

(660)

(590)
Purchase of company owned life insurance

—

(8,000)
Purchases of premises and equipment

(486)

(1,598)
Proceeds from acquisition

26,860

—
Net cash used in investing activities

(306,264)

(183,375)

Cash flows from financing activities




Net increase in deposits

176,160

219,763
Proceeds from issuance of stock, net of issuance costs

60,604

429
Purchase of treasury stock

(4,986)

(3,935)
Proceeds from Federal Home Loan Bank advances

10,000

20,000
Repayments of Federal Home Loan advances

(40,000)

(10,000)
Repayment of line of credit

(9,999)

—
Proceeds from PPPLF advances

224,341

—
Net cash provided by financing activities

416,120

226,257

Increase in cash and cash equivalents

115,586

43,612

Cash and cash equivalents at beginning of period

198,950

86,883

Cash and cash equivalents at end of period

$
314,536

$
130,495

Supplemental cash flow information:




Cash paid during the period for interest

$
6,233

$
7,985
Cash paid during the period for taxes

2,186

637

Supplemental noncash disclosures:




Lease liabilities arising from obtaining right of use assets

$
1,680

$
5,673
Total asset acquired

589,760

—
Total liabilities assumed

540,712

—

Nine Months Ended September 30,
2021 2020
Cash flows from operating activities
Net income $ 17,404 $ 2,764
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses 2,860 8,552
Deferred income tax benefit (expense) 1,221 (2,981)
Depreciation and amortization 1,084 1,132
Gain on sale of securities — (4)
Gain on call of securities (23) (12)
Equity unrealized change in market value 102 (24)
Net amortization of securities 2,137 (287)
Net amortization of deferred loan fees (6,589) (2,371)
Loans held for sale 986 —
Income from bank owned life insurance (844) (378)
Loss on disposal of premises and equipment 140 —
Employee stock purchase plan 34 82
Stock compensation 1,069 725
Changes in operating assets and liabilities:
Accrued interest payable (receivable) 1,330 (2,524)
Other assets (7,534) 3,110
Official checks, accrued interest, interest payable and other liabilities 1,303 (2,054)
Net cash provided by operating activities 14,680 5,730
Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale 16,749 10,407
Proceeds from calls of securities available for sale 4,812 8,500
Proceeds from maturities and paydowns of securities held to maturity 1,282 84
Purchase of securities available for sale (50,922) (60,693)
Proceeds from sale of securities available for sale — 1,739
Purchase of equity securities (800) —
Loans originations, net of principal repayments (41,886) (299,867)
Purchase (redemption) of Federal Reserve Bank stock (654) 10,540
Proceeds from maturities of Federal Home Loan Bank Stock 888 (2,688)
Purchase of Federal Home Loan Bank Stock — (660)
Purchases of premises and equipment (588) (486)
Proceeds from acquisition — 26,860
Net cash used in investing activities (71,119) (306,264)
Cash flows from financing activities
Net increase (decrease) in deposits 695,203 176,160
Proceeds from issuance of stock, net of issuance costs 812 60,604
Purchase of treasury stock (6,047) (4,986)
Proceeds from Federal Home Loan Bank advances — 10,000
Repayments of Federal Home Loan advances (5,000) (40,000)
Repayment of line of credit — (9,999)
Proceeds from PPPLF advances — 224,341
Repayments of PPPLF advances (101,358) —
Net cash provided by financing activities 583,610 416,120
Increase in cash and cash equivalents 527,171 115,586
Cash and cash equivalents at beginning of period 216,972 198,950
Cash and cash equivalents at end of period $ 744,143 $ 314,536
Supplemental cash flow information:
Cash paid during the period for interest $ 6,192 $ 6,233
Cash paid during the period for taxes 4,200 2,186
Supplemental noncash disclosures:
Lease liabilities arising from obtaining right of use assets $ — $ 1,680
Total assets acquired — 589,760
Total liabilities assumed — 540,712

Table of Contents

PROFESSIONAL HOLDING CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tables in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying unaudited ~~condensed~~ consolidated financial statements of Professional Holding Corp. and its subsidiary, Professional Bank (the “Bank” and collectively with Professional Holding Corp., the “Company”), have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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. Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the nine months ended September 30, ~~2020~~2021, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2020~~2021, or any other period. 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, ~~2019.~~

2020.

Use of Estimates:

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Adoption of new accounting standards:

ASU 2019-12, Income Taxes (Topic 740)

In December 2019, FASB issued guidance which simplifies the accounting for income taxes by removing multiple exceptions to the general principals in Topic 740. The ~~outbreak~~standard is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020. The new guidance did not materially impact the Company’s Consolidated Financial Statements or disclosures.

ASU 2020-04, Reference Rate Reform (Topic 848)

In March 2020, FASB issued guidance which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting. The new standard is a result of the ~~novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led~~London Interbank Offered Rate ("LIBOR") likely being discontinued as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for applying U.S. Generally Accepted Accounting Principles (“GAAP”) to ~~adverse impacts on the global economy and created uncertainty in world financial markets.~~ contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The ~~economic effects of the~~ ~~coronavirus COVID-19~~ ~~pandemic have significantly impacted business and economic activity~~amendments in the ~~U.S. and around the world. There have been full and partial business closures, increases in unemployment as workers~~update are furloughed, laid off, or had hours limited. Such disruptions could adversely affect our loan and deposit fee income as well as create downward pressure on the quality of our loan portfolio possibly leading to an increase in loan charge-offs.

~~The coronavirus COVID-19 pandemic is an unprecedented event that has created high levels of uncertainty. We are hopeful that the CARES Act and derivative programs will be a stabilizing force~~effective for ~~the remainder of~~all entities between March 12, 2020, and ~~beyond,~~December 31, 2022. The Company has established a cross-functional working group to guide the Company’s transition from LIBOR and ~~we are vigilantly monitoring global events~~has begun efforts to transition to alternative rates consistent with industry timelines. The Company has identified its products that utilize LIBOR and ~~actions being taken by various Federal and State Agencies. We have maintained interim periodic communications with our regulators and have~~has implemented enhanced fallback language to facilitate the transition to alternative reference rates. The new guidance did not ~~experienced any material deposit outflows to date and frequently communicate with our credit clients. Given~~materially impact the ~~fluidity of the situation, management cannot predict the long-term impact of novel coronavirus COVID-19 for the remainder of 2020~~Company’s Consolidated Financial Statements or ~~beyond.~~

disclosures.

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New accounting standards that have not yet been adopted:

The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on the Company’s financial statements:


ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
Description			In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ~~(CECL)~~("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments).
Date of Adoption			For PBEs that are non-SEC filers and for SEC filers that are considered small reporting companies, it is effective for January 1, 2023. Early adoption is still permitted.
Effect on the Consolidated Financial Statements			The Company's management is in the process of evaluating credit loss estimation models. Updates to business processes and the documentation of accounting policy decisions are ongoing. The company may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on the Company's consolidated financial statements has not yet been determined. The Company will adopt this accounting standard effective January 1, 2023.

NOTE 2 — EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to common ~~shareholders~~stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share is computed by dividing net income available to common ~~shareholders~~stockholders by the weighted average number of shares of common stock outstanding plus the effect of employee stock options during the year.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

										Three Months Ended September 30,				Nine Months Ended September 30,
										2021		2020		2021		2020
Basic earnings per share:									Basic earnings per share:
Net Income(loss)	$	950	$	494	$	2,764	$	1,348
Net income									Net income	$	6,288	$	950	$	17,404	$	2,764
Total weighted average common stock outstanding		13,438,652		5,807,153		11,694,764		5,882,519	Total weighted average common stock outstanding	13,196,025		13,438,652		13,344,470		11,694,764
Net income(loss) per share	$	0.07	$	0.09	$	0.24	$	0.23
Net income per share									Net income per share	$	0.48	$	0.07	$	1.30	$	0.24
Diluted earnings per share:									Diluted earnings per share:
Net Income	$	950	$	494	$	2,764	$	1,348
Net income									Net income	$	6,288	$	950	$	17,404	$	2,764
Total weighted average common stock outstanding		13,438,652		5,807,153		11,694,764		5,882,519	Total weighted average common stock outstanding	13,196,025		13,438,652		13,344,470		11,694,764
Add: Dilutive effect of employee stock options		1,117,563		181,233		1,290,819		202,877	Add: Dilutive effect of employee stock options	659,402		1,117,563		568,613		1,290,819
Total weighted average diluted stock outstanding		14,556,215		5,988,386		12,985,583		6,085,396	Total weighted average diluted stock outstanding	13,855,427		14,556,215		13,913,083		12,985,583
Net income per share	$	0.07	$	0.08	$	0.21	$	0.22	Net income per share	$	0.45	$	0.07	$	1.25	$	0.21

For the three months ended September 30, 2021, there were 7000 stock options that were anti-dilutive and for the three months ended September 30, 2020, there were 326 thousand stock options that were ~~anti-dilutive and for~~anti-dilutive. For the ~~three~~nine months ended September 30, ~~2019~~2021, there were no278 thousand stock options that were ~~anti-dilutive. For~~anti-dilutive and for the nine months ended September 30, 2020, there were 133 thousand stock options that were ~~anti-dilutive and for the nine months ended September 30, 2019 there were no stock options that were~~ anti-dilutive.

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NOTE 3 — SECURITIES

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity aton September 30, ~~2020~~2021, and December 31, ~~2019~~2020, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss and gross unrecognized gains and losses:

Gross

Gross


Amortized

Unrealized

Unrealized

September 30, 2020

Cost

Gains

Losses

Fair Value
Available-for-sale

Small Business Administration loan pools

$
32,020

$
38

$
(235)

$
31,823
Mortgage-backed securities

32,873

545

(19)

33,399
U.S. agency obligations

5,002

139

-

5,141
Community Development District bonds

22,464

633

-

23,097
Municipals

1,066

33

-

1,099
Corporate bonds

2,501

7

-

2,508
Total available-for-sale

$
95,926

$
1,395

$
(254)

$
97,067




Gross

Gross


Amortized

Unrecognized

Unrecognized

Cost

Gains

Losses

Fair Value
Held-to-Maturity








Mortgage-backed securities

$
385

$
17

$
—

$
402
US Treasury

203

—

—

203
Foreign Bonds

1,001

—

(1)

1,000
Total Held-to-Maturity

$
1,589

$
17

$
(1)

$
1,605


September 30, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale - taxable
Small Business Administration loan pools	$	40,131	$	62	$	(490)	$	39,703
Mortgage-backed securities	51,105		162		(340)		50,927
United States agency obligations	2,002		77		—		2,079
Corporate bonds	1,500		9		—		1,509
Total available-for-sale - taxable	$	94,738	$	310	$	(830)	$	94,218
Available-for-sale - tax exempt
Community Development District bonds	$	17,800	$	564	$	—	$	18,364
Municipals	1,054		44		—		1,098
Total available-for-sale - tax exempt	$	18,854	$	608	$	—	$	19,462

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held-to-Maturity
Mortgage-backed securities	$	259	$	10	$	—	$	269

Total Held-to-Maturity	$	259	$	10	$	—	$	269

Gross

Gross


Amortized

Unrealized

Unrealized

Fair
December 31, 2019

Cost

Gains

Losses

Value
Available-for-sale








Small Business Administration loan pools

$
17,303

$
19

$
(139)

$
17,183
Mortgage-backed securities

5,237

—

(52)

5,185
U.S. agency obligations

4,000

70

—

4,070
Corporate bonds

2,000

3

—

2,003
Total available-for-sale

$
28,540

$
92

$
(191)

$
28,441




Gross

Gross

Amortized

Unrecognized

Unrecognized

Fair

Cost

Gains

Losses

Value
Held-to-Maturity








Mortgage-backed securities

$
214

$
10

$
—

$
224
Total Held-to-Maturity

$
214

$
10

$
—

$
224


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Equity
Mutual Funds	$	5,903	$	—	$	—	$	5,903
Other equity securities	800		—		—		800
Total Equity	$	6,703	$	—	$	—	$	6,703

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December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale - taxable
Small Business Administration loan pools	$	30,678	$	77	$	(199)	$	30,556
Mortgage-backed securities	28,514		438		(30)		28,922
United States agency obligations	3,000		122		—		3,122
Corporate bonds	2,501		9		—		2,510
Total available-for-sale - taxable	$	64,693	$	646	$	(229)	$	65,110
Available-for-sale - tax exempt
Community Development District bonds	$	20,582	$	717	$	—	$	21,299
Municipals	1,064		35		—		1,099
Total available-for-sale - tax exempt	$	21,646	$	752	$	—	$	22,398

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held-to-Maturity
Mortgage-backed securities	$	345	$	14	$	—	$	359
United States Treasury	202		—		—		202
Foreign Bonds	1,000		—		—		1,000
Total Held-to-Maturity	$	1,547	$	14	$	—	$	1,561

As of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, Corporate bonds ~~are~~were comprised of investments in the financial services industry. During the nine months ended September 30, ~~2020~~2021, the net investment portfolio increased by ~~$70.0~~$25.6 million as a result of increases from purchases of $50.9 million in SBA and ~~acquisitions.~~MBS securities combined with decreases of $24.9 million from paydowns, maturities and calls, as well as the unrealized holding loss on securities available for sale of $1.2 million with a related tax effect of $0.1 million. Proceeds from ~~sales~~the maturity and redemption of securities during the three and nine months ended September 30, ~~2020~~2021, were $0$1.2 million and ~~$1.7~~$4.8 million, with gross realized gains of $0 and $4$23 thousand, respectively. Proceeds from ~~calls~~the sales of securities during the ~~three and nine months~~year ended ~~September 30,~~December 31, 2020, were ~~$3.7 million and $8.5~~$1.7 million, with gross realized gains of ~~$1 thousand and $12 thousand, respectively.~~$4 thousand. Proceeds from ~~sales and calls~~redemption of securities for the year ended December 31, ~~2019~~2020, were ~~$4.5~~$9.1 million, ~~and $0.5 million, respectively. Securities~~with gross realized gains of $33 thousand. Total securities pledged as of September 30, ~~2020,~~2021, and December 31, ~~2019~~2020, were ~~$11.4~~$1.9 million and ~~$14.9~~$12.5 million, respectively.

~~Table of Contents~~

~~The scheduled maturities of securities~~ Securities pledged for derivative SWAP transactions as of September 30, ~~2020 are as follows.~~ 2021, were $1.9 million which were included in the total securities pledged, such securities were generally pledged for public funds. There were no securities pledged for derivative SWAP transactions on December 31, 2020.

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

Table of Contents

Securities not due at a single maturity date are shown separately.

September 30, 2020

Amortized

Fair

Cost

Value
Available-for-sale

Due in one year or less

$
2,502

$
2,503
Due after one year through five years

24,721

25,418
Due after five years through ten years

3,495

3,607
Due after ten years

315

317
Subtotal

$
31,033

$
31,845

SBA loan pools

$
32,020

$
31,823
Mortgage-backed securities

32,873

33,399
Total available-for-sale

$
95,926

$
97,067

Held-to-maturity

Due in one year or less

$
1,204

$
1,203
Due after one year through five years

—

—
Subtotal

$
1,204

$
1,203

Mortgage-backed securities

$
385

$
402
Total held-to-maturity

$
1,589

$
1,605

At The scheduled maturities of securities as of September 30, ~~2020~~2021, are as follows:


	September 30, 2021
	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	1,188	$	1,202
Due after one year through five years	20,853		21,523
Due after five years through ten years	315		325
Due after ten years	—		—
Subtotal	$	22,356	$	23,050

Small Business Administration loan pools	$	40,131	$	39,703
Mortgage-backed securities	51,105		50,927
Total available-for-sale	$	113,592	$	113,680






Mortgage-backed securities	$	259	$	269
Total held-to-maturity	$	259	$	269

On September 30, 2021, and December 31, ~~2019,~~2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of ~~shareholders’~~stockholders’ equity.

On September 30, 2021, and December 31, 2020, the number of investment positions that are in an unrealized loss position were 51 and 36, respectively. The tables below indicate the fair value of debt securities with unrealized losses and for the period of time of which these losses were outstanding aton September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Longer

Total


Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses
September 30, 2020

Available-for-sale

Small Business Administration loan pools

$
13,795

$
(125)

$
11,022

$
(110)

$
24,817

$
(235)
Mortgage-backed securities

2,958

(19)

—

—

2,958

(19)
U.S. agency obligations

—

—

—

—

—

—
Community Development District bonds

—

—

—

—

—

—
Municipals

—

—

—

—

—

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale

$
16,753

$
(144)

$
11,022

$
(110)

$
27,775

$
(254)

December 31, 2019












Available-for-sale












SBA loan pools

$
9,984

$
(63)

$
4,035

$
(76)

$
14,019

$
(139)
Mortgage-backed

1,914

(24)

2,541

(28)

4,455

(52)
U.S. agency obligations

—

—

—

—

—

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale

$
11,898

$
(87)

$
6,576

$
(104)

$
18,474

$
(191)


	Less Than 12 Months				12 Months or Longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2021
Available-for-sale - taxable
Small Business Administration loan pools	$	14,640	$	(359)	$	16,127	$	(131)	$	30,767	$	(490)
Mortgage-backed securities	33,019		(340)		—		—		33,019		(340)


Total available-for-sale - taxable	$	47,659	$	(699)	$	16,127	$	(131)	$	63,786	$	(830)





December 31, 2020
Available-for-sale - taxable
Small Business Administration loan pools	$	18,849	$	(133)	$	8,945	$	(66)	$	27,794	$	(199)
Mortgage-backed securities	5,839		—		2,510		(30)		8,349		(30)
United States agency obligations	227		—		—		—		227		—

Total available-for-sale - taxable	$	24,915	$	(133)	$	11,455	$	(96)	$	36,370	$	(229)

The unrealized holding losses within the investment portfolio are considered to be temporary and are mainly due to changes in the interest rate cycle. The unrealized loss positions may fluctuate positively or negatively with changes in interest rates or spreads. Since SBA loan pools and mortgage-backed securities are government sponsored entities that are highly rated, the decline in fair value is attributable

~~Table of Contents~~

to changes in interest rates and not credit quality. ~~We do~~The Company does not have any securities in an ~~OTTI~~Other Than Temporary Impairment (“OTTI”) position. The Company does not ~~have the intent~~intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. ~~The Company does not consider these securities to be other-than-temporarily impaired at September 30, 2020.~~ No credit losses were recognized in operations during the nine months ended September 30, ~~2020~~2021, or during ~~2019.~~

the year ended December 31, 2020.

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NOTE 4 — LOANS

Loans aton September 30, ~~2020~~2021, and December 31, ~~2019~~2020, were as follows:

September 30, 2020

December 31, 2019
Commercial real estate

$
727,933

$
270,981
Residential real estate

375,607

342,257
Commercial

411,250

129,477
Construction and development

82,744

41,465
Consumer and other loans

13,274

8,287

1,610,808

792,467
Less –

Unearned loan origination (fees) costs, net

(6,763)

(752)
Allowance for loan losses

(15,035)

(6,548)

$
1,589,010

$
785,167


	September 30, 2021		December 31, 2020
Loans held for investment:
Commercial real estate	$	856,194	$	777,025
Residential real estate	371,469		379,534
Commercial (Non-PPP)	288,177		206,095
Commercial (PPP)	85,133		185,748
Construction and land development	69,534		99,590
Consumer and other	16,744		9,689
Total loans held for investment, gross	1,687,251		1,657,681
Allowance for loan loss	(11,478)		(16,259)
Loans held for investment, net	$	1,675,773	$	1,641,422

Loans held for sale:
Loans held for sale	$	284	$	1,270
Total loans held for sale	$	284	$	1,270

The recorded investment in loans excludes accrued interest receivable due to immateriality.

~~The bank had four loans totaling $10.0 million on nonaccrual as of~~

On September 30, ~~2020. The bank had three loans totaling $2.3 million on nonaccrual as of~~2021, and December 31, ~~2019.~~

2020, there were $238.7 million and $264.2 million, respectively in total loans pledged to the Federal Home Loan Bank (“FHLB”) for liquidity.

Loan premiums for loans purchased are amortized over the life of the loan with acceleration upon the increase in principal paydowns or payoffs. On September 30, 2021, and December 31, 2020, loan premiums for purchased loans were $0.4 million and $0.6 million, respectively.

There are no loans over 90 days past due and accruing as of September 30, ~~2020 and no loans over 90 days past due and accruing as of~~2021, or December 31, ~~2019.~~

2020. The following table presents the aging of the recorded investment in past due loans as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020, by class of loans:

30 – 59

60 – 89

Greater than

Days

Days

89 Days

Total

Loans Not


Past Due

Past Due

Past Due

Nonaccrual

Past Due

Past Due

Total
September 30, 2020














Commercial real estate

$
—

$
—

$
—

$
347

$
347

$
727,586

$
727,933
Residential real estate

146

—

—

483

629

374,978

375,607
Commercial

—

—

—

9,127

9,127

402,123

411,250
Construction and land development

—

—

—

—

—

82,744

82,744
Consumer and other

—

—

—

—

—

13,274

13,274
Total

$
146

$
—

$
—

$
9,957

$
10,103

$
1,600,705

$
1,610,808

30 – 59

60 – 89

Greater than

Days

Days

89 Days

Total

Loans Not


Past Due

Past Due

Past Due

Nonaccrual

Past Due

Past Due

Total
December 31, 2019

Commercial real estate

$
—

$
2,428

$
—

$
—

$
2,428

$
268,553

$
270,981
Residential real estate

304

—

—

483

787

341,470

342,257
Commercial

—

134

—

1,797

1,931

127,546

129,477
Construction and land development

—

—

—

—

—

41,465

41,465
Consumer and other

—

—

—

—

—

8,287

8,287
Total

$
304

$
2,562

$
—

$
2,280

$
5,146

$
787,321

$
792,467


	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 89 Days Past Due		Nonaccrual		Total Past Due		Loans Not Past Due		Total
September 30, 2021
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	856,194	$	856,194
Residential real estate	22		—		—		—		22		371,447		371,469
Commercial (Non-PPP)	369		—		—		1,468		1,837		286,340		288,177
Commercial (PPP)	—		—		—		—		—		85,133		85,133
Construction and land development	—		—		—		—		—		69,534		69,534
Consumer and other	88		—		—		1,307		1,395		15,349		16,744
Total	$	479	$	—	$	—	$	2,775	$	3,254	$	1,683,997	$	1,687,251

Table of Contents

At
30 – 59
Days
Past Due 60 – 89
Days
Past Due Greater than
89 Days
Past Due Nonaccrual Total
Past Due Loans Not
Past Due Total
December 31, 2020
Commercial real estate $ — $ — $ — $ — $ — $ 777,025 $ 777,025
Residential real estate 1,317 — — — 1,317 378,217 379,534
Commercial (Non-PPP) 278 — — 9,127 278 205,817 206,095
Commercial (PPP) — — — — — 185,748 185,748
Construction and land development — — — — — 99,590 99,590
Consumer and other — — — 1,307 — 9,689 9,689
Total $ 1,595 $ — $ — $ 10,434 $ 1,595 $ 1,656,086 $ 1,657,681

On September 30, ~~2020,~~2021, there were seven impaired loans with both unpaid principal balance and recorded investments totaling $12.6 million, of which there were two impaired loans with a recorded investment of $9.1 million with an allowance of $8.3 million. The average net investment on the impaired residential real estate and commercial loans during the three months ended September 30, 2020 were $1.8 million. Residential real estate loans had $7 thousand and $10 thousand interest income recognized for the three and nine months ended September 30, 2020, which was equal to the cash basis interest income. At December 31, 2019, there were five5 impaired loans (consisting of nonaccrual loans, troubled debt restructured loans, loans past due 90 days or more and still accruing interest and other loans based on management’s judgment) with both unpaid principal balance and recorded investments totaling ~~$3.6 million with no allowance. At December 31, 2019, there was one commercial loan~~$3.0 million. NaN of these loans were impaired loans with a recorded investment of ~~$1.1~~$2.8 million with an allowance of $1.3 million and 1 substandard accruing loan with a ~~$626 thousand~~recorded investment of $2.3 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during ~~2019~~the three months ended September 30, 2021, were $0.9 million. Residential real estate loans had $2.2 million and $7 thousand interest income recognized for the three and nine months ended September 30, 2021, and 2020, respectively, which was ~~$846 thousand.~~equal to the cash basis interest income. On December 31, 2020, there were 6 impaired loans with recorded investments totaling $13.1 million, of which there were 3 impaired loans with a recorded investment of $10.4 million on nonaccrual with an allowance of $8.3 million and 1 substandard accruing loan with a recorded investment of $2.4 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the year ended December 31, 2020, was $2.2 million. The residential real estate loans had ~~$17~~$13 thousand of interest income recognized during the year ended December 31, 2020, which was equal to the cash basis interest income.

Troubled Debt Restructurings:

The principal carrying balances of loans that met the criteria for consideration as troubled debt restructurings (“TDR”) were ~~$307~~$227 thousand and ~~$367~~$299 thousand as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively. The Company has allocated no specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, ~~2020~~2021, and December 31, ~~2019.~~2020. The Company has not committed any additional amounts to customers whose loans are classified as a troubled debt restructuring.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Generally, all credits greater than ~~$0.5~~$1.0 million are reviewed at least annually to monitor and adjust, if necessary, the credit risk profile. Loans classified as substandard or special mention are reviewed quarterly by the Company for further evaluation to determine if they are appropriately classified and whether there is any impairment. Beyond the annual review, all loans are graded upon initial issuance. In addition, during the renewal process of any loan, as well as if a loan becomes past due, the Company will determine the appropriate loan grade.

Loans excluded from the review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the ~~credit-worthiness~~creditworthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard, doubtful, or even charged-off. The Company uses the following definitions for risk ratings:

Pass: A Pass ~~loan��s~~loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary. The pass category includes the following:

Riskless: Loans that are fully secured by liquid, properly margined collateral (listed stock, bonds, or other securities; savings accounts; certificates of deposit; loans or that portion thereof which are guaranteed by the U.S. Government or agencies

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backed by the “full faith and credit” thereof; loans secured by properly executed letters of credit from prime financial institutions).

High Quality Risk: Loans to recognized national companies and well-seasoned companies that enjoy ready access to major capital markets or to a range of financing alternatives. Borrower’s public debt offerings are accorded highest ratings by recognized rating agencies, e.g., Moody’s or Standard & Poor’s. Companies display sound financial conditions and consistent superior income performance. The borrower’s trends and those of the industry to which it belongs are positive.

Satisfactory Risk: Loans to borrowers, reasonably well established, that display satisfactory financial conditions, operating results, and excellent future potential. Capacity to service debt is amply demonstrated. Current financial strength, while financially adequate, may be deficient in a number of respects. Normal comfort levels are achieved through a closely monitored collateral position and/or the strength of outside guarantors.

Moderate Risk: Loans to borrowers who are in non-compliance with periodic reporting requirements of the loan agreement, and any other credit file documentation deficiencies, which do not otherwise affect the borrower’s credit risk profile. This may include borrowers who fail to supply updated financial information that supports the adequacy of the primary source of repayment to service the Bank’s debt and prevents bank management to evaluate the borrower’s current debt service capacity. Existing loans will include those with consistent track record of timely loan payments, no material adverse changes to underlying collateral, and no material adverse change to guarantor(s) financial capacity, evidenced by public record searches.

~~Table of Contents~~

Special mention: A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

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 jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

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Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


			Special

(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2020
September 30, 2021											September 30, 2021
Commercial real estate	$	725,270	$	—	$	2,663	$	—	$	727,933	Commercial real estate	$	853,888	$	—	$	2,306	$	—	$	856,194
Residential real estate		374,693		431		483		—		375,607	Residential real estate	371,469		—		—		—		371,469
Commercial		402,007		116		9,127		—		411,250
Commercial (Non-PPP)											Commercial (Non-PPP)	286,334		375		1,468		—		288,177
Commercial (PPP)											Commercial (PPP)	85,133		—		—		—		85,133
Construction and land development		82,744		—		—		—		82,744	Construction and land development	69,534		—		—		—		69,534
Consumer		13,274		—		—		—		13,274	Consumer	15,349		88		1,307		—		16,744
Total	$	1,597,988	$	547	$	12,273	$	—	$	1,610,808	Total	$	1,681,707	$	463	$	5,081	$	—	$	1,687,251

December 31, 2019

December 31, 2020											December 31, 2020
Commercial real estate	$	266,346	$	2,207	$	2,428	$	—	$	270,981	Commercial real estate	$	774,674	$	—	$	2,351	$	—	$	777,025
Residential real estate		341,819		438		—		—		342,257	Residential real estate	379,104		430		—		—		379,534
Commercial		126,851		829		1,797		—		129,477
Commercial (Non-PPP)											Commercial (Non-PPP)	196,856		112		9,127		—		206,095
Commercial (PPP)											Commercial (PPP)	185,748		—		—		—		185,748
Construction and land development		41,465		—		—		—		41,465	Construction and land development	99,590		—		—		—		99,590
Consumer		8,287		—		—		—		8,287	Consumer	8,382		—		1,307		—		9,689
Total	$	784,768	$	3,474	$	4,225	$	—	$	792,467	Total	$	1,644,354	$	542	$	12,785	$	—	$	1,657,681

Purchased Credit Impaired Loans:

The Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans is as follows:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Commercial real estate(1)	$	5,869	$	—
Residential real estate	451		405
Commercial	556		746
Construction and development(1)	—		3,732
Carrying amount, net of total discounts	$	6,876	$	4,883

(Dollars in thousands)

September 30, 2020
Commercial real estate

$
307
Residential real estate

402
Commercial

674
Construction and development

4,601
Consumer and other loans

—
Carrying amount

$
5,984

(1)During the three months ended September 30, 2021, construction was completed on a construction loan and recategorized as a non-owner occupied commercial real estate loan.

Changes in the carrying amount of the accretable yield for all purchased credit impaired loans were as follows for the nine months ended September 30, 2021:


(Dollars in thousands)	2021
Balance at beginning of period	$	(630)
Adjustment of income	—
Accretion	296
Reclassifications from nonaccretable difference	(136)
Disposals	16
Balance at end of period	$	(454)

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~~Accretable yield, or income expected to be collected, is as follows:~~


~~(Dollars in thousands)~~	~~2020~~
~~Balance at January 1~~	$	—
~~New loans purchased~~		~~(418)~~
~~Accretion of income~~		~~(37)~~
~~Reclassifications from nonaccretable difference~~		—
~~Disposals~~		—
~~Balance at September 30~~	$	~~(455)~~

For those purchased credit impaired loans disclosed above, no allowances for loan losses were recorded ~~through~~or reversed during the nine months ended September 30, ~~2020.~~

2021.

The credit fair value adjustment on purchased credit impairment (“PCI”) loans represents the portion of the loan balances that have been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan. PCI loans purchased on March 26, 2020, for which it was probable at acquisition that all contractually required payments would not be collected are as follows:



(Dollars in thousands)	March 26, 2020		(Dollars in thousands)	March 26, 2020
Contractually required principal and interest by loan type			Contractually required principal and interest by loan type
Commercial real estate	$	415	Commercial real estate	$	427
Residential real estate		590	Residential real estate	604
Commercial		2,324	Commercial	2,176
Construction and development		5,639	Construction and development	5,614
Consumer and other loans		-	Consumer and other loans	—
Total	$	8,968	Total	$	8,821
Contractual cash flows not expected to be collected (nonaccretable discount)			Contractual cash flows not expected to be collected (nonaccretable discount)
Commercial real estate	$	68	Commercial real estate	$	80
Residential real estate		126	Residential real estate	138
Commercial		1,513	Commercial	1,123
Construction and development		2,734	Construction and development	2,297
Consumer and other loans		-	Consumer and other loans	—
Total	$	4,441	Total	$	3,638


Expected cash flows	$	4,527	Expected cash flows	$	5,183
Interest component of expected cash flows (accretable discount)		(418)	Interest component of expected cash flows (accretable discount)	(545)
Fair value of PCI loans accounted for under ASC 310-30	$	4,109	Fair value of PCI loans accounted for under ASC 310-30	$	4,638

Non-Performing Assets

As of September 30, 2021, the Company had nonperforming assets of $2.8 million, or 0.10% of total assets, compared to nonperforming assets of $10.4 million, or 0.51% of total assets, on December 31, 2020. The Bank’s charge-off policy for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when a determination of a confirmed loss is made on a loan. In March 2021, the Company ~~learned on July 15, 2020 that one~~charged-off $7.6 million of ~~its borrowers,~~the Coex Coffee International, Inc. (“Coex”)~~, filed~~ loan, which amount was previously reserved during the third quarter of 2020. Based on a ~~Petition Commencing an Assignment~~review of the estimated receivables collected by the assignee in the Florida case for the Benefit of Creditors in the 11th Judicial Circuit Court in Miami-Dade County, Florida. This state court action is similar to a federal bankruptcy case where the assignee is tasked, under the oversight of a judge, with the repaymentbenefit of creditors (the “Assignee”), the remaining book balance of a troubled entity. The court has appointed Philip Von Kahle as the “Assignee.” Coex was primarily in the business of purchasing and selling green coffee beans. Coex financed its business through various credit facilities from ten financial institutions in an amount totaling $191.9 million. The Company currently has a total of thirty-one (31) advances to Coex$0.6 million for the ~~purchase of coffee from growers for period of up~~Coex loan appears to ~~90 days with an aggregate outstanding balance of $12.4 million. However,~~be collectable by the Company, ~~has a current balance of $8.3 million due~~subject to a participation, without recourse, to another financial institution. The loans are collateralized by coffee beans and the proceeds from coffee sales. While at the time of petition, the advances were current, the preliminary records reviewedfinal accounting by the Assignee indicate that certain loan documents, including purchase orders, were fraudulent and that only $1.2 million of the associated value may be attributed as collateral against the aggregate outstanding balance. While definitive reports and orders have yet to be issued, based on the Assignee’s preliminary evaluation, the Company considers it prudent to record an impairment of $7.6 million against the Bank’s portion of the loan. The Company intends to vigorously pursue courses of actions available to it to mitigate potential losses, including a potential insurance claim, to recover as much of the current outstanding balance as possible. At this time the Company is unable to provide any assurances whether these courses of action will ultimately be successful.

Assignee.

~~Table of Contents~~

Paycheck Protection Program ~~(PPP)~~

The Company has participated in the Paycheck Protection Program (PPP) offered through the U.S. Small Business Administration (SBA) by way of the Coronavirus Aid Relief and Economic Security (CARES) Act that was passed at the end of the first quarter 2020. As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. To help clients, the Company added an online PPP application form and automated the PPP loan closing documentation process. The Company has processed, closed and funded 1,506 loans representing $226.2 million in relief proceeds.

As of September 30, ~~2020,~~2021, the Company ~~has 1,502~~participated in all three rounds of the Payroll Protection Program ("PPP") and funded 2,287 small business loans representing ~~$225.5~~approximately $340.5 million ~~that remain outstanding. A majority~~in relief proceeds, of ~~these~~which 1,745 loans ~~have been~~totaling $251.4 million were forgiven by the SBA and the balance was $85.1 million as of September 30, 2021.. Most of the PPP loans were initially pledged to the Federal Reserve as part of the ~~Paycheck~~Payroll Protection Program Liquidity Facility ~~(PPPLF)~~("PPPLF"). The PPPLF pledged loans are non-recourse to the ~~Bank. These loans are guaranteed by~~Company. However, the ~~government~~Company paid off all of the PPPLF advances during the first and as such no loan loss reserves have been recorded for these loans. Interest income on loans include PPP loan fees. PPP loan fees recognized during three and nine months ended September 30, 2020 were $1.0 million and $1.6 million, respectively.

second quarter of 2021.

Debt Service Relief Requests Related to COVID-19

As a result of ~~September 30, 2020, we have~~the COVID-19 pandemic the Company has reviewed and processed numerous debt service relief requests in accordance with Section 4013 of the CARES Act and interagency guidelines published by federal banking regulators on March 13, 2020. As currently interpreted by the agencies, the guidelines assert that short-term modifications made on good faith for

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reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered TDRs. These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications have varying terms up to six months.

As of September 30, 2020, the Company completed $196.8 million in payment relief loans that were granted under the Cares Act guidance associated with the treatment of Troubled Debt Restructurings (TDRs) since inception. Additionally, since inception $93.0 million of2021, all these loans ~~either have been reinstated~~had returned to ~~their original~~normal payment ~~terms or been paid off. As such, $103.8 million of these loans remain classified under the Cares Act TDR Treatment methodology as of September 30, 2020.~~

To manage credit risk, the Company increased oversight and analysis of $44.1 million of loans to borrowers in vulnerable industries such as hotels and hospitality. As of September 30, 2020, $30.7 million of these loans where provided payment relief consistent with Section 4013 of the CARES Act and the interagency guidelines published on March 13, 2020 and are performing under the terms of those modifications. The remaining loans in this group continue to perform according to their terms.

schedules.

NOTE 5 — ALLOWANCE FOR LOAN LOSSES

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method for the ~~three and~~ nine months ended September 30, ~~2020~~2021, and ~~2019:~~

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
Three months ended September 30, 2020












Allowance for loan losses:












Beginning balance

$
2,792

$
3,509

$
2,165

$
477

$
102

$
9,045
Provision for loan losses

(209)

(1,197)

7,735

(129)

(31)

6,169
Loans charged-off

-

(179)

-

-

-

(179)
Recoveries

-

-

-

-

-

-
Total ending allowance balance

$
2,583

$
2,133

$
9,900

$
348

$
71

$
15,035

the year ended December 31, 2020:


	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
September 30, 2021
Allowance for loan losses:
Beginning balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259
Provision for loan losses	920		45		1,276		(55)		674		2,860
Loans charged-off	—		—		(7,641)		—		—		(7,641)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	4,079	$	2,222	$	4,097	$	333	$	747	$	11,478


	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
December 31, 2020
Allowance for loan losses:
Beginning balance	$	1,845	$	3,115	$	1,235	$	272	$	81	$	6,548
Provision for loan losses	1,314		(731)		9,326		116		(8)		10,017
Loans charged-off	—		(207)		(99)		—		—		(306)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259

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	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
September 30, 2021
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	669	$	—	$	653	$	1,322
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		—
Collectively evaluated for impairment	4,079		2,222		3,428		333		94		10,156
Total ending allowance balance	$	4,079	$	2,222	$	4,097	$	333	$	747	$	11,478

Loans:
Loans individually evaluated for impairment	$	2,306	$	227	$	1,468	$	—	$	1,307	$	5,308
Loans collectively evaluated for impairment	853,888		371,242		371,842		69,534		15,437		1,681,943
Total ending loans balance	$	856,194	$	371,469	$	373,310	$	69,534	$	16,744	$	1,687,251

December 31, 2020
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	8,309	$	—	$	—	$	8,309
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		0
Collectively evaluated for impairment	3,159		2,177		2,153		388		73		7,950
Total ending allowance balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259

Loans:
Loans individually evaluated for impairment	$	2,351	$	299	$	9,127	$	—	$	1,307	$	13,084
Loans collectively evaluated for impairment	774,674		379,235		382,716		99,590		8,382		1,644,597
Total ending loans balance	$	777,025	$	379,534	$	391,843	$	99,590	$	9,689	$	1,657,681

NOTE 6 — DEPOSITS

The Company’s total deposits are comprised of the following at the dates indicated:


	For the Nine Months Ended September 30, 2021			For the Year Ended December 31, 2020
(Dollars in thousands)	Ending Balance		% of Total	Ending Balance		% of Total
NOW accounts	$	328,667	14.0%	$	232,367	14.0%
Money market accounts	893,441		37.9%	679,761		41.0%
Brokered deposits	56,418		2.4%	30,137		1.8%
Savings accounts	13,833		0.6%	9,727		0.6%
Certificates of deposit	262,998		11.2%	231,953		14.0%
Total interest-bearing deposits	1,555,357		66.1%	1,183,945		71.3%
Noninterest-bearing deposits	799,389		33.9%	475,598		28.7%
Total deposits	$	2,354,746	100.0%	$	1,659,543	100.0%

(1)Balance Sheet does not illustrate brokered deposits as presented above .

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial
��
Development

and Other

Total
Three months ended September 30, 2019












Allowance for loan losses:












Beginning balance

$
1,311

$
2,659

$
1,578

$
371

$
150

$
6,069
Provision for loan losses

477

633

(542)

(116)

(72)

380
Loans charged-off

—

—

—

—

—

—
Recoveries

—

—

—

—

—

—
Total ending allowance balance

$
1,788

$
3,292

$
1,036

$
255

$
78

$
6,449

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
Nine months ended September 30, 2020












Allowance for loan losses:












Beginning balance

$
1,845

$
3,115

$
1,235

$
272

$
81

$
6,548
Provision for loan losses

738

(803)

8,665

76

89

8,765
Loans charged-off

—

(179)

—

—

(99)

(278)
Recoveries

—

—

—

—

—

��
—
Total ending allowance balance

$
2,583

$
2,133

$
9,900

$
348

$
71

$
15,035

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
Nine months ended September 30, 2019












Allowance for loan losses:












Beginning balance

$
1,435

$
1,822

$
2,106

$
262

$
60

$
5,685
Provision for loan losses

353

1,470

(1,070)

(7)

16

762
Loans charged-off

—

—

—

—

—

—
Recoveries

—

—

—

—

2

2
Total ending allowance balance

$
1,788

$
3,292

$
1,036

$
255

$
78

$
6,449

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The following table presents the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of September 30, 2021.


(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total
Time deposits of $250,000 or less	$	13,123	$	18,043	$	57,678	$	6,444	$	95,288
Time deposits of more than $250,000	25,539		30,762		111,204		4,831		172,336
Total	$	38,662	$	48,805	$	168,882	$	11,275	$	267,624

The following tables present the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of December 31, 2020.


(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total
Time deposits of $250,000 or less	$	20,767	$	13,258	$	24,805	$	19,240	$	78,070
Time deposits of more than $250,000	40,189		35,314		42,845		40,157		158,505
Total	$	60,956	$	48,572	$	67,650	$	59,397	$	236,575

As of September 30, 2021, and December 31, 2020, the Company had time deposits that exceed the $250,000 FDIC insurance limit of $172.3 million and $158.5 million, respectively. Securities, mortgage loans or other financial instruments pledged as collateral for certain deposits were $28.7 million, and $54.7 million on September 30, 2021, and December 31, 2020, respectively. The aggregate amount of demand deposits that have been re-classified as loan balances on September 30, 2021, and December 31, 2020, were $0.4 million, and $0.1 million, respectively. Deposits from principal officers, directors and their affiliates on September 30, 2021, and December 31, 2020, were $22.4 million, and $12.1 million, respectively.

For time deposits having a remaining term of more than one year, the aggregate amount of maturities for each of the five years at the dates indicated.


	September 30, 2021		December 31, 2020
Less than 1 year	$	256,349	$	177,178
Over 1 through 2 years	10,153		57,034
Over 2 through 3 years	1,082		1,658
Over 3 through 4 years	40		705
Over 4 through 5 years	—		—
Over 5 years	—		—
Total	$	267,624	$	236,575

Banks are required to maintain cash reserves in the form of vault cash or in an account with the Federal Reserve Bank or in noninterest-earning accounts with other qualified banks. This requirement is based on the Bank’s amount of transaction deposit accounts. Due to the amount of transaction deposit accounts, the Bank was not required to have cash reserve requirements on September 30, 2021, and December 31, 2020. Additionally, the Company had $77.8 million and $98.2 million, in Qualified Public Deposits (“QPD”) that require a portion of the deposit to be pledged as collateral as of September 30, 2021, and December 31, 2020.

NOTE 7 — DEBT

Subordinated Debt. On March 26, 2020, pursuant to terms of the acquisition, the Company assumed the subordinated notes payable of Marquis Bancorp, Inc. (“MBI”) at its fair value of $10.3 million. According to the terms of the subordinated note, the principal amount due is $10.0 million with a 7% fixed rate until October 30, 2021, and a variable rate thereafter at LIBOR plus 576 basis points. The note matures on October 30, 2026, and can be redeemed by the Company anytime on or after

Construction

Commercial

Residential

and Land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
September 30, 2020












Allowance for loan losses:

Ending allowance balance attributable to loans

Individually evaluated for impairment

$
—

$
—

$
8,296

$
—

$
—

$
8,296
Purchased Credit Impaired (PCI) loans

—

—

—

—

—

—
Collectively evaluated for impairment

2,583

2,133

1,604

348

71

6,739
Total ending allowance balance

$
2,583

$
2,133

$
9,900

$
348

$
71

$
15,035

Loans:

Loans individually evaluated for impairment

$
2,356

$
483

$
9,127

$
—

$
—

$
11,966
Loans collectively evaluated for impairment

725,577

375,124

402,123

82,744

13,274

1,598,842
Total ending loans balance

$
727,933

$
375,607

$
411,250

$
82,744

$
13,274

$
1,610,808

December 31, 2019

Allowance for loan losses:

Ending allowance balance attributable to loans

Individually evaluated for impairment

$
—

$
—

$
626

$
—

$
—

$
626
Collectively evaluated for impairment

1,845

3,115

609

272

81

5,922
Total ending allowance balance

$
1,845

$
3,115

$
1,235

$
272

$
81

$
6,548

Loans:

Loans individually evaluated for impairment

$
2,428

$
483

$
1,797

$
—

$
—

$
4,708
Loans collectively evaluated for impairment

268,553

341,774

127,680

41,465

8,287

787,759
Total ending loans balance

$
270,981

$
342,257

$
129,477

$
41,465

$
8,287

$
792,467

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October 30, 2021. Pursuant to its contractual terms, the Company redeemed in full, the amount of its subordinated notes payable of $10.0 million on October 30, 2021. The subordinated debt was fair valued at a premium of $0.3 million and is being amortized over the expected life.

Valley National Line of Credit. On December 19, 2019, the Company entered into a $10.0 million secured revolving line of credit with Valley National Bank, N.A. Amounts drawn under this line of credit bears interest at the Prime Rate, as announced by The Wall Street Journal from time to time as its prime rate, and its obligations under this line of credit are secured by shares of the capital stock of the Bank, which we have pledged as security. On January 7, 2021, (the “Closing Date”) the Company and Valley National Bank entered an amendment, which among other things, extended the maturity date of the note to March 19, 2021. No other material terms of the note changed. The principal balance outstanding pursuant to the note on the Closing Date was $0. On May 10, 2021, the Company and Valley National Bank entered into an extension agreement, which among other things, extended the maturity date of the note to March 1, 2022. As of September 30, 2021, and December 31, 2020, there were no outstanding borrowings under this line of credit.

NOTE 68 — BORROWINGS

The Company uses short-term and long-term borrowings to supplement deposits to fund lending and investment activities.

FHLB Advances. The FHLB allows the Company to borrow up to 25% of its assets on a blanket floating lien status collateralized by certain securities and loans. As of September 30, 2021, approximately $238.7 million in total loans that were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of September 30, 2021, we had $35.0 million in outstanding advances and $129.3 million in additional available borrowing capacity from the FHLB based on the collateral that we have currently pledged. The following table sets forth certain information on our FHLB borrowings during the periods presented.


(Dollars in thousands)	Nine Months Ended September 30, 2021		Year Ended December 31, 2020
Amount outstanding at period-end	$	35,000	$	40,000
Weighted average interest rate at period-end	2.04%		1.96%
Maximum month-end balance during period	$	40,000	$	70,000
Average balance outstanding during period	37,564		58,210
Weighted average interest rate during period	2.00%		1.63%

Federal Reserve Bank of Atlanta. The Federal Reserve Bank of Atlanta has an available borrower in custody arrangement which allows us to borrow on a collateralized basis. No advances were outstanding under this facility as of September 30, 2021.

PPPLF Advances. The Company initially funded PPP loans with the PPPLF. Most of the PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. As of September 30, 2021, the balance of PPPLF advances were $0.

NOTE 9 — COMMON STOCK AND PREFERRED STOCK

Class A Voting Common Stock

The Company has Class A ~~Voting and Class B Non-voting~~voting common stock with a par ~~values~~value of $0.01 per share. As of September 30, ~~2020,~~2021, there are 50,000,000 ~~and 10,000,000~~ shares authorized as Class A ~~and Class B~~voting common stock of which ~~13,080,893 and 401,633~~13,416,667 are ~~outstanding, respectively.~~outstanding. During the nine months ended September 30, ~~2020,~~2021, the Company issued ~~8,281,476~~229,417 shares of Class A voting common stock, ~~and exchanged 350,551~~inclusive of 134,856 shares of ~~Class B non-voting~~restricted stock ~~for an equal number~~grants, 92,710 shares of ~~Class A voting stock. Also, during~~options exercised, and 1,851 shares pursuant to the employee stock purchase program.

During the nine months ended September 30, ~~2020,~~2021, the Company ~~cancelled 551~~repurchased 341,367 shares of Class A common stock. Further, during the same nine-month period, upon the vesting of a portion of restricted stock, ~~and repurchased 315,294~~employees of the Company elected to have 3,210 shares of Class A common voting ~~stock.~~

stock withheld for tax purposes and had 3,002 in restricted stock cancellations.

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Class B Non-voting Common Stock

The Company has Class B non-voting common stock with a par value of $0.01 per share. As of September 30, 2021, there are 10,000,000 shares authorized as Class B non-voting common stock, none of which are outstanding.

Preferred Stock

The Company has 10,000,000 shares of undesignated and unissued preferred stock.

NOTE 710 — FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other 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.

Level 3 — Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

~~Table of Contents~~

The Company used the following methods and significant assumptions to estimate fair value:

Cash and cash equivalents: The carrying amounts of cash and cash equivalents approximate their fair value.

Securities available for sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations, corporate bonds, municipal bonds and U.S. agency notes. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 might include certain residual interests in securitizations and other less liquid securities. As of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, all securities available for sale were Level 2.

Securities held-to-maturity: Reported at fair value utilizing ~~level~~Level 2 inputs. The estimated fair value is determined based on market quotes when available. If not available, quoted market prices of similar securities, discounted cash flow analysis, pricing models and observable market data are used in determining fair market value.

Equity securities: The Company values equity securities at readily determinable market values based on the closing price at the end of each period. Changes in fair value are recognized through net income.

Loans: Fair values are estimated for portfolios of loans with similar characteristics. Loans are segregated by type, such as commercial or residential mortgage. Each loan category is further segmented into fixed and adjustable rate interest terms as well as performing and non-performing categories. The fair value of loans is calculated by discounting scheduled cash flows through the estimated life including prepayment considerations and estimated market discount rates that reflect the risks inherent to the loan. The calculation of the fair value considers market driven variables including credit related factors and reflects an exit price as defined in ASC Topic 820.

Loans held for sale: The carrying amounts of loans held for sale approximate their fair values.

Federal Home Loan Bank stock: It is not practical to determine fair value due to restrictions placed on transferability.

Federal Reserve Bank stock: It is not practical to determine fair value due to restrictions placed on transferability.

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Accrued interest receivable: The carrying amounts of accrued interest approximate their fair values.

Deposits: The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate time deposits are estimated using a current market rates offered for remaining or similar maturities.

Federal Home Loan Bank advances: Fair values are estimated using discounted cash flow analysis based on the Bank’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

~~Table of Contents~~

Assets and Liabilities Measured on a Recurring ~~Basis~~

Basis:

Assets and liabilities measured at fair value on a recurring basis, are summarized below:

Fair Value Measurements

at September 30, 2020 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
September 30, 2020

Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale








Small Business Administration loan pools

$
31,823

$
—

$
31,823

$
—
Mortgage-backed securities

33,399

—

33,399

—
U.S. agency obligations

5,141

—

5,141

—
Community Development District bonds

23,097

—

23,097

—
Municipals

1,099

—

1,099

—
Corporate bonds

2,508

—

2,508

—
Total

$
97,067

$
—

$
97,067

$
—
Equity








Mutual funds

$
995

$
995

$
—

$
—
Total

$
995

$
995

$
—

$
—

Fair Value Measurements

at December 31, 2019 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
December 31, 2019

Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale








SBA loans pools

$
17,183

$
—

$
17,183

$
—
Mortgage-backed securities

5,185

—

5,185

—
U.S. agency obligations

4,070

—

4,070

—
Corporate bonds

2,003

—

2,003

—
Total

$
28,441

$
—

$
28,441

$
—
Equity








Mutual funds

$
971

$
—

$
971

$
—
Total

$
971

$
—

$
971

$
—

There were no securities reclassified into or out of Level 3 during the nine months ended September 30, ~~2020~~2021, or for the year ended December 31, ~~2019.~~

2020.

Fair Value Measurements
on September 30, 2021 Using:
September 30, 2021 Fair
Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale - taxable
Small Business Administration loan pools $ 39,703 $ — $ 39,703 $ —
Mortgage-backed securities 50,928 — 50,928 —
United States agency obligations 2,078 — 2,078 —
Corporate bonds 1,509 — 1,509 —
Total $ 94,218 $ — $ 94,218 $ —
Available-for-sale - tax exempt
Community Development District bonds $ 18,364 $ — $ 18,364 $ —
Municipals 1,098 — 1,098 —
Total $ 19,462 $ — $ 19,462 $ —
Equity
Mutual funds $ 5,903 $ 5,903 $ — $ —
Other equity securities 800 800 — —
Total $ 6,703 $ 6,703 $ — $ —

Table of Contents
Fair Value Measurements
on December 31, 2020 Using:
December 31, 2020 Fair
Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale - taxable
Small Business Administration loan pools $ 30,556 $ — $ 30,556 $ —
Mortgage-backed securities 28,922 — 28,922 —
United States agency obligations 3,122 — 3,122 —
Corporate bonds 2,510 — 2,510 —
Total $ 65,110 $ — $ 65,110 $ —
Available-for-sale - tax exempt
Community Development District bonds $ 21,299 $ — $ 21,299 $ —
Municipals 1,099 — 1,099 —
Total $ 22,398 $ — $ 22,398 $ —
Equity
Mutual funds $ 6,005 $ 6,005 $ — $ —
Total $ 6,005 $ 6,005 $ — $ —
on September 30, 2021 Using:
September 30, 2021 Fair
Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Customer Derivatives - Interest Rate SWAPs
Customer Derivatives - Interest Rate SWAPs Asset $ 1,300 $ — $ 1,300 $ —
Customer Derivatives - Interest Rate SWAPs Liability (1,300) — (1,300) —
Total $ — $ — $ — $ —
As of December 31, 2020, the Company did not hold any interest rate SWAPs.

Impaired loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Such adjustments result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

Specifically, regarding the Coex ~~Coffee International Loan,~~loan, the carrying amount of the loan for impairment purposes was determined based on the note outstanding balance aton September 30, ~~2020,~~2021, less the non-recourse amount sold to our participant, yielding a carrying value of ~~$8.3~~$0.6 million. The fair value of the collateral was determined based on a review of ~~preliminary~~ information obtained from the Assignee related to the collectability of the ~~purchase order advances and~~collateral adjusted for ~~estimated~~ legal and ~~Assignee related~~disposition costs. When netted in the same percentage as the non-recourse portion of the loan, the net fair value of collateral was noted as $0.6 million. The net

~~Table of Contents~~

result of these calculations provides for ano specific reserve ~~of $7.6 million~~ within the ~~ALLL~~Allowance for Loan and Lease Losses (“ALLL”) associated with the Coex ~~Coffee International~~ loan or approximately ~~92%~~0% of the carrying value of the loan.

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Assets measured at fair value on a non-recurring basis are summarized below:


			Fair Value Measurements
			at September 30, 2020 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total at		Active Markets for		Observable		Unobservable
	September 30,		Identical Assets		Inputs		Inputs		Total Gains

														Fair Value Measurements on September 30, 2021 Using:
(Dollars in thousands)	2020		(Level 1)		(Level 2)		(Level 3)		(Losses)		(Dollars in thousands)	Total at September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:											Impaired Loans:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate		—		—		—		—		—	Residential real estate	—		—		—		—		—
Commercial		831		—		—		831		(8,296)	Commercial	799		—		—		799		(669)
Construction and land development		—		—		—		—		—	Construction and land development	—		—		—		—		—
Consumer and other		—		—		—		—		—	Consumer and other	654		—		—		654		(654)
Total	$	831	$	—	$	—	$	831	$	(8,296)	Total	$	1,453	$	—	$	—	$	1,453	$	(1,323)


			Fair Value Measurements
			at December 31, 2019 Using:
					Significant
			Quoted Prices in		Other		Significant
	Total at		Active Markets for		Observable		Unobservable
	December 31,		Identical Assets		Inputs		Inputs		Total Gains

														Fair Value Measurements on December 31, 2020 Using:
(Dollars in thousands)	2019		(Level 1)		(Level 2)		(Level 3)		(Losses)		(Dollars in thousands)	Total at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:											Impaired Loans:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate		—		—		—		—		—	Residential real estate	—		—		—		—		—
Commercial		442		—		—		442		(627)	Commercial	818		—		—		818		(8,309)
Construction and land development		—		—		—		—		—	Construction and land development	—		—		—		—		—
Consumer and other		—		—		—		—		—	Consumer and other	—		—		—		—		—
Total	$	442	$	—	$	—	$	442	$	(627)	Total	$	818	$	—	$	—	$	818	$	(8,309)

As shown above our impaired loans consist solely of commercial loans considered to be Level 3. These Level 3 loans have significant unobservable inputs such as appraisal adjustments for local market conditions and economic factors that may result in changes in value of an assets over time.

Table of Contents

The table below presents the approximate carrying amount and estimated fair value of the ~~Bank’s~~Company’s financial instruments (in thousands):

September 30, 2020

Carrying

Fair

Fair Value


Amount

Value

Hierarchy
Financial Assets:






Cash & Due from Banks, including interest bearing deposits

$
287,840

$
287,840

Level 1
Federal Funds Sold

26,696

26,696

Level 1
Securities, Available for Sale

97,067

97,067

Level 2
Securities, Held to Maturity

1,589

1,605

Level 2
Securities, Equity

995

995

Level 1
Loans, net

1,589,010

1,600,457

Level 3
Company Owned Life Insurance

17,236

17,236

Level 2
Accrued Interest Receivable

6,547

6,547

Level 1, 2 & 3

Financial Liabilities:






Deposits

1,567,143

1,592,995

Level 2
Federal Home Loan Bank Advances

50,000

47,647

Level 2
Subordinated Debt

10,197

10,197

Level 2
PPPLF Advances

224,341

224,835

Level 2
Accrued Interest Payable

979

979

Level 2


	September 30, 2021
	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits	$	720,407	$	720,407	Level 1
Federal Funds Sold	23,736		23,736		Level 1
Securities, Available for Sale - taxable	94,739		94,218		Level 2
Securities, Available for Sale - tax exempt	18,854		19,462		Level 2
Securities, Held to Maturity	259		269		Level 2
Securities, Equity	5,903		5,903		Level 1
Securities, Other Equity	800		800		Level 1
Loans, net	1,675,773		1,691,673		Level 3
Loans Held For Sale	284		284		Level 1
Bank Owned Life Insurance	38,204		38,204		Level 2
Accrued Interest Receivable	5,336		5,336		Level 1, 2 & 3
Customer Derivatives - Interest Rate SWAPs	1,300		1,300		Level 2

Financial Liabilities:
Deposits	2,354,746		2,325,899		Level 2
Federal Home Loan Bank Advances	35,000		33,809		Level 2
Subordinated Debt	10,016		10,016		Level 2


Customer Derivatives - Interest Rate SWAPs	1,300		1,300		Level 2
Accrued Interest Payable	266		266		Level 2


	December 31, 2020
	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits	$	191,597	$	191,597	Level 1
Federal Funds Sold	25,375		25,375		Level 1
Securities, Available for Sale - taxable	65,110		65,110		Level 2
Securities, Available for Sale - tax exempt	22,398		22,398		Level 2
Securities, Held to Maturity	1,547		1,561		Level 2
Securities, Equity	6,005		6,005		Level 1
Loans, net	1,641,422		1,653,401		Level 3
Loans Held For Sale	1,270		1,270		Level 1
Bank Owned Life Insurance	37,360		37,360		Level 2
Accrued Interest Receivable	6,666		6,666		Level 1, 2 & 3

Financial Liabilities:
Deposits	1,659,543		1,693,331		Level 2
Federal Home Loan Bank Advances	40,000		37,927		Level 2
Subordinated Debt	10,153		10,153		Level 2
PPPLF Advances	101,358		101,519		Level 2
Loan Participations	13,215		13,215		Level 2
Accrued Interest Payable	546		546		Level 2

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NOTE 11 — CUSTOMER DERIVATIVES — INTEREST RATE SWAPS

During the first quarter of 2021, the Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate SWAP with the customer. The Company also enters into an offsetting SWAP with a SWAP dealer. These back-to-back SWAP agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The SWAPs with both the customers and thirdparties are notdesignated as hedges under FASB ASC Topic 815,Derivatives and Hedging, and are marked to market through earnings. As the SWAPs are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there maybe fair value adjustments related to credit quality variations between counterparties, which mayimpact earnings as required by FASB ASC Topic 820,Fair Value Measurement and Disclosure (“ASC 820”). During the nine months ended September 30, 2021, the Company recorded 8 SWAP transactions with clients having a total notional amount of $69.7 million, offset by 8 SWAP transactions with dealers having a total notional amount of $69.7 million. Additionally, we recorded $0.5 million in back-to-back SWAP fee income. The fair value of these derivatives is based on a market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to properly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. As of September 30, 2021, the Bank’s asset fair value position in other assets was $1.3 million and liability fair value position in other liabilities was $1.3 million, which were fully collateralized with pledged securities held with counterparty in excess of the exposure amount at quarter end.

NOTE 12 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance-sheet risk on September 30, 2021, and December 31, 2020, were as follows:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Unfunded lines of credit	$	368,117	$	356,955
Commitments to extend credit	97,251		40,629
Letters of credit	11,308		13,036
Total credit extension commitments	$	476,676	$	410,620

NOTE 13 — REGULATORY CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for United States banks (Basel III rules) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for September 30, 2021, is 2.50% and for December 31, 2020, was 2.50% The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of September 30, 2021, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective action regulations provide 5 classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital

December 31, 2019

Carrying

Fair

Fair Value


Amount

Value

Hierarchy
Financial Assets:






Cash & Due from Banks, including interest bearing deposits

$
171,980

$
171,980

Level 1
Federal Funds Sold

26,970

26,970

Level 1
Securities, Available for Sale

28,441

28,441

Level 2
Securities, Held to Maturity

214

224

Level 2
Securities, Equity

971

971

Level 2
Loans, net

785,167

796,924

Level 3
Company Owned Life Insurance

16,858

16,858

Level 2
Accrued Interest Receivable

2,498

2,498

Level 1, 2 & 3

Financial Liabilities:






Deposits

892,873

883,225

Level 2
Federal Home Loan Bank Advances

55,000

54,649

Level 2
Line of Credit

9,999

9,999

Level 1
Accrued Interest Payable

373

373

Level 2

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distributions are limited, as is asset growth and expansion, and capital restoration plans are required. On September 30, 2021, and December 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.

Actual and required capital amounts and ratios are presented below on September 30, 2021, and December 31, 2020. The required amounts for capital adequacy shown below do not include the capital conservation buffer previously discussed.


	Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
September 30, 2021
Total capital ratio
Bank	$	206,776	12.9%	$	127,860	8.0%	$	159,824	10.0%
Company	224,537		14.0%	127,860		8.0%	N/A		N/A
Tier 1 capital ratio
Bank	194,377		12.2%	95,895		6.0%	127,860		8.0%
Company	202,122		12.6%	95,895		6.0%	N/A		N/A
Tier1 leverage ratio
Bank	194,377		7.7%	101,353		4.0%	126,691		5.0%
Company	202,122		8.0%	101,353		4.0%	N/A		N/A
Common equity tier 1 capital ratio
Bank	194,377		12.2%	71,921		4.5%	103,886		6.5%
Company	202,122		12.6%	71,921		4.5%	N/A		N/A


	Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2020
Total capital ratio
Bank	$	176,633	12.0%	$	117,298	8.0%	$	146,623	10.0%
Company	215,977		14.7%	117,298		8.0%	N/A		N/A
Tier 1 capital ratio
Bank	159,448		10.9%	87,974		6.0%	117,298		8.0%
Company	188,639		12.9%	87,974		6.0%	N/A		N/A
Tier1 leverage ratio
Bank	159,448		8.4%	75,723		4.0%	94,654		5.0%
Company	188,639		10.0%	75,723		4.0%	N/A		N/A
Common equity tier 1 capital ratio
Bank	159,448		10.9%	65,980		4.5%	95,305		6.5%
Company	188,639		12.9%	65,980		4.5%	N/A		N/A

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NOTE 814 — STOCK BASED COMPENSATION

Restricted Stock

An award of restricted stock involves the immediate transfer by the Company to the participant of a specific number of shares of our Class A voting common stock, which are subject to a risk of forfeiture and a restriction on transferability. This restriction will lapse following a stated period of time. The participant does not pay for the restricted stock and has all of the rights of a holder of a share of our Class A voting common stock (except for the restriction on transferability), including the right to vote and receive dividends unless otherwise determined by the Compensation Committee and set forth in the award agreement.

The Company initially limited the aggregate number of shares of our Class A voting common stock to be awarded under the 2019 Equity Incentive Plan (the "2019 Plan") as restricted stock to 682,955 shares. However, the 2019 Plan provides for the automatic increase (but not decrease) on the first day of each fiscal year. Thus, for 2021 the total share reserve is 682,955. The Company has 227,590 shares of restricted stock outstanding, at a weighted average exercise price of $16.87, to employees and directors under the 2019 Equity Incentive Plan as of September 30, 2021, for which the Company did not receive, nor will it receive, any monetary consideration. Therefore, there were 455,365 restricted shares available to be issued on September 30, 2021. As of September 30, 2021, there was approximately $2.7 million in unrecognized compensation expense in regard to restricted stock that will be recognized over a three-year period.

NOTE 15 — LEASES

~~ASC 842 establishes a~~

Operating leases in which the Company is the lessee are recorded as right-of-use (“ROU”) ~~model that requires a lessee to recognize a ROU asset~~assets and operating lease ~~liability~~liabilities, including premises and equipment and other liabilities, respectively on the ~~balance sheet for all~~Consolidated Balance Sheets. Currently the Company does not have any lessor leases ~~with a term longer than 12 months. Leases are classified~~(formerly known as ~~finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.~~ capital leases) to report on its financials.

The Company’s ROU assets are classified under premises and equipment on the Balance Sheet. The ROU liabilities are classified under other ~~liabilities.~~liabilities. The Company recorded ~~$1.7~~$0.2 million new ROU assets during the nine months ended September 30, ~~2020~~2021, and ~~$6.0~~recorded $2.0 million during the year ended December 31, ~~2019.~~2020. The total amount of ROU was ~~$6.9~~$5.5 and ~~$6.4~~$6.5 million aton September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.

The Company leases certain properties and equipment under operating leases that resulted in the recognition of ROU Lease Assets of $5,673 and Lease Liabilities of $6,025 on the Company’s Condensed Consolidated Balance Sheets as of January 1, 2019.

ASC 842 was effective on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company chose to use the adoption date of January 1, 2019 for ASC 842. As such, all periods presented after January 1, 2019 are under ASC 842 whereas periods presented prior to January 1, 2019 are in accordance with prior lease accounting of ASC 840. Financial information was not updated and the disclosures required under ASC 842 was not provided for dates and periods before January 1, 2019.

ASC 842 provides a number of optional practical expedients in transition. The Company has elected the package of practical expedients, which permits the Company not to reassess under the new standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the use of the hindsight, a practical expedient which permits the use of information available after lease inception to determine the lease term via the knowledge of renewal options exercised not available as of the leases inception. The practical expedient pertaining to land easements is not applicable to the Company.

ASC 842 also requires certain accounting elections for ongoing application of ASC 842. The Company elected the short-term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. ROU assets or lease liabilities are not to be recognized for short-term leases. The Company also elected the practical expedient to not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. However, since these non-lease items are subject to change, they are treated and disclosed as variable payments in the quantitative disclosures below. Consequently, ASC 842’s changed guidance on contract components will not significantly affect our financial reporting. Similarly, ASC 842’s narrowed definition of initial direct costs will not significantly affect financial reporting.

~~Lessee Leases~~

The majority of the Company’s lessee leases are operating leases and consist of leased real estate for branches and operations centers. The Company elected the short term lease recognition exemption for all leases that qualify, meaning those with terms under twelve months. The ROU assets represent the Company’s right to use the underlying assets during the lease term and operating liabilities represent the obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement. Options to extend and renew leases are generally exercised under normal circumstances. Advance notification is required prior to termination, and any noticing period is often limited to the months prior to renewal. Variable payments generally consist of common area maintenance and taxes. Rent escalations are generally specified by a payment schedule or are subject to a defined formula. The Company also ~~elected the practical expedient to~~does not separate lease and non-lease components for all leases, the majority of which consist of real estate common area maintenance expenses. Generally, leases do not include guaranteed residual values, but instead typically specify that the leased premises are to be returned in satisfactory condition with the Company liable for damages.

~~Table of Contents~~

For operating leases, the lease liability and ROU asset (before adjustments) are recorded at the present value of future lease payments. ASC 842 requires the use of the lease interest rate; however, this rate is typically not known. As an alternative, ASC 842 permits the use of an entity’s fully secured incremental borrowing rate. The Company is electing to utilize the Federal Home Loan Bank (“FHLB”) Atlanta Fixed Rate Advance index, as it is the most actively used institution-specific collateralized borrowing source available to the Company.

Lease cost for the three and nine months ended September 30, ~~2020~~2021, and ~~2019~~2020 consists of:

Three-month

Three-month

Nine-month

Nine-month

period ended

period ended

period ended

period ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019
Operating Lease and Interest Cost

$
507

$
282

$
1,264

$
726
Variable Lease Cost

120

92

369

269
Total Lease Cost

$
627

$
374

$
1,633

$
995


	Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020
Operating Lease and Interest Cost	$	335	$	507	$	1,128	$	1,264
Variable Lease Cost	106		120		305		369
Total Lease Cost	$	441	$	627	$	1,433	$	1,633

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The following table provides supplemental information related to leases for the three and nine months ended September 30, ~~2020~~2021, and ~~2019:~~

2020:


	Three-month			Three-month			Nine-month			Nine-month
	period ended			period ended			period ended			period ended
	September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019

														Three Months Ended September 30, 2021		Three Months Ended September 30, 2020		Nine Months Ended September 30, 2021			Nine Months Ended September 30, 2020
Operating Lease - Operating Cash Flows (Fixed Payments)	$	508		$	282		$	1,264		$	726		Operating Lease - Operating Cash Flows (Fixed Payments)	$	335	$	508	$	1,129		$	1,264
Operating Lease - Operating Cash Flows (Liability Reduction)	$	612		$	239		$	1,281		$	442		Operating Lease - Operating Cash Flows (Liability Reduction)	$	123	$	612	$	1,044		$	1,281
New ROU Assets - Operating Leases	$	60		$	—		$	1,680		$	411		New ROU Assets - Operating Leases	$	165	$	60	$	165		$	1,680
Weighted Average Lease Term (Years) - Operating Leases								5.85			8.06		Weighted Average Lease Term (Years) - Operating Leases					5.01			5.85
Weighted Average Discount Rate - Operating Leases			%			%		3.05	%		3.82	%	Weighted Average Discount Rate - Operating Leases					3.13		%	3.05		%

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities as of September 30, ~~2020~~2021, is as follows:

September 30, 2020
Operating lease payments due:

Within one year

$
1,567
After one but within two years

1,178
After two but within three years

1,212
After three but within four years

1,064
After four years but within five years

947
After five years

1,348
Total undiscounted cash flows

7,316
Discount on cash flows

(545)
Total operating lease liabilities

$
6,771


	September 30, 2021
Operating lease payments due:
Within one year	$	1,443
After one but within two years	1,426
After two but within three years	1,212
After three but within four years	1,097
After four years but within five years	766
After five years	620
Total undiscounted cash flows	6,564
Discount on cash flows	(1,107)
Total operating lease liabilities	$	5,457

~~Lessor Leases~~

~~ASC 842 also impacted lessor accounting. Currently~~

NOTE 16 — SUBSEQUENT EVENTS

Redemption of Subordinated Debt

On October 30 2021, the Company ~~does not have any lessor leases (formerly known as capital leases) to report on~~redeemed in full, the amount of its ~~financials.~~

~~Lease Termination~~

~~On June 19, 2020, the Company exercised an option to early terminate a lease for a former operational office~~subordinated notes payable of ~~Marquis Bank and a branch located~~$10.0 million, in Coral Gables (the “Closed Offices”). The Closed Offices were located less than one mile from the Bank’s already established Coral Gables location. The cost to exercise the option on the Closed Offices was $322.8 thousand and decreased the life of the lease by approximately 15 months. As a result of exercising the option, the lease will terminate in March 2021 as opposed to June 2022. This resulted in a savings of over $400 thousand in lease payments plus expenses. The cost of the option will be amortized through the end of the lease in March 2021.

accordance with its contractual terms.

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~~NOTE 9 — BUSINESS COMBINATION~~

~~Acquisition of Marquis Bancorp, Inc.~~

On March 26, 2020, the Company closed its acquisition of Marquis Bancorp. (MBI) and its wholly owned subsidiary, Marquis Bank, headquartered in Coral Gables, Florida. Each share of MBI common stock issued and outstanding immediately prior to closing was converted into 1.2048 shares of the Company’s Class A common stock, with cash paid in lieu of fractional shares. The Company issued 4,227,816 shares of its Class A Common Stock as consideration in the acquisition. No MBI shareholders exercised appraisal rights. In addition, all stock options of MBI granted and outstanding on the closing date of the acquisition were converted into an option to purchase shares of the Company’s Class A Common Stock based on the exchange ratio.

MBI results of operations were included in the Company’s results beginning March 27, 2020. Acquisition-related costs of $1.1 and $3.3 million are included in non-interest expense in the Company’s income statement for the three and nine months ended September 30, 2020. The fair value of the Class A common shares issued as part of the consideration paid for MBI was determined on the basis of the closing price of the Company’s common shares on the acquisition date.

~~The acquisition of MBI was accounted for under the acquisition method in accordance with ASC Topic 805,~~ ~~Business Combinations~~~~. Goodwill of $15.7 million arising from the acquisition consisted of~~ operational efficiencies and potential cost savings through consolidating and integrating MBI’s operations into the Company’s existing operations. The fair values initially assigned to assets acquired and liabilities assumed are preliminary and could change for up to one year after the closing date of the acquisition of MBI as new information and circumstances relative to closing date fair values become known. Fair value estimates are deemed preliminary due to pending evaluations of reports from the Company’s third-party valuation specialists, appraisals and other financial information. The Company continues to evaluate and adjust as necessary, the fair values assigned to assets acquired and liabilities assumed through the acquisition of MBI. Determining the fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, goodwill and time deposits is a complicated process involving significant judgment regarding methods and assumptions used to calculate the

~~Table of Contents~~

estimated fair values. The following table summarizes the consideration paid for MBI and the estimated fair values of the assets acquired, and liabilities assumed at the date of the MBI acquisition, net of total consideration paid:

Estimated

Measurement

Estimated

Fair Value at

Period

Fair Value at
(In thousands, except per share data)

March 26, 2020

Adjustments

September 30, 2020
Number of MBI common shares outstanding

3,509,143

-

3,509,143
Per share exchange ratio

1.2048

-

1
Number of shares of common stock issued

4,227,816

-

4,227,816
Multiplied by common stock price per share on March 26, 2020

$
15.21

$
-

$
15
Value of common stock issued

64,305

-

64,305
Cash paid in lieu of fractional shares

1

-

1
Fair value of MBI stock options converted to PFHD options

393

-

393
Fair value of total consideration transferred

$
64,699

$
-

$
64,699

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents

$
26,860

$
-

$
26,860
Securities, Available for Sale

27,029

-

27,029
Securities, Held to Maturity

1,466

-

1,466
Loans

520,606

91

520,697
Premises and equipment

824

-

824
Accrued interest receivable

1,525

-

1,525
Core deposit intangibles

3,964

-

3,964
Other assets

7,100

295

7,395
Total asset acquired

589,374

386

589,760

Deposits

497,166

944

498,110
Federal Home Loan Bank advances

25,103

-

25,103
Subordinated notes payable

9,920

365

10,285
Accrued interest payable

610

-

610
Other Liabilities

6,604

-

6,604
Total liabilities assumed

539,403

1,309

540,712

Total identifiable net assets

49,971

(923)

49,048

Goodwill

$
14,728

$
923

$
15,651

Acquired loans are initially recorded at their acquisition-date fair values using Level 3 inputs. Refer to Note 7, Fair Value, for a discussion of the fair value hierarchy. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, discount rates, expected payments and expected prepayments. Specifically, the Company has prepared three separate loan fair value adjustments that it believes a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three separate fair valuation methodologies employed are: (i) an interest rate loan fair value adjustment, (ii) a general credit fair value adjustment, and (iii) a specific credit fair value adjustment for purchased credit impaired (“PCI”) loans subject to ASC 310-30 provisions. The acquired loans were recorded at fair value at the acquisition date without carryover of MBI’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a book balance, prior to fair value adjustments, of $539.9 million.

~~Table of Contents~~

~~The table below illustrates the fair value adjustments made to the amortized cost basis to present the fair value of the loans acquired.~~

Estimated

Measurement

Estimated

Fair Value at

Period

Fair Value at

March 26, 2020

Adjustments

September 30, 2020
Gross principal balance

$
539,855

$
-

$
539,855
Interest rate fair value adjustment on performing loans

3,109

-

3,109
Credit fair value adjustment on performing loans

(18,242)

-

(18,242)
Fair value adjustment on PCI loans

(4,116)

91

(4,025)
Fair value of acquired loans

$
520,606

$
91

$
520,697

The credit fair value adjustment on PCI loans represents the portion of the loan balances that have been deemed uncollectible based on the Company’s expectations of future cash flows for each respective loan.

Estimated

Measurement

Estimated

Fair Value at

Period

Fair Value at

March 26, 2020

Adjustments

September 30, 2020
Contractually required principal and interest at acquisition

$
8,968

$
-

$
8,968
Contractual cash flows not expected to be collected (nonaccretable discount, includes principal and interest)

(4,531)

90

(4,441)
Expected cash flows at acquisition

4,437

90

4,527
Interest component of expected cash flows (accretable discount)

(418)

-

(418)
Fair value of PCI loans accounted for under ASC-310-30

$
4,019

$
90

$
4,109

For loans acquired without evidence of credit deterioration, the Company prepared interest rate loan fair value and credit fair value adjustments. Loans were grouped into homogeneous pools by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various internal and external data sources and reviewed for reasonableness. A present value approach was utilized to calculate the interest rate fair value premium of $3.1 million. Additionally, for loans acquired without credit deterioration, a credit fair value adjustment was calculated using a two-part credit fair value analysis: (i) expected lifetime credit migration losses, and (ii) estimated fair value adjustment for certain qualitative factors. A credit fair value discount of $18.2 million was determined. Both the interest rate and credit fair value adjustments related to loans acquired without evidence of credit deterioration will be recognized as interest income over the expected life of the loans.

For PCI loans, acquired with evidence of credit deterioration, the Company prepared a specific credit risk fair value adjustment in accordance with ASC 310-30. The fair value adjustment of $4.0 million represents the present value of expected cash flows at market participant discount rates in accordance with ASC 310-30. This fair value adjustment was segregated into 2 pieces: (i) non-accretable discount which represents the portion of the loan balances that has been deemed uncollectible of $4.4 million, and (ii) accretable discount of $0.4 million which would represent an adjustment for the expected future cash flows discounted at a market participant discount rate. The accretable discount will be recognized on a level yield basis.

The fair value of the core deposit intangible was determined based on a discounted cash flow method using a discount rate commensurate with market participants. To calculate cash flows, the sum of deposit account servicing costs (net of deposit fee income) and interest expense on deposits was compared to the cost of alternative funding sources available to the Company. The expected cash flows of the deposit base included estimated attrition rates. The core deposit intangible asset was valued at $4.0 million and will be amortized over ten years using the sum-of-the years digit method.

The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit was valued at $2.8 million is being amortized into income on a level yield amortization method over the contractual life of the deposits.

The fair value adjustment of FHLB advances was determined based upon an estimated fair value received from the FHLB Atlanta. The FHLB advances was valued at $0.1 million and will be amortized into the remaining life of the Advances.

The fair value of subordinated debt was determined by using a discounted cash flow method using a market participant discount rate for similar instruments. The subordinated debt was fair valued at a discount of $0.3 million and will be amortized over the expected life of the debt.

~~Table of Contents~~

In connection with the acquisition of MBI, the Company recorded a net deferred income tax asset of $4.0 million related to MBI’s effects of fair value adjustments resulting from applying the purchase method of accounting.

The following table presents supplemental pro-forma information as if the acquisition had occurred at the beginning of 2019. The pro-forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on January 1, 2019.

Three months ended

Nine months ended
(In thousands, except per share data)

September 30, 2019

September 30, 2019
Net interest income

$
14,644

$
42,104
Net income

3,757

10,036
EPS - basic

$
0.00

$
0.00
EPS - diluted

$
0.00

$
0.00

~~NOTE 10 — SUBSEQUENT EVENTS~~

~~PPPLF Advances~~

The Company has participated in the Payroll Protection Program (PPP) offered through the U.S. Small Business Administration (SBA) by way of the Coronavirus Aid Relief and Economic Security (CARES) Act that was passed at the end of the first quarter 2020. A majority of these loans have been pledged to the Federal Reserve as part of the Paycheck Protection Program Liquidity Facility (PPPLF). As of June 30, 2020, the Company had initially pledged $218.1 million in PPPLF loans and has since then made several paydowns. As of October 31, 2020, the Company has pledged $149.1 million in remaining PPPLF loans. The PPPLF pledged loans are non-recourse to the Bank. These loans are guaranteed by the government and as such no loan loss reserves have been recorded for these loans. As of October 31, 2020, the Company has paid off $75.2 million in PPPLF advances since inception of the program.

~~New England Office Lease~~

On October 15, 2020, the Company entered into a short-term lease for its new loan production office in Bedford, NH. The lease is scheduled to commence on November 1, 2020 for a term of 36 months, with an option to terminate at month 24. Total operating expense base will be approximately $16 thousand per annum.

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

Introduction

The following ~~is Management’s Discussion~~discussion and ~~Analysis of the Financial Condition and Results of Operations (“MD&A”)~~analysis are part of Professional Holding Corp.’s (the “Company”) ~~for the three and nine months ended September 30, 2020 and 2019. This MD&A should be read in conjunction~~Quarterly Report on Form 10-Q filed with the ~~financial statements above~~SEC and ~~with~~updates the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019 (the “2019~~2020, which was previously filed with the SEC. This financial information is presented to aid in understanding the Company’s financial position and results of operations and should be read together with the financial information contained in the Form ~~10-K”), Form 10-Q~~10-K. See Note 1 “Summary of Significant Accounting Policies - Basis of Presentation” to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, for the ~~quarter ended March~~consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, 2021, compared to December 31, ~~2020 (the “First Quarter 10-Q”) and Form 10-Q for the quarter ended June 30, 2020 (the “Second Quarter 10-Q”).~~

2020.

Cautionary Note Regarding Forward Looking Information

This Quarterly Report on Form 10-Q contains certain forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements reflect our current opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding, among other things, future events or future results, in contrast with statements that reflect historical facts. These statements are often, but not always, made through the use of conditional words such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project” or “expect,” “may,” “will,” “would,” “could” or “should” or the negative versions of these terms or other comparable terminology. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

~~Table of Contents~~

Important factors related to forward-looking statements may include, among others, risks and assumptions regarding:

●

the duration and severity of the COVID 19 pandemic, both in our principal area of operations and nationally, and the impact of the pandemic, including the government’s responses to the pandemic, on our and our customers’ operations, personnel, and business activity (including developments and volatility), as well as the pandemic’s impact on the credit quality of our loan portfolio and on financial market and general economic conditions.

●

~~the strength of the United States economy in general and the strength of the local economies in which we conduct operations;~~

●

the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate;

●

the impairment estimate related to Coex and the Company's pursuit of actions to mitigate the ultimate losses on the Coex credit and the ability to recover as much of the outstanding indebtedness as possible;

●

~~the frequency and magnitude of foreclosure of our loans;~~

●

~~changes in the securities, real estate markets and commodities markets (including fluctuations in the price of coffee or oil);~~

●

~~our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;~~

●

~~the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss reserve and deferred tax asset valuation allowance;~~

●

~~increased competition and its effect on pricing of our products and services as well as our margins;~~

●

~~legislative or regulatory changes;~~

●

~~potential business uncertainties as we integrate MBI into our operations, including into our operations critical accounting estimates;~~

●

~~our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;~~

●

~~the Bank’s ability to make cash distributions to us and our ability to declare and pay dividends, the payment of which is subject to our capital and other requirements;~~

●

~~changes in accounting principles, policies, practices or guidelines, including the effects of forthcoming CECL implementation;~~

●

~~our ability to fund and manage our growth, both organic growth as well as growth through other means, such as future acquisitions;~~

●

~~negative publicity and the impact on our reputation;~~

●

~~our ability to attract and retain highly qualified personnel;~~

●

~~technological changes;~~

●

~~cybersecurity risks including security breaches, computer viruses, and data processing system failures and errors;~~

●

~~our ability to manage operational risks, including, but not limited to, client, employee, or third-party fraud;~~

●

~~changes in monetary and fiscal policies of the U.S. Government and the Federal Reserve;~~

•the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

•the effects of our lack of a diversified loan portfolio and concentration in the South Florida market, including the risks of geographic, depositor, and industry concentrations, including our concentration in loans secured by real estate;

•the duration and severity of the COVID-19 pandemic and the severity of COVID variants both in our principal area of operations and nationally, and the impact of the pandemic, including the government’s responses to the pandemic, on our and our customers’ operations, personnel, and business activity (including developments and volatility), as well as the pandemic’s impact on the credit quality of our loan portfolio and on financial market and general economic conditions;

•the frequency and magnitude of foreclosure of our loans;

•changes in the securities, real estate markets and commodities markets (including fluctuations in the price of coffee or oil);

•our ability to successfully manage interest rate risk, credit risk, liquidity risk, and other risks inherent to our industry;

•the accuracy of our financial statement estimates and assumptions, including the estimates used for our loan loss reserve and deferred tax asset valuation allowance;

•increased competition and its effect on pricing of our products and services as well as our margins;

•legislative or regulatory changes;

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●

~~inflation, interest rate, unemployment rate, market, and monetary fluctuations;~~

●

~~the efficiency and effectiveness of our internal control environment;~~

●

~~the ability of our third-party service providers to continue providing services to us and clients without interruption;~~

●

~~geopolitical developments;~~

●

~~the effects of harsh weather conditions, including hurricanes, and other natural disasters (including pandemics such as COVID-19) man-made disasters;~~

●

~~potential business interruptions from catastrophic events such as terrorist attacks, active shooter situations, and advanced persistent threat groups;~~

●

~~the willingness of clients to accept third-party products and services rather than our products and services and vice versa;~~

●

~~changes in consumer spending and saving habits;~~

●

~~growth and profitability of our noninterest income; and~~

●

~~anti-takeover provisions under federal and state law as well as our governing documents.~~

•our ability to comply with the extensive laws and regulations to which we are subject, including the laws for each jurisdiction where we operate;

•the Professional Bank’s (the “Bank”) ability to make cash distributions to us and our ability to declare and pay dividends, the payment of which is subject to our capital and other requirements;

•changes in accounting principles, policies, practices or guidelines, including the effects of forthcoming CECL implementation;

•our ability to fund and manage our growth, both organic growth as well as growth through other means, such as future acquisitions;

•negative publicity and the impact on our reputation;

•our ability to attract and retain highly qualified personnel;

•technological changes;

•cybersecurity risks including security breaches, computer viruses, and data processing system failures and errors;

•our ability to manage operational risks, including, but not limited to, client, employee, or third-party fraud;

•changes in monetary and fiscal policies of the U.S. Government and the Federal Reserve;

•inflation, interest rate, unemployment rate, market, and monetary fluctuations;

•the efficiency and effectiveness of our internal control environment;

•the ability of our third-party service providers to continue providing services to us and clients without interruption;

•geopolitical developments;

•the effects of harsh weather conditions, including hurricanes, and other natural disasters (including pandemics such as COVID-19) and man-made disasters;

•potential business interruptions from catastrophic events such as terrorist attacks, active shooter situations, and advanced persistent threat groups;

•the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

•changes in consumer spending and saving habits;

•growth and profitability of our noninterest income; and

•anti-takeover provisions under federal and state law as well as our governing documents.

If one or more events related to these or other risks or uncertainties materialize or intensify, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date of the Quarterly Report on Form 10-Q. New factors emerge from time to time, and it is not possible for us to predict which will arise. We do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments, except as may be required by law.

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Executive Overview

Highlights of our performance and financial condition as of and for the three and nine months ended September 30, ~~2020~~2021, and other key events that have occurred during ~~2020~~2021 are provided below.

Results of Operations for the three months ended September 30, ~~2020~~

●

~~Net income was $1.0 million compared to $0.5 million for the same period in 2019.~~

●

Pre-Tax Pre-Provision earnings (non-GAAP, see Explanation of Certain unaudited non-GAAP Financial Measures) was $6.7 million for the current quarter, an increase of $1.0 million, or 17.5% compared to pre-tax pre-provision earnings of $5.7 million in the previous quarter, and a $5.6 million, or 409.1% increase compared to $1.1 million in during the same period in 2019.

●

~~Net interest income was $17.5 million, an increase of $1.2 million or 7.4% compared to the previous quarter and an increase of $10.2 million, or 140.7%, compared to the same period in 2019.~~

2021

��Net income remained steady at $6.3 million compared to prior quarter. Net interest income increased $1.9 million, which was offset by a decrease in noninterest income of $0.8 million, an increase in noninterest expense of $0.7 million, and a higher provision expense of $0.3 million.

~~Noninterest income totaled $1.0 million, unchanged from the previous quarter and up $0.1 million, or 14.7% million from the third quarter 2019.~~

Noninterest expense totaled $11.7 million, an increase of $0.2 million or 1.7% compared to the previous quarter due to a charitable contribution to the AAA Scholarship Foundation of $0.3 million and an increase of $4.7 million, or 66.4%, compared to the same period in 2019. MBI acquisition expenses were primarily responsible for the increase from 2019.

•During the quarter, interest income derived from loans, including fees, increased $1.9 million. The increase was primarily due to the recognition of $1.8 million from the acceleration of loan fees associated with the Bank’s Payroll Protection Program (“Professional Bank PPP”) and $0.2 million in deposit correspondent fees from service charges on deposit accounts associated with acting as a correspondent bank for a Payroll Protection Program lender (the “Correspondent Banking Relationship”).

•Net interest income increased $1.9 million, or 11.1%, to $19.1 million compared to the prior quarter primarily due to an increase in loan yield in our commercial real estate and commercial loan portfolios. The loan yield increase resulted from the acceleration of Professional Bank PPP loan fees and acceleration of purchase accounting loan marks from the Marquis Bancorp, Inc. (“MBI”) acquisition.

•Noninterest income decreased $0.8 million, or 35.9%, to $1.5 million compared to the prior quarter primarily due to decreases in service charges from the Correspondent Banking Relationship and a decrease in SWAP fee income due to a lower volume of SWAP transactions.

•Noninterest expense increased $0.7 million, or 6.1%, to $11.6 million compared to the prior quarter primarily due to a $0.3 million charitable contribution expense for the AAA scholarship foundation and increased salaries and employee benefits associated with an increase in employee headcount. Employee headcount increased primarily due to our opening of loan production offices (“LPOs”) in Tampa Bay and Jacksonville.

Results of Operations for the nine months ended September 30, ~~2020~~

●

~~Net income of $2.8 million compared to $1.3 million for the same period in 2019, an increase of $1.5 million, or 105.0%.~~

2021

•The variance in the nine-month Results of Operations for 2021 compared to 2020 occurred in part due to the March 26, 2020, closing date of the MBI acquisition as there were 187 days of MBI integration in the nine months of 2020 compared to 273 days in the nine months of 2021 (the “MBI Variance”).

•Net income increased $14.6 million, or 529.7%, to $17.4 million compared to the prior year. The increase was primarily due to the increase of interest income resulting from the MBI Variance, the acceleration of Professional Bank PPP loan fees, deposit fees associated with the Correspondent Banking Relationship, as well as lower provision for loan losses primarily due to the macro environment stabilization following the increased reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the impairment of a loan to Coex Coffee International, Inc. (“Coex”) in the third quarter of 2020.

•Net interest income increased $12.4 million, or 29.6%, to $54.2 million compared to the prior year primarily due to loan growth and an increase in forgiveness of Professional Bank PPP loans resulting in a higher amount of loan fees recognized in addition to a reduction in interest expense on deposit accounts..

•Noninterest income increased $2.1 million, or 75.7%, to $4.9 million, compared to the prior year primarily due to an increase of $0.9 million in service charges associated with the Correspondent Banking Relationship, $0.5 million in service charges on other deposit accounts, a $0.5 million increase in Bank Owned Life Insurance income, a $0.2 million increase in SWAP fee income, and a $0.1 million increase in Small Business Administration (“SBA”) loan origination fees, partially offset by a $0.1 million decrease in fees generated from loans held for sale.

•Noninterest expense increased $1.6 million, or 4.9%, to $34.4 million compared to the prior year. The year over year increase was due to increased salaries and employee benefits resulting from our opening of LPOs in Tampa Bay and Jacksonville and investment in digital infrastructure, partially offset by prior year MBI acquisition expenses. The Bank’s number of employees increased from 172 as of September 30, 2020, to 205 as of September 30, 2021.

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●

Net interest income of $41.8 million, an increase of $21.2 million, or 102.9%, compared to the same period in 2019. This increase was primarily due to loan growth, partially offset by an increase in total deposits.

●

Noninterest income totaled $2.8 million, an increase of $0.7 million, or 31.0%, compared to the same period in 2019, primarily due to an increase in mortgage banking revenue as well as an increase in deposit account service charges due to deposit activity increases from the MBI acquisition.

●

Noninterest expense of $32.7 million, which represented an increase of $12.6 million, or 63.0%, compared to the same period in 2019. MBI acquisition expenses and additional employee headcount from the acquisition were primarily responsible for the increase.

Financial Condition

~~At September 30, 2020:~~

~~Total assets increased to $2.1 billion, an increase of $1.0 billion, or 97.2%, compared to December31,~~2019. This increase was largely attributable to the completion of the acquisition of MBI and our participation in the SBA Paycheck Protection Program (PPP) funding. New loan originations were $97.4 million for the quarter, compared to $62.6 million the prior quarter, excluding PPP loans.

~~Net loans increased to $1,589.0 million, up $803.8 million, or 102.4% compared to December31,~~2019 due to the MBI acquisition, participation in the PPP funding and new growth. We experienced growth across all loan types due to new organic origination, excluding PPP loans, of $97.4 million for the quarter compared to $62.6 million in the prior quarter.

~~Nonperforming assets totaled $9.9 million, inclusive of $8.3 million representing the Coex loan, compared to $2.3 million at December 31, 2019.~~ As part of our continued evaluation of the Coex credit, the Company classified the full loan amount of $8.3 million as substandard non-accrual as of September 30, 2020. Including Coex, total substandard assets are $12.3 million, total special mention loans are $0.5 million and total criticized assets are $12.8 million as of September 30, 2020.

~~The Company maintained its strong capital position. As of September30,2020, we were well-capitalized~~ with a total risk-based capital ratio of 15.7%, and a leverage capital ratio of 10.1%. As of December 31, 2019, all of our regulatory capital ratios exceeded the thresholds to be well-capitalized under the applicable bank regulatory requirements.

~~COVID-19 Operational Response and Bank Preparedness~~

The outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the global economy and created uncertainty in the world’s financial markets.

The Company continues to work within the COVID-19 response plans which were originally established in the Spring of 2020. The Company continues to update these plans to ensure that they comply with the latest governmental guidelines and health conditions. As conditions permit, these plans facilitate our staff judiciously and safely returning to the office.

On September 30, 2020, approximately 35% of our staff was working in the office while approximately 65% was working by remote access. This compares to July 10, 2020, when 20% of our staff was working in the office and 80% was working by remote access.

~~In response~~2021:

•Total assets remained relatively unchanged at $2.6 billion compared to the ~~COVID 19 pandemic we have:~~

●

~~Participated in the PPP and processed/closed/funded 1,506 small business loans representing $226.2 million in relief proceeds. The majority~~prior quarter. Total assets increased 27.4%, or $0.6 billion, compared to September 30, 2020, primarily as a result of these loans have been pledged to the Federal Reserve as part of the Paycheck Protection Program Liquidity Facility (PPPLF). The PPPLF pledged loans are non-recourse to the Bank. These loans are guaranteed by the government and as such no loan loss reserves have been recorded for these loans. As of October 31, 2020, the Company has paid off $75.2 million in PPPLF advances.

Added an online PPP application form and automated the PPP loan closing documentation process. As of October 8, 2020, there have been 76 loans submitted for forgiveness for a total of $48.2 million, or 21.3% of total PPP loan volume.

~~Table of Contents~~

As of September 30, 2020, we have reviewed and processed 238 debt service relief requests in accordance with Section 4013 of the CARES Act and the Interagency guidelines published on March 13, 2020. As currently interpreted by the agencies, the guidelines assert that short-term modifications made in good faith for reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered troubled debt restructurings. These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications have varying terms up to six months. As of September 30, 2020, 7.4% of all loans have been approved for modification and remained so. Payment deferrals represent 4.5% of all loans and are comprised of 32 residential real estate loans totaling $25.5 million, 7 loans secured by owner occupied commercial real estate totaling $13.2 million, 13 loans collateralized by non-owner occupied commercial real estate totaling $20.8 million and 4 commercial and industrial loans totaling $2.8 million. Additionally, as a part of the CARES Act, the SBA is paying six months of loan payments for the Company’s SBA 7a borrowers, of which the Company holds $13.6 million in the non-guaranteed portion of 7a loans.

~~The economic effects of the~~ ~~COVID-19~~ ~~pandemic have significantly impacted and continue to significantly impact business and economic activity in the U.S. and around the world. There have been full and partial business closures,~~ increases in ~~unemployment as workers are furloughed, laid off,~~cash and cash equivalents, net loans, and taxable securities available-for-sale.

•Total loans were consistent compared to the prior quarter at $1.7 billion primarily due to new loan originations offset by loan paydowns and prepayments. New loan originations were $198.7 million, of which $172.7 million funded. The Professional Bank PPP loan balance decreased $54.1 million, or ~~had hours limited. Such disruptions could adversely affect our loan~~38.9%, to $85.1 million from the prior quarter.

•Total Deposits increased 3.4%, or $0.1 billion, to $2.4 billion compared to the prior quarter primarily due to increases in money market and savings accounts and interest bearing demand deposit ~~fee income as well as create downward pressure on~~accounts, partially offset by a decrease in noninterest bearing demand deposit accounts. During the ~~quality~~quarter, $57.0 million of ~~our loan portfolio possibly leading~~noninterest bearing deposits were recategorized into interest bearing deposits.

•Nonperforming assets remained unchanged at $2.8 million compared to ~~an increase in loan charge-offs.~~

~~The COVID-19 pandemic is an unprecedented event that has created high levels~~the prior quarter. As of uncertainty. We are vigilantly monitoring global events and actions being taken by various Federal and State Agencies. We have maintained interim periodic communications with our regulators and have not experienced any material deposit outflows to date and frequently communicate with our credit clients.

~~Given the fluidity of the situation, management cannot predict the long-term impact of the COVID-19 pandemic on~~September 30, 2020, the Company had nonperforming assets of $9.9 million. There were no charge-offs during the three months ended September 30, 2021, compared to one loan that was net charged-off for $0.2 million for the ~~remainder of 2020 or beyond.~~

three months ended September 30, 2020.

Operating Results

Results of Operations for the three months ended September 30, ~~2020~~2021, and ~~2019~~

~~Net Income~~

2020

The following table sets forth the principal components of net income for the periods indicated.


	Three Months Ended September 30,

								Three Months Ended September 30,
(Dollars in thousands)	2020		2019		Change		(Dollars in thousands)	2021		2020		Change
Interest income	$	19,101	$	10,330	84.9	%	Interest income	$	20,890	$	19,101	9.4	%
Interest expense		1,641		3,077	(46.7)	%	Interest expense	1,786		1,641		8.8	%
Net Interest income		17,460		7,253	140.7	%	Net Interest income	19,104		17,460		9.4	%
Provision for loan losses		5,957		380	(1,467.6)	%	Provision for loan losses	1,060		5,957		(82.2)	%
Net interest income after provision		11,503		6,873	67.4	%	Net interest income after provision	18,044		11,503		56.9	%
Noninterest income		963		844	14.1	%	Noninterest income	1,476		963		53.3	%
Noninterest expense		11,713		7,041	66.4	%	Noninterest expense	11,624		11,713		(0.8)	%
Income before income taxes		753		676	11.4	%	Income before income taxes	7,896		753		948.6	%
Income tax expense		(197)		182	208.2	%
Income tax expense (benefit)							Income tax expense (benefit)	1,608		(197)		(916.2)	%
Net income	$	950	$	494	92.3	%	Net income	$	6,288	$	950	561.9	%

Net income for the three months ended September 30, ~~2020~~2021, was ~~$1.0~~$6.3 million, an increase of ~~$0.5~~$5.3 million, or ~~92.3%~~561.9%, ~~from net income for~~compared to the three months ended September 30, ~~2019 of $0.5 million. Interest~~2020. Net interest income increased ~~$8.8 million while interest expense decreased $1.4 million, resulting in a net interest income increase of $10.2~~$1.6 million for the three months ended September 30, ~~2020~~2021, compared to the same period in the prior year. The increase in our net interest income year-over-year was primarily due to ~~our growth and from the MBI acquisition.~~increased loan portfolio growth. Provision for loan losses ~~increased~~decreased by ~~$5.6~~$4.9 million for the three months ended September 30, ~~2020~~2021, compared to the same period in the prior year. The ~~increase~~decrease in the provision expense was ~~intended~~attributed primarily to ~~address~~having addressed the impairment of a loan to Coex in the ~~Coex loan.~~third quarter of 2020. The increase in noninterest ~~expense for~~income during the three months ended September 30, ~~2020~~2021, compared to the same period in the prior year was primarily ~~a result of MBI acquisition expenses and a charitable contribution expense of $0.3 million~~due to ~~the AAA Scholarship Foundation.~~

~~Net Interest Income and Net Interest Margin Analysis~~

~~We analyze our ability to maximize income generated from interest earning assets and control the interest expenses~~increases in service charges on deposit accounts associated with ~~our liabilities, measured as net interest income, through our net interest margin~~the Correspondent Banking Relationship, and ~~net interest spread. Net interest income is the difference between the interest and fees earned on interest earning assets, such as loans and securities, and the interest~~secondarily to an increase in Bank owned life insurance income. The decrease in noninterest expense ~~paid on~~

~~Table of Contents~~

interest bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period. Net interest spread is the difference between average interest rates earned on interest earning assets and average interest rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest earning assets, interest bearing and noninterest-bearing liabilities and shareholders’ equity, are usually the largest drivers of periodic changes in net interest income, net interest margin and net interest spread. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment rates, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, the economic and competitive conditions in the Miami-Dade MSA, as well as developments affecting the real estate, technology, government services, hospitality and tourism and financial services sectors within the Miami-Dade MSA. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.

The following table shows the average outstanding balance of each principal category of our assets, liabilities and shareholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated. Such yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.

For the Three Months Ended September 30,

2020

2019


Average

Interest



Average

Interest




Outstanding

Income/

Average

Outstanding

Income/

Average

(Dollars in thousands)

Balance

Expense⁽⁴⁾

Yield/Rate

Balance

Expense⁽⁴⁾

Yield/Rate

Assets













Interest earning assets













Interest-bearing deposits

$
251,613

$
65

0.10
%
$
75,443

$
414

2.18
%
Federal funds sold

30,164

12

0.16
%

26,724

163

2.42
%
Federal Reserve Bank stock, FHLB stock and other corporate stock

8,998

103

4.55
%

4,617

73

6.27
%
Investment securities

104,226

433

1.65
%

27,957

178

2.53
%
Loans⁽¹⁾

1,572,833

18,488

4.68
%

737,215

9,502

5.11
%
Total interest earning assets

1,967,834

19,101

3.86
%

871,956

10,330

4.70
%
Noninterest earning assets

99,075



53,425





Total assets

2,066,909



925,381





Liabilities and shareholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

1,049,556

1,165

0.44
%

603,131

2,789

1.83
%
Borrowed funds

297,227

476

0.64
%

50,000

288

2.29
%
Total interest-bearing liabilities

1,346,783

1,641

0.48
%

653,131

3,077

1.87
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

494,415



183,036





Other noninterest-bearing liabilities

19,961



9,189





Shareholders’ equity

205,750



80,025





Total liabilities and shareholders’ equity

$
2,066,909



$
925,381





Net interest spread⁽²⁾





3.38
%





2.83
%
Net interest income



$
17,460



$
7,253



Net interest margin⁽³⁾





3.53
%





3.30
%

~~(1)~~

~~Includes nonaccrual loans.~~

~~(2)~~

~~Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.~~

~~(3)~~

~~Net interest margin is a ratio of net interest income to average interest earning assets for the same period.~~

~~(4)~~

~~Interest income on loans includes loan fees of $1.2 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively.~~

~~Table of Contents~~

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been proportionately allocated to both volume and rate.

For the Three Months Ended September 30, 2020

Compared to 2019

Change Due To

(Dollars in thousands)

Volume

Rate

Total
Interest income






Interest-bearing deposits

$
967

$
(1,316)

$
(349)
Federal funds sold

21

(172)

(151)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock

69

(39)

30
Investment securities

486

(231)

255
Loans

10,770

(1,784)

8,986
Total

$
12,313

$
(3,542)

$
8,771
Interest expense






Interest-bearing deposits

2,065

(3,689)

(1,624)
Borrowed funds

1,424

(1,236)

188
Total

$
3,489

$
(4,925)

$
(1,436)

~~Net interest income increased by $10.2 million to $17.5 million~~ for the three months ended September 30, 2020 compared to for the three months ended September 30, 2019. Our total interest income was impacted by an increase in interest earning assets, primarily due to growth in our loan portfolio. Average total interest earning assets were $2.0 billion for the three months ended September 30, 2020 compared with $0.9 billion for the three months ended September 30, 2019. The annualized yield on those interest earning assets decreased 84 basis points from 4.70% for the three months ended September 30, 2019 to 3.86% for the three months ended September 30, 2020 due to loans repricing, coupled with higher yielding loan payoffs. Our yield on interest earning assets declined during the third quarter of 2020, which was partially offset by total earnings credits accumulated this quarter of $12.3 thousand. The increase in the average balance of interest earning assets was driven almost entirely by growth in our loan portfolio of $824.3 million, representing an increase of 107.8%, to $1.6 billion for the three months ended September 30, 2020 compared to $764.7 million for the three months ended September 30, 2019. The growth in the loan portfolio was primarily due from the MBI acquisition in the first quarter.

Average interest-bearing liabilities increased due to the MBI acquisition in the first quarter and grew by $693.7 million, or 106.2%, from $653.1 million for the three months ended September 30, 2019 to $1.3 billion for the three months ended September 30, 2020. The increase was primarily due to a $446.4 million increase in the average balance of interest-bearing deposits, or 74.0%. The increase in the average balance of interest-bearing deposits was primarily due to increases in certificates of deposit and money market accounts for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, and, to a lesser extent, negotiable order of withdrawal accounts, or NOW accounts. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.48% for the three months ended September 30, 2020 compared to 1.87% for the three months ended September 30, 2019, annualized average interest rate paid on interest-bearing deposits decreased 139 basis points to 0.44% and the annualized average interest rate paid on borrowed funds decreased by 165 basis points to 0.64%. The decreases in annualized average interest rates primarily reflected a decrease in market interest rates due to decreases in the federal funds target interest rate during the three months ended September 30, 2020. For the three months ended September 30, 2020, our average other noninterest-bearing liabilities increased $10.8 million, or 117.2%, to $20.0 million from $9.2 million during the three months ended September 30, 2019. Average noninterest-bearing deposits also increased $311.4 million, or 170.1%, from $183.0 million to $494.4 million for the same periods. For the three months ended September 30, 2020, our annual net interest margin was 3.53% and net interest spread was 3.38%. For the three months ended September 30, 2019, annual net interest margin was 3.30% and net interest spread was 2.83%. Our net interest margin was positively affected by 0.23% during the three months ended September 30, 2020, compared to the same period in 2019 because in addition to the $251.6 million in interest-bearing deposits at correspondent banks yielding 0.10%, the Company also has invested approximately $15 million in average balances at correspondent banks that currently pay 35 basis points in earnings credits, which are included in the $99.1 million in noninterest earning assets. As a result of the recent reductions in the federal funds target interest rates as well as continued declines in the 10-year treasury yield, average rates earned on interest earning assets and average rates paid on our interest-bearing deposits generally declined during for the three months ended September 30, 2020. Correspondingly new loans were priced at lower yields in comparison to previously held loans which led to numerous loan payoffs in 2020 compared to 2019.

~~Table of Contents~~

~~Provision for Loan Losses~~

The provision for loan losses is a charge to income in order to bring our allowance for loan losses to a level deemed appropriate by management. For a description of the factors taken into account by our management in determining the allowance for loan losses see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Allowance for Loan Losses.”

Our provision for loan losses amounted to $6.0 million for the three months ended September 30, 2020 and $0.4 million for the three months ended September 30, 2019. The increase from 2019 to 2020 was primarily due to the $7.6 million impairment of the Coex loan. Our allowance for loan losses as a percentage of total loans (excluding PPP loans and overdrafts) was 1.09% at ~~September 30, 2020~~ ~~compared to 0.83% at~~ ~~December 31, 2019. We recorded one net charge-off for $0.2 million for the three months ended September 30, 2020. We did not record any net charge-offs for the three months ended September 30, 2019.~~

~~Noninterest Income~~

Our primary sources of recurring noninterest income are service charges on deposit accounts, mortgage banking revenue, interest rate swap referral fees, origination fees for Small Business Administration, or SBA loans, and other fees and charges. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method. The following table presents the major categories of noninterest income for the periods indicated.

Three Months Ended September 30,

(Dollars in thousands)

2020

2019

Increase (Decrease)

Noninterest income







Deposit account service charges

$
319

$
69

362.3
%
Mortgage banking revenue

325

150

116.7
%
Gain on sale of securities

1

—

100.0
%
Swap referral fees

149

337

(55.8)
%
SBA origination fees

—

—

-
%
Other fees and charges

169

288

(41.3)
%
Total noninterest income

$
963

$
844

14.1
%

Noninterest income for the three months ended September 30, 2020 was $1.0 million, a $0.1 million or 14.1% increase compared to noninterest income of $0.8 million for the three months ended September 30, 2019. The increase was primarily due to an increase in deposit account service charges, of $0.3 million, or 362.3% during the three months ended September 30, 2020 compared to the three

~~Table of Contents~~

months ended September 30, 2019. To a lesser extent the increase was due to mortgage banking revenues, of $0.2 million, or 116.7%, during the three months ended September 30, 2020 compared to the three months ended September 30, 2019 due to selling fixed long-term mortgages to third party investors.

~~Noninterest Expense~~

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining client relationships and providing banking services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, data processing expenses, advertising expenses, loan processing expenses and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies and postage. The following table presents the major categories of noninterest expense for the periods indicated.

Three Months Ended September 30,

Increase

(Dollars in thousands)

2020

2019

(Decrease)

Noninterest expense







Salaries and employee benefits

$
6,433

$
4,662

38.0
%
Occupancy and equipment

1,196

701

70.6
%
Data processing

374

165

126.7
%
Marketing

435

128

239.8
%
Professional fees

562

524

7.3
%
Acquisition expenses

1,078

—

100.0
%
Regulatory assessments

250

46

443.5
%
Other

1,385

815

69.9
%
Total noninterest expense

$
11,713

$
7,041

66.4
%

Noninterest expense amounted to $11.7 million for the three months ended September 30, 2020, an increase of $4.7 million, or 66.4%, compared to $7.0 million for the three months ended September 30, 2019. The increase was primarily due to the acquisition expenses and an increase in salaries and benefits from increased employee headcount, increases in occupancy and equipment expense due to the opening of two new branches and the digital innovation center, professional services expense due to costs related to building the organizational infrastructure of a publicly traded company and a charitable contribution of $0.3 million to the AAA Scholarship Foundation.

The preliminary noninterest expense savings from the MBI acquisition was estimated at $5.0 million, or 37% for the fiscal year. The Company has begun to realize the operational efficiencies expected from the MBI acquisition and as of September 30, 2020 has updated the estimated noninterest expense savings to $6.4 million, or 45% for the fiscal year.

~~Income Tax Expense~~

The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, such as the Tax Act, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax (benefit) provision was $0.2 million for the three months ended September 30, 2020 compared to $0.2 million for the three months ended September 30, 2019. Our effective tax rates for those periods were (25.7%) and 26.9%, respectively. The decrease in the effective tax rate was primarily due to the increase in state tax credits from $0.3 million charitable contribution to AAA Scholarship Foundation, excess tax benefits from stock-based compensation and tax-exempt interest income.

~~Table of Contents~~

~~Results of Operations for the nine months ended September 30, 2020 and 2019~~

~~Net Income~~

~~The following table sets forth the principal components of net income for the periods indicated.~~

Nine Months Ended September 30,

(Dollars in thousands)

2020

2019

Change

Interest income

$
48,643

$
28,600

70.1
%
Interest expense

6,831

7,995

(14.6)
%
Net Interest income

41,812

20,605

102.9
%
Provision for loan losses

8,552

762

(1,022.3)
%
Net interest income after provision

33,260

19,843

67.6
%
Noninterest income

2,787

2,127

31.0
%
Noninterest expense

32,747

20,088

63.0
%
Income before income taxes

3,300

1,882

75.3
%
Income tax expense

536

534

(0.4)
%
Net income

$
2,764

$
1,348

105.0
%

Net income for the nine months ended September 30, 2020 was $2.8 million, an increase of $1.4 million, or 105.0%, from net income for the nine months ended September 30, 2019 of $1.3 million. Interest income increased $20.0 million while interest expense decreased $1.2 million, resulting in a net interest income increase of $21.2 million for the nine months ended September 30, 2020 compared to the same period in the prior year. The increase in our interest income was primarily due to our growth and from the MBI acquisition. Provision for loan losses increased by $7.8 million for the nine months ended September 30, 2020 compared to the same period in the prior year. The increase in the provision was intended to address the impairment of the Coex loan. Noninterest income increased $0.7 million and noninterest expense increased $12.6 million for the nine months ended September 30, 2020 compared to the same period in the prior year. The increase in noninterest expense for the nine months ended September 30, 20202021, compared to the same period in the prior year was primarily due to the lack of MBI acquisition expenses this quarter and to a lesser extent the realization of our implementation efforts regarding operational efficiencies in occupancy, equipment, and data processing expenses, partially offset by higher salaries and employee benefits as a result of ~~MBI acquisition expenses.~~

our continued growth.

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Net Interest Income and Net Interest Margin Analysis

We analyze our ability to maximize income generated from interest earning assets and control the interest expenses associated with our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between the interest and fees earned on interest earning assets, such as loans and securities, and the interest expense paid on interest bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as annualized net interest income divided by average interest earning assets for the same period. Net interest spread is the difference between average interest rates earned on interest earning assets and average interest rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest earning assets, interest bearing and noninterest-bearing liabilities and ~~shareholders’~~stockholders’ equity, are usually the largest drivers of periodic changes in net interest income, net interest margin and net interest spread. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment rates, the money supply, political and international conditions, and ~~conditions~~circumstances, in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, the economic and competitive conditions in the Miami-Dade MSA, as well as developments affecting the real estate, technology, government services, hospitality and tourism, and financial services sectors within the Miami-Dade MSA. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.

Table of Contents

The following table shows the average outstanding balance of each principal category of our assets, liabilities, and ~~shareholders’~~stockholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated. Such yields and costs

~~Table of Contents~~

are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.


	For the Three Months Ended September 30,
	2021						2020
(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate
Assets
Interest earning assets
Interest-bearing deposits	$	561,082	$	212	0.15	%	$	251,613	$	65	0.10	%
Federal funds sold	36,264		10		0.11	%	30,164		12		0.16	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,521		96		5.06	%	8,998		103		4.55	%
Investment securities - taxable	105,498		186		0.70	%	80,643		209		1.03	%
Investment securities - tax exempt	19,402		177		3.62	%	23,583		224		3.77	%
Loans(1)	1,702,137		20,209		4.71	%	1,572,833		18,488		4.68	%
Total interest earning assets	2,431,904		20,890		3.41	%	1,967,834		19,101		3.86	%
Loans held for sale	1,478						—
Noninterest earning assets	125,751						99,075
Total assets	$	2,559,133					$	2,066,909
Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	1,463,138		1,476		0.40	%	1,049,556		1,165		0.44	%
Borrowed funds	45,046		310		2.73	%	297,227		476		0.64	%
Total interest-bearing liabilities	1,508,184		1,786		0.47	%	1,346,783		1,641		0.48	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	810,042						494,415
Other noninterest-bearing liabilities	16,746						19,961
Stockholders’ equity	224,161						205,750
Total liabilities and stockholders’ equity	$	2,559,133					$	2,066,909
Net interest spread(2)					2.94	%					3.38	%
Net interest income			$	19,104					$	17,460
Net interest margin(3)					3.12	%					3.53	%

For the Nine Months Ended September 30,

2020

2019


Average

Interest



Average

Interest




Outstanding

Income/

Average

Outstanding

Income/

Average

(Dollars in thousands)

Balance

Expense⁽⁴⁾

Yield/Rate

Balance

Expense⁽⁴⁾

Yield/Rate

Assets













Interest earning assets













Interest-bearing deposits

$
201,730

$
694

0.46
%
$
64,727

$
1,131

2.33
%
Federal funds sold

32,682

143

0.58
%

24,487

459

2.50
%
Federal Reserve Bank stock, FHLB stock and other corporate stock

7,372

313

5.67
%

4,196

200

6.36
%
Investment securities

87,607

1,093

1.67
%

28,182

521

2.46
%
Loans⁽¹⁾

1,296,922

46,400

4.78
%

678,571

26,289

5.17
%
Total interest earning assets

1,626,313

48,643

4.00
%

800,163

28,600

4.77
%
Noninterest earning assets

91,454



44,988





Total assets

1,717,767



845,151





Liabilities and shareholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

936,765

5,408

0.77
%

547,245

7,200

1.75
%
Borrowed funds

197,327

1,423

0.96
%

45,058

795

2.35
%
Total interest-bearing liabilities

1,134,092

6,831

0.80
%

592,303

7,995

1.80
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

386,848



163,513





Other noninterest-bearing liabilities

17,243



9,545





Shareholders’ equity

179,584



79,790





Total liabilities and shareholders’ equity

$
1,717,767



$
845,151





Net interest spread⁽²⁾





3.19
%





2.97
%
Net interest income



$
41,812



$
20,605



Net interest margin⁽³⁾





3.43
%





3.43
%
(1)Includes nonaccrual loans.

(2)Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.

(3)Net interest margin is a ratio of net interest income to average interest earning assets for the same period.

(4)Interest income on loans includes loan fees of $2.3 million and $1.3 million for the three months ended September 30, 2021 and 2020, respectively.

Table of Contents

~~(1)~~

~~Includes nonaccrual loans.~~

~~(2)~~

~~Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.~~

~~(3)~~

~~Net interest margin is a ratio of net interest income to average interest earning assets for the same period.~~

~~(4)~~

~~Interest income on loans includes loan fees of $2.3 million and $0.6 million for the nine months ended September 30, 2020 and 2019, respectively.~~


	For the Nine Months Ended September 30, 2020
	Compared to 2019
	Change Due To

								For the Three Months Ended September 30, 2021 Compared to 2020
								Change Due To
(Dollars in thousands)	Volume		Rate		Total		(Dollars in thousands)	Volume		Rate		Total
Interest income							Interest income
Interest-bearing deposits	$	2,394	$	(2,831)	$	(437)	Interest-bearing deposits	$	80	$	67	$	147
Federal funds sold		154		(470)		(316)	Federal funds sold	2		(4)		(2)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock		151		(38)		113	Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(17)		10		(7)
Investment securities		1,099		(527)		572
Investment securities - taxable							Investment securities - taxable	64		(87)		(23)
Investment securities - tax exempt							Investment securities - tax exempt	(40)		(7)		(47)
Loans		23,956		(3,845)		20,111	Loans	1,520		201		1,721
Total	$	27,754	$	(7,711)	$	20,043	Total	$	1,610	$	179	$	1,789
Interest expense							Interest expense
Interest-bearing deposits		5,125		(6,917)		(1,792)	Interest-bearing deposits	459		(148)		311
Borrowed funds		2,687		(2,059)		628	Borrowed funds	(404)		238		(166)
Total	$	7,812	$	(8,976)	$	(1,164)	Total	$	55	$	90	$	145

Net interest income ~~increased by $21.2 million to $41.8~~totaled $19.1 million for the three months ended September 30, ~~2020~~2021, up $1.9 million, or 11.1% compared to the ~~nine~~three months ended June 30, 2021, primarily due to increased loan portfolio growth and the acceleration of Professional Bank PPP loan fees and purchase accounting marks from the MBI acquisition. Net interest margin for the third quarter of 2021 was 3.12%, an increase of 30 basis points compared to the second quarter of 2021. Our weighted average roll-off rate for loans paid off was 4.5% and the weighted average roll-on rate for loans originated was 3.9% on September 30, 2021.

Net interest income increased by $1.6 million to $19.1 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. Our total net interest income was impacted by an increase in interest earning assets, which was primarily due to ~~growth~~increased balances in large low yielding cash assets, coupled with an increase in our loan portfolio ~~partially offset by an increase in total deposits.~~. Average total interest earning assets were ~~$1.6~~$2.4 billion for the

~~Table of Contents~~

~~nine~~ three months ended September 30, 2021, compared to $2.0 billion for the three months ended September 30, 2020. The annualized yield on interest earning assets decreased 45 basis points for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, compared with $0.8 billion for the nine months ended September 30, 2019. The annualized yield on those interest earning assets decreased 77 basis points from 4.77% for the nine months ended September 30, 2019 to 4.00% for the nine months ended September 30, 2020primarily due to ~~the reductions~~increased cash balances and accelerated paydowns of principal in ~~the federal funds target interest rates by the Federal Reserve as well as loans repricing, coupled with~~ higher yielding ~~loan payoffs. Our yield on interest earning assets declined during the nine months ended September 30, 2020, which was partially offset by lower interest expense on our interest-bearing deposits~~loans and ~~earnings credits accumulated during the third quarter of $12.3 thousand. The~~investments. The increase in the average balance of interest earning assets was driven ~~almost entirely~~primarily by our growth in cash of $309.5 million, or 123.0%, and growth in our loan portfolio of ~~$824.3~~$129.3 million, ~~representing an increase of 107.8%~~or 8.2%, compared to ~~$1.6 billion for the nine~~three months ended September 30, ~~2020 compared~~2020. The growth in our loan portfolio was due to ~~$764.7 million~~organic loan originations.

Average interest-bearing liabilities for the ~~nine~~three months ended September 30, ~~2019. The growth in the loan portfolio was primarily due from the MBI acquisition in the first quarter.~~

~~Average interest-bearing liabilities~~2021, increased due to ~~the MBI acquisition in the first quarter~~organic deposit growth and grew by ~~$541.8~~$161.4 million, or ~~91.5%~~12.0%, ~~from $592.3 million~~ for the ~~nine months ended September 30, 2019 to $1.1 billion for the nine~~three months ended September 30, 2020. The increase was primarily due to a ~~$389.5~~$413.6 million, or 39.4%, increase in the average balance of interest-bearing ~~deposits, or 71.2%.~~deposits. The increase in the average balance of interest-bearing deposits was primarily due to increases in ~~certificates~~negotiable orders of ~~deposit~~withdrawal (“NOW”) and money market accounts for the ~~nine~~three months ended September 30, 2021, compared to the three months ended September 30, 2020, ~~compared to the nine months ended September 30, 2019,~~ and, to a lesser extent, ~~negotiable order~~increases in certificates of ~~withdrawal accounts, or NOW accounts.~~deposit. The annualized average interest rate paid on average interest-bearing liabilities decreased to ~~0.80%~~0.47%, for the ~~nine~~three months ended September 30, ~~2020~~2021, compared to ~~1.80%~~0.48% for the ~~nine~~three months ended September 30, ~~2019, annualized~~2020. Annualized average interest rate paid on interest-bearing deposits decreased 984 basis points to ~~0.77%~~0.40%, and the annualized average interest rate paid on borrowed funds ~~decreased~~increased by ~~139~~209 basis points to ~~0.96%~~2.73%. The ~~decreases in annualized~~ average interest ~~rates primarily reflected a decrease in market interest rates due~~rate on borrowings during the quarter ended September 30, 2021, increased as we paid-off the Paycheck Protection Program Liquidity Facility (“PPPLF”) balances, leaving higher priced Federal Home Loan Bank ("FHLB") advances and subordinated debt as our borrowings. For the three months ended September 30, 2021, our average other noninterest-bearing liabilities decreased $3.2 million, or 16.1%, compared to ~~decreases in~~ the ~~federal funds target interest rate during for~~three months ended September 30, 2020. Average noninterest-bearing deposits also

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increased $315.6 million, or 63.8%, compared to the ~~nine~~three months ended September 30, 2020. For the ~~nine~~three months ended September 30, 2020, our average other noninterest-bearing liabilities increased $7.7 million, or 80.6%, to $17.2 million from $9.5 million during the nine months ended September 30, 2019. Average noninterest-bearing deposits also increased $223.3 million, or 136.6%, from $163.5 million to $386.8 million for the same periods. For the nine months ended September 30, 2020,2021, our annual net interest margin was ~~3.43%~~3.12% and net interest spread was ~~3.19%~~2.94%. For the ~~nine~~three months ended September 30, ~~2019,~~2020, annual net interest margin was ~~3.43%~~3.53% and net interest spread was ~~2.97%~~3.38%. Our net interest margin was not affected during the nine months ended September 30, 2020, compared to the same period in 2019. As a result of the recent reductions in the federal funds target interest rates as well as continued declines in the 10-year treasury yield, average rates earned on interest earning assets and average rates paid on our interest-bearing deposits generally declined during the nine months ended September 30, 2020. Correspondingly new loans were priced at lower yields in comparison to previously held loans which led to numerous loan payoffs at the beginning of 2020 compared to 2019.

Provision for Loan Losses

Our provision for loan losses amounted to ~~$8.6~~$1.1 million for the ~~nine~~three months ended September 30, ~~2020~~2021, and ~~$0.8~~$6.0 million for the ~~nine~~three months ended September 30, ~~2019.~~2020. The ~~increase~~decrease from ~~2019~~2020 to ~~2020~~2021 was primarily due to the ~~$7.6 million~~need for an increased reserve at the early stages of COVID-19 in 2020 and the decreasing impact of COVID-19 on the economy in 2021 and having addressed the impairment of a loan to Coex in the ~~Coex~~third quarter of 2020. We did not record any net charge-offs for the three months ended September 30, 2021, compared to one loan ~~and to a lesser extent~~that was charged-off for $0.2 million for the ~~elevated credit risk levels related to the COVID-19 pandemic~~.three months ended September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP ~~loans and overdrafts)~~loans) was ~~1.09% at~~ 0.72% on September 30, ~~2020~~2021, compared to ~~0.83% at~~ 1.10% on December 31, ~~2019~~2020. ~~We recorded one net charge-off for $0.3 million for the nine months ended September 30, 2020. We did not record any net charge-offs for the nine months ended September 30, 2019.~~

See Reconciliation of non-GAAP Financial Measures.

Noninterest Income

Our primary sources of recurring noninterest income are service charges on deposit accounts, mortgage banking revenue, interest rate ~~swap referral fees,~~SWAP fee income, origination fees for SBA loans, and other fees and charges. Noninterest income does not include loan origination fees to

~~Table of Contents~~

the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.

Table of Contents

The following table presents the major categories of noninterest income for the periods indicated.

Nine Months Ended September 30,

(Dollars in thousands)

2020

2019

Increase (Decrease)

Noninterest income







Deposit account service charges

$
848

$
542

56.5
%
Mortgage banking revenue

688

201

242.3
%
Gain on sale of securities

16

3

433.3
%
Swap referral fees

622

802

(22.4)
%
SBA origination fees

114

79

44.3
%
Other fees and charges

499

500

(0.2)
%
Total noninterest income

$
2,787

$
2,127

31.0
%


	Three Months Ended September 30,
(Dollars in thousands)	2021		2020		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	643	$	319	101.6%
Income from Bank owned life insurance	281		123		128.5%
SBA origination fees	21		—		100.0%
SWAP fee income	208		149		39.6%
Third party loan sales	161		252		(36.1)%
Gain on sale and call of securities	1		1		—%
Other	161		119		35.3%
Total noninterest income	$	1,476	$	963	53.3%

Noninterest income for the ~~nine~~three months ended September 30, ~~2020~~2021, was ~~$2.8~~$1.5 million, a ~~$0.7~~$0.5 million, or ~~31.0%~~53.3%, increase compared to ~~noninterest income of $2.1 million for~~ the ~~nine~~three months ended September 30, ~~2019.~~2020. The increase was primarily due to an increase in ~~mortgage banking revenues, of $0.5 million, or 242.3%, during~~service charges on deposit accounts associated with the ~~nine months ended September 30, 2020 compared~~Correspondent Banking Relationship, secondarily to ~~for the nine months ended September 30, 2019 due to selling fixed long-term mortgages to third party providers. We also experienced~~ an increase in ~~deposit account service charges of $0.3 million, or 56.5%~~income from Bank owned life insurance ("BOLI"), ~~during~~partially offset by a decrease in third party loan sales.

See Note 11 to the ~~nine months ended~~Consolidated Financial Statements (unaudited) dated September 30, ~~2020 compared to the nine months ended September 30, 2019 due to deposit activity increases from the MBI acquisition.~~

2021, titled "Customer Derivatives – Interest Rate SWAPs" for additional information regarding our derivative financial instruments.

Noninterest Expense

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining client relationships, and providing banking services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy and equipment expenses, professional fees, data processing expenses, advertising expenses, loan processing expenses, and other general and administrative expenses, including FDIC assessments, communications, travel, meals, training, supplies, and postage.

The following table presents the major categories of noninterest expense for the periods indicated.


	Nine Months Ended September 30,
					Increase

								Three Months Ended September 30,
(Dollars in thousands)	2020		2019		(Decrease)		(Dollars in thousands)	2021		2020		Increase (Decrease)
Noninterest expense							Noninterest expense
Salaries and employee benefits	$	18,608	$	13,534	37.5	%	Salaries and employee benefits	$	7,350	$	6,433	14.3%
Occupancy and equipment		3,051		1,824	67.3	%	Occupancy and equipment	935		1,196		(21.8)%
Data processing		971		489	98.6	%	Data processing	303		374		(19.0)%
Marketing		723		400	80.8	%	Marketing	420		435		(3.4)%
Professional fees		1,723		1,106	55.8	%	Professional fees	689		562		22.6%
Acquisition expenses		3,301		—	100.0	%	Acquisition expenses	—		1,078		(100.0)%
Regulatory assessments		764		353	116.4	%	Regulatory assessments	481		250		92.4%
Other		3,606		2,382	51.4	%	Other	1,446		1,385		4.4%
Total noninterest expense	$	32,747	$	20,088	63.0	%	Total noninterest expense	$	11,624	$	11,713	(0.8)%

Noninterest expense amounted to ~~$32.7~~$11.6 million for the ~~nine~~three months ended September 30, ~~2020, an increase~~2021, a decrease of ~~$12.6~~$0.1 million, or ~~63.0%~~0.8%, compared to ~~$20.1 million for~~ the ~~nine~~three months ended September 30, ~~2019.~~2020. The ~~increase~~decrease was primarily due to the lack of MBI acquisition expenses this quarter and to a lesser extent ~~an increase~~the realization of our implementation efforts regarding operational efficiencies in occupancy, equipment, and data processing expenses, partially offset by higher salaries resulting from our opening of loan production offices in Tampa Bay and ~~benefits, from increased employee headcount, increases~~Jacksonville and investment in digital infrastructure. Additionally, the decrease in occupancy and equipment ~~expense~~was due primarily to the ~~opening~~Company exercising an option to early terminate a lease for one of ~~two new branches and~~ the ~~digital innovation center, professional services expense due to costs related to building the organizational infrastructure~~former operational offices of ~~a publicly traded company~~Marquis Bank and a ~~charitable contribution~~branch located in Coral Gables (the "Option"). The Option resulted in savings of ~~$0.3 million to the AAA Scholarship Foundation.~~

over $400 thousand in lease payments plus expenses.

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Income Tax Expense

The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, tax exempt income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, such as the Tax Act, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax ~~provision~~expense was ~~$0.5~~$1.6 million for the three months ended September 30, 2021, compared to an income tax benefit of $0.2 million for the three months ended September 30, 2020. Our effective tax rates for those periods were 20.4% and (25.7)%, respectively. The change in the effective tax rate was due to an increase in tax-exempt income, and state income tax credits in 2020.

Results of Operations for the nine months ended September 30, 2021 and 2020

The following table sets forth the principal components of net income for the periods indicated.


	Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		Change
Interest income	$	59,624	$	48,643	22.6%
Interest expense	5,439		6,831		(20.4)	%
Net Interest income	54,185		41,812		29.6	%
Provision for loan losses	2,860		8,552		(66.6)	%
Net interest income after provision	51,325		33,260		54.3	%
Noninterest income	4,897		2,787		75.7	%
Noninterest expense	34,366		32,747		4.9	%
Income before income taxes	21,856		3,300		562.3	%
Income tax expense	4,452		536		730.6	%
Net income	$	17,404	$	2,764	529.7	%

Net income for the nine months ended September 30, 2021, was $17.4 million, an increase of $14.6 million, or 529.7%, compared to the nine months ended September 30, 2020. Interest income increased $11.0 million while interest expense decreased $1.4 million, resulting in a net interest income increase of $12.4 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The increase in our net interest income was primarily due to the MBI Variance, increased loan portfolio growth, and decreased cost of funds to the Company. Provision for loan losses decreased by $5.7 million for the nine months ended September 30, 2021, compared to the same period in the prior year. The decrease in the provision expense was due primarily due to the macro environment stabilization following the increased reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the impairment of a loan to Coex in the third quarter of 2020. The increase in noninterest expense for the nine months ended September 30, 2021, compared to the same period in the prior year was primarily due to increased salaries and investment in digital infrastructure, partially offset by lower MBI acquisition expenses. The Bank’s number of employees increased from 172 as of September 30, 2020, to 205 as of September 30, 2021.

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loans in our loan portfolio are affected by, among other factors, the economic and competitive conditions in the Miami-Dade MSA, as well as developments affecting the real estate, technology, government services, hospitality and tourism, and financial services sectors within the Miami-Dade MSA. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.

The following table shows the average outstanding balance of each principal category of our assets, liabilities, and stockholders’ equity, together with the average yields on our assets and the average costs of our liabilities for the periods indicated. Such yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the same period.


	For the Nine Months Ended September 30,
	2021						2020
(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate
Assets
Interest earning assets
Interest-bearing deposits	$	441,679	$	436	0.13	%	$	201,730	$	694	0.46	%
Federal funds sold	49,982		50		0.13	%	32,682		143		0.58	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,624		290		5.09	%	7,372		313		5.67	%
Investment securities - Taxable	81,941		526		0.86	%	71,820		663		1.23	%
Investment securities - Non-taxable	20,396		569		3.73	%	15,787		430		3.64	%
Loans(1)	1,688,499		57,753		4.57	%	1,296,922		46,400		4.78	%
Total interest earning assets	2,290,121		59,624		3.48	%	1,626,313		48,643		4.00	%
Loans held for sale	1,824						—
Noninterest earning assets	122,306						91,454
Total assets	$	2,414,251					$	1,717,767
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	1,350,795		4,223		0.42	%	936,765		5,408		0.77	%
Borrowed funds	82,229		1,216		1.98	%	197,327		1,423		0.96	%
Total interest-bearing liabilities	1,433,024		5,439		0.51	%	1,134,092		6,831		0.80	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	742,530						386,848
Other noninterest-bearing liabilities	17,769						17,243
Shareholders’ equity	220,928						179,584
Total liabilities and shareholders’ equity	$	2,414,251					$	1,717,767
Net interest spread(2)					2.97	%					3.20	%
Net interest income			$	54,185					$	41,812
Net interest margin(3)					3.16	%					3.43	%

(1)Includes nonaccrual loans.

(2)Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.

(3)Net interest margin is a ratio of net interest income to average interest earning assets for the same period.

(4)Interest income on loans includes loan fees of $6.7 million and $2.3 million for the nine months ended September 30, 2021, and 2020, respectively.

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	For the Nine Months Ended September 30, 2021 Compared to 2020
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest-bearing deposits	$	825	$	(1,083)	$	(258)
Federal funds sold	76		(169)		(93)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	11		(34)		(23)
Investment securities - taxable	93		(230)		(137)
Investment securities - tax exempt	126		13		139
Loans	14,009		(2,656)		11,353
Total	$	15,140	$	(4,159)	$	10,981
Interest expense
Interest-bearing deposits	2,390		(3,575)		(1,185)
Borrowed funds	(830)		623		(207)
Total	$	1,560	$	(2,952)	$	(1,392)

Net interest income increased by $12.4 million to $41.8 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. Our total net interest income was impacted primarily due to increases in annualized average interest rates primarily reflected an increase in interest earning assets, primarily due to increased balances in our low yielding cash assets as well as increases in our loan portfolio of lower yielding loans, offset by decreased cost of funds to the Company. Average total interest earning assets were $2.3 billion for the nine months ended September 30, 2021, compared with $1.6 billion for the nine months ended September 30, 2020. The annualized yield on those interest earning assets decreased 52 basis points to 3.48% for the nine months ended September 30, 2021, due to loans repricing downward, coupled with higher yielding loan payoffs. The increase in the average balance of interest earning assets was driven primarily by the MBI Variance and growth in our loan portfolio of $391.6 million, or 30.2%, compared to the nine months ended September 30, 2020. The growth in the loan portfolio was due to organic loan originations during the nine months ended September 30, 2021.

Average interest-bearing liabilities increased due to the MBI Variance and organic deposit growth and grew by $298.9 million, or 26.4%, for the nine months ended September 30, 2021. The increase was primarily due to a $414.0 million, or 44.2%, increase in the average balance of interest-bearing deposits. The increase in the average balance of interest-bearing deposits was primarily due to increases in NOW and money market accounts for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, and, to a lesser extent, increases in certificates of deposits. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.51% for the nine months ended September 30, 2021, compared to 0.80% for the nine months ended September 30, 2020. Annualized average interest rate paid on interest-bearing deposits decreased 35 basis points to 0.42%, and the annualized average interest rate paid on borrowed funds increased by 102 basis points to 1.98%. For the nine months ended September 30, 2021, our average other noninterest-bearing liabilities increased $0.5 million, or 3.1%, compared to the nine months ended September 30, 2020. Average noninterest-bearing deposits also increased $355.7 million, or 91.9%, compared to the nine months ended September 30, 2020. For the nine months ended September 30, 2021, our annual net interest margin was 3.16% and net interest spread was 2.97%. For the nine months ended September 30, 2020, annual net interest margin was 3.43% and net interest spread was 3.20%.

Provision for Loan Losses

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Our provision for loan losses amounted to $2.9 million for the nine months ended September 30, 2021, and $8.6 million for the nine months ended September 30, 2020. The decrease from 2020 to 2021 was attributed primarily to the lowering of COVID related risk in the portfolio taken in the prior year offset by an increase in loan originations subject to the allowance requirements and having addressed the impairment of a loan to Coex in the third quarter of 2020. We recorded a net charge-off related to one loan of $7.6 million for the nine months ended September 30, 2021, compared to a net charge-off related to one loan of $0.3 million for the nine months ended September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was 0.72% on September 30, 2021, compared to 1.10% on December 31, 2020. See Reconciliation of non-GAAP Financial Measures.

Noninterest Income

Our primary sources of recurring noninterest income are service charges on deposit accounts, mortgage banking revenue, interest rate SWAP fee income, origination fees for SBA loans, and other fees and charges. Noninterest income does not include loan origination fees to the extent they exceed the direct loan origination costs, which are generally recognized over the life of the related loan as an adjustment to yield using the interest method.

The following table presents the major categories of noninterest income for the periods indicated.


	Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	2,237	$	848	163.8%
Income from Bank owned life insurance	844		378		123.3%
SBA origination fees	166		114		45.6%
SWAP fee income	781		622		25.6%
Third party loan sales	462		519		(11.0)%
Gain on sale and call of securities	23		16		43.8%
Other	384		290		32.4%
Total noninterest income	$	4,897	$	2,787	75.7%

Noninterest income for the nine months ended September 30, 2021, was $4.9 million, a $2.1 million, or 75.7%, increase compared to for the nine months ended September 30, 2020. The increase was primarily due to growth in deposit transaction accounts, coupled with increases in service charges on deposit accounts with the Correspondent Banking Relationship, $0.5 million increase in income from BOLI, and $0.2 million increase in SWAP fee income.

Noninterest Expense

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The following table presents the major categories of noninterest expense for the periods indicated.


	Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	21,233	$	18,608	14.1%
Occupancy and equipment	2,942		3,051		(3.6)%
Data processing	869		971		(10.5)%
Marketing	738		723		2.1%
Professional fees	2,087		1,723		21.1%
Acquisition expenses	684		3,301		(79.3)%
Regulatory assessments	1,248		764		63.4%
Other	4,565		3,606		26.6%
Total noninterest expense	$	34,366	$	32,747	4.9%

Noninterest expense amounted to $34.4 million for the nine months ended September 30, 2021, an increase of $1.6 million, or 4.9%, compared to for the nine months ended September 30, 2020. The increase was primarily due to increased salaries and investment in digital infrastructure, offset by a reduction in acquisition expenses. The Bank’s number of employees increased from 172 as of September 30, 2020, to 205 as of September 30, 2021.

Income Tax Expense

The amount of income tax expense we incur is influenced by the amounts of our pre-tax income, tax-exempt income, and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, such as the Tax Act, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax expense was $4.5 million for the nine months ended September 30, 2021, compared to $0.5 million for the nine months ended September 30, ~~2019.~~2020. Our effective tax rates for those periods were ~~16.4%~~20.4% and ~~28.4%~~16.4%, respectively. The ~~decrease~~change in the effective tax rate was ~~primarily~~ due to ~~the~~a decrease in nondeductible expenses, an increase in tax-exempt income and state income tax credits ~~from $0.3 million charitable contribution to AAA Scholarship Foundation, excess tax benefits from stock-based compensation, tax-exempt interest income and the retroactive reduction~~in 2020.

Financial Condition

Balance Sheet Analysis

The following sections provide expanded discussion of the ~~2018 Florida income tax rate.~~

~~Financial Condition~~

significant changes in certain line items in asset, liability, and stockholder’s equity categories.

For the nine months ended September 30, ~~2020,~~2021, our total assets increased ~~by $1.0~~28.6%, or $0.6 billion, ~~or 97.2%, to approximately $2.1 billion. Net loans increased to $1.6 billion, an increase of $803.8 million, or 102.4%,~~ compared to December 31, ~~2019~~2020. Total loans increased 2.1%, or $34.4 million, compared to December 31, 2020, as a result of the ~~acquisition,~~third round of the ~~SBA Paycheck Protection Program (PPP)~~PPP and new organic ~~origination.~~loan origination, partially offset by loan payoffs. Interest-bearing deposits at other financial institutions increased due to our desire to maintain our excess liquidity in more liquid assets due to our ~~significant loan growth and a~~ continued robust demand for ~~loans. Shareholders’~~loans and cash associated with Correspondent Banking Relationship. Stockholders’ equity increased ~~$124.8~~$12.5 million, or ~~157.4%~~5.8%, ~~to $204.1 million at September 30, 2020~~ compared to December 31, ~~2019,~~2020, primarily due to ~~our acquisition~~net income of ~~MBI~~$17.4 million for the nine months ended September 30, 2021, offset by repurchases of the Company’s Class A voting common stock.

Cash and ~~initial public offering.~~

~~Interest-Bearing Deposits at Other Financial Institutions~~

Cash Equivalents

Cash that is not immediately needed to fund loans by the Bank is invested in liquid assets that also earn interest, including deposits with other financial institutions. ~~For the nine months ended September 30, 2020, interest-bearing deposits at other financial institutions increased $101.1 million, or 67.1%, to $251.7 million from $150.6 million at~~ ~~December 31, 2019. The increase was primarily due~~Due to our desire to maintain excess liquidity in more liquid assets to fund our loan ~~growth.~~growth and excess due to the Correspondent Banking Relationship, cash and cash equivalents increased $527.2 million, or 243.0%, compared to December 31, 2020, primarily due to an increase in interest-bearing deposits. As we continue to grow, so do our liquidity needs.

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Investment Securities

We use our securities portfolio to provide a secondary source of liquidity, achieve additional interest income through higher yields on funds invested (compared to other options, such as interest-bearing deposits at other banks or fed funds sold), manage interest rate risk, and meet both collateral and regulatory capital requirements.

Securities may be classified as either trading, held-to-maturity, available-for-sale, or equity. Trading securities (if any) are held principally for resale and recorded at their fair value with changes in fair value included in income. Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Available-for-sale securities consist of securities not classified as trading securities nor as held-to maturity securities. Unrealized holding gains and losses on available-for-sale securities are excluded from income and reported in comprehensive income or loss. Gains and losses on the sale of available-for-sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method over the period to maturity.

Our investment portfolio increased ~~by $70.0~~$25.6 million, or ~~236.4%~~26.9%, ~~from $29.6~~to $120.6 million at compared to December 31, ~~2019~~2020, ~~to $99.7 million at~~ ~~September 30, 2020,~~ primarily due to ~~the acquisition~~purchases of ~~the Marquis Bank securities portfolio and the investment of a portion of the proceeds from our 2020 initial public offering into~~$50.9 million in securities available for sale, ~~although substantially more of these proceeds were invested in more liquid assets to provide more liquidity to fund our loan growth~~offset by paydowns, and ~~securities available for sale.~~maturities. To supplement interest income earned on ~~our~~the Company’s loan portfolio, ~~we invest~~the Company invests in ~~high quality~~ mortgage-backed securities, government agency bonds, corporate bonds, community development district ~~bonds, corporate~~ bonds, and equity securities (including mutual funds).

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The following tables summarize the contractual maturities and weighted-average yields of investment securities as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020.

September 30, 2020

December 31, 2019
(Dollars in thousands)

Book Value

Fair Value

Book Value

Fair Value
Securities Available for Sale








Small Business Administration loan pools

$
32,020

$
31,823

$
17,303

$
17,183
Mortgage-backed securities

32,873

33,399

5,237

5,185
U.S. agency obligations

5,002

5,141

4,000

4,070
Community Development District bonds

22,464

23,097

—

—
Municipals

1,066

1,099

—

—
Corporate bonds

2,501

2,508

2,000

2,003
Total

$
95,926

$
97,067

$
28,540

$
28,441
Securities Held to Maturity








Mortgage-backed securities

385

402

—

—
US Treasury

203

203

—

—
Foreign Bonds

1,001

1,000

214

224
Total

$
1,589

$
1,605

$
214

$
224
Equity Securities








Mutual Funds

995

995

971

971
Total

$
995

$
995

$
971

$
971

More than One Year

More than Five Years










One Year or Less

Through Five Years

Through 10 Years

More than 10 Years

Total

Weighted

Weighted

Weighted

Weighted

Weighted

At September 30, 2020

Average

Average

Average

Average

Average

(Dollars in thousands)

Book Value

Yield

Book Value

Yield

Book Value

Yield

Book Value

Yield

Book Value

Fair Value

Yield

Securities Available for Sale



















Small Business Administration loan pools

$
28

0.30
%
$
29

0.69
%
$
24,074

1.30
%
$
7,889

1.49
%
$
32,020

$
31,823

1.34
%
Mortgage-backed securities

—

—
%

—

—
%

4,973

0.65
%

27,900

1.25
%

32,873

33,399

1.16
%
U.S. agency obligations

2,002

0.32
%

3,000

2.64
%

—

—
%

—

—
%

5,002

5,141

1.71
%
Community Development District bonds

—

—
%

19,188

3.91
%

2,961

3.88
%

315

3.00
%

22,464

23,097

3.89
%
Municipals

—

—
%

533

1.64
%

533

1.86
%

—

—
%

1,066

1,099

1.75
%
Corporate bonds

501

0.96
%

2,000

1.18
%

—

—
%

—

—
%

2,501

2,508

1.13
%
Total

$
2,531

0.45
%
$
24,750

3.48
%
$
32,541

1.44
%
$
36,104

1.32
%
$
95,926

$
97,067

1.89
%
Securities Held to Maturity

Mortgage-backed securities

—

—
%

—

—
%

—

—
%

385

2.28
%

385

402

2.28
%
U.S. Treasury

203

0.18
%

—

—
%

—

—
%

—

—
%

203

203

0.18
%
Foreign Bonds

1,001

2.09
%

—

—
%

—

—
%

—

—
%

1,001

1,000

2.09
%
Total

$
1,204

1.77
%
$
—

—
%
$
—

—
%
$
385

2.28
%
$
1,589

$
1,605

1.89
%
Equity Securities





















Mutual Funds

995

1.70
%

—

—
%

—

—
%

—

—
%

995

995

1.70
%
Total

$
995

1.70
%
$
—

—
%
$
—

—
%
$
—

—
%
$
995

$
995

1.70
%


	September 30, 2021				December 31, 2020
(Dollars in thousands)	Book Value		Fair Value		Book Value		Fair Value
Securities Available for Sale - taxable
Small Business Administration loan pools	$	40,131	$	39,703	$	30,678	$	30,556
Mortgage-backed securities	51,105		50,927		28,514		28,922
United States agency obligations	2,002		2,079		3,000		3,122
Corporate bonds	1,500		1,509		2,501		2,510
Total	$	94,738	$	94,218	$	64,693	$	65,110
Securities Available for Sale - tax exempt
Community Development District bonds	$	17,800	$	18,364	$	20,582	$	21,299
Municipals	1,054		1,098		1,064		1,099
Total	$	18,854	$	19,462	$	21,646	$	22,398
Securities Held to Maturity
Mortgage-backed securities	$	259	$	269	$	345	$	359
United States Treasury	—		—		202		202
Foreign Bonds	—		—		1,000		1,000
Total	$	259	$	269	$	1,547	$	1,561
Equity Securities
Mutual Funds	$	5,903	$	5,903	$	6,005	$	6,005
Other equity securities	800		800		—		—
Total	$	6,703	$	6,703	$	6,005	$	6,005

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One Year or Less More than One Year
Through Five Years More than Five Years
Through 10 Years More than 10 Years Total
On September 30, 2021
(Dollars in thousands) Book Value Weighted
Average
Yield Book Value Weighted
Average
Yield Book Value Weighted
Average
Yield Book Value Weighted
Average
Yield Book Value Fair Value Weighted
Average
Yield
Securities Available for Sale - taxable
Small Business Administration loan pools $ — — % $ 545 0.89 % $ 18,802 1.51 % $ 20,784 1.40 % $ 40,131 $ 39,703 1.45 %
Mortgage-backed securities — — % 120 0.31 % 6,376 0.78 % 44,610 1.16 % 51,106 50,927 1.11 %
United States agency obligations 999 2.54 % 1,003 2.66 % — — % — — % 2,002 2,079 2.60 %
Corporate bonds — — % 1,500 1.17 % — — % — — % 1,500 1,509 1.17 %
Total $ 999 2.54 % $ 3,168 1.56 % $ 25,178 1.32 % $ 65,394 1.24 % $ 94,739 $ 94,218 1.29 %
Securities Available for Sale - tax exempt
Community Development District bonds $ 190 4.52 % $ 17,295 4.92 % $ 315 3.75 % $ — — % $ 17,800 $ 18,364 4.90 %
Municipals — — % 1,054 2.27 % — — % — — % 1,054 1,098 2.27 %
Total $ 190 4.52 % $ 18,349 4.77 % $ 315 3.75 % $ — — % $ 18,854 $ 19,462 4.75 %
Securities Held to Maturity
Mortgage-backed securities — — % — — % — — % 259 2.56 % 259 269 2.56 %
United States Treasury — — % — — % — — % — — % — — — %
Foreign Bonds — — % — — % — — % — — % — — — %
Total $ — — % $ — — % $ — — % $ 259 2.56 % $ 259 $ 269 2.56 %
Equity Securities
Mutual Funds 5,903 1.10 % — — % — — % — — % 5,903 5,903 1.10 %
Other equity securities 800 — % — — % — — % — — % 800 800 — %
Total $ 6,703 1.10 % $ — — % $ — — % $ — — % $ 6,703 $ 6,703 0.97 %

Loan Portfolio

Our primary source of income is derived from interest earned on loans. Our loan portfolio consists of loans secured by real estate as well as commercial business loans, construction and development and other consumer loans. Our loan clients primarily consist of small to medium sized businesses, the owners and operators of these businesses as well as other professionals, entrepreneurs, and high net worth individuals. Our owner-occupied and investment commercial real estate loans, residential construction loans and commercial business loans provide us with higher risk-adjusted returns, shorter maturities, and more sensitivity to interest rate fluctuations, and are complemented by our relatively lower risk residential real estate loans to individuals. Our lending activities are principally directed to our market area consisting of the Miami-Dade MSA. The

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following table summarizes and provides additional information about certain segments of our loan portfolio as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020.

September 30, 2020

December 31, 2019

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial real estate

$
727,933

45.3
%
$
270,981

34.2
%
Owner Occupied

261,221

—

112,618

—

Non-Owner Occupied

466,712

—

158,363

—

Residential real estate

375,607

23.3
%

342,257

43.2
%
Commercial (Non-PPP)

185,744

11.5
%

129,477

16.3
%
Commercial (PPP)

225,506

14.0
%

—

—
%
Construction and development

82,744

5.1
%

41,465

5.2
%
Consumer and other loans

13,274

0.8
%

8,287

1.1
%
Total loans

$
1,610,808

100.0
%
$
792,467

100.0
%
Unearned loan origination (fees) costs, net

(6,763)



(752)



Allowance for loan losses

(15,035)



(6,548)



Loans, net

$
1,589,010



$
785,167


	September 30, 2021			December 31, 2020
(Dollars in thousands)	Amount		Percent	Amount		Percent

Loans held for investment:
Commercial real estate	$	856,194	50.7%	$	777,025	46.9%
Owner Occupied	315,489		—%	286,701		—%
Non-Owner Occupied	540,705		—%	490,324		—%
Residential real estate	371,469		22.0%	379,534		22.9%
Commercial (Non-PPP)	288,177		17.1%	206,095		12.4%
Commercial (PPP)	85,133		5.0%	185,748		11.2%
Construction and land development	69,534		4.1%	99,590		6.0%
Consumer and other	16,744		1.0%	9,689		0.6%
Total loans held for investment, gross	1,687,251		100.0%	1,657,681		100.0%
Allowance for loan loss	(11,478)			(16,259)
Loans held for investment, net	$	1,675,773		$	1,641,422

Loans held for sale:
Loans held for sale	$	284	100.0%	$	1,270	100.0%
Total loans held for sale	$	284		$	1,270

Commercial Real Estate Loans. We originate both owner-occupied and non-owner-occupied commercial real estate loans. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. Commercial real estate loans that are secured by owner-occupied commercial real estate and primarily ~~collateralized~~supported by operating cash flows are also included in this category of loans. As of September 30, ~~2020~~2021, we had ~~$261.2~~$315.5 million of owner-occupied commercial real estate loans and ~~$466.7~~$540.7 million of investment commercial real estate loans, representing ~~35.9%~~36.8% and ~~64.1%~~63.2%, respectively, of our commercial real estate portfolio. As of September 30, ~~2020~~2021, the average loan balance of loans in our commercial real estate loan portfolio was approximately ~~$1.1~~$1.3 million for owner-occupied and ~~$1.6~~$1.8 million for non-owner occupied. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. Terms of 15 years are permitted where the loan is fully amortized over the term of the loan. The maximum loan to value is generally, 80% of the market value or purchase price, but may be as high as 90% for SBA 504 owner-occupied loans. As of September 30, 2021, we did not have any commercial real estate loans with a loan to value over 100%. Our credit policy also usually requires a minimum debt service coverage ratio of 1.20x. As of September 30, ~~2020~~2021, our weighted-average loan-to-value ratios for owner-occupied and non-owner-occupied commercial real estate were ~~50.2% and 50.1%, respectively~~both at 49.3% and debt service coverage ratios were ~~2.50x~~2.48x and ~~1.72x,~~1.99x, respectively. The interest rates on our commercial real estate loans have initial fixed rate terms that adjust typically at five years, and we routinely charge an origination fee for our services. We generally require personal guarantees from the principal owners of the business, supported by a review of the principal owners’ personal financial statements and global debt service obligations. All commercial real estate loans with an outstanding balance of ~~$0.5~~$1.0 million or more are reviewed at least annually. The properties securing the portfolio are located primarily throughout our market and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.

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	As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	27,600	3.2%	$	22,424	2.9%
Educational Facility	32,625		3.8%	14,313		1.8%
Gas Station	68,856		8.0%	64,142		8.3%
Hotel	59,679		7.0%	54,244		7.0%
Mixed Use	32,411		3.8%	29,941		3.9%
Multifamily	123,879		14.5%	98,738		12.7%
Office	104,539		12.2%	111,735		14.4%
Other / Special Use	52,530		6.1%	41,668		5.4%
Religious Facility	10,802		1.3%	8,434		1.1%
Retail	212,162		24.8%	191,990		24.7%
Vacant Land	6,080		0.7%	7,849		1.0%
Warehouse	125,031		14.6%	131,547		16.8%
Total	$	856,194	100.0%	$	777,025	100.0%

As of September 30, 2020

(Dollars in thousands)

Amount

Percent

Commercial Real Estate






Assignment of Mortgage

$
5,798

0.8
%
Auto (Car Lot/Auto Repair)

16,991

2.3
%
Educational Facility

14,451

2.0
%
Gas Station

49,395

6.8
%
Hotel

42,427

5.8
%
Land Development

280

0.0
%
Mixed Use

29,658

4.1
%
Multifamily

92,345

12.7
%
Office

102,948

14.1
%
Other / Special Use

41,385

5.7
%
Religious Facility

8,551

1.2
%
Retail

183,589

25.2
%
Vacant Land

7,553

1.0
%
Warehouse

132,562

18.2
%
Total

$
727,933

100.0
%


	As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Broward	$	124,367	14.5%	$	118,353	15.2%
Miami-Dade	535,100		62.5%	500,690		64.4%
Palm Beach	141,270		16.5%	113,249		14.6%
Other FL County	31,707		3.7%	27,124		3.5%
Out of State	23,750		2.8%	17,609		2.3%
Total	$	856,194	100.0%	$	777,025	100.0%

As of September 30, 2020

(Dollars in thousands)

Amount

Percent

Commercial Real Estate





Broward

$
124,808

17.1
%
Miami-Dade

456,643

62.7
%
Palm Beach

114,239

15.7
%
Other FL County

31,656

4.3
%
Out of State

587

0.1
%
Total

$
727,933

100.0
%

As of September 30, ~~2020~~2021, non-owner occupied commercial real estate loans of ~~$466.7~~$540.7 million represented ~~34.7%~~33.8% of total risk-weighted assets.

Construction and Development Loans. The majority of our construction loans are offered within the Miami-Dade MSA to builders primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Our construction loans typically have terms of 12 to 18 months with the goal of transitioning the borrowers to permanent financing or re-underwriting and selling into the secondary market. According to our credit policy, the loan to value ratio may not exceed the lesser of 80% of the appraised value, as established by an independent appraisal, or 85% of costs for residential construction and 90% of costs for SBA 504 loans. As of September 30, ~~2020~~2021, our weighted average loan-to-value ratio on our construction, vacant land, and land development loans were ~~57.9%~~51.3%, ~~44.2%~~49.7% and ~~49.0%~~49.8%, respectively. ~~All~~We require construction and development loans ~~require~~to establish an interest reserve account, which is sufficient to pay the loan through completion of the project. We conduct semi-annual stress testing of our construction loan portfolio and closely monitor underlying real estate conditions as well as our borrowers’ trends of sales valuations as compared to underwriting valuations as part of our ongoing risk management efforts. We also closely monitor our borrowers’ progress in construction buildout and strictly enforce our original underwriting guidelines for construction milestones and completion timelines.

As of September 30, 2020

(Dollars in thousands)

Amount

Percent

Construction & Development






1 – 4 Family Construction

$
36,415

44.0
%
Commercial Construction

30,943

37.4
%
Land Development

7,785

9.4
%
Vacant Land

7,601

9.2
%
Total

$
82,744

100.0
%

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	As of September 30, 2021				As of December 31, 2020
(Dollars in thousands)	Amount		Percent		Amount		Percent
Construction & Development
1 – 4 Family Construction	$	43,046	61.9	%	$	44,971	45.1	%
Commercial Construction	669		1.0	%	34,031		34.2	%
Land Development	5,343		7.7	%	5,783		5.8	%
Vacant Land	20,476		29.4	%	14,805		14.9	%
Total	$	69,534	100.0	%	$	99,590	100.0	%


	As of September 30, 2020

						As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent		(Dollars in thousands)	Amount		Percent	Amount		Percent
Construction & Development					Construction & Development
Broward	$	12,492	15.1	%	Broward	$	2,537	3.6%	$	21,722	21.8%
Miami-Dade		55,447	67.0	%	Miami-Dade	57,274		82.4%	57,008		57.3%
Palm Beach		14,457	17.5	%	Palm Beach	9,723		14.0%	15,048		15.1%
Other FL County		348	0.4	%	Other FL County	—		—%	5,812		5.8%
Total	$	82,744	100.0	%	Total	$	69,534	100.0%	$	99,590	100.0%

As of September 30, ~~2020~~2021, total construction and land development loans of ~~$82.7~~$69.5 million represented ~~6.1%~~7.7% of total risk-weighted assets.

Residential Real Estate Loans. We offer one-to-four family mortgage loans primarily on owner-occupied primary residences and, to a lesser extent, investor-owned residences, which make up approximately ~~20%~~15.7% of our residential loan portfolio. Our residential loans also include home equity lines of credit, which totaled approximately ~~$61.3~~$46.0 million, or approximately ~~16.3%~~12.4% of our residential loan portfolio as of September 30, ~~2020~~2021. The average loan balance of closed-end residential loans in our residential portfolio was approximately ~~$0.7~~$0.8 million as of September 30, ~~2020~~2021. As of September 30, 2021, we did not have any residential real estate loans with a loan to value over 100%. Our one-to-four family residential loans have a relatively small balance spread between many individual borrowers compared to our other loan categories. Our owner-occupied residential real estate loans usually have fixed rates for five or seven years and adjust on an annual basis after the initial term based on a typical maturity of 30 years. Upon the implementation of rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the origination, closing and servicing of the traditional residential loan products became much more complex, which led to increased cost of compliance and training. As a result, many banks exited the business, which created an opportunity for the banks that remained in the space. While the use of technology, and other related origination strategies have allowed non-bank originators to gain significant market share over the last several years, traditional banks that made investments in personnel and technology to comply with the new requirements have typically experienced loan growth. Unlike many of our competitors, we have been able to effectively compete in the residential loan market, while simultaneously doing the same in the commercial loan market which has enabled us to establish a broader and deeper relationship with our borrowers. Additionally, by offering a full line of residential loan products, the owners of the many small to medium sized businesses that we lend to use us, instead of a competitor, for financing a personal residence. This greater bandwidth to the same market has been a significant contributor to our growth and market share in South Florida. The following ~~chart~~table shows our residential real estate portfolio by loan type and the weighted average loan-to-value ratio for each loan type.


	As of September 30, 2020

								As of September 30, 2021						As of December 31, 2020
(Dollars in thousands)	Amount		Percent		LTV (%)		(Dollars in thousands)	Amount		Percent		LTV (%)		Amount		Percent		LTV (%)
Residential Real Estate							Residential Real Estate
Owner Occupied	$	264,599	70.4	%	58.7	%	Owner Occupied	$	266,966	71.8	%	57.3	%	$	270,934	71.2	%	57.8	%
Investor Owned Residences		46,825	12.5	%	48.2	%	Investor Owned Residences	58,475		15.7	%	51.7	%	48,087		12.6	%	50.7	%
HELOC		61,308	16.3	%	57.9	%	HELOC	46,028		12.4	%	50.9	%	60,513		15.9	%	57.1	%
Loans Held for Sale and PennyMac		2,875	0.8	%	0.0	%
Loans Held for Sale							Loans Held for Sale	284		0.1	%	—	%	1,270		0.3	%	—	%
Total	$	375,607	100.0	%			Total	$	371,753	100.0	%			$	380,804	100.0	%

Table of Contents

Commercial Loans. In addition to our other loan products, we provide general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, letters of credit and other loan products, primarily in our market, and underwritten based on each borrower’s ability to service debt from income. These loans are primarily made based on the identified cash flows of the borrower, as determined based on a review of the client’s financial statements, and secondarily, on the underlying collateral provided by the borrower. The average loan balance of the ~~non-PPP~~ loans in our commercial loan portfolio, excluding Professional Bank PPP loans was ~~$0.4~~$0.6 million as of September 30, ~~2020~~.2021. As of September 30, ~~2020, non-PPP commercial loans was $185.7 million, and~~2021, non-Professional Bank PPP commercial loans was ~~$225.5~~$288.2 million, and Professional Bank PPP commercial loans was $85.1 million. For commercial loans over $0.5 million, a global cash flow analysis is generally required, which forms the basis for the credit approval, “Global cash flow” is defined as a cash flow calculation which includes all income sources of all principals in the transaction as well as all debt payments, including the debt service associated with the proposed transaction. In general, a minimum 1.20x debt service coverage is preferred, but in no event may the debt service coverage ratio be less than 1.00x. As of September 30, ~~2020~~,2021, the debt service coverage ratio for our ~~Professional~~ Bank commercial loan portfolio was approximately ~~2.6x~~2.43x for ~~non-PPP~~non-Professional Bank PPP loans, excluding approximately ~~5.0%~~3.3% of the commercial loan portfolio that is cash secured. Most commercial business loans, which ~~include~~exclude Professional Bank PPP loans, are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and equipment, and

~~Table of Contents~~

we generally obtain a personal guaranty from the borrower or other principal. The following ~~chart~~table shows our commercial loan portfolio by industry segment as of September 30, ~~2020~~.

2021.


	As of September 30, 2020

						As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent		(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Loans					Commercial Loans
Business Products	$	7,603	1.8	%	Business Products	$	58	—%	$	1,163	0.6%
Business Services		85,974	20.9	%	Business Services	65,441		22.7%	29,461		14.3%
Communication		19,681	4.8	%	Communication	17,548		6.1%	17,687		8.6%
Construction		51,773	12.6	%	Construction	31,198		10.8%	19,241		9.3%
Finance		75,715	18.4	%	Finance	84,752		29.5%	56,506		27.3%
Healthcare		28,740	7.0	%	Healthcare	11,179		3.9%	7,369		3.6%
Services		62,681	15.2	%	Services	36,121		12.5%	23,252		11.3%
Technology		2,393	0.6	%	Technology	760		0.3%	850		0.4%
Trade		64,447	15.7	%	Trade	32,557		11.3%	44,233		21.5%
Transportation		5,217	1.3		Transportation	1,217		0.4%	2,926		1.4%
Other		7,026	1.7	%	Other	7,346		2.5%	3,407		1.7%
Total	$	411,250	100.0	%	Total	$	288,177	100.0%	$	206,095	100.0%

Consumer and Other Loans. We offer consumer, or retail credit, to individuals for household, family, or other personal expenditures. Generally, these are either in the form of closed-end/installment credit loans or open-end/revolving credit loans. Occasionally, we will make unsecured consumer loans to highly qualified clients in amounts up to $250,000 with up to three-year repayment terms.

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The following chart illustrates our gross loans ~~net of unearned income~~ and weighted average loan-to-value ratio for our collateralized loan portfolio as of the end of the ~~months~~periods indicated.

Third quarter loans totaled $1.7 billion, a decrease of $3.3 million, or 0.2%, from the prior quarter primarily due to Professional Bank PPP loan forgiveness and loan payoffs during the quarter. Loan growth, net of Professional Bank PPP loans, was up $50.9 million, or 3.3% quarter-over-quarter. We experienced strong originations across all loan types due to new loan originations of $198.7 million (of which $172.7 million funded), partially offset by payoffs of $157.1 million ($101.2 million of conventional loans and $55.9 million of Professional Bank PPP loans forgiven).

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The repayment of loans is a source of additional liquidity for us. The following table details maturities and sensitivity to interest rate changes for our loan portfolio at on September 30, ~~2020~~2021.


	September 30, 2020
	Due in One		Due in One to		Due After

										September 30, 2021
(Dollars in thousands)	Year or Less		Five Years		Five Years		Total		(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due After Five Years		Total
Commercial Real Estate	$	61,687	$	215,864	$	450,382	$	727,933	Commercial Real Estate	$	80,898	$	224,943	$	550,353	$	856,194
Residential Real Estate		43,439		34,995		297,173		375,607	Residential Real Estate	12,592		20,362		338,515		371,469
Commercial*		94,487		268,500		48,263		411,250	Commercial*	96,387		150,537		126,386		373,310
Construction and Development		26,830		23,911		32,003		82,744	Construction and Development	27,868		14,542		27,124		69,534
Consumer and Other		7,254		4,129		1,891		13,274	Consumer and Other	3,770		7,270		5,704		16,744
Total loans	$	233,697	$	547,399	$	829,712	$	1,610,808	Total loans	$	221,515	$	417,654	$	1,048,082	$	1,687,251
Amounts with fixed rates	$	132,576	$	506,654	$	798,727	$	1,437,957	Amounts with fixed rates	$	108,887	$	347,399	$	1,012,608	$	1,468,894
Amounts with floating rates	$	101,121	$	40,745	$	30,985	$	172,851	Amounts with floating rates	$	112,628	$	70,255	$	35,474	$	218,357
*Includes Paycheck Protection Program (PPP) loans.									*Includes Paycheck Protection Program (PPP) loans.
										December 31, 2020
(Dollars in thousands)									(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due After Five Years		Total
Commercial Real Estate									Commercial Real Estate	$	63,256	$	221,157	$	492,612	$	777,025
Residential Real Estate									Residential Real Estate	16,377		23,862		339,295		379,534
Commercial*									Commercial*	93,184		228,115		70,544		391,843
Construction and Development									Construction and Development	37,160		30,131		32,299		99,590
Consumer and Other									Consumer and Other	3,626		3,850		2,213		9,689
Total loans									Total loans	$	213,603	$	507,115	$	936,963	$	1,657,681
Amounts with fixed rates									Amounts with fixed rates	$	108,016	$	469,399	$	908,158	$	1,485,573
Amounts with floating rates									Amounts with floating rates	$	105,587	$	37,716	$	28,805	$	172,108
*Includes Paycheck Protection Program (PPP) loans.									*Includes Paycheck Protection Program (PPP) loans.

Paycheck Protection Program ~~(PPP)~~

The Company ~~has~~ participated in ~~the Paycheck Protection Program (PPP) offered through the U.S. Small Business Administration (SBA) by way~~all three rounds of the ~~Coronavirus Aid Relief and Economic Security (CARES) Act that was passed at the end of the first quarter 2020. As a qualified SBA lender, the Company was automatically authorized to originate~~ PPP ~~loans. To help clients, the Company added an online PPP application form and automated the PPP loan closing documentation process. The Company has processed, closed~~ and funded ~~1,506~~2,287 small business loans representing ~~$226.2~~approximately $340.5 million in relief ~~proceeds. As~~proceeds, of ~~September 30, 2020,~~which 1,745 loans totaling $251.4 million were forgiven by the ~~Company has 1,502~~SBA. Most of the Professional Bank PPP loans ~~representing $225.5 million that remain outstanding. A majority of these loans have been~~were initially pledged to the Federal Reserve as part of the ~~Paycheck Protection Program Liquidity Facility (PPPLF).~~PPPLF. The PPPLF pledged loans are non-recourse to the ~~Bank. These loans are guaranteed~~Company. However, the Company paid off all of the PPPLF advances during the first and second quarter of 2021 and the balance of PPPLF advances made by the ~~government and as such no loan loss reserves have been recorded for these loans. Interest income~~Company was $0 on ~~loans include PPP loan fees. PPP loan fees recognized during the three and nine months ended~~ September 30, ~~2020 were $1.0 million and $1.6 million, respectively.~~

2021.

Table of Contents

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment

~~Table of Contents~~

obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Any loan which the Bank deems to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss. Loans that are past due for 180 days or more are charged off unless the loan is well secured and in the process of collection. We currently have no loans accruing over 90 days or greater past due as of September 30, ~~2020~~2021.

We believe our disciplined lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio, such as annual reviews of the underlying financial performance of all commercial loans in excess of ~~$0.5~~$1.0 million. We also engage in ~~annual~~semi-annual stress testing of the loan portfolio, and proactive collection and timely disposition of past due loans. Our bankers follow established underwriting guidelines, and we also monitor our delinquency levels for any negative trends. As a result, we have, in recent years, experienced a relatively low level of nonperforming assets. We had nonperforming assets of ~~$9.9~~$2.8 million as of September 30, ~~2020~~2021, or ~~0.48%~~0.10% of total assets. We had nonperforming assets of ~~$2.3~~$10.4 million as of December 31, ~~2019,~~2020, or ~~0.22%~~0.51% of total assets. The decrease in nonperforming assets was primarily driven by the $7.6 million charge off of the Coex Coffee International, Inc. ("Coex") loan during the first quarter of 2021.Occasionally, loans that we make will be impacted due to the occurrence of unforeseen events, which was a primary factor in the recent increase in our nonperforming assets relative to our historically low, near-zero levels. However, we believe that our low loan-to-value loan portfolio is well positioned to withstand these types of discrete events as they occur from time. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

(Dollars in thousands)

September 30, 2020

December 31, 2019

Nonaccrual Loans

Commercial real estate

$
307

$
—

Residential real estate

483

483

Commercial

9,127

1,797

Construction and development

—

—

Consumer and other loans

—

—

Accruing loans 90 or more days past due

—

—

Total nonperforming loans

$
9,917

$
2,280

Other real estate owned

—

—

Total nonperforming assets

$
9,917

$
2,280

Restructured loans-nonaccrual

$
—

$
—

Restructured loans-accruing

$
307

$
367

Ratio of nonperforming loans to total loans

0.62
%

0.33
%
Ratio of nonperforming assets to total assets

0.48
%

0.22
%

~~Coex Coffee International Inc.~~

The Company learned on July 15, 2020 that one of its borrowers, Coex Coffee International Inc. (“Coex”), filed a Petition Commencing an Assignment for the Benefit of Creditors in the 11th Judicial Circuit Court in Miami-Dade County, Florida. This state court action is similar to a federal bankruptcy case where the assignee is tasked, under the oversight of a judge, with the repayment of creditors of a troubled entity. The court has appointed Philip Von Kahle as the “Assignee.” Coex was primarily in the business of purchasing and selling green coffee beans. Coex financed its business through various credit facilities from ten financial institutions in an amount totaling $191.9 million. The Company currently has a total of thirty-one (31) advances to Coex for the purchase of coffee from growers for period of up to 90 days with an aggregate outstanding balance of $12.4 million. However, the Company has a current balance of $8.3 million due to a participation, without recourse, to another financial institution. The loans are collateralized by coffee beans and the proceeds from coffee sales. While at the time of petition, the advances were current, the preliminary records reviewed by the Assignee indicate that certain loan documents, including purchase orders, were fraudulent and that only $1.2 million of the associated value may be attributed as collateral against the aggregate outstanding balance. While definitive reports and orders have yet to be issued, based on the Assignee’s preliminary evaluation, the Company considers it prudent to record an impairment of $7.6 million against the Bank’s portion of the loan. The Company intends to vigorously pursue courses of actions available to it to mitigate potential losses, including a potential insurance claim, to recover as much of the current outstanding balance as possible. At this time the Company is unable to provide any assurances whether these courses of action will ultimately be successful.

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(Dollars in thousands) September 30, 2021 December 31, 2020
Nonaccrual Loans
Commercial real estate $ — $ —
Residential real estate — —
Commercial 1,468 9,127
Construction and development — —
Consumer and other loans 1,307 1,307
Accruing loans 90 or more days past due — —
Total nonperforming loans $ 2,775 $ 10,434
Other real estate owned — —
Total nonperforming assets $ 2,775 $ 10,434
Restructured loans-nonaccrual $ — $ —
Restructured loans-accruing $ 227 $ 298
Ratio of nonperforming loans to total loans 0.16% 0.62%
Ratio of nonperforming assets to total assets 0.10% 0.51%

Credit Quality Indicators

We strive to manage and control credit risk in our loan portfolio by adhering to well-defined underwriting criteria and account administration standards established by our management team and approved by our ~~Board.~~Board of Directors (“Board”). We ~~employ a dedicated Chief Risk Officer and~~ have established a Risk Committee at the Bank level which oversees, among other things, risks associated with our lending activities and enterprise risk management. Our written loan policies document underwriting standards, approval levels, exposure limits and other limits or standards that our management team and Board deem appropriate for an institution of our size and character. Loan portfolio diversification at the obligor, product and geographic levels are actively managed to mitigate concentration risk, to the extent possible. In addition, credit risk management includes an independent credit review process that assesses compliance with policies, risk rating standards and other critical credit information. In addition, we adhere to sound credit principles and evaluate our clients’ borrowing needs and capacity to repay, in conjunction with their character and financial history. Our management team and Board place significant emphasis on balancing a healthy risk profile and sustainable growth. Specifically, our approach to lending seeks to balance the risks necessary to achieve our strategic goals while ensuring that our risks are appropriately managed and remain within our defined limits. We believe that our credit culture is a key factor in our relatively low levels of nonperforming loans and nonperforming assets compared to other institutions within our market.

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We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Generally, all credits greater than ~~$0.5~~$1.0 million, other than residential real estate loans, are reviewed no less than annually to monitor and adjust, if necessary, the credit risk profile. Loans classified as “substandard” or “special mention” are reviewed quarterly for further evaluation to determine if they are appropriately classified and whether there is any impairment. Beyond the annual review, all loans are graded at initial issuance. In addition, during the renewal process of any loan, as well as if a loan becomes past due, we will determine the appropriate loan grade. Loans excluded from the review process above are generally classified as “pass” credits until: (a) they become past due; (b) management becomes aware of deterioration in the ~~credit worthiness~~creditworthiness of the borrower; or (c) the client contacts us for a modification. In these circumstances, the loan is specifically evaluated for potential reclassification to special mention, substandard, doubtful, or even a charged-off status. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


			Special

(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2020
September 30, 2021											September 30, 2021
Commercial real estate	$	725,270	$	—	$	2,663	$	—	$	727,933	Commercial real estate	$	853,888	$	—	$	2,306	$	—	$	856,194
Residential real estate		374,693		431		483		—		375,607	Residential real estate	371,469		—		—		—		371,469
Commercial		402,007		116		9,127		—		411,250
Commercial (Non-PPP)											Commercial (Non-PPP)	286,334		375		1,468		—		288,177
Commercial (PPP)											Commercial (PPP)	85,133		—		—		—		85,133
Construction and land development		82,744		—		—		—		82,744	Construction and land development	69,534		—		—		—		69,534
Consumer		13,274		—		—		—		13,274	Consumer	15,349		88		1,307		—		16,744
Total	$	1,597,988	$	547	$	12,273	$	—	$	1,610,808	Total	$	1,681,707	$	463	$	5,081	$	—	$	1,687,251

December 31, 2019

December 31, 2020											December 31, 2020
Commercial real estate	$	266,346	$	2,207	$	2,428	$	—	$	270,981	Commercial real estate	$	774,674	$	—	$	2,351	$	—	$	777,025
Residential real estate		341,819		438		—		—		342,257	Residential real estate	379,104		430		—		—		379,534
Commercial		126,851		829		1,797		—		129,477
Commercial (Non-PPP)											Commercial (Non-PPP)	196,856		112		9,127		—		206,095
Commercial (PPP)											Commercial (PPP)	185,748		—		—		—		185,748
Construction and land development		41,465		—		—		—		41,465	Construction and land development	99,590		—		—		—		99,590
Consumer		8,287		—		—		—		8,287	Consumer	8,382		—		1,307		—		9,689
Total	$	784,768	$	3,474	$	4,225	$	—	$	792,467	Total	$	1,644,354	$	542	$	12,785	$	—	$	1,657,681

Allowance for Loan Losses

We believe that we maintain our allowance for loan losses at a level sufficient to provide for probable incurred credit losses inherent in the loan portfolio as of the balance sheet date. Credit losses arise from the borrowers’ inability or unwillingness to repay, and from other risks inherent in the lending process including collateral risk, operations risk, concentration risk, and economic risk. We consider all of these risks of lending when assessing the adequacy of our allowance. The allowance for loan losses is established through a provision charged to expense. Loans are charged-off against the allowance when losses are probable and reasonably quantifiable. Our allowance for loan losses is based on management’s judgment of overall credit quality, which is a significant estimate based on a detailed analysis of the loan portfolio. Our allowance can and will change based on revisions to our assessment of our loan portfolio’s overall credit quality and other risk factors both internal and external to us.

~~Table of Contents~~

We evaluate the adequacy of the allowance for loan losses on a quarterly basis. The allowance consists of two components. The first component consists of those amounts reserved for impaired loans. A loan is deemed impaired when, based on current information and events, it is probable that the Bank will not be able to collect all amounts due (principal and interest), according to the contractual terms of the loan agreement. Loans are monitored for potential impairment through our ongoing loan review procedures and portfolio analysis. Classified loans and past due loans over a specific dollar amount, and all troubled debt restructurings are individually evaluated for impairment.

The approach for assigning reserves for the impaired loans is determined by the dollar amount of the loan and loan type. Impairment measurement for loans over a specific dollar are determined on an individual loan basis with the amount reserved dependent on whether repayment of the loan is dependent on the liquidation of collateral or from some other source of

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repayment. If repayment is dependent on the sale of collateral, the reserve is equivalent to the recorded investment in the loan less the fair value of the collateral after estimated sales expenses. If repayment is not dependent on the sale of collateral, the reserve is equivalent to the recorded investment in the loan less the estimated cash flows discounted using the loan’s effective interest rate. The discounted value of the cash flows is based on the anticipated timing of the receipt of cash payments from the borrower. The reserve allocations for individually measured impaired loans are sensitive to the extent market conditions or the actual timing of cash receipts change. Impairment reserves for smaller-balance loans under a specific dollar amount are assigned on a pooled basis utilizing loss factors for impaired loans of a similar nature.

The second component is a general reserve on all loans other than those identified as impaired. General reserves are assigned to various homogenous loan pools, including commercial, commercial real estate, construction and development, residential real estate, and consumer. General reserves are assigned based on historical loan loss ratios determined by loan pool and internal risk ratings that are adjusted for various internal and external risk factors unique to each loan pool. The following table analyzes the activity in the allowance over the past two years and for the nine months ended September 30, ~~2020~~2021, and ~~2019.~~

2020.


	For the Nine Months Ended September 30,						Year Ended December 31,

														For the Nine Months Ended September 30,						For the Year Ended December 31,
(Dollars in thousands)	2020			2019			2019			2018			(Dollars in thousands)	2021			2020			2020			2019
Balance at beginning of period	$	6,548		$	5,685		$	5,685		$	4,535		Balance at beginning of period	$	16,259		$	6,548		$	6,548		$	5,685
Charge-offs													Charge-offs
Commercial real estate		—			—			—			—		Commercial real estate	—			—			—			—
Residential real estate		(179)			—			—			—		Residential real estate	—			(179)			(207)			—
Commercial		(99)			—			—			—		Commercial	(7,641)			(99)			(99)			—
Construction and development		—			—			—			—		Construction and development	—			—			—			—
Consumer and other		—			—			—			—		Consumer and other	—			—			—			—
Total Charge-offs		(278)			—			—			—		Total Charge-offs	(7,641)			(278)			(306)			—
Recoveries													Recoveries
Commercial real estate		—			—			—			—		Commercial real estate	—			—			—			—
Residential real estate		—			—			—			—		Residential real estate	—			—			—			—
Commercial		—			—			—			—		Commercial	—			—			—			—
Construction and development		—			—			—			—		Construction and development	—			—			—			—
Consumer and other		—			2			1			—		Consumer and other	—			—			—			1
Total recoveries		—			2			1			—		Total recoveries	—			—			—			1
Net charge-offs (recoveries)		(278)			(2)			—			—
Net charge-offs													Net charge-offs	(7,641)			(278)			(306)			—
Provision for loan losses		8,765			762			862			1,150		Provision for loan losses	2,860			8,765			10,017			862
Balance at end of period	$	15,035		$	6,449		$	6,548		$	5,685		Balance at end of period	$	11,478		$	15,035		$	16,259		$	6,548
Ratio of net charge-offs to average loans		—	%		—	%		—	%		—	%
ALLL as a percentage of total loans at end of period													ALLL as a percentage of total loans at end of period	0.68		%	0.95		%	0.99		%	0.83		%
ALLL as a percentage of loans (excluding PPP loans) at end of period		1.09	%		0.84	%		0.83	%		0.94	%	ALLL as a percentage of loans (excluding PPP loans) at end of period	0.72		%	1.09		%	1.10		%	0.83		%
ALLL as a multiple of net charge-offs		N/A			N/A			N/A			N/A		ALLL as a multiple of net charge-offs	1.5			54.1			53.1			N/A
ALLL as a percentage of nonperforming loans		151.6	%		136.3	%		287.2	%		N/A		ALLL as a percentage of nonperforming loans	413.6		%	151.6		%	155.8		%	287.2		%

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Our allowance for loan losses was ~~$15.0~~$11.5 million at on September 30, ~~2020~~2021, compared to ~~$6.5~~$16.3 million at on December 31, ~~2019~~2020, ~~an increase~~a decrease of ~~130.8%~~29.4%. The ~~increase~~decrease was primarily due to the ~~Company addressing~~macro environment stabilization following the increased reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the impairment of Coex in the ~~Coex loan. At~~ third quarter of 2020. A reasonable balance was maintained in response to economic weakening and the onset of COVID variants. On September 30, ~~2020~~2021, our allowance for loan losses was ~~1.09%~~0.72% of total gross loans ~~(net of overdrafts and excluding~~(excluding Professional Bank PPP loans) and provided coverage of ~~151.6%~~413.6% of our nonperforming loans, compared to an allowance for loan losses to total gross loans (net of overdrafts) ratio of ~~0.83%~~1.10% as of December 31, ~~2019~~2020. See Reconciliation of non-GAAP Financial Measures. We believe our allowance at on September 30, ~~2020~~2021, was adequate to absorb probable incurred losses inherent in our loan

~~Table of Contents~~

portfolio. The following table provides an allocation of the allowance for loan losses to specific loan types as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020.


	September 30, 2020				December 31, 2019

										September 30, 2021			December 31, 2020
(Dollars in thousands)	Allowance		Percent		Allowance		Percent		(Dollars in thousands)	Allowance		Percent	Allowance		Percent
Commercial real estate	$	2,583	17.2	%	$	1,845	28.2	%	Commercial real estate	$	4,079	35.5%	$	3,159	19.5%
Residential real estate		2,133	14.2	%		3,115	47.6	%	Residential real estate	2,222		19.4%	2,177		13.4%
Commercial		9,900	65.8	%		1,235	18.9	%	Commercial	4,097		35.7%	10,462		64.3%
Construction and development		348	2.3	%		272	4.2	%	Construction and development	333		2.9%	388		2.4%
Consumer and other		71	0.5	%		81	1.2	%	Consumer and other	747		6.5%	73		0.4%
Total allowance for loan losses	$	15,035	100.0	%	$	6,548	100.0	%	Total allowance for loan losses	$	11,478	100.0%	$	16,259	100.0%

On September 30, ~~2020~~2021, the recorded investment in impaired loans (consisting of nonaccrual loans, troubled debt restructured loans, loans past due 90 days or more and still accruing interest and other loans based on management’ judgment) was ~~$12.6~~$3.0 million, of which ~~$9.1~~$2.8 million required a specific reserve of ~~$8.3~~$1.3 million, compared to a recorded investment in impaired loans of ~~$4.7~~$13.1 million, of which ~~$1.1~~$10.4 million required a specific reserve of ~~$0.6~~$8.3 million aton December 31, ~~2019.~~

2020.

Impaired loans also include certain loans that were modified as troubled debt restructurings ~~or TDRs. At~~ (“TDR”). On September 30, ~~2020~~2021, we had two loans amounting to ~~$0.3~~$0.2 million that were considered to be TDRs, compared to the same two loans amounting to ~~$0.4~~$0.3 million aton December 31, ~~2019.~~2020. We did not allocate any specific reserves to loans that have been modified as TDRs as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020.

Deposits

Deposits are our primary source of funding. We offer a variety of deposit products including checking, NOW, savings, money market, and time accounts all of which we actively market at competitive pricing. We generate deposits from our consumer and commercial clients through the efforts of our private bankers. We had public deposits of $77.8 million and $98.2 million, on September 30, 2021, and December 31, 2020, respectively. Additionally, we supplement our deposits with wholesale funding sources such as Quickrate, brokered ~~deposits and FHLB advances.~~deposits. However, we do not significantly rely on wholesale funding sources, which are generally viewed as less stable compared to core deposits due to the relatively higher price elasticity of demand for deposits from wholesale sources. As of September 30, ~~2020~~2021, and December 31, ~~2019~~,2020, these wholesale deposits represented ~~4.8%~~3.8% and ~~4.6%~~4.3%, respectively, of our total deposits.

Interest-bearing deposits increased ~~$368.7~~$371.4 million, or ~~52.0%~~36.50%, from December 31, ~~2019~~2020, to September 30, ~~2020~~2021, primarily due to a ~~$127.6~~$194.6 million increase in money market account balances from ~~due in large part by the MBI acquisition.~~organic growth. In order to fund our loan growth, ~~all of~~ our bankers are actively involved with our strategic efforts and are incentivized to grow core deposits. The average rate paid on interest-bearing deposits decreased ~~129~~35 basis points ~~from 1.73%~~to for the ~~year~~nine months ended ~~December 31, 2019~~September 30, 2021, compared to ~~0.44% for~~ the nine months ended September 30, 2020. The decrease in average rates paid on interest-bearing deposits was a result of a continued decrease in ~~market~~interest rates ~~of interest~~ during the nine months ended September 30, ~~2020.~~2021. As of September 30, ~~2020~~,2021, we had approximately ~~$23.8~~$56.4 million in brokered deposits ~~1.5%~~representing 2.4% of total ~~that were classified as brokered~~deposits. Brokered deposits ~~an increase of~~increased approximately ~~$1.2~~$26.3 million, or ~~5.3% from~~ 87.2%, compared to December 31, ~~2019~~.2020. We did not obtain these brokered deposits through a deposit listing agency, but rather through an existing relationship with the Bank. However, these deposits meet the regulatory definition of brokered deposits and are reported accordingly.

For the Nine Months Ended

For the Year Ended

September 30, 2020

December 31, 2019

Average

Average

(Dollars in thousands)

Balance

Average Rate

Balance

Average Rate

NOW accounts

$
55,964

0.28
%
$
33,329

0.42
%
Money market accounts

726,464

0.40
%

435,349

1.71
%
Savings accounts

19,617

0.31
%

8,678

1.35
%
Certificates of deposit

247,511

0.63
%

103,466

2.27
%
Total interest-bearing deposits

1,049,556

0.44
%

580,822

1.73
%
Noninterest-bearing deposits

494,415

—
%

164,963

—
%
Total deposits

$
1,543,971

0.30
%
$
745,785

1.35
%

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For the Nine Months Ended September 30, 2021 For the Year Ended
December 31, 2020
(Dollars in thousands) Average
Balance Average Rate Average
Balance Average Rate
NOW accounts $ 273,590 0.20% $ 167,991 0.26%
Money market accounts 780,825 0.40% 586,240 0.65%
Brokered deposits 36,555 0.56% 11,339 0.90%
Savings accounts 11,358 0.10% 7,564 0.13%
Certificates of deposit 248,467 0.71% 216,467 1.13%
Total interest-bearing deposits 1,350,795 0.42% 989,601 0.97%
Noninterest-bearing deposits 742,530 —% 410,357 —%
Total deposits $ 2,093,325 0.27% $ 1,399,958 0.48%

The following table presents the ending balances and percentage of total deposits for the periods indicated.


	For the Nine Months Ended September 30, 2021				For the Year Ended December 31, 2020
(Dollars in thousands)	Ending Balance		% of Total		Ending Balance		% of Total
NOW accounts	$	328,667	14.0	%	$	232,367	14.0	%
Money market accounts	893,441		37.9	%	679,761		41.0	%
Brokered deposits	56,418		2.4	%	30,137		1.8	%
Savings accounts	13,833		0.6	%	9,727		0.6	%
Certificates of deposit	262,998		11.2	%	231,953		14.0	%
Total interest-bearing deposits	1,555,357		66.1	%	1,183,945		71.3	%
Noninterest-bearing deposits	799,389		33.9	%	475,598		28.7	%
Total deposits(1)	$	2,354,746	100.0	%	$	1,659,543	100.0	%

For the Nine Months Ended

For the Year Ended

September 30, 2020

December 31, 2019

Ending

Ending

(Dollars in thousands)

Balance

% of Total

Balance

% of Total

NOW accounts

$
59,413

3.8
%
$
39,826

4.5
%
Money market accounts

762,026

48.6
%

548,366

61.4
%
Savings accounts

18,979

1.2
%

11,126

1.2
%
Certificates of deposit

236,968

15.1
%

109,344

12.2
%
Total interest-bearing deposits

1,077,386

68.7
%

708,662

79.4
%
Noninterest-bearing deposits

489,757

31.3
%

184,211

20.6
%
Total deposits

$
1,567,143

100.0
%
$
892,873

100.0
%
(1)Balance Sheet does not illustrate brokered deposits as presented above.

~~The following table presents~~

For more information regarding the maturities of our ~~certificates of deposit~~time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of September 30, 2021, and December 31, 2020,.

refer to Note 6 to the Consolidated Financial Statements (unaudited) dated September 30, 2021, entitled "Deposits."

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
$100,000 or more

$
57,499

$
53,362

$
73,220

$
36,058

$
220,139
Less than $100,000

4,874

4,674

5,207

2,074

16,829
Total

$
62,373

$
58,036

$
78,427

$
38,132

$
236,968
Debt

See Note 7 to the Consolidated Financial Statements (unaudited) dated September 30, 2021, entitled "Debt" for additional information regarding our Subordinated Debt and Valley National Line of Credit.

Borrowings

We primarily use short-term and long-term borrowings to supplement deposits to fund our lending and investment activities.

FHLB Advances. The FHLB allows us to borrow up to 25% of our assets on a blanket floating lien status collateralized by certain securities and loans. As of September 30, ~~2020~~,2021, approximately ~~$186.3~~$238.7 million in total loans that were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of September 30, ~~2020~~,2021, we had ~~$50.0~~$35.0 million in outstanding advances and ~~$106.1~~$129.3 million in additional

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available borrowing capacity from the FHLB based on the collateral that we have currently pledged. The following table sets forth certain information on our FHLB borrowings during the periods presented.



	Nine Months Ended			Year Ended

(Dollars in thousands)	September 30, 2020			December 31, 2019			(Dollars in thousands)	Nine Months Ended September 30, 2021		Year Ended December 31, 2020
Amount outstanding at period-end	$	50,000		$	55,000		Amount outstanding at period-end	$	35,000	$	40,000
Weighted average interest rate at period-end		1.63	%		2.10	%	Weighted average interest rate at period-end	2.04%		1.96%
Maximum month-end balance during period	$	70,000		$	55,000		Maximum month-end balance during period	$	40,000	$	70,000
Average balance outstanding during period		63,631			47,301		Average balance outstanding during period	$	38,867	$	58,210
Weighted average interest rate during period		1.79	%		2.30	%	Weighted average interest rate during period	1.98%		1.63%

~~PPPLF Advances~~. The Company has participated in the Paycheck Protection Program (PPP) offered through the U.S. Small Business Administration (SBA) by way of the Coronavirus Aid Relief and Economic Security (CARES) Act that was passed at the end of the first quarter 2020. The Company has processed, closed and funded 1,506 loans representing $226.2 million in relief proceeds. As of September 30, 2020, the Company has 1,502 loans representing $225.5 million that remain outstanding. A majority of these loans have been pledged to the Federal Reserve as part of the Paycheck Protection Program Liquidity Facility (PPPLF). The PPPLF pledged loans are non-recourse to the Bank. These loans are guaranteed by the government and as such no loan loss reserves have been recorded for these loans. Interest income on loans include PPP loan fees. PPP loan fees recognized during the three and nine months ended September 30, 2020 were $1.0 million and $1.6 million, respectively.

Federal Reserve Bank of Atlanta. The Federal Reserve Bank of Atlanta has an available borrower in custody arrangement which allows us to borrow on a collateralized basis. No advances were outstanding under this facility as of September 30, ~~2020~~.

~~Valley National Line of Credit~~2021.

PPPLF Advances. ~~On December 19, 2019,~~The Company initially funded Professional Bank PPP loans with the Company entered into a new $10.0 million secured revolving line of credit with Valley National Bank, N.A. Amounts drawn under this line of credit bears interest at the Prime Rate, as announced by The Wall

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~~Street Journal from time to time as its prime rate, and its obligations under this line of credit are secured by shares~~PPPLF. Most of the ~~capital stock~~Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the ~~Bank, which we have~~PPPLF. The PPPLF pledged ~~as security. Outstanding principal and interest under the line of credit is payable at maturity on December 19, 2020. As of~~ ~~December 31, 2019~~, approximately $10.0 million was drawn under this line of credit, the proceeds of which were primarily used to provide additional capital to support continued growth and also to cover expenses incurred in connection with entering into the line of credit. On February 12, 2020 the Company used a portion of the net proceeds from its IPO to repay all of the outstanding principal and accrued interest under the line of credit with Valley National Bank, N.A.

~~Subordinated Debt~~~~. On March 26, 2020, pursuant to terms of the acquisition, the Company assumed the subordinated notes payable of MBI at its fair value of $10.3 million. According~~loans are non-recourse to the ~~terms~~Company. In addition, we paid off all PPPLF advances for a balance of ~~the subordinated note, the principal amount due is $10.0 million with a 7% fixed rate until October~~$0 on September 30, ~~2021 and a variable rate thereafter at LIBOR plus 576 basis points. The note matures on October 30, 2026 and can be redeemed by the Company anytime on or after October 30,~~ 2021. ~~The subordinated debt was fair valued at a discount of $0.3 million and will be amortized over the expected life.~~

Liquidity and Capital Resources

Capital Resources

~~Shareholders’~~

Stockholders’ equity increased ~~$124.8~~$12.5 million, or ~~157.4%~~5.8%, to ~~$204.1~~$228.0 million at onSeptember 30, ~~2020~~2021, compared to December 31, ~~2019~~2020, primarily due to ~~our initial public offering and acquisition~~net income of ~~MBI. Net income resulted in an increase to retained earnings of $2.8~~$17.4 million ~~as of~~ for the nine months ended September 30, ~~2020~~.

2021, offset by repurchases of the Company’s Class A voting common stock.

We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum ratios of common equity Tier 1, Tier 2, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to ~~150%~~1,250%. We are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

In July 2013, federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with certain standards that were developed by Basel III and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions and bank holding companies and savings and loan holding companies with total consolidated assets of more than $1 billion, which we refer to below as “covered” banking organizations. We were required to implement the new Basel III capital standards as of January 1, 2015, and January 1, 2018, respectively.

As of September 30, ~~2020,~~2021, we were in compliance with all applicable regulatory capital requirements to which we were subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we intend to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.

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The following table presents our regulatory capital ratios as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020. The amounts presented exclude the capital conservation buffer.


									Minimum to be well
	Actual				Minimum for capital adequacy				capitalized

														Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
September 30, 2020
September 30, 2021													September 30, 2021
Total capital ratio													Total capital ratio
Bank	$	171,148	12.7	%	$	107,672	8.0	%	$	134,590	10.0	%	Bank	$	206,776	12.9%	$	127,860	8.0%	$	159,824	10.0%
Company		210,993	15.7	%		107,672	8.0	%		N/A	N/A		Company	224,537		14.0%	127,860		8.0%	N/A		N/A
Tier 1 capital ratio													Tier 1 capital ratio
Bank		154,361	11.5	%		80,754	6.0	%		107,672	8.0	%	Bank	194,377		12.2%	95,895		6.0%	127,860		8.0%
Company		184,008	13.7	%		80,754	6.0	%		N/A	N/A		Company	202,122		12.6%	95,895		6.0%	N/A		N/A
Tier1 leverage ratio													Tier1 leverage ratio
Bank		154,361	8.5	%		82,619	4.0	%		103,274	5.0	%	Bank	194,377		7.7%	101,353		4.0%	126,691		5.0%
Company		184,008	10.1	%		82,619	4.0	%		N/A	N/A		Company	202,122		8.0%	101,353		4.0%	N/A		N/A
Common equity tier 1 capital ratio													Common equity tier 1 capital ratio
Bank		154,361	11.5	%		60,565	4.5	%		87,483	6.5	%	Bank	194,377		12.2%	71,921		4.5%	103,886		6.5%
Company		184,008	13.7	%		60,565	4.5	%		N/A	N/A		Company	202,122		12.6%	71,921		4.5%	N/A		N/A


									Minimum to be well
	Actual				Minimum for capital adequacy				capitalized

														Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2019
December 31, 2020													December 31, 2020
Total capital ratio													Total capital ratio
Bank	$	95,662	13.6	%	$	56,091	8.0	%	$	70,114	10.0	%	Bank	$	176,633	12.0%	$	117,298	8.0%	$	146,623	10.0%
Company		86,531	12.3	%		56,091	8.0	%		N/A	N/A		Company	215,977		14.7%	117,298		8.0%	N/A		N/A
Tier 1 capital ratio													Tier 1 capital ratio
Bank		88,506	12.6	%		42,069	6.0	%		56,091	8.0	%	Bank	159,448		10.9%	87,974		6.0%	117,298		8.0%
Company		79,375	11.3	%		42,069	6.0	%		N/A	N/A		Company	188,639		12.9%	87,974		6.0%	N/A		N/A
Tier1 leverage ratio													Tier1 leverage ratio
Bank		88,506	8.7	%		40,889	4.0	%		51,112	5.0	%	Bank	159,448		8.4%	75,723		4.0%	94,654		5.0%
Company		79,375	7.8	%		40,889	4.0	%		N/A	N/A		Company	188,639		10.0%	75,723		4.0%	N/A		N/A
Common equity tier 1 capital ratio													Common equity tier 1 capital ratio
Bank		88,506	12.6	%		31,551	4.5	%		45,574	6.5	%	Bank	159,448		10.9%	65,980		4.5%	95,305		6.5%
Company		79,375	11.3	%		31,551	4.5	%		N/A	N/A		Company	188,639		12.9%	65,980		4.5%	N/A		N/A

Liquidity

In general terms, liquidity is a measurement of our ability to meet our cash needs. Our objective in managing our liquidity is to maintain our ability to fund loan commitments, purchase securities, accommodate deposit withdrawals or repay other liabilities in accordance with their terms, without an adverse impact on our current or future earnings. Our liquidity strategy is guided by policies that are formulated and monitored by our Asset Liability Management Committee, or ALCO, and senior management, including our Liquidity Contingency Policy, and which take into account the marketability of assets, the sources and stability of funding and the level of unfunded commitments. We regularly evaluate all of our various funding sources with an emphasis on accessibility, stability, reliability and cost-effectiveness. Our principal source of funding has been our clients’ deposits, supplemented by our short-term borrowings, primarily from FHLB borrowings. We believe that the cash generated from operations, our borrowing capacity and our access to capital resources are sufficient to meet our future operating capital and funding requirements.

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On September 30, ~~2020~~,2021, we had the ability to generate approximately ~~$235.1~~$390.0 million in additional liquidity through all of our available resources beyond our overnight funds sold position. In addition to the primary borrowing outlets mentioned above, we also have the ability to generate liquidity by borrowing from the Federal Reserve Discount Window and through brokered deposits. We recognize the importance of maintaining liquidity and have developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity. We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases, certain credit facilities may no longer be available. We conduct quarterly liquidity stress tests and the results are reported to our Asset-Liability Management Committee and our Board. We believe the liquidity available to us is currently sufficient to meet our ongoing needs.

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We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for borrowings or deposits, and/or sell selected securities. On September 30, 2021, and December 31, 2020, there were $238.7 million and $264.2 million in total loans pledged to the FHLB for liquidity. Our investment portfolio primarily consists of debt issued by the federal government and governmental agencies. The weighted-average maturity of our investment portfolio was ~~2.93~~3.43 years and ~~3.50~~3.02 years at on September 30, ~~2020~~2021, and December 31, ~~2019~~2020, respectively, and had a net unrealized pre-tax gain of ~~$1.1~~$0.1 million and ~~pre-tax loss of $0.1~~$1.2 million, respectively, in our available for sale securities portfolio as of those dates.

As we deploy our capital and continue to grow our operations, we maintain cash in our ~~Holding Company~~holding company for added liquidity. As of September 30, ~~2020,~~2021, cash held at the ~~Holding Company~~holding company was approximately ~~$39~~$16.7 million. Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds purchased) was ~~$32.7~~$50.0 million during ~~2020~~2021 compared to an average net overnight funds sold position of ~~$25.3~~$39.6 million for the year ended December 31, ~~2019~~2020. ~~As we have~~Our liquidity is supported by our continued ~~to experience high~~ organic growth ~~we have preferred to maintain~~and our excess liquidity inis comprised of readily available assets, such as federal funds sold and cash at other depository institutions, as opposed to less liquid, but higher yielding, assets, like investment securities.

We expect our capital expenditures over the next 12 months to be approximately ~~$0.5~~$0.8 million, which will consist primarily of investments in digital capabilities, technology purchases for our ~~hardware~~new banking offices, business applications and ~~software infrastructure which includes our continued migration to more cloud based~~information technology ~~InfoSec hardening software based on current trends management has noted, as well as software to build differentiated Digital banking solutions, experiences and products.~~security needs. We expect that these capital expenditures will be funded with existing resources without impairing our ability to meet our ongoing obligations.

Inflation

The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant, and equipment. Assets and liabilities of financial institutions are primarily all monetary in nature, and therefore are principally impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

Inflation measures have increased during the third quarter of 2021 as bottlenecked supply chains and other economic factors caused temporary increases in prices of commodities and consumer goods.

Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. While our liquidity monitoring and management consider both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of September 30, ~~2020~~2021.

Due After

Due after One

Three

Due in One

Through Three

Through

Due After

(Dollars in thousands)

Year or Less

Years

Five Years

Five Years

Total
FHLB Advances

$
10,000

$
—

$
30,000

$
10,000

$
50,000
PPPLF Advances

—

215,391

8,950

—

224,341
Certificates of deposit $100,000 or more

184,081

35,078

980

—

220,139
Certificates of deposit less than $100,000

14,755

1,950

124

—

16,829
Operating leases

1,529

2,429

2,010

1,348

7,316
Subordinated debt

—

—

—

10,197

10,197
Total

$
210,365

$
254,848

$
42,064

$
21,545

$
528,822


(Dollars in thousands)	Due in One Year or Less		Due after One Through Three Years		Due After Three Through Five Years		Due After Five Years		Total
FHLB advances	$	—	$	20,000	$	10,000	$	5,000	$	35,000
Time deposits of $250,000 or less	88,844		6,444		—		—		95,288
Time deposits of more than $250,000	167,505		4,831		—		—		172,336
Operating leases	1,443		2,638		1,863		620		6,564
Subordinated debt	—		—		—		10,016		10,016
Total	$	257,792	$	33,913	$	11,863	$	15,636	$	319,204

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Off-Balance Sheet Items

In the normal course of business, we enter into various transactions that, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our clients. These transactions include commitments to extend credit and issue letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets. Our exposure to credit loss is represented by the contractual amounts of these commitments. The same credit policies and procedures are used in making these commitments as for on-balance sheet instruments. We are not aware of any accounting loss to be incurred by funding these commitments, however we maintain an allowance for off-balance sheet credit risk which is recorded in other liabilities on the consolidated balance sheet.

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Our commitments associated with outstanding letters of credit and commitments to extend credit expiring by period as of the date indicated are summarized below. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.



(Dollars in thousands)	September 30, 2020		December 31, 2019		(Dollars in thousands)	September 30, 2021		December 31, 2020
Unfunded lines of credit	$	351,546	$	113,903	Unfunded lines of credit	$	368,117	$	356,955
Commitments to extend credit		32,112		23,052	Commitments to extend credit	97,251		40,629
Letters of credit		10,523		9,168	Letters of credit	11,308		13,036
Total credit extension commitments	$	394,181	$	146,123	Total credit extension commitments	$	476,676	$	410,620

Unfunded lines of credit represent unused portions of credit facilities to our current borrowers that represent no change in credit risk in our portfolio. Lines of credit generally have variable interest rates. The maximum potential amount of future payments we could be required to make is represented by the contractual amount of the commitment, less the amount of any advances made.

Letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. In the event of nonperformance by the client in accordance with the terms of the agreement with the third party, we would be required to fund the commitment. If the commitment is funded, we would be entitled to seek recovery from the client from the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash, or marketable securities.

Our policies generally require that letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements and our credit risk associated with issuing letters of credit is similar to the credit risk involved in extending loan facilities to our clients. The effect on our revenue, expenses, cash flows, and liquidity of the unused portions of these letters of credit commitments and letters of credit cannot be precisely predicted because there is no guarantee that the lines of credit will be used.

Commitments to extend credit are agreements to lend funds to a client, as long as there is no violation of any condition established in the contract, for a specific purpose. Commitments generally have variable interest rates, fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit is based on management’s credit evaluation of the client.

We enter into forward commitments for the delivery of mortgage loans in our current pipeline. Interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from our commitments to fund the loans. These commitments to fund mortgage loans, to be sold into the secondary market, (interest rate lock commitments) and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. We attempt to minimize our exposure to loss under credit commitments by subjecting them to the same credit approval and monitoring procedures as we do for on-balance sheet instruments.

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Certain Performance Metrics

The following table shows the return on average assets (computed as annualized net income divided by average total assets), return on average equity (computed as annualized net income divided by average equity) and average equity to average assets ratios for the nine months ended September 30, ~~2020~~2021, and for the year ended December 31, ~~2019.~~

2020.


	Nine Months Ended		Year Ended
	September 30, 2020		December 31, 2019

						Nine Months Ended September 30, 2021		Year Ended December 31, 2020
Return on Average Assets	0.21	%	0.26	%	Return on Average Assets	0.96	%	0.46	%
Return on Average Equity	2.05	%	2.94	%	Return on Average Equity	10.53	%	4.30	%
Average Equity to Average Assets	10.45	%	8.93	%	Average Equity to Average Assets	9.15	%	10.64	%

Market Risk and Interest Rate Sensitivity

Overview

Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to significant market

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risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our policies are designed to minimize structural interest rate risk.

Interest Rate Risk Management

Our net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest earning assets. When interest-bearing liabilities mature or reprice more quickly than interest earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income. Similarly, when interest earning assets mature or reprice more quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and ~~shareholders’~~stockholders’ equity.

We have established what we believe to be a comprehensive interest rate risk management policy, which is administered by ALCO. The policy establishes limits of risk, which are quantitative measures of the percentage change in net interest income (a measure of net interest income at risk) and the fair value of equity capital (a measure of economic value of equity, or EVE, at risk) resulting from a hypothetical change in interest rates for maturities from one day to 30 years. We measure the potential adverse impacts that changing interest rates may have on our short-term earnings, long-term value, and liquidity by employing simulation analysis through the use of computer modeling. The simulation model captures optionality factors such as call features and interest rate caps and floors imbedded in investment and loan portfolio contracts. As with any method of gauging interest rate risk, there are certain shortcomings inherent in the interest rate modeling methodology used by us. When interest rates change, actual movements in different categories of interest earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. Finally, the methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients’ ability to service their debts, or the impact of rate changes on demand for loan and deposit products.

The balance sheet is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. We prepare a current base case and several alternative interest rate simulations (-400, -300, -200, -100,~~+100,~~ +100, +200, +300 and +400 basis points (bps)), at least once per quarter, and report the analysis to ALCO and our Board. We augment our interest rate shock analysis with alternative interest rate scenarios on a quarterly basis that may include ramps, parallel shifts, and a flattening or steepening of the yield curve (non-parallel shift). In addition, more frequent forecasts may be produced when interest rates are particularly uncertain or when other business conditions so dictate.

Our goal is to structure the balance sheet so that net interest earnings at risk over a 12-month period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. We attempt to achieve this goal by balancing, within policy limits, the volume of floating-rate liabilities with a similar volume of floating-rate assets, by keeping the average maturity of fixed-rate asset and liability contracts reasonably matched, by managing the mix of our core deposits, and by adjusting our rates to market conditions on a continuing basis.

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Analysis

The following table indicates that, for periods less than one year, rate-sensitive assets exceeded rate-sensitive liabilities, resulting in a slightly asset-sensitive position. For a bank with an asset-sensitive position, otherwise referred to as a positive gap, rising interest rates would generally be expected to have a positive effect on net interest income, and falling interest rates would generally be expected to have the opposite effect.

REPRICING GAP


September 30, 2021 (Dollars in thousands)	Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Assets
Interest earning assets
Loans	$	417,201		$	70,690		$	258,411		$	746,302		$	929,471		$	1,675,773
Loans held for sale	284			—			—			284			—			$	284
Securities	49,733			3,229			7,889			60,851			59,791			120,642
Interest-bearing deposits at other financial institutions	680,333			—			—			680,333			40,074			720,407
Federal funds sold	23,736			—			—			23,736			—			23,736
FHLB & FRB stock	7,757			—			—			7,757			—			7,757
Total interest earning assets	$	1,179,044		$	73,919		$	266,300		$	1,519,263		$	1,029,336		$	2,548,599
Liabilities
Interest-bearing liabilities
Interest-bearing deposits	$	727,470		$	20,900		$	94,052		$	842,422		$	445,311		$	1,287,733
Time deposits	13,104			25,557			217,688			256,349			11,275			267,624
Total interest-bearing deposits	740,574			46,457			311,740			1,098,771			456,586			1,555,357
Securities sold under agreements to repurchase	—			—			—			—			—			—
FHLB advances	—			—			—			—			35,000			35,000
Subordinated debt	—			—			—			—			10,016			10,016
Total interest-bearing liabilities	$	740,574		$	46,457		$	311,740		$	1,098,771		$	501,602		$	1,600,373
Period gap	$	438,470		$	27,462		$	(45,440)		$	420,492		$	527,734
Cumulative gap	$	438,470		$	465,932		$	420,492		$	420,492		$	948,226
Ratio of cumulative gap to total earning assets	37.19		%	630.33		%	157.90		%	27.68		%	92.12		%
Ratio of cumulative gap to cumulative total earning assets	17.20		%	18.28		%	16.50		%	16.50		%	37.21		%

After One

After Three

Month

Months

Greater than

September 30, 2020

Within One

Through Three

Through

Within One

One Year

(Dollars in thousands)

Month

Months

12 Months

Year

or Nonsensitive

Total
Assets












Interest earning assets












Loans⁽¹⁾

$
308,794

$
35,236

$
143,499

$
487,529

$
1,071,918

$
1,559,447
Securities

35,850

4,676

7,795

48,321

51,330

99,651
Interest-bearing deposits at other financial institutions

285,349

—

249

285,598

—

285,598
Federal funds sold

26,696

—

—

26,696

—

26,696
FHLB & FRB stock

8,416

—

—

8,416

—

8,416
Total interest earning assets

$
665,105

$
39,912

$
151,543

$
856,560

$
1,123,248

$
1,979,808
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
511,902

$
99,953

$
110,311

$
722,166

$
608,009

$
1,330,175
Time deposits

14,741

47,632

136,463

198,836

38,132

236,968
Total interest-bearing deposits

526,643

147,585

246,774

921,002

646,141

1,567,143
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB Advances

10,000

—

—

10,000

40,000

50,000
Other Advances PPPLF

—

—

—

—

224,341

224,341
Subordinated debt

—

—

—

—

10,197

10,197
Total interest-bearing liabilities

$
536,643

$
147,585

$
246,774

$
931,002

$
920,679

$
1,851,681
Period gap

$
128,462

$
(107,673)

$
(95,231)

$
(74,442)

$
202,569


Cumulative gap

$
128,462

$
20,789

$
(74,442)

$
(74,442)

$
128,127


Ratio of cumulative gap to total earning assets

19.31
%

52.09
%

(49.12)
%

(8.69)
%

11.41
%


Ratio of cumulative gap to cumulative total earning assets

6.49
%

1.05
%

(3.76)
%

(3.76)
%

6.47
%

~~(1)~~

~~Includes loans held for resale~~

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CASH FLOW GAP


September 30, 2021 (Dollars in thousands)	Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Assets
Interest earning assets
Loans	$	103,535		$	85,298		$	277,619		$	466,452		$	1,209,321		$	1,675,773
Loans held for sale	284			—			—			284			—			284
Securities	7,249			2,181			9,988			19,418			101,224			120,642
Interest-bearing deposits at other financial institutions	680,333			—			—			680,333			40,074			720,407
Federal funds sold	23,736			—			—			23,736			—			23,736
FHLB & FRB stock	—			—			—			—			7,757			7,757
Total interest earning assets	$	815,137		$	87,479		$	287,607		$	1,190,223		$	1,358,376		$	2,548,599
Liabilities
Interest-bearing liabilities
Interest-bearing deposits	$	24,931		$	49,862		$	224,379		$	299,172		$	988,561		$	1,287,733
Time deposits	13,104			25,557			217,688			256,349			11,275			267,624
Total interest-bearing deposits	38,035			75,419			442,067			555,521			999,836			1,555,357
Securities sold under agreements to repurchase	—			—			—			—			—			—
FHLB advances	—			—			—			—			35,000			35,000
Subordinated debt	—			—			—			—			10,016			10,016
Total interest-bearing liabilities	$	38,035		$	75,419		$	442,067		$	555,521		$	1,044,852		$	1,600,373
Period gap	$	777,102		$	12,060		$	(154,460)		$	634,702		$	313,524
Cumulative gap	$	777,102		$	789,162		$	634,702		$	634,702		$	948,226
Ratio of cumulative gap to total earning assets	95.33		%	902.12		%	220.68		%	53.33		%	69.81		%

After One

After Three






Month

Months

Greater than

September 30, 2020

Within One

Through Three

Through

Within One

One Year

(Dollars in thousands)

Month

Months

12 Months

Year

or Nonsensitive

Total
Assets












Interest earning assets












Loans⁽¹⁾

$
115,403

$
179,282

$
343,575

$
638,260

$
950,750

$
1,589,010
Securities

5,775

2,250

11,816

19,841

79,810

99,651
Interest-bearing deposits at other financial institutions

285,349

—

249

285,598

—

285,598
Federal funds sold

26,696

—

—

26,696

—

26,696
FHLB & FRB stock

—

—

—

—

8,416

8,416
Total interest earning assets

$
433,223

$
181,532

$
355,640

$
970,395

$
1,038,976

$
2,009,371
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
24,005

$
48,010

$
372,376

$
444,391

$
885,784

$
1,330,175
Time deposits

33,507

47,330

135,653

216,490

20,478

236,968
Total interest-bearing deposits

57,512

95,340

508,029

660,881

906,262

1,567,143
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB Advances

10,000

—

—

10,000

40,000

50,000
Other Advances PPPLF

—

—

—

—

224,341

224,341
Subordinated debt

—

—

—

—

10,197

10,197
Total interest-bearing liabilities

$
67,512

$
95,340

$
508,029

$
670,881

$
1,180,800

$
1,851,681
Period gap

$
365,711

$
86,192

$
(152,389)

$
299,514

$
(141,824)

Cumulative gap

$
365,711

$
451,903

$
299,514

$
299,514

$
157,690

Ratio of cumulative gap to total earning assets

84.42
%

248.94
%

84.22
%

30.87
%

15.18
%

~~(1)~~

~~Includes loans held for sale~~

Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, and do not necessarily indicate the long-term prospects or economic value of the institution.

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The following table summarizes the results of our net interest income at risk analysis in simulating the change in net interest income and fair value of equity over a 12-month and 24-month horizon as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020, and ~~2018.~~

2019.



Net Interest Income at Risk – 12 months	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps		Net Interest Income at Risk – 12 months	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps
Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	N/A	10.0	%	15.0	%	20.0	%	25.0	%	Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	N/A	N/A		N/A		N/A		N/A
September 30, 2020	(4.4)	%	(3.4)	%	(2.0)	%	(0.3)	%	N/A	3.7	%	7.9	%	12.1	%	16.2	%
September 30, 2021																		September 30, 2021	(7.5)	%	(5.5)	%	(2.9)	%	0.4	%	N/A	7.8	%	15.6	%	23.4	%	31.1	%
December 31, 2020																		December 31, 2020	(3.1)	%	(2.4)	%	(1.2)	%	(0.2)	%	N/A	1.5	%	3.5	%	5.5	%	7.3	%
December 31, 2019	(9.9)	%	(6.6)	%	(4.7)	%	(1.6)	%	N/A	0.6	%	0.8	%	1.0	%	1.2	%	December 31, 2019	(9.9)	%	(6.6)	%	(4.7)	%	(1.6)	%	N/A	0.6	%	0.8	%	1.0	%	1.2	%
December 31, 2018	(11.8)	%	(8.2)	%	(5.6)	%	(4.3)	%	N/A	3.6	%	7.0	%	10.5	%	13.9	%


Net Interest Income at Risk – 24 months	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps		Net Interest Income at Risk – 24 months	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps
Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	N/A	10.0	%	15.0	%	20.0	%	25.0	%	Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	N/A	N/A		N/A		N/A		N/A
September 30, 2020	(5.1)	%	(4.3)	%	(3.2)	%	(1.6)	%	N/A	7.2	%	14.8	%	22.2	%	29.4	%
September 30, 2021																		September 30, 2021	(14.3)	%	(11.7)	%	(8.3)	%	(5.0)	%	N/A	10.0	%	20.1	%	30.0	%	39.8	%
December 31, 2020																		December 31, 2020	(4.3)	%	(3.6)	%	(2.6)	%	(1.8)	%	N/A	5.8	%	12.0	%	17.9	%	23.6	%
December 31, 2019	(16.1)	%	(12.0)	%	(7.7)	%	(2.7)	%	N/A	1.3	%	2.3	%	3.1	%	3.7	%	December 31, 2019	(16.1)	%	(12.0)	%	(7.7)	%	(2.7)	%	N/A	1.3	%	2.3	%	3.1	%	3.7	%
December 31, 2018	(18.4)	%	(13.7)	%	(10.2)	%	(6.2)	%	N/A	5.0	%	9.8	%	14.7	%	19.6	%

Using an EVE, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model. This measures the difference between the economic value of our assets and the economic value of our liabilities, which is an estimate of liquidation value. While this provides some value as a risk measurement tool, management believes net interest income at risk is more appropriate in accordance with the going concern principle.

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The following table illustrates the results of our EVE analysis as of September 30, ~~2020~~2021, and December 31, ~~2019~~2020, and ~~2018.~~

2019.



Economic Value of Equity as of	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps		Economic Value of Equity as of	-400bps		-300bps		-200bps		-100bps		Flat	+100bps		+200bps		+300bps		+400bps
Policy Limit	(30.0)	%	(20.0)	%	(15.0)	%	(10.0)	%	N/A	17.5	%	22.5	%	27.5	%	37.5	%	Policy Limit	(30.0)	%	(20.0)	%	(15.0)	%	(10.0)	%	N/A	17.5	%	22.5	%	27.5	%	37.5	%
September 30, 2020	(1.2)	%	(0.2)	%	1.1	%	2.3	%	N/A	(1.3)	%	(2.8)	%	(4.7)	%	(6.8)	%
September 30, 2021																		September 30, 2021	2.2	%	2.1	%	2.1	%	0.1	%	N/A	0.2	%	0.3	%	(0.1)	%	(1.2)	%
December 31, 2020																		December 31, 2020	0.8	%	1.5	%	2.6	%	2.5	%	N/A	(2.5)	%	(5.1)	%	(8.1)	%	(11.3)	%
December 31, 2019	(5.3)	%	(0.4)	%	0.7	%	0.6	%	N/A	(3.7)	%	(8.2)	%	(13.2)	%	(19.0)	%	December 31, 2019	(5.3)	%	(0.4)	%	0.7	%	0.6	%	N/A	(3.7)	%	(8.2)	%	(13.2)	%	(19.0)	%
December 31, 2018	(4.2)	%	(0.7)	%	1.8	%	(0.5)	%	N/A	(2.6)	%	(5.0)	%	(7.2)	%	(9.7)	%

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP and with general practices within the financial services industry. Application of these principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.

We have identified the following accounting policies and estimates that, due to the difficult, subjective, or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of the financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of the consolidated financial statements are appropriate.

Allowance for Loan Losses

The allowance for loan losses provides for probable incurred losses in the loan portfolio based upon management’s best assessment of the loan portfolio at each balance sheet date. It is maintained at a level estimated to be adequate to absorb potential losses through periodic charges to the provision for loan losses.

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The allowance for loan losses consists of specific and general reserves. Specific reserves relate to loans classified as impaired. Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan. Impaired loans include troubled debt restructurings, and performing and nonperforming loans. Impaired loans are reviewed individually and a specific allowance is allocated, if necessary, based on evaluation of either the fair value of the collateral underlying the loan or the present value of future cash flows calculated using the loan’s existing interest rate. General reserves relate to the remainder of the loan portfolio, including overdrawn deposit accounts, and are based on evaluation of a number of factors, such as current economic conditions, the quality and composition of the loan portfolio, loss history, and other relevant factors.

Our loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. However, the ability of borrowers to honor their contractual repayment obligations is substantially dependent on changing economic conditions. Because of the uncertainties associated with economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that management’s estimate of loan losses in the loan portfolio and the amount of the allowance needed may change in the future. The determination of the allowance for loan losses is, in large part, based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In situations where the repayment of a loan is dependent on the value of the underlying collateral, an independent appraisal of the collateral’s current market value is customarily obtained and used in the determination of the allowance for loan loss.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in economic conditions. Also, regulatory agencies, as an integral part of their examination process, periodically review management’s assessments of the adequacy of the allowance for loan losses. Such agencies may require us to recognize additional losses based on their judgments about information available to them at the time of their examination.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or

~~Table of Contents~~

observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines Level 1 valuations as those based on quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 valuations include inputs based on quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 valuations are based on at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.

Financial assets that are recorded at fair value on a recurring basis include investment securities available for sale and loans held for sale. Determining the fair values of assets and liabilities, especially the loan portfolio, core deposit intangibles, and goodwill, is a complicated process involving significant judgment regarding methods and assumptions used to calculate the estimated fair values. As of September 30, ~~2020,~~2021, purchase accounting loan marks were ~~$15.6~~$14.3 million.

Recent Accounting Pronouncements

The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on ~~the~~ our financial statements. Please also refer to the Notes to our consolidated financial statements included in this ~~annual~~quarterly report for a full description of recent accounting pronouncements, including the respective expected dates of adoption and anticipated effects on our results of operations and financial condition.

ASU 2016-13, Financial Instruments — Credit Loses (Topic 326)

In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss, or CECL, model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to

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off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments). We anticipated that this ASU would be effective for us on January 1, 2021, but the FASB announced on October 16, 2019, a delay of the effective date of ASU 2016-13 for smaller reporting companies until January 1, 2023. We are in the process of evaluating and implementing changes to credit loss estimation models and related processes. Updates to business processes and the documentation of accounting policy decisions are ongoing. We may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on our consolidated financial statements has not yet been determined.

Pro Opp Fund LLC

On April 8, 2021, the Company formed a separately capitalized subsidiary, Pro Opp Fund LLC. Subsequent to the close of the quarter ended September 30, 2021, Pro Opp Fund LLC committed to investments of approximately $0.8 million in businesses indirectly, directly, and tangentially related to the Company’s core business as permitted under the U.S. Bank Holding Company Act. Additionally, Pro Opp Fund LLC has an additional $0.9 million of unfunded investments outstanding.

COVID-19 Operational Response and Bank Preparedness

The Company continues to work within the COVID-19 pandemic response plans which were originally established in the spring of 2020. In the summer of 2021, we returned to a normalized office schedule.However, there are no comparable events that provide guidance as to the effect of the spread of COVID-19 and the situation remains volatile. Thus we are required to monitor differing levels of infection across the globe; various, and often conflicting, governmental strategies to address COVID-19 , including for the variants of COVID; and vaccination programs and requirements. We sill adjust our response plans where necessary.

Explanation of Certain unaudited non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than U.S. ~~Generally Accepted Accounting Principles (“GAAP”), including adjusted net income and adjusted net income per share,~~GAAP, which we refer to “non-GAAP financial measures.” The table below provides a reconciliation between these non-GAAP measures and net income and net income per share, which are the most comparable GAAP measures.

Management uses these non-GAAP financial measures in its analysis of the Company’s performance and believes these measures are useful supplemental information that can enhance investors’ understanding of the Company’s business and performance without considering taxes or provisions for loan losses and can be useful when comparing performance with other financial institutions. However, these non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures.

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Reconciliation of non-GAAP Financial Measures


	Three Months Ended September 30,						Three Months Ended			Nine Months Ended September 30,
	2020			2019			June 30, 2020			2020			2019

																	Three Months Ended September 30,						Three Months Ended June 30,			Nine Months Ended September 30,
(Dollar amounts in thousands, except per share data)																(Dollar amounts in thousands, except per share data)	2021			2020			2021			2021			2020
Net interest income (GAAP)	$	17,460		$	7,253		$	16,291		$	41,812		$	20,605		Net interest income (GAAP)	$	19,104		$	17,460		$	17,202		$	54,185		$	41,812
Total non-interest income		963			844			968			2,787			2,127		Total non-interest income	1,476			963			2,302			4,897			2,787
Total non-interest expense		11,713			7,041			11,548			32,747			20,088		Total non-interest expense	11,624			11,713			10,954			34,366			32,747
Pre-tax pre-provision earnings (non-GAAP)	$	6,710		$	1,056		$	5,711		$	11,852		$	2,644		Pre-tax pre-provision earnings (non-GAAP)	$	8,956		$	6,710		$	8,550		$	24,716		$	11,852
Total adjustments to non-interest expense		(1,078)			—			(560)			(3,301)			—		Total adjustments to non-interest expense	—			(1,078)			—			(684)			(3,301)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	7,788		$	1,056		$	6,271		$	15,153		$	2,644		Adjusted pre-tax pre-provision earnings (non-GAAP)	$	8,956		$	7,788		$	8,550		$	25,400		$	15,153
Adjusted earnings per share (non-GAAP)
Earnings per share (GAAP)	$	0.07		$	0.09		$	0.23		$	0.24		$	0.23
Effect of non-GAAP adjustments		0.51			0.10			0.24			1.06			0.22
Adjusted earnings per share (non-GAAP)	$	0.58		$	0.18		$	0.47		$	1.30		$	0.45

Return on average assets (GAAP)																Return on average assets (GAAP)	0.97		%	0.18		%	0.99		%	0.96		%	0.21		%
Adjusted return on average assets (non-GAAP)																Adjusted return on average assets (non-GAAP)
Annualized pre-tax pre-provision ROAA (non-GAAP)		1.30	%		0.46	%		1.19	%		0.92	%		0.42	%	Annualized pre-tax pre-provision ROAA (non-GAAP)	1.39		%	1.30		%	1.33		%	1.37		%	0.92		%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)		1.51	%		0.46	%		1.30	%		1.18	%		0.42	%	Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)	1.39		%	1.51		%	1.33		%	1.41		%	1.18		%


	September 30, 2021			December 31, 2020
Total loans (GAAP)	$	1,675,773		$	1,641,422
Add allowance for loan loss	11,478			16,259
Add loans held for sale	284			1,270
Total gross loans	$	1,687,535		$	1,658,951
Less PPP loans	85,133			185,748
Total gross loans excluding Professional Bank PPP loans (non-GAAP)	$	1,602,402		$	1,473,203
Add purchase accounting loan marks	14,317			18,835
Total gross loans excluding PPP loans (non-GAAP)	$	1,616,719		$	1,492,038

Allowance for loan loss as a % of total loans (GAAP)	0.68		%	0.99		%
Allowance for loan loss as a % of total gross loans excluding Professional Bank PPP loans (non-GAAP)	0.72		%	1.10		%
Loan marks + allowance for loan loss / total gross loans excluding PPP loans (non-GAAP)	1.60		%	2.35		%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Control Procedures

As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of ~~September 30, 2020~~,1934, as amended, we carried out an evaluation under the ~~Company’s management,~~supervision and with the participation of its Chief Executive Officer and Chief Accounting Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluationour management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2021.

As disclosed in Part II, Item 9A. Controls and Procedures in our Annual Report on Form 10-K dated December 31, 2020, management observed deficiencies associated with controls that address infrequent significant transactions in the Company’s control environment, that, in the aggregate, resulted in a material weakness. Individually, each of the observations were determined to be immaterial. The observations included Accounting for Participation Loan Sales, Recording of Inter-Company

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Capital Transactions, and Business Combination Accounting. The Company has developed and is in the process of implementing controls and procedures as part of the remediation efforts in connection to the identified deficiencies described above. Therefore, the Chief Executive Officer and Chief Accounting Officer concluded that, as of September 30, ~~2020, the period covered by this Form 10-Q, we maintained effective~~2021, our disclosure controls and ~~procedures.~~

procedures were not effective as of such date.

Despite the foregoing, our management has concluded that, the financial statements fairly present in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity GAAP.

Changes in Internal Control over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting that have occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is periodically party to or otherwise involved in legal proceedings arising in the normal course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. In

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management’s opinion, there are no known pending legal proceedings, the outcome of which would, individually or in the aggregate, have a material adverse effect on our consolidated results of operations or consolidated financial position.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should consider the factors d the risk factors previously disclosed in our second quarter 2020 Form 10-Q and first quarter 2020 Form 10-Q in response to Part II, Item 1A; and 2019 Form 10-K in response to Part I, Item 1A, which could materially affect our business, financial condition and prospective results.

The risks described in this report, in our Annual Report on Form 10-K and our other SEC filings are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

~~The following Supplemental risk factors related to PPP participation and insurance coverage should be considered along with the~~section titled Risk Factors ~~found~~ in Part I, Item 1A of our ~~Annual Report on~~2020 Form 10-K ~~for~~included a discussion of the ~~year ended December 31, 2019,~~many risks and ~~Form 10-Q Part II,~~uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. Other than as noted below, there have been no material changes to our risk factors as previously described under Item 1A ~~for~~of our 2020 Form 10-K.

Presidential Directive to the ~~second quarter 2020~~Occupational Safety and ~~first quarter 2020.~~

~~By participating~~Health Administration (“OSHA”) to Mandate Vaccinations.

On September 9, 2021, the President of the United States of America announced that he has directed OSHA to develop an emergency temporary standard (“ETS”) mandating either the full vaccination or weekly testing of employees of employers with 100 or more employees. On November 4, 2021, OSHA issued the ETS requiring workers to be fully vaccinated by January 4, 2022, or undergo weekly testing. The certainty of the January 4, 2022, implementation of the ETS has been made uncertain by a subsequent stay ordered by the Fifth Circuit Court of appeals. It is currently not possible to predict the administrative costs of a compliant program or other impacts that the ETS will have on our workforce. Additional vaccine mandates (or prohibitions of mandates in States such as ~~a PPP lender, the Company~~Florida) may be ~~subject to additional risks of litigation from customers or other parties regarding the processing of loans for the PPP and risks that the SBA may not fund some or all PPP guaranties.~~

~~The Company, through the Bank, is a participant~~announced in the PPP. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. Because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. Since the opening of the PPP, several financial institutions, including the Bank, have been subject to nuisance class-action litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of additional litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP and loan forgiveness applications. If such litigation is not resolved in a manner favorable to the Company, it could adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. The Company also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the mannerareas in which ~~the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility~~we operate. Our implementation of these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

~~Levels or types of insurance coverage may not adequately cover claims.~~

~~We maintain insurance to protect against certain types of claims associated with our operations, but our coverage may not adequately cover all claims. Depending~~material adverse effect on our ~~assumptions regarding level~~business, financial conditions, and result of risk, availability, cost and other considerations, we purchase differing amounts of insurance from time to time and for various business lines. Our coverage is subject to deductibles, exclusions and policy limits. If our level of insurance is inadequate or a loss isn’t covered, we could suffer a loss that may have a negative impact on our financial results or operations.

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

~~(a)~~

~~Not applicable.~~

~~(b)~~

~~Use of Proceeds.~~

(a)Not applicable.

(b)Use of Proceeds.

On February 7, 2020, the Company completed its initial public offering of 3,565,000 shares of its Class A Common Stock at a public offering price of $18.50 per share, or an aggregate offering price of $57,350,000. The offering, for which the managing underwriters were Stephens Inc. and Keefe, Bruyette & Woods, was registered under the Securities Act (Registration No. 333-235822) and resulted in total

~~Table of Contents~~

net proceeds to the Company of approximately $61.3 million, after deducting an underwriting discount of 7%, before expenses (approximately $1.6 million).

As of September 30, ~~2020,~~2021, we ~~have~~ used approximately $4.0 million for expenses associated with the MBI acquisition, and $10.0 million to paydown our line of credit with Valley National Bank, ~~and $4.8 million was~~fund $800 thousand with the remaining proceeds pushed down to the Bank for general corporate purposes, including working capital and capital expenditures. ~~The remaining proceeds have been placed in cash, cash equivalents, and short-term investments.~~ None of the proceeds ~~was~~were used as payments to our directors or officers (or their associates), or to our affiliates or 10% ~~shareholders.~~

~~(c)~~

~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers.~~

stockholders. In addition, on October 30, 2021, we redeemed in full, the amount of our subordinated notes payable of $10.0 million, in accordance with its contractual terms.

(c)Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

As detailed in our ~~10-Q~~10-K Part II, Item 25 for the ~~second quarter 2020 and first quarter~~year ended December 31, 2020, on March 2, 2020, the Company’s Board of Directors authorized the purchase from time to time of up to $10 million of the Company’s Class A ~~Common Stock.~~voting common stock. On May 5, 2021, the Company’s Board of Directors authorized an increase in the amount available under the stock repurchase program such that, effective May 6, 2021, $10 million was available to purchase outstanding shares of the Company’s Class A voting common stock. Under this program, shares may be repurchased in privately negotiated and/or open market transactions,

Table of Contents

including under plans complying with Rule 10b5-1 under the Exchange Act. NoThe purchases ~~were~~ made during the ~~third quarter of 2020 as~~three months ended September 30, 2021, are shown below:

Total Number of

Approximate Dollar

Shares Purchased

Value of Shares that

Total Number of

Average Price

as part of Public

May yet be Purchased
Periods

Shares Purchased

Paid per Share

Announced Plan*

Under the Plan
July 1, 2020 to July 31, 2020:

-

—

-

5,022,844
August 1, 2020 to August 31, 2020:

-

—

-

5,022,844
September 1, 2020 to September 30, 2020:

-

—

-

5,022,844
Total - 3rd Quarter

-

$
—

-

$
5,022,844


Periods	Total Number of Shares Purchased	Average Price Paid per Share		Approximate Dollar Value of Shares that May yet be Purchased Under the Plan
July 1, 2021 to July 31, 2021:	80,428	$	18.15	$	5,074,943
August 1, 2021 to August 31, 2021:	—	—		5,074,943
September 1, 2021 to September 30, 2021:	13,171	20.72		4,832,121
Total - 3rd Quarter	93,599	$	18.19	$	4,832,121

*The plan to purchase equity securities totaling $10 million was approved on March 2, 2020, with no expiration date.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Table of Contents

~~None.~~

Item 6. Exhibits.

EXHIBIT INDEX


	Exhibit No.		Description of Exhibit
31.1		Certification of the CEO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.
31.2		Certification of the CAO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.
32.1		Certification of the CEO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the CAO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101~~ 101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
~~101~~ 101.SCH		XBRL Taxonomy Extension Schema Document
~~101~~ 101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
~~101~~ 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
~~101~~ 101.LAB		XBRL Taxonomy Extension ~~Labels~~Label Linkbase Document
~~101~~ 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1943, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November ~~16, 2020.~~

12, 2021.


~~PROFESSIONAL HOLDING CORP.~~

	~~By:~~ PROFESSIONAL HOLDING CORP.

	By:	/s/Daniel R. Sheehan
		Daniel R. Sheehan
		Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1943, this Report has been signed by the following persons in the capacities set forth opposite their names and on the dates indicated.

Signature

Title

Date

/s/ Daniel R. Sheehan

Chairman and Chief Executive Officer

November ~~16, 2020~~

12, 2021

Daniel R. Sheehan

(Principal Executive Officer)

/s/ Mary Usategui

Chief Accounting Officer

November ~~16, 2020~~

12, 2021

Mary Usategui

(Principal Financial Officer and Principal Accounting Officer)

/s/ Margaret Blakey

Director

November ~~16, 2020~~

12, 2021

Margaret Blakey

/s/ Rolando DiGasbarro

Director

November ~~16, 2020~~

12, 2021

Rolando DiGasbarro

/s/ Norman Edelcup

Director

November ~~16, 2020~~

12, 2021

Norman Edelcup

/s/ Carlos ~~M.Garcia~~

M. Garcia

Director

November ~~16, 2020~~

12, 2021

Carlos M. Garcia

/s/ Jon L. Gorney

Director

November ~~16, 2020~~

12, 2021

Jon L. Gorney

/s/ Abel L. Iglesias

Director

November ~~16, 2020~~

12, 2021

Abel L. Iglesias

/s/ Herbert Martens, Jr

Director

November ~~16, 2020~~

12, 2021

Herbert Martens, Jr.

/s/ Ava L. Parker

Director

November ~~16, 2020~~

12, 2021

Ava L. Parker

/s/ Lawrence Schimmel

Director

November ~~16, 2020~~

12, 2021

Dr. Lawrence Schimmel, M.D.

~~/s/ Anton V. Schutz~~

~~Director~~

~~November 16, 2020~~

~~Anton V. Schutz~~


Part I	Financial Information					3
~~Part I~~				~~Financial Information~~		3

Item 1		~~Condensed~~ Consolidated Financial Statements (unaudited)	3

Item 2				Management’s Discussion and Analysis of Financial Condition and Results of Operations	26 30

Item 3				Quantitative and Qualitative Disclosures About Market Risk	60 68

Item 4				Controls and Procedures	60 68

Part II				Other Information	60 70

Item 1				Legal Proceedings	60 70

Item 1A				Risk Factors	61 70

Item 2				Unregistered Sales of Equity Securities and Use of Proceeds	61 70

Item 3				Defaults Upon Senior Securities	62 71

Item 4				Mine Safety Disclosures	62 71

Item 5				Other Information	62 71

Item 6				Exhibits	62
	72


	September 30, 2021		December 31, 2020
ASSETS
Cash and due from banks	$	40,074	$	62,305
Interest-bearing deposits	680,333		129,291
Federal funds sold	23,736		25,376
Cash and cash equivalents	744,143		216,972
Securities available for sale, at fair value - taxable	94,218		65,110
Securities available for sale, at fair value - tax exempt	19,462		22,398
Securities held to maturity (fair value September 30, 2021 – $269, December 31, 2020 – $1,561)	259		1,547
Equity securities	6,703		6,005
Loans, net of allowance of $11,478 and $16,259 as of September 30, 2021, and December 31, 2020, respectively	1,675,773		1,641,422
Loans held for sale	284		1,270
Federal Home Loan Bank stock, at cost	2,341		3,229
Federal Reserve Bank stock, at cost	5,416		4,762
Accrued interest receivable	5,336		6,666
Premises and equipment, net	3,807		4,370
Bank owned life insurance	38,204		37,360
Deferred tax asset	9,283		10,525
Goodwill	24,621		24,621
Core deposit intangibles	1,212		1,422
Other assets	15,174		9,591
Total assets	$	2,646,236	$	2,057,270
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – noninterest bearing	$	799,389	$	475,598
Demand – interest bearing	328,667		232,367
Money market and savings	959,066		715,003
Time deposits	267,624		236,575
Total deposits	2,354,746		1,659,543
Official checks	4,194		4,447
Federal Home Loan Bank advances	35,000		40,000
Other borrowings	—		114,573
Subordinated debt	10,016		10,153
Accrued interest and other liabilities	14,259		12,989
Total liabilities	2,418,215		1,841,705
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued	—		—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,323,965 and outstanding 13,416,667 shares as of September 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares on December 31, 2020	143		141
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2021, and December 31, 2020	—		—
Treasury stock, at cost	(15,246)		(9,209)
Additional paid-in capital	210,898		208,995
Retained earnings	32,160		14,756
Accumulated other comprehensive income	66		882
Total stockholders’ equity	228,021		215,565
Total liabilities and stockholders' equity	$	2,646,236	$	2,057,270


										Accumulated
						Additional				Other
	Common Stock			Treasury		Paid-in		Retained		Comprehensive
	Shares	Amount		Stock		Capital		Earnings		Income (Loss)		Total
Balance at July 1, 2020	13,444,635	$	139	$	(9,132)	$	202,438	$	8,265	$	724	$	202,434
Issuance of common stock, net of issuance cost	37,891		—		—		346		—		—		346
Treasury stock	—		—		—		—		—		—		—
Employee stock purchase plan	—		—		—		24		—		—		24
Net income	—		—		—		—		950		—		950
Other comprehensive income	—		—		—		—		—		128		128
Stock based compensation	—		—		—		233		—		—		233
Balance at September 30, 2020	13,482,526	$	139	$	(9,132)	$	203,041	$	9,215	$	852	$	204,115

Balance at July 1, 2019	5,937,987	$	60	$	(655)	$	76,612	$	4,969	$	(64)	$	80,922
Issuance of common stock, net of issuance cost	—		—		—		—		—		—		—
Treasury stock	(200,000)		—		(3,500)		—		—		—		(3,500)
Employee stock purchase plan	—		—		—		30		—		—		30
Net income	—		—		—		—		494		—		494
Other comprehensive income	—		—		—		—		—		1		1
Stock based compensation	2,499		—		—		25		—		—		25
Balance at September 30, 2019	5,740,486	$	60	$	(4,155)	$	76,667	$	5,463	$	(63)	$	77,972

Balance at January 1, 2020	5,867,446	$	60	$	(4,155)	$	77,019	$	6,451	$	(73)	$	79,302
Issuance of common stock, net of issuance cost	3,702,558		37		—		60,567		—		—		60,604
Treasury stock	(315,294)		—		(4,977)		(9)		—		—		(4,986)
Marquis Bancorp (MBI) acquisition	4,227,816		42		—		64,657		—		—		64,699
Employee stock purchase plan	—		—		—		82		—		—		82
Net income	—		—		—		—		2,764		—		2,764
Other comprehensive income	—		—		—		—		—		925		925
Stock based compensation	—		—		—		725		—		—		725
Balance at September 30, 2020	13,482,526		139		(9,132)		203,041		9,215		852		204,115

Balance at January 1, 2019	5,923,884	$	59	$	(220)	$	76,152	$	4,115	$	(425)	$	79,681
Issuance of common stock, net of issuance cost	39,103		1		—		385		—		—		386
Treasury stock	(225,000)		—		(3,935)		—		—		—		(3,935)
Employee stock purchase plan	2,499		—		—		130		—		—		130
Net income	—		—		—		—		1,348		—		1,348
Other comprehensive income	—		—		—		—		—		362		362
Stock based compensation	—		—		—		—		—		—		—
Balance at September 30, 2019	5,740,486	$	60	$	(4,155)	$	76,667	$	5,463	$	(63)	$	77,972


	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance on July 1, 2020	13,444,635	$	139	$	(9,132)	$	202,438	$	8,265	$	724	$	202,434
Issuance of common stock, net of issuance cost	37,891	—		—		346		—		—		346
Employee stock purchase plan	—	—		—		24		—		—		24
Stock based compensation	—	—		—		233		—		—		233
Treasury stock	—	—		—		—		—		—		—
Net income	—	—		—		—		950		—		950
Other comprehensive income	—	—		—		—		—		128		128
Balance on September 30, 2020	13,482,526	$	139	$	(9,132)	$	203,041	$	9,215	$	852	$	204,115

Balance on July 1, 2021	13,475,781	$	143	$	(13,544)	$	210,274	$	25,872	$	283	$	223,028
Issuance of common stock, net of issuance cost	28,296	—		—		268		—		—		268
Employee stock purchase plan	—	—		—		—		—		—		—
Stock based compensation	6,189	—		—		359		—		—		359
Treasury stock	(93,599)	—		(1,702)		(3)		—		—		(1,705)
Net income	—	—		—		—		6,288		—		6,288
Other comprehensive income	—	—		—		—		—		(217)		(217)
Balance on September 30, 2021	13,416,667	$	143	$	(15,246)	$	210,898	$	32,160	$	66	$	228,021

Balance on January 1, 2020	5,867,446	$	60	$	(4,155)	$	77,019	$	6,451	$	(73)	$	79,302
Issuance of common stock, net of issuance cost	3,702,558	37		—		60,567		—		—		60,604
Marquis Bancorp (MBI) acquisition	4,227,816	42		—		64,657		—		—		64,699
Employee stock purchase plan	—	—		—		82		—		—		82
Stock based compensation	—	—		—		725		—		—		725
Treasury stock	(315,294)	—		(4,977)		(9)		—		—		(4,986)
Net income	—	—		—		—		2,764		—		2,764
Other comprehensive income	—	—		—		—		—		925		925
Balance on September 30, 2020	13,482,526	$	139	$	(9,132)	$	203,041	$	9,215	$	852	$	204,115

Balance on January 1, 2021	13,534,829	$	141	$	(9,209)	$	208,995	$	14,756	$	882	$	215,565
Issuance of common stock, net of issuance cost	89,500	1		—		811		—		—		812
Employee stock purchase plan	1,851	—		—		34		—		—		34
Stock based compensation	131,854	1		—		1,068		—		—		1,069
Treasury stock	(341,367)	—		(6,037)		(10)		—		—		(6,047)
Net income	—	—		—		—		17,404		—		17,404
Other comprehensive income	—	—		—		—		—		(816)		(816)
Balance on September 30, 2021	13,416,667	$	143	$	(15,246)	$	210,898	$	32,160	$	66	$	228,021


			Gross		Gross
	Amortized		Unrealized		Unrealized
September 30, 2020	Cost		Gains		Losses		Fair Value
Available-for-sale
Small Business Administration loan pools	$	32,020	$	38	$	(235)	$	31,823
Mortgage-backed securities		32,873		545		(19)		33,399
U.S. agency obligations		5,002		139		-		5,141
Community Development District bonds		22,464		633		-		23,097
Municipals		1,066		33		-		1,099
Corporate bonds		2,501		7		-		2,508
Total available-for-sale	$	95,926	$	1,395	$	(254)	$	97,067

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Held-to-Maturity
Mortgage-backed securities	$	385	$	17	$	—	$	402
US Treasury		203		—		—		203
Foreign Bonds		1,001		—		(1)		1,000
Total Held-to-Maturity	$	1,589	$	17	$	(1)	$	1,605


	September 30, 2020
	Amortized		Fair
	Cost		Value
Available-for-sale
Due in one year or less	$	2,502	$	2,503
Due after one year through five years		24,721		25,418
Due after five years through ten years		3,495		3,607
Due after ten years		315		317
Subtotal	$	31,033	$	31,845

SBA loan pools	$	32,020	$	31,823
Mortgage-backed securities		32,873		33,399
Total available-for-sale	$	95,926	$	97,067

Held-to-maturity
Due in one year or less	$	1,204	$	1,203
Due after one year through five years		—		—
Subtotal	$	1,204	$	1,203

Mortgage-backed securities	$	385	$	402
Total held-to-maturity	$	1,589	$	1,605


	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2020
Available-for-sale
Small Business Administration loan pools	$	13,795	$	(125)	$	11,022	$	(110)	$	24,817	$	(235)
Mortgage-backed securities		2,958		(19)		—		—		2,958		(19)
U.S. agency obligations		—		—		—		—		—		—
Community Development District bonds		—		—		—		—		—		—
Municipals		—		—		—		—		—		—
Corporate bonds		—		—		—		—		—		—
Total available-for-sale	$	16,753	$	(144)	$	11,022	$	(110)	$	27,775	$	(254)

December 31, 2019
Available-for-sale
SBA loan pools	$	9,984	$	(63)	$	4,035	$	(76)	$	14,019	$	(139)
Mortgage-backed		1,914		(24)		2,541		(28)		4,455		(52)
U.S. agency obligations		—		—		—		—		—		—
Corporate bonds		—		—		—		—		—		—
Total available-for-sale	$	11,898	$	(87)	$	6,576	$	(104)	$	18,474	$	(191)


	30 – 59		60 – 89		Greater than
	Days		Days		89 Days				Total		Loans Not
	Past Due		Past Due		Past Due		Nonaccrual		Past Due		Past Due		Total
September 30, 2020
Commercial real estate	$	—	$	—	$	—	$	347	$	347	$	727,586	$	727,933
Residential real estate		146		—		—		483		629		374,978		375,607
Commercial		—		—		—		9,127		9,127		402,123		411,250
Construction and land development		—		—		—		—		—		82,744		82,744
Consumer and other		—		—		—		—		—		13,274		13,274
Total	$	146	$	—	$	—	$	9,957	$	10,103	$	1,600,705	$	1,610,808


							Construction
	Commercial		Residential				and land		Consumer
	Real Estate		Real Estate		Commercial		Development		and Other		Total
Three months ended September 30, 2020
Allowance for loan losses:
Beginning balance	$	2,792	$	3,509	$	2,165	$	477	$	102	$	9,045
Provision for loan losses		(209)		(1,197)		7,735		(129)		(31)		6,169
Loans charged-off		-		(179)		-		-		-		(179)
Recoveries		-		-		-		-		-		-
Total ending allowance balance	$	2,583	$	2,133	$	9,900	$	348	$	71	$	15,035


			on September 30, 2021 Using:
September 30, 2021	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Customer Derivatives - Interest Rate SWAPs
Customer Derivatives - Interest Rate SWAPs Asset	$	1,300	$	—	$	1,300	$	—
Customer Derivatives - Interest Rate SWAPs Liability	(1,300)		—		(1,300)		—
Total	$	—	$	—	$	—	$	—


	September 30, 2020
	Carrying		Fair		Fair Value
	Amount		Value		Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits	$	287,840	$	287,840	Level 1
Federal Funds Sold		26,696		26,696	Level 1
Securities, Available for Sale		97,067		97,067	Level 2
Securities, Held to Maturity		1,589		1,605	Level 2
Securities, Equity		995		995	Level 1
Loans, net		1,589,010		1,600,457	Level 3
Company Owned Life Insurance		17,236		17,236	Level 2
Accrued Interest Receivable		6,547		6,547	Level 1, 2 & 3

Financial Liabilities:
Deposits		1,567,143		1,592,995	Level 2
Federal Home Loan Bank Advances		50,000		47,647	Level 2
Subordinated Debt		10,197		10,197	Level 2
PPPLF Advances		224,341		224,835	Level 2
Accrued Interest Payable		979		979	Level 2


	Estimated		Measurement		Estimated
	Fair Value at		Period		Fair Value at
(In thousands, except per share data)	March 26, 2020		Adjustments		September 30, 2020
Number of MBI common shares outstanding		3,509,143		-		3,509,143
Per share exchange ratio		1.2048		-		1
Number of shares of common stock issued		4,227,816		-		4,227,816
Multiplied by common stock price per share on March 26, 2020	$	15.21	$	-	$	15
Value of common stock issued		64,305		-		64,305
Cash paid in lieu of fractional shares		1		-		1
Fair value of MBI stock options converted to PFHD options		393		-		393
Fair value of total consideration transferred	$	64,699	$	-	$	64,699

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	26,860	$	-	$	26,860
Securities, Available for Sale		27,029		-		27,029
Securities, Held to Maturity		1,466		-		1,466
Loans		520,606		91		520,697
Premises and equipment		824		-		824
Accrued interest receivable		1,525		-		1,525
Core deposit intangibles		3,964		-		3,964
Other assets		7,100		295		7,395
Total asset acquired		589,374		386		589,760

Deposits		497,166		944		498,110
Federal Home Loan Bank advances		25,103		-		25,103
Subordinated notes payable		9,920		365		10,285
Accrued interest payable		610		-		610
Other Liabilities		6,604		-		6,604
Total liabilities assumed		539,403		1,309		540,712

Total identifiable net assets		49,971		(923)		49,048

Goodwill	$	14,728	$	923	$	15,651


					More than One Year				More than Five Years
	One Year or Less				Through Five Years				Through 10 Years				More than 10 Years				Total
			Weighted				Weighted				Weighted				Weighted						Weighted
At September 30, 2020			Average				Average				Average				Average						Average
(Dollars in thousands)	Book Value		Yield		Book Value		Yield		Book Value		Yield		Book Value		Yield		Book Value		Fair Value		Yield
Securities Available for Sale
Small Business Administration loan pools	$	28	0.30	%	$	29	0.69	%	$	24,074	1.30	%	$	7,889	1.49	%	$	32,020	$	31,823	1.34	%
Mortgage-backed securities		—	—	%		—	—	%		4,973	0.65	%		27,900	1.25	%		32,873		33,399	1.16	%
U.S. agency obligations		2,002	0.32	%		3,000	2.64	%		—	—	%		—	—	%		5,002		5,141	1.71	%
Community Development District bonds		—	—	%		19,188	3.91	%		2,961	3.88	%		315	3.00	%		22,464		23,097	3.89	%
Municipals		—	—	%		533	1.64	%		533	1.86	%		—	—	%		1,066		1,099	1.75	%
Corporate bonds		501	0.96	%		2,000	1.18	%		—	—	%		—	—	%		2,501		2,508	1.13	%
Total	$	2,531	0.45	%	$	24,750	3.48	%	$	32,541	1.44	%	$	36,104	1.32	%	$	95,926	$	97,067	1.89	%
Securities Held to Maturity
Mortgage-backed securities		—	—	%		—	—	%		—	—	%		385	2.28	%		385		402	2.28	%
U.S. Treasury		203	0.18	%		—	—	%		—	—	%		—	—	%		203		203	0.18	%
Foreign Bonds		1,001	2.09	%		—	—	%		—	—	%		—	—	%		1,001		1,000	2.09	%
Total	$	1,204	1.77	%	$	—	—	%	$	—	—	%	$	385	2.28	%	$	1,589	$	1,605	1.89	%
Equity Securities
Mutual Funds		995	1.70	%		—	—	%		—	—	%		—	—	%		995		995	1.70	%
Total	$	995	1.70	%	$	—	—	%	$	—	—	%	$	—	—	%	$	995	$	995	1.70	%


	One Year or Less				More than One Year Through Five Years				More than Five Years Through 10 Years				More than 10 Years				Total
On September 30, 2021 (Dollars in thousands)	Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Fair Value		Weighted Average Yield
Securities Available for Sale - taxable
Small Business Administration loan pools	$	—	—	%	$	545	0.89	%	$	18,802	1.51	%	$	20,784	1.40	%	$	40,131	$	39,703	1.45	%
Mortgage-backed securities	—		—	%	120		0.31	%	6,376		0.78	%	44,610		1.16	%	51,106		50,927		1.11	%
United States agency obligations	999		2.54	%	1,003		2.66	%	—		—	%	—		—	%	2,002		2,079		2.60	%
Corporate bonds	—		—	%	1,500		1.17	%	—		—	%	—		—	%	1,500		1,509		1.17	%
Total	$	999	2.54	%	$	3,168	1.56	%	$	25,178	1.32	%	$	65,394	1.24	%	$	94,739	$	94,218	1.29	%
Securities Available for Sale - tax exempt
Community Development District bonds	$	190	4.52	%	$	17,295	4.92	%	$	315	3.75	%	$	—	—	%	$	17,800	$	18,364	4.90	%
Municipals	—		—	%	1,054		2.27	%	—		—	%	—		—	%	1,054		1,098		2.27	%
Total	$	190	4.52	%	$	18,349	4.77	%	$	315	3.75	%	$	—	—	%	$	18,854	$	19,462	4.75	%
Securities Held to Maturity
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	259		2.56	%	259		269		2.56	%
United States Treasury	—		—	%	—		—	%	—		—	%	—		—	%	—		—		—	%
Foreign Bonds	—		—	%	—		—	%	—		—	%	—		—	%	—		—		—	%
Total	$	—	—	%	$	—	—	%	$	—	—	%	$	259	2.56	%	$	259	$	269	2.56	%
Equity Securities
Mutual Funds	5,903		1.10	%	—		—	%	—		—	%	—		—	%	5,903		5,903		1.10	%
Other equity securities	800		—	%	—		—	%	—		—	%	—		—	%	800		800		—	%
Total	$	6,703	1.10	%	$	—	—	%	$	—	—	%	$	—	—	%	$	6,703	$	6,703	0.97	%


	For the Nine Months Ended				For the Year Ended
	September 30, 2020				December 31, 2019
	Average				Average
(Dollars in thousands)	Balance		Average Rate		Balance		Average Rate
NOW accounts	$	55,964	0.28	%	$	33,329	0.42	%
Money market accounts		726,464	0.40	%		435,349	1.71	%
Savings accounts		19,617	0.31	%		8,678	1.35	%
Certificates of deposit		247,511	0.63	%		103,466	2.27	%
Total interest-bearing deposits		1,049,556	0.44	%		580,822	1.73	%
Noninterest-bearing deposits		494,415	—	%		164,963	—	%
Total deposits	$	1,543,971	0.30	%	$	745,785	1.35	%


			Over		Over Six
	Three		Three		Months
	Months or		Through		Through		Over
(Dollars in thousands)	Less		Six Months		12 Months		12 Months		Total
$100,000 or more	$	57,499	$	53,362	$	73,220	$	36,058	$	220,139
Less than $100,000		4,874		4,674		5,207		2,074		16,829
Total	$	62,373	$	58,036	$	78,427	$	38,132	$	236,968


					Due After
			Due after One		Three
	Due in One		Through Three		Through		Due After
(Dollars in thousands)	Year or Less		Years		Five Years		Five Years		Total
FHLB Advances	$	10,000	$	—	$	30,000	$	10,000	$	50,000
PPPLF Advances		—		215,391		8,950		—		224,341
Certificates of deposit $100,000 or more		184,081		35,078		980		—		220,139
Certificates of deposit less than $100,000		14,755		1,950		124		—		16,829
Operating leases		1,529		2,429		2,010		1,348		7,316
Subordinated debt		—		—		—		10,197		10,197
Total	$	210,365	$	254,848	$	42,064	$	21,545	$	528,822


				After One			After Three
				Month			Months						Greater than
September 30, 2020	Within One			Through Three			Through			Within One			One Year
(Dollars in thousands)	Month			Months			12 Months			Year			or Nonsensitive			Total
Assets
Interest earning assets
Loans⁽¹⁾	$	308,794		$	35,236		$	143,499		$	487,529		$	1,071,918		$	1,559,447
Securities		35,850			4,676			7,795			48,321			51,330			99,651
Interest-bearing deposits at other financial institutions		285,349			—			249			285,598			—			285,598
Federal funds sold		26,696			—			—			26,696			—			26,696
FHLB & FRB stock		8,416			—			—			8,416			—			8,416
Total interest earning assets	$	665,105		$	39,912		$	151,543		$	856,560		$	1,123,248		$	1,979,808
Liabilities
Interest-bearing liabilities
Interest-bearing deposits	$	511,902		$	99,953		$	110,311		$	722,166		$	608,009		$	1,330,175
Time deposits		14,741			47,632			136,463			198,836			38,132			236,968
Total interest-bearing deposits		526,643			147,585			246,774			921,002			646,141			1,567,143
Securities sold under agreements to repurchase		—			—			—			—			—			—
FHLB Advances		10,000			—			—			10,000			40,000			50,000
Other Advances PPPLF		—			—			—			—			224,341			224,341
Subordinated debt		—			—			—			—			10,197			10,197
Total interest-bearing liabilities	$	536,643		$	147,585		$	246,774		$	931,002		$	920,679		$	1,851,681
Period gap	$	128,462		$	(107,673)		$	(95,231)		$	(74,442)		$	202,569
Cumulative gap	$	128,462		$	20,789		$	(74,442)		$	(74,442)		$	128,127
Ratio of cumulative gap to total earning assets		19.31	%		52.09	%		(49.12)	%		(8.69)	%		11.41	%
Ratio of cumulative gap to cumulative total earning assets		6.49	%		1.05	%		(3.76)	%		(3.76)	%		6.47	%


				Total Number of	Approximate Dollar
				Shares Purchased	Value of Shares that
	Total Number of	Average Price		as part of Public	May yet be Purchased
Periods	Shares Purchased	Paid per Share		Announced Plan*	Under the Plan
July 1, 2020 to July 31, 2020:	-		—	-		5,022,844
August 1, 2020 to August 31, 2020:	-		—	-		5,022,844
September 1, 2020 to September 30, 2020:	-		—	-		5,022,844
Total - 3rd Quarter	-	$	—	-	$	5,022,844