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 ~~June~~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
~~June~~September 30, 2021						number 001-39215

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


~~Florida~~		FL		46-5144312		~~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,, FL33134 (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. ☒~~Yes~~☐x Yes 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). ☒x Yes☐o No

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). ☐~~Yes~~ ☒o Yes xNo

Number of shares of common stock outstanding as of ~~August 13,~~November 9, 2021: ~~13,419,010~~

13,426,141

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited).

PROFESSIONAL HOLDING CORP.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)

June 30,

December 31,

2021

2020
ASSETS




Cash and due from banks

$
29,803

$
62,305
Interest-bearing deposits

586,377

129,291
Federal funds sold

36,156

25,376
Cash and cash equivalents

652,336

216,972
Securities available for sale, at fair value - taxable

100,735

65,110
Securities available for sale, at fair value - tax exempt

19,761

22,398
Securities held to maturity (fair value June 30, 2021 – $1,296, December 31, 2020 – $1,561)

1,285

1,547
Equity securities

5,942

6,005
Loans, net of allowance of $10,418 and $16,259 as of June 30, 2021 and December 31, 2020, respectively

1,680,168

1,643,373
Loans held for sale

2,039

1,270
Federal Home Loan Bank stock, at cost

2,341

3,229
Federal Reserve Bank stock, at cost

4,954

4,762
Accrued interest receivable

5,449

6,666
Premises and equipment, net

4,000

4,370
Bank owned life insurance

37,923

37,360
Deferred tax asset

9,446

10,525
Goodwill

24,621

24,621
Core deposit intangibles

1,280

1,422
Other assets

8,738

7,640
Total assets

$
2,561,018

$
2,057,270
LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Demand – non-interest bearing

$
854,673

$
475,598
Demand – interest bearing

286,173

232,367
Money market and savings

874,637

715,003
Time deposits

261,680

236,575
Total deposits

2,277,163

1,659,543
Official checks

3,289

4,447
Federal Home Loan Bank advances

35,000

40,000
Other borrowings

—

114,573
Subordinated debt

10,062

10,153
Accrued interest and other liabilities

12,476

12,989
Total liabilities

2,337,990

1,841,705
Stockholders’ equity

Preferred stock, 10,000,000 shares authorized, NaN issued

—

—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,289,480 and outstanding 13,475,781 shares as of June 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares at December 31, 2020

143

141
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, NaN issued and outstanding at June 30, 2021 and December 31, 2020

—

—
Treasury stock, at cost

(13,544)

(9,209)
Additional paid-in capital

210,274

208,995
Retained earnings

25,872

14,756
Accumulated other comprehensive income (loss)

283

882
Total stockholders’ equity

223,028

215,565
Total liabilities and stockholders' equity

$
2,561,018

$
2,057,270

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.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

(Dollar amounts in thousands, except share data)

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020


2021

2020
Interest income

Loans, including fees

$
18,311

$
17,897

$
37,544

$
27,912
Investment securities - taxable

161

232

340

434
Investment securities - tax exempt

189

206

392

226
Dividend income on restricted stock

99

131

194

210
Other

202

56

264

760
Total interest income

18,962

18,522

38,734

29,542

Interest expense




Deposits

1,430

1,617

2,747

4,243
Federal Home Loan Bank advances

190

287

386

565
Subordinated debt

77

59

207

189
Other borrowings

63

268

313

193
Total interest expense

1,760

2,231

3,653

5,190

Net interest income

17,202

16,291

35,081

24,352
Provision for loan losses

762

1,750

1,800

2,595
Net interest income after provision for loan losses

16,440

14,541

33,281

21,757

Non-interest income




Service charges on deposit accounts

1,199

307

1,594

529
Income from Bank owned life insurance

281

126

563

255
SBA origination fees

—

84

145

114
SWAP fees

364

210

573

473
Third party loan sales

226

157

301

267
Gain on sale and call of securities

21

11

22

15
Other

211

73

223

171
Total non-interest income

2,302

968

3,421

1,824

Non-interest expense



Salaries and employee benefits

7,099

6,912

13,883

12,175
Occupancy and equipment

905

1,081

2,007

1,855
Data processing

276

421

566

597
Marketing

165

151

318

288
Professional fees

770

806

1,398

1,161
Acquisition expenses

—

560

684

2,223
Regulatory assessments

418

300

767

514
Other

1,321

1,317

3,119

2,221
Total non-interest expense

10,954

11,548

22,742

21,034

Income before income taxes

7,788

3,961

13,960

2,547
Income tax provision

1,457

830

2,844

733
Net income

6,331

3,131

11,116

1,814

Earnings per share:




Basic

$
0.47

$
0.23

$
0.83

$
0.16
Diluted

$
0.45

$
0.22

$
0.80

$
0.15

Other comprehensive income:




Unrealized holding gain (loss) on securities available for sale

(505)

743

(794)

1,068
Tax effect

124

(188)

195

(271)
Other comprehensive gain (loss), net of tax

(381)

555

(599)

797
Comprehensive income

$
5,950

$
3,686

$
10,517

$
2,611

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 April 1, 2020

13,537,565

$
138

$
(6,257)

$
201,670

$
5,134

$
169

$
200,854
Issuance of common stock, net of issuance cost

89,167

1

—

450

—

—

451
Employee stock purchase plan

—

—

—

27

—

—

27
Stock based compensation

—

—

—

296

—

—

296
Treasury stock

(182,097)

—

(2,875)

(5)

—

—

(2,880)
Net loss

—

—

—

—

3,131

—

3,131
Other comprehensive income

—

—

—

—

—

555

555
Balance at June 30, 2020

13,444,635

$
139

$
(9,132)

$
202,438

$
8,265

$
724

$
202,434

Balance at April 1, 2021

13,661,567

$
143

$
(10,087)

$
209,770

$
19,541

$
664

$
220,031
Issuance of common stock, net of issuance cost

8,359

—

—

107

—

—

107
Employee stock purchase plan

978

—

—

18

—

—

18
Stock based compensation

(1,834)

—

—

385

—

—

385
Treasury stock

(193,289)

—

(3,457)

(6)

—

—

(3,463)
Net income

—

—

—

—

6,331

—

6,331
Other comprehensive income

—

—

—

—

—

(381)

(381)
Balance at June 30, 2021

13,475,781

$
143

$
(13,544)

$
210,274

$
25,872

$
283

$
223,028

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

3,664,667

37

—

60,221

—

—

60,258
Marquis Bancorp (MBI) acquisition

4,227,816

42

—

64,657

—

—

64,699
Employee stock purchase plan

—

—

—

58

—

—

58
Stock based compensation

—

—

—

492

—

—

492
Treasury stock

(315,294)

—

(4,977)

(9)

—

—

(4,986)
Net loss

—

—

—

—

1,814

—

1,814
Other comprehensive income

—

—

—

—

—

797

797
Balance at June 30, 2020

13,444,635

$
139

$
(9,132)

$
202,438

$
8,265

$
724

$
202,434

Balance at January 1, 2021

13,534,829

$
141

$
(9,209)

$
208,995

$
14,756

$
882

$
215,565
Issuance of common stock, net of issuance cost

61,204

1

—

543

—

—

544
Employee stock purchase plan

1,851

—

—

34

—

—

34
Stock based compensation

125,665

1

—

709

—

—

710
Treasury stock

(247,768)

—

(4,335)

(7)

—

—

(4,342)
Net income

—

—

—

—

11,116

—

11,116
Other comprehensive income

—

—

—

—

—

(599)

(599)
Balance at June 30, 2021

13,475,781

$
143

$
(13,544)

$
210,274

$
25,872

$
283

$
223,028

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)

Six Months Ended June 30,


2021

2020
Cash flows from operating activities




Net income (loss)

$
11,116

$
1,814
Adjustments to reconcile net income to net cash from operating activities




Provision for loan losses

1,800

2,595
Deferred income tax benefit (expense)

988

(499)
Depreciation and amortization

739

739
Gain on sale of securities

—

(4)
Gain on call of securities

(22)

(11)
Equity unrealized change in market value

63

(24)
Net amortization of securities

1,396

(906)
Net amortization of deferred loan fees

(4,400)

1,118
Loans held for sale

(769)

(1,070)
Proceeds from sale of loans

—

110
Income from bank owned life insurance

(563)

(255)
Loss on disposal of premises and equipment

137

—
Employee stock purchase plan

34

58
Stock compensation

710

492
Changes in operating assets and liabilities:




Accrued interest receivable

1,217

(1,472)
Other assets

(1,098)

1,887
Official checks, accrued interest, interest payable and other liabilities

(1,385)

(3,395)
Net cash provided by operating activities

9,963

1,177

Cash flows from investing activities




Proceeds from maturities and paydowns of securities available for sale

11,123

6,256
Proceeds from calls of securities available for sale

4,648

4,835
Proceeds from maturities and paydowns of securities held to maturity

257

44
Purchase of securities available for sale

(50,922)

(60,693)
Proceeds from sale of securities available for sale

—

1,739
Loans originations, net of principal repayments

(47,410)

(256,731)
Purchase of Federal Reserve Bank stock

(192)

(2,671)
Proceeds from maturities of Federal Home Loan Bank Stock

888

—
Purchase of Federal Home Loan Bank Stock

—

(1,297)
Purchases of premises and equipment

(455)

(741)
Proceeds from acquisition

—

26,860
Net cash used in investing activities

(82,063)

(282,399)

Cash flows from financing activities




Net increase (decrease) in deposits

617,620

126,404
Proceeds from issuance of stock, net of issuance costs

544

60,258
Purchase of treasury stock

(4,342)

(4,986)
Proceeds from Federal Home Loan Bank advances

—

10,000
Repayments of Federal Home Loan advances

(5,000)

(25,000)
Repayment of line of credit

—

(9,999)
Proceeds from PPPLF advances

—

218,080
Repayments of PPPLF advances

(101,358)

—
Net cash provided by financing activities

507,464

374,757

Increase in cash and cash equivalents

435,364

93,535

Cash and cash equivalents at beginning of period

216,972

198,950

Cash and cash equivalents at end of period

$
652,336

$
292,485

Supplemental cash flow information:




Cash paid during the period for interest

$
4,425

$
4,907
Cash paid during the period for taxes

3,000

20

Supplemental noncash disclosures:




Lease liabilities arising from obtaining right of use assets

$
—

$
1,620
Total assets acquired

—

589,374
Total liabilities assumed

—

539,403

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 CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tables in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying unaudited 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 ~~six~~nine months ended ~~June~~September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 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 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 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 contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The amendments in the update are effective for all entities between March 12, 2020, and December 31, 2022. The Company has established a cross-functional working group to guide the Company’s transition from LIBOR and has begun efforts to transition to alternative rates consistent with industry timelines. The Company has identified its products that utilize LIBOR and has implemented enhanced fallback language to facilitate the transition to alternative reference rates. The ~~Company is evaluating existing platforms and systems and preparing to offer new rates. The~~ new guidance did not materially impact the Company’s Consolidated Financial Statements or disclosures.

Table of Contents

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 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 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 June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Basic earnings per share:








Net income

$
6,331

$
3,131

$
11,116

$
1,814
Total weighted average common stock outstanding

13,397,747

13,415,525

13,419,929

11,516,756
Net income per share

$
0.47

$
0.23

$
0.83

$
0.16
Diluted earnings per share:

Net income

$
6,331

$
3,131

$
11,116

$
1,814
Total weighted average common stock outstanding

13,397,747

13,415,525

13,419,929

11,516,756
Add: Dilutive effect of employee stock options

564,822

518,435

521,900

526,503
Total weighted average diluted stock outstanding

13,962,569

13,933,960

13,941,829

12,043,259
Net income per share

$
0.45

$
0.22

$
0.80

$
0.15


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Basic earnings per share:
Net income	$	6,288	$	950	$	17,404	$	2,764
Total weighted average common stock outstanding	13,196,025		13,438,652		13,344,470		11,694,764
Net income per share	$	0.48	$	0.07	$	1.30	$	0.24
Diluted earnings per share:
Net income	$	6,288	$	950	$	17,404	$	2,764
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	659,402		1,117,563		568,613		1,290,819
Total weighted average diluted stock outstanding	13,855,427		14,556,215		13,913,083		12,985,583
Net income per share	$	0.45	$	0.07	$	1.25	$	0.21

For the three months ended ~~June~~September 30, 2021, there were ~~270,850 thousand~~7000 stock options that were anti-dilutive and for the three months ended ~~June~~September 30, 2020, there were ~~29,350~~326 thousand stock options that were anti-dilutive. For the ~~six~~nine months ended ~~June~~September 30, 2021, there were ~~270,850~~278 thousand stock options that were anti-dilutive and for the ~~six~~nine months ended ~~June~~September 30, 2020, there were ~~29,350~~133 thousand stock options that were anti-dilutive.

Table of Contents

NOTE 3 — SECURITIES

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


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


	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

Table of Contents

Gross

Gross


Amortized

Unrealized

Unrealized

June 30, 2021

Cost

Gains

Losses

Fair Value
Available-for-sale - taxable

Small Business Administration loan pools

$
43,091

$
78

$
(573)

$
42,596
Mortgage-backed securities

54,517

205

(182)

54,540
United States agency obligations

2,001

88

-

2,089
Corporate bonds

1,500

10

-

1,510
Total available-for-sale - taxable

$
101,109

$
381

$
(755)

$
100,735
Available-for-sale - tax exempt

Community Development District bonds

$
17,954

$
704

$
-

$
18,658
Municipals

1,057

46

-

1,103
Total available-for-sale - tax exempt

$
19,011

$
750

$
-

$
19,761




Gross

Gross


Amortized

Unrecognized

Unrecognized

Cost

Gains

Losses

Fair Value
Held-to-Maturity








Mortgage-backed securities

$
285

$
11

$
—

$
296
Foreign Bonds

1,000

—

—

1,000
Total Held-to-Maturity

$
1,285

$
11

$
—

$
1,296

Gross

Gross


Amortized

Unrealized

Unrealized

Fair
December 31, 2020

Cost

Gains

Losses

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




Gross

Gross

Amortized

Unrecognized

Unrecognized

Fair

Cost

Gains

Losses

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


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 ~~June~~September 30, 2021, and December 31, 2020, Corporate bonds were comprised of investments in the financial services industry. During the ~~six~~nine months ended ~~June~~September 30, 2021, the net investment portfolio increased by ~~$32.6~~$25.6 million as a result of increases from purchases of $50.9 million in SBA and MBS securities combined with decreases of ~~$17.4~~$24.9 million from paydowns, maturities and calls, as well as the unrealized holding loss on securities available for sale of ~~$0.7~~$1.2 million with a related tax effect of ~~$0.2~~$0.1 million. Proceeds from the maturity and redemption of securities during the three and ~~six~~nine months ended ~~June~~September 30, 2021, were ~~$3.2~~$1.2 million and ~~$4.7~~$4.8 million, with gross realized gains of ~~$21 thousand~~$0 and ~~$22~~$23 thousand, respectively. Proceeds from the sales of securities during the year ended December 31, 2020,

~~Table of Contents~~

were $1.7 million, with gross realized gains of $4 thousand. Proceeds from redemption of securities for the year ended December 31, 2020, were $9.1 million, with gross realized gains of $33 thousand. Total securities pledged as of ~~June~~September 30, 2021, and December 31, 2020, were ~~$13.3~~$1.9 million and $12.5 million, respectively. Securities pledged for derivative SWAP transactions as of ~~June~~September 30, 2021, were ~~$1.1~~$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 ~~derivate~~derivative SWAP transactions aton 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. The scheduled maturities of securities as of ~~June~~September 30, 2021, are as follows:

June 30, 2021

Amortized

Fair

Cost

Value
Available-for-sale

Due in one year or less

$
1,038

$
1,056
Due after one year through five years

21,159

21,975
Due after five years through ten years

315

329
Due after ten years

—

—
Subtotal

$
22,512

$
23,360

Small Business Administration loan pools

$
43,091

$
42,596
Mortgage-backed securities

54,517

54,540
Total available-for-sale

$
120,120

$
120,496

Held-to-maturity

Due in one year or less

$
1,000

$
1,000
Due after one year through five years

—

—
Subtotal

$
1,000

$
1,000

Mortgage-backed securities

$
285

$
296
Total held-to-maturity

$
1,285

$
1,296

~~At June~~


	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, 2020, there were 0no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

~~At June~~

On September 30, 2021, and December 31, 2020, the number of investment positions that are in an unrealized loss position were 4851 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

~~Table of Contents~~

losses were outstanding ~~at June~~on September 30, 2021, and December 31, 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
June 30, 2021

Available-for-sale - taxable

Small Business Administration loan pools

$
15,273

$
(427)

$
17,777

$
(146)

$
33,050

$
(573)
Mortgage-backed securities

14,648

(181)

1,286

(1)

15,934

(182)
United States agency obligations

—

—

—

—

—

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale - taxable

$
29,921

$
(608)

$
19,063

$
(147)

$
48,984

$
(755)
Available-for-sale - tax exempt

Community Development District bonds

$
—

$
—

$
—

$
—

$
—

$
—
Municipals

—

—

—

—

—

—
Total available-for-sale - tax exempt

$
—

$
—

$
—

$
—

$
—

$
—

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

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale - taxable

$
24,915

$
(133)

$
11,455

$
(96)

$
36,370

$
(229)
Available-for-sale - tax exempt

Community Development District bonds

$
—

$
—

$
—

$
—

$
—

$
—
Municipals

—

—

—

—

—

—
Total available-for-sale - tax exempt

$
—

$
—

$
—

$
—

$
—

$
—


	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 to changes in interest rates and not credit quality. The Company does not have any securities in an Other Than Temporary Impairment (“OTTI”) position. The Company does not 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 June 30, 2021. NaN~~No credit losses were recognized in operations during the ~~six~~nine months ended ~~June~~September 30, 2021, or during the year ended December 31, 2020.

Table of Contents

NOTE 4 — LOANS

Loans ~~at June~~on September 30, 2021, and December 31, 2020, were as follows:

June 30, 2021

December 31, 2020
Commercial real estate

$
875,453

$
777,776
Residential real estate

361,946

380,491
Commercial

373,333

396,642
Construction and land development

74,175

99,883
Consumer and other

14,575

11,688
Total loans

1,699,482

1,666,480
Unearned loan origination (fees) costs, net

(1,984)

(1,323)
Unearned PPP loan origination (fees) costs, net

(4,855)

(4,255)
Allowance for loan loss

(10,418)

(16,259)
Loans held for sale

(2,039)

(1,270)
Other

(18)

—
Loans, net

$
1,680,168

$
1,643,373


	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.

~~At June~~

On September 30, 2021, and December 31, 2020, there were ~~$209.9~~$238.7 million and ~~$227.8~~$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. ~~At June~~On September 30, 2021, and December 31, 2020, loan premiums for purchased loans were ~~$0.5~~$0.4 million and $0.6 million, respectively.

There are 0no loans over 90 days past due and accruing as of ~~June~~September 30, 2021, or December 31, 2020. The following table presents the aging of the recorded investment in past due loans as of ~~June~~September 30, 2021, and December 31, 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
June 30, 2021














Commercial real estate

$
—

$
—

$
—

$
—

$
—

$
875,453

$
875,453
Residential real estate

—

—

—

—

—

361,946

361,946
Commercial

—

—

—

1,468

1,468

371,865

373,333
Construction and land development

—

—

—

—

—

74,175

74,175
Consumer and other

—

94

—

1,307

1,401

13,174

14,575
Total

$
—

$
94

$
—

$
2,775

$
2,869

$
1,696,613

$
1,699,482

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, 2020

Commercial real estate

$
—

$
—

$
—

$
—

$
—

$
777,776

$
777,776
Residential real estate

1,303

—

—

—

1,303

379,188

380,491
Commercial

278

—

—

9,127

9,405

387,237

396,642
Construction and land development

—

—

—

—

—

99,883

99,883
Consumer and other

—

—

—

1,307

1,307

10,381

11,688
Total

$
1,581

$
—

$
—

$
10,434

$
12,015

$
1,654,465

$
1,666,480


	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

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~~At June~~
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, 2021, there were 65 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 ~~$5.4~~$3.0 million. NaN of these loans were impaired loans with a recorded investment of $2.8 million with an allowance of ~~$0.7~~$1.3 million and 1 substandard accruing loan with a recorded investment of $2.3 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the three months ended ~~June~~September 30, 2021, were $0.9 million. Residential real estate loans had ~~$2.4 thousand~~$2.2 million and ~~$5.0~~$7 thousand interest income recognized for the three and ~~six~~nine months ended ~~June~~September 30, 2021, and 2020, respectively, which was equal to the cash basis interest income. AtOn 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 ~~$12.7~~$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 ~~$252~~$227 thousand and ~~$298~~$299 thousand as of ~~June~~September 30, 2021, and December 31, 2020, respectively. The Company has allocated 0no specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of ~~June~~September 30, 2021, and December 31, 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 $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 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 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

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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.

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
June 30, 2021

Commercial real estate

$
873,127

$
—

$
2,326

$
—

$
875,453
Residential real estate

361,946

—

—

—

361,946
Commercial

371,400

465

1,468

—

373,333
Construction and land development

74,175

—

—

—

74,175
Consumer

13,174

94

1,307

—

14,575
Total

$
1,693,822

$
559

$
5,101

$
—

$
1,699,482

December 31, 2020

Commercial real estate

$
775,420

$
—

$
2,356

$
—

$
777,776
Residential real estate

380,062

429

—

—

380,491
Commercial

387,403

112

9,127

—

396,642
Construction and land development

99,883

—

—

—

99,883
Consumer

10,381

—

1,307

—

11,688
Total

$
1,653,149

$
541

$
12,790

$
—

$
1,666,480

(Dollars in thousands) Pass Special
Mention Substandard Doubtful Total
September 30, 2021
Commercial real estate $ 853,888 $ — $ 2,306 $ — $ 856,194
Residential real estate 371,469 — — — 371,469
Commercial (Non-PPP) 286,334 375 1,468 — 288,177
Commercial (PPP) 85,133 — — — 85,133
Construction and land development 69,534 — — — 69,534
Consumer 15,349 88 1,307 — 16,744
Total $ 1,681,707 $ 463 $ 5,081 $ — $ 1,687,251
December 31, 2020
Commercial real estate $ 774,674 $ — $ 2,351 $ — $ 777,025
Residential real estate 379,104 430 — — 379,534
Commercial (Non-PPP) 196,856 112 9,127 — 206,095
Commercial (PPP) 185,748 — — — 185,748
Construction and land development 99,590 — — — 99,590
Consumer 8,382 — 1,307 — 9,689
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)

June 30, 2021

December 31, 2020
Commercial real estate⁽¹⁾

$
5,892

$
—
Residential real estate

452

405
Commercial

616

746
Construction and development⁽¹⁾

—

3,732
Carrying amount, net of total discounts

$
6,960

$
4,883

~~(1)~~

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


(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

(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.

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


(Dollars in thousands)	2021
Balance at beginning of period	$	(630)
Adjustment of income				—
Accretion	296			~~195~~
Reclassifications from nonaccretable difference			(136)
Disposals	16			—
Balance at end of period	$	~~(571)~~(454)

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For those purchased credit impaired loans disclosed above, 0no allowances for loan losses were recorded or reversed during the ~~six~~nine months ended ~~June~~September 30, 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
Contractually required principal and interest by loan type

Commercial real estate

$
427
Residential real estate

604
Commercial

2,176
Construction and development

5,614
Consumer and other loans

-
Total

$
8,821
Contractual cash flows not expected to be collected (nonaccretable discount)

Commercial real estate

$
80
Residential real estate

138
Commercial

1,123
Construction and development

2,297
Consumer and other loans

-
Total

$
3,638

Expected cash flows

$
5,183
Interest component of expected cash flows (accretable discount)

(545)
Fair value of PCI loans accounted for under ASC 310-30

$
4,638

(Dollars in thousands) March 26, 2020
Contractually required principal and interest by loan type
Commercial real estate $ 427
Residential real estate 604
Commercial 2,176
Construction and development 5,614
Consumer and other loans —
Total $ 8,821
Contractual cash flows not expected to be collected (nonaccretable discount)
Commercial real estate $ 80
Residential real estate 138
Commercial 1,123
Construction and development 2,297
Consumer and other loans —
Total $ 3,638
Expected cash flows $ 5,183
Interest component of expected cash flows (accretable discount) (545)
Fair value of PCI loans accounted for under ASC 310-30 $ 4,638

Non-Performing Assets

As of ~~June~~September 30, 2021, the Company had nonperforming assets of $2.8 million, or ~~0.11%~~0.10% of total assets, compared to nonperforming assets of $10.4 million, or 0.51% of total assets, aton 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 ~~charged off~~charged-off $7.6 million of the Coex Coffee International, Inc. (“Coex”) loan, which amount was previously reserved during the third quarter of 2020. Based on a review of the estimated receivables collected by the assignee in the Florida case for the benefit of creditors (the “Assignee”), the remaining book balance of $0.6 million for the Coex loan appears to be collectable by the Company, subject to final accounting by the Assignee.

Paycheck Protection Program

~~During the three months ended June 30, 2021, the Company funded 172 loans representing $17.6~~ ~~million under Round 3 of the Paycheck Protection Program (“PPP.”).~~

As of ~~June~~September 30, 2021, the Company participated in all three rounds of the ~~PPP~~Payroll Protection Program ("PPP") and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which ~~1,362~~1,745 loans totaling ~~$196.9~~$251.4 million were forgiven by the ~~SBA.~~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 Payroll Protection Program

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Liquidity Facility ("PPPLF"). The PPPLF pledged loans are non-recourse to the Company. However, the Company paid off all of the PPPLF advances during the first and second quarter of ~~2021 and the balance was $0 as of June 30,~~ 2021.

Debt Service Relief Requests Related to COVID-19

As a result of 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 ~~June~~September 30, 2021, all these loans had returned to normal payment 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 ~~six~~nine months ended ~~June~~September 30, 2021, and the year ended December 31, 2020:

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
June 30, 2021












Allowance for loan losses:












Beginning balance

$
3,159

$
2,177

$
10,462

$
388

$
73

$
16,259
Provision for loan losses

1,126

92

602

(27)

7

1,800
Loans charged-off

-

-

(7,641)

-

-

(7,641)
Recoveries

-

-

-

-

-

-
Total ending allowance balance

$
4,285

$
2,269

$
3,423

$
361

$
80

$
10,418

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

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


	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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Construction

Commercial

Residential

and Land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
June 30, 2021












Allowance for loan losses:

Ending allowance balance attributable to loans

Individually evaluated for impairment

$
—

$
—

$
658

$
—

$
—

$
658
Purchased Credit Impaired (PCI) loans

—

—

—

—

—

—
Collectively evaluated for impairment

4,285

2,269

2,765

361

80

9,760
Total ending allowance balance

$
4,285

$
2,269

$
3,423

$
361

$
80

$
10,418

Loans:

Loans individually evaluated for impairment

$
2,326

$
252

$
1,468

$
—

$
1,307

$
5,353
Loans collectively evaluated for impairment

873,127

361,694

371,865

74,175

13,268

1,694,129
Total ending loans balance

$
875,453

$
361,946

$
373,333

$
74,175

$
14,575

$
1,699,482

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

—

—

—

—

—

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

$
2,356

$
298

$
9,127

$
—

$
1,307

$
13,088
Loans collectively evaluated for impairment

775,420

380,193

387,515

99,883

10,381

1,653,392
Total ending loans balance

$
777,776

$
380,491

$
396,642

$
99,883

$
11,688

$
1,666,480

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%

For the Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

Ending

Ending

(Dollars in thousands)

Balance

% of Total

Balance

% of Total

NOW accounts

$
286,173

12.6
%
$
232,367

14.0
%
Money market accounts

810,913

35.6
%

679,761

41.0
%
Brokered deposits

56,534

2.5
%

30,137

1.8
%
Savings accounts

11,814

0.5
%

9,727

0.6
%
Certificates of deposit

257,056

11.3
%

231,953

14.0
%
Total interest-bearing deposits

1,422,490

62.5
%

1,183,945

71.3
%
Noninterest-bearing deposits

854,673

37.5
%

475,598

28.7
%
Total deposits

$
2,277,163

100.0
%
$
1,659,543

100.0
%

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

~~(1)~~

~~Balance Sheet does not illustrate brokered deposits as presented above .~~

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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 ~~June~~September 30, ~~2021~~.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits of $250,000 or less

$
15,852

$
12,749

$
43,020

$
22,047

$
93,668
Time deposits of more than $250,000

23,302

24,537

85,376

34,797

168,012
Total

$
39,154

$
37,286

$
128,396

$
56,844

$
261,680
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

~~Table of Contents~~

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~~.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

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

42,844

40,158

158,505
Total

$
60,956

$
48,572

$
67,649

$
59,398

$
236,575

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 ~~June~~September 30, 2021, and December 31, 2020, the Company had time deposits that ~~meet or~~ exceed the $250,000 FDIC insurance limit of ~~$168.0~~$172.3 million and $158.5 million, respectively. Securities, mortgage loans or other financial instruments pledged as collateral for certain deposits were ~~$52.4~~$28.7 million, and $54.7 million ~~at June~~on September 30, 2021, and December 31, 2020, respectively. The aggregate amount of demand deposits that have been re-classified as loan balances ~~at June~~on September 30, 2021, and December 31, 2020, were ~~$0.3~~$0.4 million, and $0.1 million, respectively. Deposits from principal officers, directors and their affiliates ~~at June~~on September 30, 2021, and December 31, 2020, were ~~$17.9~~$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.

June 30, 2021

December 31, 2020
Less than 1 year

$
204,836

$
177,178
Over 1 through 2 years

55,625

57,034
Over 2 through 3 years

1,179

1,658
Over 3 through 4 years

40

705
Over 4 through 5 years

-

-
Over 5 years

-

-
Total

$
261,680

$
236,575


	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 ~~at June~~on September 30, 2021, and December 31, 2020. Additionally, the Company had ~~$93.6~~$77.8 million and $98.2 million, in Qualified Public Deposits (“QPD”) that require ~~collateral~~a portion of the deposit to be pledged as collateral as of ~~June~~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

Table of Contents

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.

~~Table of Contents~~

NOTE 8 — 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 ~~June~~September 30, 2021, approximately ~~$209.9~~$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 ~~June~~September 30, 2021, we had $35.0 million in outstanding advances and ~~$134.7~~$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.

Six Months Ended

Year Ended

(Dollars in thousands)

June 30, 2021

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

38,867

58,210

Weighted average interest rate during period

1.98
%

1.63
%


(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. ~~NaN~~No advances were outstanding under this facility as of ~~June~~September 30, ~~2021~~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. ~~In addition, we paid off approximately $101.4 million in~~As of September 30, 2021, the balance of PPPLF advances ~~for a balance of $0 at June 30, 2021.~~

were $0.

NOTE 9 — COMMON STOCK AND PREFERRED STOCK

Class A Voting Common Stock

The Company has Class A voting common stock with a par value of $0.01 per share. As of ~~June~~September 30, 2021, there are 50,000,000 shares authorized as Class A voting common stock of which ~~13,475,781~~13,416,667 are outstanding. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company issued ~~193,764~~229,417 shares of Class A voting common stock, inclusive of ~~127,499~~134,856 shares of restricted stock grants, ~~64,414~~92,710 shares of options exercised, and 1,851 shares pursuant to the employee stock purchase program.

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company repurchased ~~247,768~~341,367 shares of Class A common stock. Further, during the same ~~six month~~nine-month period, upon the vesting of a portion of restricted stock, employees of the Company elected to have 3,210 shares of Class A common voting stock withheld for tax purposes and had ~~1,834~~3,002 in restricted stock cancellations.

Table of Contents

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 ~~June~~September 30, 2021, there are 10,000,000 shares authorized as Class B non-voting common stock, ~~NaN~~none of which are outstanding.

Preferred Stock

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

NOTE 10 — 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.

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 ~~June~~September 30, 2021, and December 31, 2020, all securities available for sale were Level 2.

Securities held-to-maturity: Reported at fair value utilizing 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.

Table of Contents

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.

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

Basis:

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

There were 0no securities reclassified into or out of Level 3 during the ~~six~~nine months ended ~~June~~September 30, 2021, or for the year ended December 31, 2020.

Fair Value Measurements

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
June 30, 2021

Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale - taxable








Small Business Administration loan pools

$
42,596

$
—

$
42,596

$
—
Mortgage-backed securities

54,540

—

54,540

—
United States agency obligations

2,089

—

2,089

—
Corporate bonds

1,510

—

1,510

—
Total

$
100,735

$
—

$
100,735

$
—
Available-for-sale - tax exempt

Community Development District bonds

$
18,658

$
—

$
18,658

$
—
Municipals

1,103

—

1,103

—
Total

$
19,761

$
—

$
19,761

$
—
Equity








Mutual funds

$
5,942

$
5,942

$
—

$
—
Total

$
5,942

$
5,942

$
—

$
—


			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

at December 31, 2020 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
December 31, 2020

Value

(Level 1)

(Level 2)

(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

$
—

$
—

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
June 30, 2021

Value

(Level 1)

(Level 2)

(Level 3)
Customer Derivatives: Interest Rate SWAPs








Customer Derivatives - Interest Rate SWAPs Asset

$
863

$
—

$
863

$
—
Customer Derivatives - Interest Rate SWAPs Liability

(863)

—

(863)

—
Total

$
—

$
—

$
—

$
—

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 loan, the carrying amount of the loan for impairment purposes was determined based on the note outstanding balance ~~at June~~on September 30, 2021, less the non-recourse amount sold to our participant, yielding a carrying value of $0.6 million. The fair value of the collateral was determined based on a review of information obtained from the Assignee related to the collectability of the collateral adjusted for legal and disposition costs. When netted in the same percentage as the non-recourse portion of the loan, the net fair

~~Table of Contents~~

value of collateral was noted as $0.6 million. The net result of these calculations provides for 0no specific reserve within the Allowance for Loan and Lease Losses (“ALLL”) associated with the Coex loan or approximately 0% of the carrying value of the loan.

Table of Contents

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

Fair Value Measurements

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Total at

Active Markets for

Observable

Unobservable

June 30,

Identical Assets

Inputs

Inputs

Total Gains
(Dollars in thousands)

2021

(Level 1)

(Level 2)

(Level 3)

(Losses)
Impaired Loans:










Commercial real estate

$
—

$
—

$
—

$
—

$
—
Residential real estate

—

—

—

—

—
Commercial

810

—

—

810

(658)
Construction and land development

—

—

—

—

—
Consumer and other

—

—

—

—

—
Total

$
810

$
—

$
—

$
810

$
(658)

Fair Value Measurements

at December 31, 2020 Using:

Significant

Quoted Prices in

Other

Significant

Total at

Active Markets for

Observable

Unobservable

December 31,

Identical Assets

Inputs

Inputs

Total Gains
(Dollars in thousands)

2020

(Level 1)

(Level 2)

(Level 3)

(Losses)
Impaired Loans:










Commercial real estate

$
—

$
—

$
—

$
—

$
—
Residential real estate

—

—

—

—

—
Commercial

818

—

—

818

(8,309)
Construction and land development

—

—

—

—

—
Consumer and other

—

—

—

—

—
Total

$
818

$
—

$
—

$
818

$
(8,309)


			Fair Value Measurements on September 30, 2021 Using:
(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:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate	—		—		—		—		—
Commercial	799		—		—		799		(669)
Construction and land development	—		—		—		—		—
Consumer and other	654		—		—		654		(654)
Total	$	1,453	$	—	$	—	$	1,453	$	(1,323)


			Fair Value Measurements on December 31, 2020 Using:
(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:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate	—		—		—		—		—
Commercial	818		—		—		818		(8,309)
Construction and land development	—		—		—		—		—
Consumer and other	—		—		—		—		—
Total	$	818	$	—	$	—	$	818	$	(8,309)

~~Table of Contents~~

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 Company’s financial instruments (in thousands):


	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

Table of Contents

June 30, 2021

Carrying

Fair

Fair Value


Amount

Value

Hierarchy
Financial Assets:






Cash & Due from Banks, including interest bearing deposits

$
616,180

$
616,180

Level 1
Federal Funds Sold

36,156

36,156

Level 1
Securities, Available for Sale - taxable

101,109

100,735

Level 2
Securities, Available for Sale - tax exempt

19,011

19,761

Level 2
Securities, Held to Maturity

1,285

1,296

Level 2
Securities, Equity

5,942

5,942

Level 1
Loans, net

1,680,168

1,702,726

Level 3
Loans Held For Sale

2,039

2,039

Level 1
Bank Owned Life Insurance

37,923

37,923

Level 2
Accrued Interest Receivable

5,449

5,449

Level 1, 2 & 3
Customer Derivatives - Interest Rate SWAPs

863

863

Level 2

Financial Liabilities:






Deposits

2,277,163

2,246,864

Level 2
Federal Home Loan Bank Advances

35,000

33,671

Level 2
Subordinated Debt

10,062

10,062

Level 2
PPPLF Advances

—

—

Level 2
Loan Participations

—

—

Level 2
Customer Derivatives - Interest Rate SWAPs

863

863

Level 2
Accrued Interest Payable

267

267

Level 2

December 31, 2020

Carrying

Fair

Fair Value


Amount

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

1,643,373

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

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

~~Table of Contents~~

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 ~~six~~nine months ended ~~June~~September 30, 2021, the Company recorded 58 SWAP transactions with clients having a total notional amount of ~~$22.3~~$69.7 million, offset by ~~five~~8 SWAP transactions with dealers having a total notional amount of ~~$22.3~~$69.7 million. Additionally, we recorded ~~$0.5~~$0.5 million in back-to-back SWAP ~~fees.~~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 ~~June~~September 30, 2021, the Bank’s asset fair value position in other assets was ~~$0.9~~$1.3 million and liability fair value position in other liabilities was ~~$0.9~~$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 ~~at June~~on September 30, 2021, and December 31, 2020, were as follows:

(Dollars in thousands)

June 30, 2021

December 31, 2020
Unfunded lines of credit

$
366,015

$
356,955
Commitments to extend credit

83,857

40,629
Letters of credit

11,226

13,036
Total credit extension commitments

$
461,098

$
410,620

(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 ~~June~~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 ~~June~~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

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distributions are limited, as is asset growth and expansion, and capital restoration plans are required. ~~At June~~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.

~~Table of Contents~~

Actual and required capital amounts and ratios are presented below ~~at June~~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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Minimum to be well

Actual

Minimum for capital adequacy

capitalized

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2021













Total capital ratio











Bank

$
198,836

12.8
%
$
124,003

8.0
%
$
155,004

10.0
%
Company

218,325

14.1
%

124,003

8.0
%

N/A

N/A

Tier 1 capital ratio











Bank

187,416

12.1
%

93,002

6.0
%

124,003

8.0
%
Company

196,844

12.7
%

93,002

6.0
%

N/A

N/A

Tier1 leverage ratio











Bank

187,416

7.4
%

101,368

4.0
%

126,710

5.0
%
Company

196,844

7.8
%

101,368

4.0
%

N/A

N/A

Common equity tier 1 capital ratio









Bank

187,416

12.1
%

69,752

4.5
%

100,753

6.5
%
Company

196,844

12.7
%

69,752

4.5
%

N/A

N/A

Minimum to be well

Actual

Minimum for capital adequacy

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

NOTE 14 — 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 ~~has~~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 ~~300,000~~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 ~~222,009~~227,590 shares of restricted stock outstanding, at a weighted average exercise price of ~~$16.82,~~$16.87, to employees and directors under the 2019 Equity Incentive Plan as of ~~June~~September 30, 2021, for which the Company did not receive, nor will it receive, any monetary consideration. Therefore, there were ~~77,991~~455,365 restricted shares available to be issued ~~at June~~on September 30, 2021. As of ~~June~~September 30, 2021, there was approximately ~~$2.9~~$2.7 million in unrecognized compensation expense in regard to restricted stock that will be recognized over a three-year period.

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NOTE 15 — LEASES

Operating leases in which the Company is the lessee are recorded as right-of-use (“ROU”) assets and operating lease liabilities, including premises and equipment and other liabilities, respectively on the Consolidated Balance Sheets. Currently the Company does not have any lessor leases (formerly known as 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 ~~did 0t record~~recorded $0.2 million new ROU assets during the ~~six~~nine months ended ~~June~~September 30, 2021, and recorded $2.0 million during the year ended December 31, 2020. The total amount of ROU was ~~$5.6~~$5.5 and $6.5 million ~~at June~~on September 30, 2021, and December 31, 2020, respectively.

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 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.

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


	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 ~~six~~nine months ended ~~June~~September 30, 2021, and 2020:

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Operating Lease - Operating Cash Flows (Fixed Payments)

$
326

$
445

$
793

$
756

Operating Lease - Operating Cash Flows (Liability Reduction)

$
296

$
416

$
921

$
669

New ROU Assets - Operating Leases

$
—

$
—

$
—

$
1,620

Weighted Average Lease Term (Years) - Operating Leases

5.25

6.02

Weighted Average Discount Rate - Operating Leases

%

%

3.13
%

3.02
%


	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)	$	335	$	508	$	1,129		$	1,264
Operating Lease - Operating Cash Flows (Liability Reduction)	$	123	$	612	$	1,044		$	1,281
New ROU Assets - Operating Leases	$	165	$	60	$	165		$	1,680
Weighted Average Lease Term (Years) - Operating Leases					5.01			5.85
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 ~~June~~September 30, 2021, is as follows:

June 30, 2021
Operating lease payments due:

Within one year

$
1,400
After one but within two years

1,421
After two but within three years

1,296
After three but within four years

1,093
After four years but within five years

955
After five years

706
Total undiscounted cash flows

6,871
Discount on cash flows

(1,291)
Total operating lease liabilities

$
5,580


	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

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NOTE 16 — SUBSEQUENT EVENTS

~~Loan Production Offices~~

Redemption of Subordinated Debt

On ~~July 12,~~October 30 2021, the Company ~~expanded~~redeemed in full, the amount of its ~~Florida footprint by opening up 2 new loan production offices~~subordinated notes payable of $10.0 million, in ~~Tampa/St. Petersburg and Jacksonville.~~

accordance with its contractual terms.

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

Introduction

The following discussion and analysis are part of Professional Holding Corp.’s (the “Company”) Quarterly Report on Form 10-Q filed with the SEC and updates the Company’s Annual Report on Form 10-K for the year ended December 31, 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. 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 ~~six~~nine months ended ~~June~~September 30, 2021, compared to the three and ~~six~~nine months ended ~~June~~September 30, 2020, for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of ~~June~~September 30, 2021, compared to December 31, 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.

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

●

•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;

•

●

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;

●

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

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●

~~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.~~

•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 ~~six~~nine months ended ~~June~~September 30, 2021, and other key events that have occurred during 2021 are provided below.

~~Table of Contents~~

Results of Operations for the three months ended ~~June~~September 30, 2021

��

●

Net income increased $1.5 million, or 32.3%, to $6.3 million compared to the prior quarter. The increase was primarily due to balance sheet expansion and increases in service charges on deposit accounts associated with acting as a correspondent bank for a Payroll Protection Program lender (the “Correspondent Banking Relationship”).

●

During the quarter we continued to participate in the Small Business Association’s Payroll Protection Program (“PPP”). We recognized $1.4 million in revenue primarily from fees in connection with the forgiveness of PPP loans associated with the Bank’s participation in the PPP (“Professional Bank PPP”) and $0.7 million in revenue from deposit correspondent fees from the Correspondent Banking Relationship.

●

Net interest income decreased $0.7 million, or 3.8%, to $17.2 million compared to the prior quarter primarily due to a decrease in Professional Bank PPP loan fees coupled with payoffs of higher yielding loans.

●

Noninterest income increased $1.1 million, or 105.7%, to $2.3 million, compared to the prior quarter primarily due to increases in service charges from the Correspondent Banking Relationship, secondarily to an increase in SWAP fees, and to income due to repayment of a Federal Home Loan Bank (“FHLB”) advance at a favorable position during the quarter.

●

~~Noninterest expense decreased $0.8 million, or 7.1%, to $11.0 million compared to the prior quarter primarily due to the payment of change-in-control obligations paid in the prior quarter.~~

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.

•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 ~~six~~nine months ended ~~June~~September 30, 2021

•

●

The variance in the six-month Results of Operations for 2021 compared to 2020 occurred in part due to the March 26, 2020, closing date of the Marquis Bancorp, Inc. (“MBI”) acquisition as there were 95 days of MBI integration in the first six months of 2020 compared to 181 days in the first six month of 2021 (the “MBI Variance”).

●

Net income increased $9.3 million, or 512.8%, to $11.1 million compared to the prior year. The increase was primarily due to the MBI Variance, Professional Bank PPP loan fees recognized, and deposit fees associated with the Correspondent Banking Relationship.

●

~~Net interest income increased $10.7 million, or 44.1%, to $35.1 million from the prior year primarily due to loan growth.~~

●

Noninterest income increased $1.6 million, or 87.6%, to $3.4 million, compared to the prior year primarily due to increases in service charges on deposit accounts associated with the Correspondent Banking Relationship, $0.5 million increase in SWAP referral fees, $0.3 million increase in Bank Owned Life Insurance (“BOLI”), and $0.2 million increase in fees generated from loans held for sale, offset by a $0.3 million decrease in SBA loan origination fees.

●

Noninterest expense increased $1.7 million, or 8.1%, to $22.7 million compared to the prior year. The year over year increase was due to increased salaries and investment in digital infrastructure. The Bank’s number of employees increased from 137 as of December 31, 2019, to 179 as of June 30, 2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 30, 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.

~~Financial Condition~~•

~~At June~~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, ~~2021:~~

●

Total assets increased 14.7%, or $0.4 billion, to $2.6 billion compared to the prior quarter primarily due to increases in customer deposit accounts associated with the Correspondent Banking Relationship and investments in taxable securities available-for-sale. Additionally, total assets increased 26.0%, or $0.5 billion, compared to June 30, 2020.2020, to 205 as of September 30, 2021.

●

Total loans were flat at $1.7 billion compared to the prior quarter. New loan originations were $186.8 million ($169.2 million of conventional loans, of which $118.0 million funded, coupled with $17.6 million of Professional Bank PPP loans). The Professional Bank PPP loan balance decreased $66.7 million, or 31.7%, from the prior quarter.

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●

Total Deposits increased 19.7%, or $0.4 billion, to $2.3 billion compared to the prior quarter primarily due to increases in noninterest bearing demand deposit accounts. Additionally, average assets for the quarter increased due to large balances associated with the Correspondent Banking Relationship.

●

~~Nonperforming assets remained unchanged at $2.8 million compared to the prior quarter. As compared to June 30, 2020, the Company had nonperforming assets of $6.2 million.~~

Financial Condition

On September 30, 2021:

•Total assets remained relatively unchanged at $2.6 billion compared to the prior quarter. Total assets increased 27.4%, or $0.6 billion, compared to September 30, 2020, primarily as a result of increases in 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 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 accounts, partially offset by a decrease in noninterest bearing demand deposit accounts. During the quarter, $57.0 million of noninterest bearing deposits were recategorized into interest bearing deposits.

•Nonperforming assets remained unchanged at $2.8 million compared to the prior quarter. As of 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 three months ended September 30, 2020.

Operating Results

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

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

Three Months Ended June 30,

(Dollars in thousands)

2021

2020

Change

Interest income

$
18,962

$
18,522

2.4
%
Interest expense

1,760

2,231

(21.1)
%
Net Interest income

17,202

16,291

5.6
%
Provision for loan losses

762

1,750

(56.5)
%
Net interest income after provision

16,440

14,541

13.1
%
Noninterest income

2,302

968

137.8
%
Noninterest expense

10,954

11,548

(5.1)
%
Income before income taxes

7,788

3,961

96.6
%
Income tax expense

1,457

830

75.5
%
Net income

$
6,331

$
3,131

102.2
%


	Three Months Ended September 30,
(Dollars in thousands)	2021		2020		Change
Interest income	$	20,890	$	19,101	9.4	%
Interest expense	1,786		1,641		8.8	%
Net Interest income	19,104		17,460		9.4	%
Provision for loan losses	1,060		5,957		(82.2)	%
Net interest income after provision	18,044		11,503		56.9	%
Noninterest income	1,476		963		53.3	%
Noninterest expense	11,624		11,713		(0.8)	%
Income before income taxes	7,896		753		948.6	%
Income tax expense (benefit)	1,608		(197)		(916.2)	%
Net income	$	6,288	$	950	561.9	%

Net income for the three months ended ~~June~~September 30, 2021, was $6.3 million, an increase of ~~$3.2~~$5.3 million, or ~~102.2%~~561.9%, compared to the three months ended ~~June~~September 30, 2020. ~~Interest~~Net interest income increased ~~$0.4 million while interest expense decreased $0.5 million, resulting in a net interest income increase of $0.9~~$1.6 million for the three months ended ~~June~~September 30, 2021, compared to the same period in the prior year. The increase in our net interest income year-over-year was primarily due to increased loan portfolio ~~growth and decreased cost of funds to the Company.~~growth. Provision for loan losses decreased by ~~$1.0~~$4.9 million for the three months ended ~~June~~September 30, 2021, compared to the same period in the prior year. The decrease in the provision expense was attributed primarily ~~due~~ to having addressed the impairment of a loan ~~payoffs~~to Coex in ~~higher risk categories offset by an increase in loan originations.~~the third quarter of 2020. The increase in noninterest income during the three months ended ~~June~~September 30, 2021, compared to the same period in the prior year was primarily due to increases in service charges on deposit accounts associated with the Correspondent Banking Relationship, and secondarily to an increase in ~~SWAP fees, as well as a one-time credit due to the unwinding fee of a FHLB advance.~~Bank owned life insurance income. The decrease in noninterest expense for the three months ended ~~June~~September 30, 2021, 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.~~

expenses, partially offset by higher salaries and employee benefits as a result of 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 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 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

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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.

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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 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	%

(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.

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For the Three Months Ended June 30,

2021

2020


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

$
580,632

$
178

0.12
%
$
170,658

$
44

0.10
%
Federal funds sold

69,506

24

0.14
%

32,965

12

0.15
%
Federal Reserve Bank stock, FHLB stock and other corporate stock

7,391

99

5.37
%

7,598

131

6.93
%
Investment securities - taxable

70,137

161

0.92
%

88,365

241

1.10
%
Investment securities - tax exempt

20,172

189

3.76
%

20,973

197

3.78
%
Loans⁽¹⁾

1,699,403

18,311

4.32
%

1,501,590

17,897

4.79
%
Total interest earning assets

2,447,241

18,962

3.11
%

1,822,149

18,522

4.09
%
Loans held for sale

2,638

—

Noninterest earning assets

115,358



102,663





Total assets

$
2,565,237



$
1,924,812





Liabilities and stockholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

1,377,712

1,430

0.42
%

994,972

1,617

0.65
%
Borrowed funds

56,347

330

2.35
%

230,516

614

1.07
%
Total interest-bearing liabilities

1,434,059

1,760

0.49
%

1,225,488

2,231

0.73
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

890,292



475,613





Other noninterest-bearing liabilities

17,690



19,540





Stockholders’ equity

223,196



204,171





Total liabilities and stockholders’ equity

$
2,565,237



$
1,924,812





Net interest spread⁽²⁾





2.62
%





3.36
%
Net interest income



$
17,202



$
16,291



Net interest margin⁽³⁾





2.82
%





3.60
%

~~(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 $1.8 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively.~~

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 June 30, 2021

Compared to 2020

Change Due To

(Dollars in thousands)

Volume

Rate

Total
Interest income






Interest-bearing deposits

$
106

$
28

$
134
Federal funds sold

13

(1)

12
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock

(4)

(28)

(32)
Investment securities - taxable

(50)

(30)

(80)
Investment securities - tax exempt

(8)

—

(8)
Loans

2,358

(1,944)

414
Total

$
2,415

$
(1,975)

$
440
Interest expense






Interest-bearing deposits

622

(809)

(187)
Borrowed funds

(464)

180

(284)
Total

$
158

$
(629)

$
(471)


	For the Three Months Ended September 30, 2021 Compared to 2020
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest-bearing deposits	$	80	$	67	$	147
Federal funds sold	2		(4)		(2)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(17)		10		(7)
Investment securities - taxable	64		(87)		(23)
Investment securities - tax exempt	(40)		(7)		(47)
Loans	1,520		201		1,721
Total	$	1,610	$	179	$	1,789
Interest expense
Interest-bearing deposits	459		(148)		311
Borrowed funds	(404)		238		(166)
Total	$	55	$	90	$	145

Net interest income totaled ~~$17.2~~$19.1 million for the three months ended September 30, 2021, up $1.9 million, or 11.1% compared to the three months ended June 30, 2021, ~~down $0.7 million, or 3.8% compared to the three months ended March 31, 2021,~~ primarily due to ~~higher yielding~~increased loan ~~payoffs~~portfolio growth and ~~a decrease in~~the acceleration of Professional Bank PPP loan fees ~~associated with PPP loan~~

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~~forgiveness.~~and purchase accounting marks from the MBI acquisition. Net interest margin ~~decreased 83 basis points from~~for the ~~first~~third quarter of 2021 was 3.12%, an increase of 30 basis points compared to ~~2.82% for~~ the second quarter of ~~2021 due to an increase in low yielding cash assets and loan payoffs on higher yielding assets.~~2021. Our weighted average roll-off rate for loans paid off was ~~4.7%~~4.5% and the weighted average roll-on rate for loans originated was 3.9% ~~at June~~on September 30, 2021.

Net interest income increased by ~~$0.9~~$1.6 million to ~~$17.2~~$19.1 million for the three months ended ~~June~~September 30, 2021, compared to the three months ended ~~June~~September 30, 2020. Our total net interest income was impacted by an increase in interest earning assets, which was primarily due to increased balances in large low yielding cash assets, coupled with ~~increases~~an increase in our loan portfolio ~~of lower yielding loans, offset by decreased cost of funds to the Company~~. Average total interest earning assets were $2.4 billion for the three months ended ~~June~~September 30, 2021, compared ~~with $1.8~~to $2.0 billion for the three months ended ~~June~~September 30, ~~2020.~~2020. The annualized yield on ~~those~~ interest earning assets decreased 9845 basis points for the three months ended ~~June~~September 30, 2021, compared to the three months ended September 30, 2020, primarily due to ~~loans repricing downward, coupled with~~increased cash balances and accelerated paydowns of principal in higher yielding ~~loan payoffs. The~~loans and investments. The increase in the average balance of interest earning assets was driven primarily by our growth in cash of ~~$359.9,~~$309.5 million, or 123.0%, and growth in our loan portfolio of ~~$120.3~~$129.3 million, or ~~7.7%~~8.2%, compared to three months ended ~~June~~September 30, 2020. The growth in ~~the~~our loan portfolio was due to organic loan ~~originations and the Professional Bank PPP.~~

originations.

Average interest-bearing liabilities for the three months ended ~~June~~September 30, 2021, increased due to organic deposit growth and grew by ~~$208.6~~$161.4 million, or ~~17.0%~~12.0%, for the three months ended ~~June~~September 30, 2020. The increase was primarily due to a ~~$382.7~~$413.6 million, ~~a 38.5%~~or 39.4%, 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 negotiable orders of withdrawal (“NOW”) and money market accounts for the three months ended ~~June~~September 30, 2021, compared to the three months ended ~~June~~September 30, 2020, and, to a lesser extent, increases in certificates of deposit. The annualized average interest rate paid on average interest-bearing liabilities decreased to ~~0.49%~~0.47%, for the three months ended ~~June~~September 30, 2021, compared to ~~0.73%~~0.48% for the three months ended ~~June~~September 30, 2020. Annualized average interest rate paid on interest-bearing deposits decreased 234 basis points to ~~0.42%~~0.40%, and the annualized average interest rate paid on borrowed funds increased by ~~128~~209 basis points to ~~2.35%~~2.73%. The 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 during the three months ended June 30, ~~2021.~~ The average interest rate on borrowings during the quarter ended ~~June~~September 30, 2021, increased as we paid-off the Paycheck Protection Program Liquidity Facility (“PPPLF”) balances, leaving higher priced ~~FHLB~~Federal Home Loan Bank ("FHLB") advances and subordinated debt as our borrowings. For the three months ended ~~June~~September 30, 2021, our average other noninterest-bearing liabilities decreased ~~$1.9~~$3.2 million, or ~~9.5%, compared to the three months ended June 30, 2020. Average noninterest-bearing deposits also increased $414.7 million, or 87.2%~~16.1%, compared to the three months ended ~~June~~September 30, 2020. Average noninterest-bearing deposits also

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increased $315.6 million, or 63.8%, compared to the three months ended September 30, 2020. For the three months ended ~~June~~September 30, 2021, our annual net interest margin was ~~2.82%~~3.12% and net interest spread was ~~2.62%~~2.94%. For the three months ended ~~June~~September 30, 2020, annual net interest margin was ~~3.60%~~3.53% and net interest spread was ~~3.36%~~3.38%.

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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 ~~$0.8~~$1.1 million for the three months ended ~~June~~September 30, 2021, and ~~$1.8~~$6.0 million for the three months ended ~~June~~September 30, 2020. The decrease from 2020 to 2021 was primarily due to the 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.~~2021 and having addressed the impairment of a loan to Coex in the third quarter of 2020. We did not record any net charge-offs for the three months ended ~~June~~September 30, 2021, ~~and~~compared to one loan that was charged-off for $0.2 million for the three months ended September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was ~~0.67% at~~ 0.72% on ~~June~~September 30, 2021, compared to 1.10% at on December 31, 2020. See Reconciliation of non-GAAP Financial Measures.

Noninterest Income

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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.

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

Three Months Ended June 30,

(Dollars in thousands)

2021

2020

Increase (Decrease)

Noninterest income







Service charges on deposit accounts

$
1,199

$
307

290.6
%
Income from Bank owned life insurance

281

126

123.0
%
Gain on sale and call of securities

21

11

90.9
%
SBA origination fees

—

84

(100.0)
%
SWAP fees

364

210

73.3
%
Third party loan sales

226

157

43.9
%
Other

211

73

189.0
%
Total noninterest income

$
2,302

$
968

137.8
%


	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 three months ended ~~June~~September 30, 2021, was ~~$2.3~~$1.5 million, a ~~$1.3~~$0.5 million, or ~~137.8%~~53.3%, increase compared to the three months ended ~~June~~September 30, 2020. The increase was primarily due to ~~increases~~an increase in service charges on deposit accounts associated with the Correspondent Banking Relationship, secondarily to an increase in ~~SWAP fees, as well as~~income from Bank owned life insurance ("BOLI"), partially offset by a ~~one-time credit due to the unwinding fee of a FHLB advance.~~

decrease in third party loan sales.

See Note 11 to the Consolidated Financial Statements (unaudited) dated ~~June~~September 30, 2021, ~~entitled~~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.

Three Months Ended June 30,

Increase

(Dollars in thousands)

2021

2020

(Decrease)

Noninterest expense







Salaries and employee benefits

$
7,099

$
6,912

2.7
%
Occupancy and equipment

905

1,081

(16.3)
%
Data processing

276

421

(34.4)
%
Marketing

165

151

9.3
%
Professional fees

770

806

(4.5)
%
Acquisition expenses

—

560

(100.0)
%
Regulatory assessments

418

300

39.3
%
Other

1,321

1,317

0.3
%
Total noninterest expense

$
10,954

$
11,548

(5.1)
%


	Three Months Ended September 30,
(Dollars in thousands)	2021		2020		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	7,350	$	6,433	14.3%
Occupancy and equipment	935		1,196		(21.8)%
Data processing	303		374		(19.0)%
Marketing	420		435		(3.4)%
Professional fees	689		562		22.6%
Acquisition expenses	—		1,078		(100.0)%
Regulatory assessments	481		250		92.4%
Other	1,446		1,385		4.4%
Total noninterest expense	$	11,624	$	11,713	(0.8)%

Noninterest expense amounted to ~~$11.0~~$11.6 million for the three months ended ~~June~~September 30, 2021, a decrease of ~~$0.6~~$0.1 million, or ~~5.1%~~0.8%, compared to the three months ended ~~June~~September 30, 2020. The decrease 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 resulting from our opening of loan production offices in Tampa Bay and Jacksonville and investment in digital infrastructure. Additionally, the decrease in occupancy and equipment was due primarily to the Company exercising an option to early terminate a lease for one of the former operational offices of Marquis Bank and a branch located in Coral Gables (the "Option"). The Option resulted in savings of 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

~~Table of Contents~~

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 ~~$1.5~~$1.6 million for the three months ended ~~June~~September 30, 2021, compared to ~~$0.8~~an income tax benefit of $0.2 million for the three months ended ~~June~~September 30, 2020. Our effective tax rates for those periods were ~~18.7%~~20.4% and ~~21.0%~~(25.7)%, respectively. The change in the effective tax rate was due to ~~the decrease in nondeductible expenses,~~ an increase in tax-exempt income, and ~~an increase~~state income tax credits in ~~excess tax benefits from stock-based compensation.~~

2020.

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

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

Six Months Ended June 30,

(Dollars in thousands)

2021

2020

Change

Interest income

$
38,734

$
29,542

31.1
%
Interest expense

3,653

5,190

(29.6)
%
Net Interest income

35,081

24,352

44.1
%
Provision for loan losses

1,800

2,595

(30.6)
%
Net interest income after provision

33,281

21,757

53.0
%
Noninterest income

3,421

1,824

87.6
%
Noninterest expense

22,742

21,034

8.1
%
Income before income taxes

13,960

2,547

448.1
%
Income tax expense

2,844

733

288.0
%
Net income

$
11,116

$
1,814

512.8
%


	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 ~~six~~nine months ended ~~June~~September 30, 2021, was ~~$11.1~~$17.4 million, an increase of ~~$9.3~~$14.6 million, or ~~512.8%~~529.7%, compared to the ~~six~~nine months ended ~~June~~September 30, 2020. Interest income increased ~~$9.2~~$11.0 million while interest expense decreased ~~$1.5~~$1.4 million, resulting in a net interest income increase of ~~$10.7~~$12.4 million for the ~~six~~nine months ended ~~June~~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 ~~$0.8~~$5.7 million for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in the prior year. The decrease in the provision expense was due primarily todue to the ~~need for an~~macro environment stabilization following the increased ~~reserve~~reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the ~~decreasing impact~~impairment of ~~COVID-19 on~~a loan to Coex in the ~~economy in 2021.~~third quarter of 2020. The increase in noninterest expense for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the same period in the prior year was primarily due to increased salaries and investment in digital ~~infrastructure.~~infrastructure, partially offset by lower MBI acquisition expenses. The Bank’s number of employees increased from ~~137~~172 as of ~~December 31, 2019,~~September 30, 2020, to ~~179~~205 as of ~~June~~September 30, ~~2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 30,~~ 2021.

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

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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.

~~Table of Contents~~

For the Six Months Ended June 30,

2021

2020


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

$
380,989

$
224

0.12
%
$
173,907

$
629

0.73
%
Federal funds sold

56,955

40

0.14
%

33,954

131

0.78
%
Federal Reserve Bank stock, FHLB stock and other corporate stock

7,676

194

5.11
%

6,550

210

6.45
%
Investment securities - Taxable

69,968

340

0.98
%

68,085

454

1.34
%
Investment securities - Non-taxable

20,902

392

3.79
%

11,122

206

3.72
%
Loans⁽¹⁾

1,681,566

37,544

4.51
%

1,156,151

27,912

4.85
%
Total interest earning assets

2,218,056

38,734

3.53
%

1,449,769

29,542

4.10
%
Loans held for sale

1,999

1,186

Noninterest earning assets

122,420



80,730





Total assets

$
2,342,475



$
1,531,685





Liabilities and shareholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

1,293,693

2,747

0.43
%

879,749

4,243

0.97
%
Borrowed funds

101,129

906

1.81
%

146,828

947

1.30
%
Total interest-bearing liabilities

1,394,822

3,653

0.53
%

1,026,577

5,190

1.02
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

708,215



332,474





Other noninterest-bearing liabilities

18,288



15,801





Shareholders’ equity

221,150



156,833





Total liabilities and shareholders’ equity

$
2,342,475



$
1,531,685





Net interest spread⁽²⁾





3.00
%





3.08
%
Net interest income



$
35,081



$
24,352



Net interest margin⁽³⁾





3.20
%





3.38
%


	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.

~~(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 $4.4 million and $1.1 million for the six months ended June 30, 2021, and 2020, respectively.~~

Table of Contents


	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)

~~Table of Contents~~

For the Six Months Ended June 30, 2021

Compared to 2020

Change Due To

(Dollars in thousands)

Volume

Rate

Total
Interest income






Interest-bearing deposits

$
749

$
(1,154)

$
(405)
Federal funds sold

89

(180)

(91)
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock

36

(52)

(16)
Investment securities - taxable

13

(127)

(114)
Investment securities - tax exempt

181

5

186
Loans

12,685

(3,053)

9,632
Total

$
13,753

$
(4,561)

$
9,192
Interest expense






Interest-bearing deposits

1,996

(3,492)

(1,496)
Borrowed funds

(295)

254

(41)
Total

$
1,701

$
(3,238)

$
(1,537)

Net interest income increased by ~~$10.7~~$12.4 million to ~~$35.1~~$41.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to the ~~six~~nine months ended ~~June~~September 30, 2020. Our total net interest income was impacted ~~by an increase in interest earning assets,~~ 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 ~~$2.2~~$2.3 billion for the ~~six~~nine months ended ~~June~~September 30, 2021, compared with ~~$1.4~~$1.6 billion for the ~~six~~nine months ended ~~June~~September 30, 2020. The annualized yield on those interest earning assets decreased 5752 basis points to 3.48% for the ~~six~~nine months ended ~~June~~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 ~~$525.4~~$391.6 million, or ~~45.4%~~30.2%, compared to the ~~six~~nine months ended ~~June~~September 30, 2020. The growth in the loan portfolio was due to organic loan originations ~~and the Professional Bank PPP~~ during the ~~six~~nine months ended ~~June~~September 30, 2021.

Average interest-bearing liabilities increased due to the MBI Variance and organic deposit growth and grew by ~~$368.2~~$298.9 million, or ~~35.9%~~26.4%, for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase was primarily due to a ~~$413.9~~$414.0 million, or ~~47.1%~~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 ~~six~~nine months ended ~~June~~September 30, 2021, compared to the ~~six~~nine months ended ~~June~~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 ~~0.53%~~0.51% for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~1.02%~~0.80% for the ~~six~~nine months ended ~~June~~September 30, 2020. Annualized average interest rate paid on interest-bearing deposits decreased 5435 basis points to ~~0.43%~~0.42%, and the annualized average interest rate paid on borrowed funds increased by 51102 basis points to ~~1.81%~~1.98%. ~~Compared to~~For the ~~six~~nine months ended ~~June 30, 2020, the Company participated in the PPPLF which had a downward effect on our loan portfolio yields. For the six months ended June~~September 30, 2021, our average other noninterest-bearing liabilities increased ~~$2.5~~$0.5 million, or ~~15.7%~~3.1%, compared to the ~~six~~nine months ended ~~June~~September 30, 2020. Average noninterest-bearing deposits also increased ~~$375.7~~$355.7 million, or ~~113.0%~~91.9%, compared to the ~~six~~nine months ended ~~June~~September 30, 2020. For the ~~six~~nine months ended ~~June~~September 30, 2021, our annual net interest margin was ~~3.20%~~3.16% and net interest spread was ~~3.00%~~2.97%. For the ~~six~~nine months ended ~~June~~September 30, 2020, annual net interest margin was ~~3.38%~~3.43% and net interest spread was ~~3.08%~~3.20%.

Provision for Loan Losses

Table of Contents

Our provision for loan losses amounted to ~~$1.8~~$2.9 million for the ~~six~~nine months ended ~~June~~September 30, 2021, and ~~$2.6~~$8.6 million for the ~~six~~nine months ended ~~June~~September 30, 2020. The decrease from 2020 to 2021 was ~~made~~attributed primarily ~~due loan payoffs~~to the lowering of COVID related risk in ~~higher risk categories~~the portfolio taken in the prior year offset by an increase in loan ~~originations.~~originations subject to the allowance requirements and having addressed the impairment of a loan to Coex in the third quarter of 2020. We recorded ~~one~~a net charge-off related to one loan of $7.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2021. We did not record any~~2021, compared to a net ~~charge-offs~~charge-off related to one loan of $0.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was ~~0.67% at~~ 0.72% on ~~June~~September 30, 2021, compared to 1.10% at on December 31, 2020. See Reconciliation of non-GAAP Financial Measures.

~~Table of Contents~~

Noninterest Income

Our primary sources of recurring noninterest income are service charges on deposit accounts, mortgage banking revenue, interest rate SWAP ~~fees,~~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.

Six Months Ended June 30,

(Dollars in thousands)

2021

2020

Increase (Decrease)

Noninterest income







Service charges on deposit accounts

$
1,594

$
529

201.3
%
Income from Bank owned life insurance

563

255

120.8
%
Gain on sale and call of securities

22

15

46.7
%
SBA origination fees

145

114

27.2
%
SWAP fees

573

473

21.1
%
Third party loan sales

301

267

12.7
%
Other

223

171

30.4
%
Total noninterest income

$
3,421

$
1,824

87.6
%


	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 ~~six~~nine months ended ~~June~~September 30, 2021, was ~~$3.4~~$4.9 million, a ~~$1.6~~$2.1 million, or ~~87.6%~~75.7%, increase compared to for the ~~six~~nine months ended ~~June~~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, ~~$0.3~~$0.5 million increase in income from BOLI, and ~~$0.1~~$0.2 million increase in SWAP ~~fees.~~

fee income.

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. See Note 11 to the Consolidated Financial Statements (unaudited) dated ~~June~~September 30, 2021, entitled "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.

Table of Contents

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

Six Months Ended June 30,

Increase

(Dollars in thousands)

2021

2020

(Decrease)

Noninterest expense







Salaries and employee benefits

$
13,883

$
12,175

14.0
%
Occupancy and equipment

2,007

1,855

8.2
%
Data processing

566

597

(5.2)
%
Marketing

318

288

10.4
%
Professional fees

1,398

1,161

20.4
%
Acquisition expenses

684

2,223

(69.2)
%
Regulatory assessments

767

514

49.2
%
Other

3,119

2,221

40.4
%
Total noninterest expense

$
22,742

$
21,034

8.1
%


	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 ~~$22.7~~$34.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$1.7~~$1.6 million, or ~~8.1%~~4.9%, compared to for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase was primarily due to increased salaries and investment in digital

~~Table of Contents~~

infrastructure, offset by a reduction in acquisition expenses. The Bank’s number of employees increased from ~~137~~172 as of ~~December 31, 2019,~~September 30, 2020, to ~~179~~205 as of ~~June~~September 30, ~~2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 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 ~~$2.8~~$4.5 million for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$0.7~~$0.5 million for the ~~six~~nine months ended ~~June~~September 30, 2020. Our effective tax rates for those periods were 20.4% and ~~28.8%~~16.4%, respectively. The change in the effective tax rate was due to ~~the~~a decrease in nondeductible expenses, ~~primarily acquisition related costs,~~ an increase in tax-exempt income and ~~an increase~~state income tax credits in ~~excess tax benefits from stock-based compensation.~~

2020.

Financial Condition

Balance Sheet Analysis

The following sections provide expanded discussion of the significant changes in certain line items in asset, liability, and stockholder’s equity categories.

For the ~~six~~nine months ended ~~June~~September 30, 2021, our total assets increased ~~24.5%~~28.6%, or ~~$0.5~~$0.6 billion, compared to December 31, 2020. Total loans increased ~~2.2%~~2.1%, or ~~$36.8~~$34.4 million, compared to December 31, 2020, as a result of the third round of the PPP and new organic loan ~~origination.~~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 continued robust demand for loans and cash associated with Correspondent Banking Relationship. Stockholders’ equity increased ~~$7.5~~$12.5 million, or ~~3.5%~~5.8%, compared to December 31, 2020, primarily due to net income of ~~$11.1~~$17.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021, offset by repurchases of the Company’s Class A voting common stock.

Cash and 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. Due to our desire to maintain excess liquidity in more liquid assets to fund our loan growth and excess due to the Correspondent Banking Relationship, cash and cash equivalents increased ~~$435.4~~$527.2 million, or ~~200.7%~~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.

Table of Contents

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

~~Table of Contents~~

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 ~~$32.6~~$25.6 million, or ~~34.4%~~26.9%, to ~~$127.7~~$120.6 million compared to December 31, 2020, primarily due to purchases of ~~$33.0~~$50.9 million in securities available for sale, offset by paydowns, and maturities. To supplement interest income earned on the Company’s loan portfolio, the Company invests in ~~high quality~~ mortgage-backed securities, government agency bonds, corporate bonds, community development district bonds, and equity securities (including mutual funds).

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

June 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

$
43,091

$
42,596

$
30,678

$
30,556
Mortgage-backed securities

54,517

54,540

28,514

28,922
United States agency obligations

2,001

2,089

3,000

3,122
Corporate bonds

1,500

1,510

2,501

2,510
Total

$
101,109

$
100,735

$
64,693

$
65,110
Securities Available for Sale - tax exempt

Community Development District bonds

$
17,954

$
18,658

$
20,582

$
21,299
Municipals

1,057

1,103

1,064

1,099
Total

$
19,011

$
19,761

$
21,646

$
22,398
Securities Held to Maturity








Mortgage-backed securities

285

296

345

359
United States Treasury

—

—

202

202
Foreign Bonds

1,000

1,000

1,000

1,000
Total

$
1,285

$
1,296

$
1,547

$
1,561
Equity Securities








Mutual Funds

5,942

5,942

6,005

6,005
Total

$
5,942

$
5,942

$
6,005

$
6,005

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 June 30, 2021

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 - taxable



















Small Business Administration loan pools

$
—

—
%
$
609

0.96
%
$
19,879

1.51
%
$
22,603

1.38
%
$
43,091

$
42,596

1.43
%
Mortgage-backed securities

—

—
%

—

—
%

6,361

0.74
%

48,156

1.27
%

54,517

54,540

1.21
%
United States agency obligations

998

2.54
%

1,003

2.66
%

—

—
%

—

—
%

2,001

2,089

2.60
%
Corporate bonds

—

—
%

1,500

1.18
%

—

—
%

—

—
%

1,500

1,510

1.18
%
Total

$
998

2.54
%
$
3,112

1.61
%
$
26,240

1.32
%
$
70,759

1.31
%
$
101,109

$
100,735

1.33
%
Securities Available for Sale - tax exempt

Community Development District bonds

$
40

4.00
%
$
17,599

3.87
%
$
315

3.00
%
$
—

—
%
$
17,954

$
18,658

3.86
%
Municipals

—

—
%

1,057

1.75
%

—

—
%

—

—
%

1,057

1,103

1.75
%
Total

$
40

4.00
%
$
18,656

3.75
%
$
315

3.00
%
$
—

—
%
$
19,011

$
19,761

3.74
%
Securities Held to Maturity

Mortgage-backed securities

—

—
%

—

—
%

—

—
%

285

2.57
%

285

296

2.57
%
United States Treasury

—

—
%

—

—
%

—

—
%

—

—
%

—

—

—
%
Foreign Bonds

1,000

0.47
%

—

—
%

—

—
%

—

—
%

1,000

1,000

0.47
%
Total

$
1,000

0.47
%
$
—

—
%
$
—

—
%
$
285

2.57
%
$
1,285

$
1,296

0.93
%
Equity Securities





















Mutual Funds

5,942

1.13
%

—

—
%

—

—
%

—

—
%

5,942

5,942

1.13
%
Total

$
5,942

1.13
%
$
—

—
%
$
—

—
%
$
—

—
%
$
5,942

$
5,942

1.13
%


	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

Table of Contents

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

Table of Contents

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

June 30, 2021

December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial real estate

$
875,453

51.4
%
$
777,776

46.7
%
Owner Occupied

305,854

—

286,992

—

Non-Owner Occupied

569,599

—

490,784

—

Residential real estate

361,946

21.3
%

380,491

22.8
%
Commercial (Non-PPP)

229,215

13.5
%

206,665

12.4
%
Commercial (PPP)

144,118

8.5
%

189,977

11.4
%
Construction and development

74,175

4.4
%

99,883

6.0
%
Consumer and other loans

14,575

0.9
%

11,688

0.7
%
Total loans

$
1,699,482

100.0
%
$
1,666,480

100.0
%
Unearned loan origination (fees) costs, net

(1,984)



(1,323)



Unearned PPP loan origination (fees) costs, net

(4,855)

(4,255)

Allowance for loan loss

(10,418)



(16,259)



Loans held for sale

(2,039)

(1,270)

Other

(18)

—

Loans, net

$
1,680,168



$
1,643,373


	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 ~~June~~September 30, 2021, we had ~~$305.9~~$315.5 million of owner-occupied commercial real estate loans and ~~$569.6~~$540.7 million of investment commercial real estate loans, representing ~~34.9%~~36.8% and ~~65.1%~~63.2%, respectively, of our commercial real estate portfolio. As of ~~June~~September 30, 2021, the average loan balance of loans in our commercial real estate loan portfolio was approximately ~~$1.2~~$1.3 million for owner-occupied and $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 ~~June~~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 ~~June~~September 30, 2021, our weighted-average loan-to-value ratios for owner-occupied and non-owner-occupied commercial real estate were ~~48.5% and 50.0%, respectively~~both at 49.3% and debt service coverage ratios were ~~2.37x~~2.48x and ~~1.78x,~~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 $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.

Table of Contents


	As of June 30, 2021				As of December 31, 2020

										As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent		Amount		Percent		(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate									Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	28,055	3.2	%	$	22,483	2.9	%	Auto (Car Lot/Auto Repair)	$	27,600	3.2%	$	22,424	2.9%
Educational Facility		32,979	3.8	%		14,328	1.8	%	Educational Facility	32,625		3.8%	14,313		1.8%
Gas Station		70,053	8.0	%		64,162	8.2	%	Gas Station	68,856		8.0%	64,142		8.3%
Hotel		61,887	7.1	%		54,324	7.0	%	Hotel	59,679		7.0%	54,244		7.0%
Mixed Use		36,756	4.2	%		29,987	3.9	%	Mixed Use	32,411		3.8%	29,941		3.9%
Multifamily		118,978	13.6	%		98,837	12.7	%	Multifamily	123,879		14.5%	98,738		12.7%
Office		106,333	12.1	%		111,850	14.4	%	Office	104,539		12.2%	111,735		14.4%
Other / Special Use		43,467	5.0	%		41,739	5.4	%	Other / Special Use	52,530		6.1%	41,668		5.4%
Religious Facility		8,175	0.9	%		8,450	1.1	%	Religious Facility	10,802		1.3%	8,434		1.1%
Retail		215,402	24.6	%		192,105	24.7	%	Retail	212,162		24.8%	191,990		24.7%
Vacant Land		7,491	0.9	%		7,847	1.0	%	Vacant Land	6,080		0.7%	7,849		1.0%
Warehouse		145,877	16.7	%		131,664	16.9	%	Warehouse	125,031		14.6%	131,547		16.8%
Total	$	875,453	100.0	%	$	777,776	100.0	%	Total	$	856,194	100.0%	$	777,025	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 June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial Real Estate









Broward

$
130,231

14.9
%

$
118,408

15.2
%
Miami-Dade

538,691

61.5
%

501,168

64.4
%
Palm Beach

144,719

16.5
%

113,405

14.6
%
Other FL County

37,491

4.3
%

27,154

3.5
%
Out of State

24,321

2.8
%

17,641

2.3
%
Total

$
875,453

100.0
%

$
777,776

100.0
%

As of ~~June~~September 30, 2021, non-owner occupied commercial real estate loans of ~~$569.6~~$540.7 million represented ~~36.7%~~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 ~~June~~September 30, 2021, our weighted average loan-to-value ratio on our construction, vacant land, and land development loans were ~~55.9%~~51.3%, ~~48.7%~~49.7% and ~~51.0%~~49.8%, respectively. We require construction and development loans 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 June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Construction & Development










1 – 4 Family Construction

$
39,783

53.6
%

$
45,209

45.3
%
Commercial Construction

11,985

16.2
%

34,082

34.1
%
Land Development

5,241

7.1
%

5,789

5.8
%
Vacant Land

17,166

23.1
%

14,803

14.8
%
Total

$
74,175

100.0
%

$
99,883

100.0
%

Table of Contents

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Construction & Development









Broward

$
2,799

3.8
%

$
21,737

21.8
%
Miami-Dade

49,586

66.9
%

57,192

57.3
%
Palm Beach

16,268

21.9
%

15,137

15.2
%
Other FL County

5,522

7.4
%

5,817

5.8
%
Total

$
74,175

100.0
%

$
99,883

100.0
%

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, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent	Amount		Percent
Construction & Development
Broward	$	2,537	3.6%	$	21,722	21.8%
Miami-Dade	57,274		82.4%	57,008		57.3%
Palm Beach	9,723		14.0%	15,048		15.1%
Other FL County	—		—%	5,812		5.8%
Total	$	69,534	100.0%	$	99,590	100.0%

As of ~~June~~September 30, 2021, total construction and land development loans of ~~$74.2~~$69.5 million represented ~~4.8%~~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 ~~$52.8~~$46.0 million, or approximately ~~14.6%~~12.4% of our residential loan portfolio as of ~~June~~September 30, 2021. The average loan balance of closed-end residential loans in our residential portfolio was approximately $0.8 million as of ~~June~~September 30, ~~2021~~.2021. As of ~~June~~September 30, 2021, we did not have any residential real estate loans with a loan to value over 100%. Given the tragedy at the Champlain Towers Condominium in Surfside, Florida, there is increased interest in condominium development and lending. While the Company does not target high-rise, beachfront, condominium lending, we do, from time-to-time, grant loans secured by individual condominium units. At June 30, 2021, we had 11 loans, with outstanding balances of $4.0 million, secured by individual condominium units located in Florida buildings, over ten stories, which were originally constructed 40 or more years ago. 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 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, 2021						As of December 31, 2020
(Dollars in thousands)	Amount		Percent		LTV (%)		Amount		Percent		LTV (%)
Residential Real Estate
Owner Occupied	$	266,966	71.8	%	57.3	%	$	270,934	71.2	%	57.8	%
Investor Owned Residences	58,475		15.7	%	51.7	%	48,087		12.6	%	50.7	%
HELOC	46,028		12.4	%	50.9	%	60,513		15.9	%	57.1	%
Loans Held for Sale	284		0.1	%	—	%	1,270		0.3	%	—	%
Total	$	371,753	100.0	%			$	380,804	100.0	%

Table of Contents

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

LTV (%)

Amount

Percent

LTV (%)

Residential Real Estate













Owner Occupied

$
247,239

68.3
%
57.1
%

$
270,960

71.2
%
57.8
%
Investor Owned Residences

59,830

16.5
%
52.8
%

48,026

12.6
%
50.7
%
HELOC

52,838

14.6
%
56.6
%

60,235

15.8
%
57.1
%
Loans Held for Sale

2,039

0.6
%
0.0
%

1,270

0.3
%
0.0
%
Total

$
361,946

100.0
%

$
380,491

100.0
%

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-Professional Bank PPP~~ loans in our commercial loan portfolio, excluding Professional Bank PPP loans was ~~$0.5~~$0.6 million as of ~~June~~September 30, ~~2021~~.2021. As of ~~June~~September 30, 2021, non-Professional Bank PPP commercial loans was ~~$229.2~~$288.2 million, and Professional Bank PPP commercial loans was ~~$144.1~~$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 ~~June~~September 30, 2021,, the debt service coverage ratio for our Bank commercial loan portfolio was approximately ~~2.50x~~2.43x for non-Professional Bank PPP loans, excluding approximately ~~3.8%~~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,

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accounts receivable, promissory notes, inventory and equipment, and we generally obtain a personal guaranty from the borrower or other principal. The following table shows our commercial loan portfolio by industry segment as of ~~June~~September 30, ~~2021~~2021..

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial Loans










Business Products

$
1,152

0.5
%

$
1,163

0.6
%
Business Services

57,052

24.9
%

29,584

14.3
%
Communication

17,733

7.7
%

17,740

8.6
%
Construction

20,490

8.9
%

19,269

9.3
%
Finance

48,677

21.2
%

56,652

27.4
%
Healthcare

6,699

2.9
%

7,379

3.6
%
Services

36,868

16.1
%

23,319

11.3
%
Technology

802

0.3
%

853

0.4
%
Trade

32,298

14.1
%

44,359

21.5
%
Transportation

2,010

0.9
%

2,928

1.4
%
Other

5,434

2.4
%

3,419

1.7
%
Total

$
229,215

100.0
%

$
206,665

100.0
%


	As of September 30, 2021			As of December 31, 2020
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Loans
Business Products	$	58	—%	$	1,163	0.6%
Business Services	65,441		22.7%	29,461		14.3%
Communication	17,548		6.1%	17,687		8.6%
Construction	31,198		10.8%	19,241		9.3%
Finance	84,752		29.5%	56,506		27.3%
Healthcare	11,179		3.9%	7,369		3.6%
Services	36,121		12.5%	23,252		11.3%
Technology	760		0.3%	850		0.4%
Trade	32,557		11.3%	44,233		21.5%
Transportation	1,217		0.4%	2,926		1.4%
Other	7,346		2.5%	3,407		1.7%
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 and weighted average loan-to-value ratio for our collateralized loan portfolio as of the end of the periods indicated.

~~Second~~

Third quarter loans totaled $1.7 billion, a decrease of ~~$39.1~~$3.3 million, or ~~2.2%~~0.2%, from the prior quarter primarily due to ~~a reduction in~~Professional Bank PPP ~~loans.~~loan forgiveness and loan payoffs during the quarter. Loan growth, net of Professional Bank PPP loans, was up ~~$27.6~~$50.9 million, or ~~1.8%~~3.3% quarter-over-quarter. We experienced strong originations across all loan types due to new loan originations of ~~$186.8~~$198.7 million ~~($169.2~~(of which $172.7 million ~~of conventional loans, of which $118.0 million funded, coupled with~~

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~~$17.6 million of PPP loans)~~funded), partially offset by payoffs of ~~$162.2~~$157.1 million ($~~77.9~~101.2 million of conventional loans and ~~$84.3~~$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 ~~June~~September 30, 2021.

June 30, 2021


Due in One

Due in One to

Due After


(Dollars in thousands)

Year or Less

Five Years

Five Years

Total
Commercial Real Estate

$
98,118

$
230,947

$
546,388

$
875,453
Residential Real Estate

14,141

19,401

328,404

361,946
Commercial*

108,402

166,295

98,636

373,333
Construction and Development

29,355

20,219

24,601

74,175
Consumer and Other

4,141

7,330

3,104

14,575
Total loans

$
254,157

$
444,192

$
1,001,133

$
1,699,482
Amounts with fixed rates

$
149,697

$
398,716

$
965,071

$
1,513,484
Amounts with floating rates

$
104,460

$
45,476

$
36,062

$
185,998
*Includes Paycheck Protection Program (PPP) loans.

December 31, 2020


Due in One

Due in One to

Due After


(Dollars in thousands)

Year or Less

Five Years

Five Years

Total
Commercial Real Estate

$
63,277

$
221,328

$
493,171

$
777,776
Residential Real Estate

16,386

23,832

340,273

380,491
Commercial*

93,338

232,428

70,876

396,642
Construction and Development

37,205

30,165

32,513

99,883
Consumer and Other

5,619

3,855

2,214

11,688
Total loans

$
215,825

$
511,608

$
939,047

$
1,666,480
Amounts with fixed rates

$
110,152

$
473,839

$
910,452

$
1,494,443
Amounts with floating rates

$
105,673

$
37,769

$
28,595

$
172,037
*Includes Paycheck Protection Program (PPP) loans.


	September 30, 2021
(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due After Five Years		Total
Commercial Real Estate	$	80,898	$	224,943	$	550,353	$	856,194
Residential Real Estate	12,592		20,362		338,515		371,469
Commercial*	96,387		150,537		126,386		373,310
Construction and Development	27,868		14,542		27,124		69,534
Consumer and Other	3,770		7,270		5,704		16,744
Total loans	$	221,515	$	417,654	$	1,048,082	$	1,687,251
Amounts with fixed rates	$	108,887	$	347,399	$	1,012,608	$	1,468,894
Amounts with floating rates	$	112,628	$	70,255	$	35,474	$	218,357
*Includes Paycheck Protection Program (PPP) loans.
	December 31, 2020
(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due After Five Years		Total
Commercial Real Estate	$	63,256	$	221,157	$	492,612	$	777,025
Residential Real Estate	16,377		23,862		339,295		379,534
Commercial*	93,184		228,115		70,544		391,843
Construction and Development	37,160		30,131		32,299		99,590
Consumer and Other	3,626		3,850		2,213		9,689
Total loans	$	213,603	$	507,115	$	936,963	$	1,657,681
Amounts with fixed rates	$	108,016	$	469,399	$	908,158	$	1,485,573
Amounts with floating rates	$	105,587	$	37,716	$	28,805	$	172,108
*Includes Paycheck Protection Program (PPP) loans.

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Paycheck Protection Program

~~During the three months ended June 30, 2021, we funded 172 loans representing $17.6 million under Round 3 of the PPP. As of June 30, 2021, we~~

The Company participated in all three rounds of the PPP and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which ~~1,362~~1,745 loans totaling ~~$196.9~~$251.4 million were forgiven by the SBA. Most of the Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. However, wethe 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 Company was $0 ason September 30, 2021.

Table of ~~June 30, 2021.~~

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 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 ~~June~~September 30, 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 $1.0 million. We also engage in 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 ~~$2.8~~$2.8 million as of ~~June~~September 30, 2021, or ~~0.11%~~0.10% of total assets. We had nonperforming assets of $10.4 million as of December 31, 2020, or 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

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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)

June 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

$
252

$
298

Ratio of nonperforming loans to total loans

0.16
%

0.63
%
Ratio of nonperforming assets to total assets

0.11
%

0.51
%

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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 of Directors (“Board”). We 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 $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 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,

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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:


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2021
Commercial real estate	$	853,888	$	—	$	2,306	$	—	$	856,194
Residential real estate	371,469		—		—		—		371,469
Commercial (Non-PPP)	286,334		375		1,468		—		288,177
Commercial (PPP)	85,133		—		—		—		85,133
Construction and land development	69,534		—		—		—		69,534
Consumer	15,349		88		1,307		—		16,744
Total	$	1,681,707	$	463	$	5,081	$	—	$	1,687,251

December 31, 2020
Commercial real estate	$	774,674	$	—	$	2,351	$	—	$	777,025
Residential real estate	379,104		430		—		—		379,534
Commercial (Non-PPP)	196,856		112		9,127		—		206,095
Commercial (PPP)	185,748		—		—		—		185,748
Construction and land development	99,590		—		—		—		99,590
Consumer	8,382		—		1,307		—		9,689
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.

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

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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 ~~six~~nine months ended ~~June~~September 30, 2021, and 2020.

For the Six Months Ended June 30,

For the Year Ended December 31,
(Dollars in thousands)

2021

2020

2020

2019

Balance at beginning of period

$
16,259

$
6,548

$
6,548

$
5,685

Charge-offs









Commercial real estate

—

—

—

—

Residential real estate

—

—

(207)

—

Commercial

(7,641)

(98)

(99)

—

Construction and development

—

—

—

—

Consumer and other

—

—

—

—

Total Charge-offs

(7,641)

(98)

(306)

—

Recoveries









Commercial real estate

—

—

—

—

Residential real estate

—

—

—

—

Commercial

—

—

—

—

Construction and development

—

—

—

—

Consumer and other

—

—

—

1

Total recoveries

—

—

—

1

Net charge-offs (recoveries)

(7,641)

(98)

(306)

—

Provision for loan losses

1,800

2,595

10,017

862

Balance at end of period

$
10,418

$
9,045

$
16,259

$
6,548

ALLL as a percentage of total loans at end of period

0.62
%

0.58
%

0.99
%

0.83
%
ALLL as a percentage of loans (excluding PPP loans) at end of period

0.67
%

0.67
%

1.10
%

0.83
%
ALLL as a multiple of net charge-offs

N/A

N/A

53.1

N/A

ALLL as a percentage of nonperforming loans

375.4
%

224.4
%

155.8
%

287.2
%


	For the Nine Months Ended September 30,						For the Year Ended December 31,
(Dollars in thousands)	2021			2020			2020			2019
Balance at beginning of period	$	16,259		$	6,548		$	6,548		$	5,685
Charge-offs
Commercial real estate	—			—			—			—
Residential real estate	—			(179)			(207)			—
Commercial	(7,641)			(99)			(99)			—
Construction and development	—			—			—			—
Consumer and other	—			—			—			—
Total Charge-offs	(7,641)			(278)			(306)			—
Recoveries
Commercial real estate	—			—			—			—
Residential real estate	—			—			—			—
Commercial	—			—			—			—
Construction and development	—			—			—			—
Consumer and other	—			—			—			1
Total recoveries	—			—			—			1
Net charge-offs	(7,641)			(278)			(306)			—
Provision for loan losses	2,860			8,765			10,017			862
Balance at end of period	$	11,478		$	15,035		$	16,259		$	6,548
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	0.72		%	1.09		%	1.10		%	0.83		%
ALLL as a multiple of net charge-offs	1.5			54.1			53.1			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 ~~$10.4~~$11.5 million at ~~June~~ on September 30, 2021, compared to ~~$16.3~~$16.3 million at on December 31, 2020, a decrease of ~~35.9%~~29.4%. The decrease was 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 Coex in the third quarter of 2020. A reasonable balance was maintained in response to economic weakening and the onset of COVID variants. At On ~~June~~September 30, 2021, our allowance for loan losses was ~~0.67%~~0.72% of total gross loans (excluding Professional Bank PPP loans) and provided coverage of ~~375.4%~~413.6% of our nonperforming loans, compared to an allowance for loan losses to total gross loans (net of overdrafts) ratio of 1.10% as of December 31, 2020. See Reconciliation of non-GAAP Financial Measures. We believe our allowance at on ~~June~~September 30, 2021, was adequate to absorb probable incurred losses inherent in our loan portfolio. The following table provides an allocation of the allowance for loan losses to specific loan types as of ~~June~~September 30, 2021, and December 31, 2020.

June 30, 2021

December 31, 2020

(Dollars in thousands)

Allowance

Percent

Allowance

Percent

Commercial real estate

$
4,285

41.1
%
$
3,159

19.4
%
Residential real estate

2,269

21.8
%

2,177

13.4
%
Commercial

3,423

32.9
%

10,462

64.3
%
Construction and development

361

3.5
%

388

2.4
%
Consumer and other

80

0.8
%

73

0.4
%
Total allowance for loan losses

$
10,418

100.0
%
$
16,259

100.0
%


	September 30, 2021			December 31, 2020
(Dollars in thousands)	Allowance		Percent	Allowance		Percent
Commercial real estate	$	4,079	35.5%	$	3,159	19.5%
Residential real estate	2,222		19.4%	2,177		13.4%
Commercial	4,097		35.7%	10,462		64.3%
Construction and development	333		2.9%	388		2.4%
Consumer and other	747		6.5%	73		0.4%
Total allowance for loan losses	$	11,478	100.0%	$	16,259	100.0%

At ~~June~~September 30, 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 ~~$5.4~~$3.0 million, of which $2.8 million required a specific reserve of ~~$0.7~~$1.3 million, compared to a recorded investment in impaired loans of $13.1 million, of which $10.4 million required a specific reserve of $8.3 million aton December 31, 2020.

Impaired loans also include certain loans that were modified as troubled debt restructurings (“TDR”) At . On ~~June~~September 30, 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 $0.3 million aton December 31, 2020. We did not allocate any specific reserves to loans that have been modified as TDRs as of ~~June~~September 30, 2021, and December 31, 2020.

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Deposits

~~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 ~~$93.6~~$77.8 million and ~~$98.2~~$98.2 million ~~at June~~, on September 30, 2021, and December 31, 2020, respectively. Additionally, we supplement our deposits with wholesale funding sources such as Quickrate, brokered 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 ~~June~~September 30, 2021, and December 31, 2020,, these wholesale deposits represented ~~2.5%~~3.8% and 4.3%, respectively, of our total deposits.

Interest-bearing deposits increased ~~$238.5~~$371.4 million, or ~~20.1%~~36.50%, from December 31, 2020, to ~~June~~September 30, 2021, primarily due to a ~~$131.2~~$194.6 million increase in money market account balances from 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 5435 basis points to for the ~~six~~nine months ended ~~June~~September 30, ~~2021.~~2021, compared to 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 ~~six~~nine months ended ~~June~~September 30, 2021. As of ~~June~~September 30, 2021,, we had approximately ~~$56.5~~$56.4 million in brokered deposits representing ~~2.5%~~2.4% of total deposits. Brokered deposits increased approximately ~~$26.4~~$26.3 million, or ~~87.6%~~87.2%, compared to December 31, ~~2020~~.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 Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

Average

Average

(Dollars in thousands)

Balance

Average Rate

Balance

Average Rate

NOW accounts

$
262,165

0.21
%
$
167,991

0.26
%
Money market accounts

746,474

0.40
%

586,240

0.65
%
Brokered deposits

30,475

0.63
%

11,339

0.90
%
Savings accounts

10,590

0.10
%

7,564

0.13
%
Certificates of deposit

243,989

0.73
%

216,467

1.13
%
Total interest-bearing deposits

1,293,693

0.43
%

989,601

0.97
%
Noninterest-bearing deposits

708,215

—
%

410,357

—
%
Total deposits

$
2,001,908

0.28
%
$
1,399,958

0.48
%

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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.

~~(1)~~

~~Balance Sheet does not illustrate brokered deposits as presented above .~~


	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	%

(1)

Balance Sheet does not illustrate brokered deposits as presented above.

~~Table of Contents~~

~~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 ~~June~~September 30, 2021,.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits less than $100,000

$
4,145

$
3,059

$
9,717

$
3,445

$
20,366
Time deposits greater than or equal to $100,000

35,008

34,227

118,680

53,399

241,314
Total

$
39,153

$
37,286

$
128,397

$
56,844

$
261,680

~~The following table presents the maturities of our certificates of deposit as of~~ and December 31, 2020,.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits less than $100,000

$
5,429

$
3,392

$
6,691

$
4,602

$
20,114
Time deposits greater than or equal to $100,000

55,527

45,180

60,959

54,795

216,461
Total

$
60,956

$
48,572

$
67,650

$
59,397

$
236,575

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

Debt

See Note 7 to the Consolidated Financial Statements (unaudited) dated ~~June~~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 ~~June~~September 30, 2021,, approximately ~~$209.9~~$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 ~~June~~September 30, 2021,, we had $35.0 million in outstanding advances and ~~$134.7~~$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.


(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	$	38,867	$	58,210
Weighted average interest rate during period	1.98%		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 ~~June~~September 30, ~~2021~~2021..

PPPLF Advances. The Company initially funded Professional Bank PPP loans with the PPPLF. Most of the Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. In addition, we paid off ~~approximately $101.4 million in~~all PPPLF advances for a balance of $0 ~~at June~~on September 30, 2021.

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Liquidity and Capital Resources

Capital Resources

Stockholders’ equity increased ~~$7.5~~$12.5 million, or ~~3.5%~~5.8%, to ~~$223.0~~$228.0 million aton ~~June~~September 30, 2021, compared to December 31, 2020, primarily due to net income of ~~$11.1~~$17.4 million for the ~~six~~nine months ended ~~June~~September 30, 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 ~~June~~September 30, 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.

~~During the quarter, the Company infused $15.0 million of capital into the Bank in order to support asset growth and maintain well capitalized ratios at the Bank.~~

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

Minimum to be well

Actual

Minimum for capital adequacy

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


	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

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.

~~June~~Table of Contents

On September 30, 2021,, we had the ability to generate approximately ~~$370.9~~$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. ~~At June~~On September 30, 2021, and December 31, 2020, there were ~~$209.9~~$238.7 million and ~~$227.8~~$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 ~~3.70~~3.43 years and 3.02 years at ~~June~~on September 30, 2021, and December 31, 2020, respectively, and had a net unrealized pre-tax gain of ~~$0.4~~$0.1 million and $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 for added liquidity. As of ~~June~~September 30, 2021, cash held at the holding company was approximately ~~$20.2~~$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 ~~$56.9~~$50.0 million during 2021 compared to an average net overnight funds sold position of $39.6 million for the year ended December 31, 2020. ~~This quarter~~Our liquidity is supported by our continued organic growth ~~coupled with the Correspondent Banking Relationship buttressed~~and our ~~preference for~~ 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 $0.8 million, which will consist primarily of investments in digital capabilities, technology purchases for our new banking offices, business applications and information technology 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 ~~second~~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 ~~June~~September 30, 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

$
—

$
—

$
30,000

$
5,000

$
35,000
Certificates of deposit less than $100,000

16,921

3,405

40

—

20,366
Certificates of deposit $100,000 or more

187,915

53,399

—

—

241,314
Operating leases

1,400

2,717

2,048

706

6,871
Subordinated debt

—

—

—

10,062

10,062
Total

$
206,236

$
59,521

$
32,088

$
15,768

$
313,613


(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.

~~Table of Contents~~

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, 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

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 ~~six~~nine months ended ~~June~~September 30, 2021, and for the year ended December 31, 2020.

Six Months Ended

Year Ended


June 30, 2021

December 31, 2020

Return on Average Assets

0.95
%
0.46
%
Return on Average Equity

10.05
%
4.30
%
Average Equity to Average Assets

9.44
%
10.64
%


	Nine Months Ended September 30, 2021		Year Ended December 31, 2020
Return on Average Assets	0.96	%	0.46	%
Return on Average Equity	10.53	%	4.30	%
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

~~Table of Contents~~

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 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

June 30, 2021

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

$
414,242

$
112,022

$
345,668

$
871,932

$
808,236

$
1,680,168
Loans held for sale

2,039

—

—

2,039

—

2,039
Securities

11,617

7,010

46,396

65,023

62,700

127,723
Interest-bearing deposits at other financial institutions

616,180

—

—

616,180

—

616,180
Federal funds sold

36,156

—

—

36,156

—

36,156
FHLB & FRB stock

7,295

—

—

7,295

—

7,295
Total interest earning assets

$
1,087,529

$
119,032

$
392,064

$
1,598,625

$
870,936

$
2,469,561
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
652,409

$
18,476

$
83,136

$
754,021

$
406,789

$
1,160,810
Time deposits

15,533

23,620

165,683

204,836

56,844

261,680
Total interest-bearing deposits

667,942

42,096

248,819

958,857

463,633

1,422,490
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB advances

—

—

—

—

35,000

35,000
Subordinated debt

—

—

—

—

10,062

10,062
Total interest-bearing liabilities

$
667,942

$
42,096

$
248,819

$
958,857

$
508,695

$
1,467,552
Period gap

$
419,587

$
76,936

$
143,245

$
639,768

$
362,241


Cumulative gap

$
419,587

$
496,523

$
639,768

$
639,768

$
1,002,009


Ratio of cumulative gap to total earning assets

38.58
%

417.13
%

163.18
%

40.02
%

115.05
%


Ratio of cumulative gap to cumulative total earning assets

16.99
%

20.11
%

25.91
%

25.91
%

40.57
%

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CASH FLOW GAP

After One

After Three






Month

Months

Greater than

June 30, 2021

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

$
127,533

$
129,493

$
342,715

$
599,741

$
1,080,427

$
1,680,168
Loans held for sale

2,039

—

—

2,039

—

2,039
Securities

7,384

2,498

10,898

20,780

106,943

127,723
Interest-bearing deposits at other financial institutions

616,180

—

—

616,180

—

616,180
Federal funds sold

36,156

—

—

36,156

—

36,156
FHLB & FRB stock

—

—

—

—

7,295

7,295
Total interest earning assets

$
789,292

$
131,991

$
353,613

$
1,274,896

$
1,194,665

$
2,469,561
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
22,144

$
44,288

$
199,303

$
265,735

$
895,075

$
1,160,810
Time deposits

15,533

23,620

165,683

204,836

56,844

261,680
Total interest-bearing deposits

37,677

67,908

364,986

470,571

951,919

1,422,490
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB advances

—

—

—

—

35,000

35,000
Subordinated debt

—

—

—

—

10,062

10,062
Total interest-bearing liabilities

$
37,677

$
67,908

$
364,986

$
470,571

$
996,981

$
1,467,552
Period gap

$
751,615

$
64,083

$
(11,373)

$
804,325

$
197,684

Cumulative gap

$
751,615

$
815,698

$
804,325

$
804,325

$
1,002,009

Ratio of cumulative gap to total earning assets

95.23
%

618.00
%

227.46
%

63.09
%

83.87
%


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		%

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.

Table of Contents

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 ~~June~~September 30, 2021, and December 31, 2020, and 2019.

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
%
June 30, 2021

(7.8)
%
(5.9)
%
(3.4)
%
(0.7)
%
N/A

9.2
%
18.4
%
27.5
%
36.5
%
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
%

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
%
June 30, 2021

(15.3)
%
(12.6)
%
(9.1)
%
(5.4)
%
N/A

11.4
%
22.4
%
33.5
%
44.4
%
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
%


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	N/A		N/A		N/A		N/A
September 30, 2021	(7.5)	%	(5.5)	%	(2.9)	%	0.4	%	N/A	7.8	%	15.6	%	23.4	%	31.1	%
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	%

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	N/A		N/A		N/A		N/A
September 30, 2021	(14.3)	%	(11.7)	%	(8.3)	%	(5.0)	%	N/A	10.0	%	20.1	%	30.0	%	39.8	%
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	%

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.

~~Table of Contents~~

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

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
%
June 30, 2021

(0.4)
%
(0.5)
%
(0.3)
%
(1.6)
%
N/A

1.8
%
3.2
%
4.0
%
4.2
%
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)
%


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	%
September 30, 2021	2.2	%	2.1	%	2.1	%	0.1	%	N/A	0.2	%	0.3	%	(0.1)	%	(1.2)	%
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)	%

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.

Table of Contents

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 ~~June~~September 30, 2021, purchase accounting loan marks were ~~$16.1~~$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 our financial statements. Please also refer to the Notes to our consolidated financial statements included in this 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

Table of Contents

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 ~~June~~September 30, 2021, Pro Opp Fund LLC committed to investments of approximately ~~$1.7~~$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. ~~The Company continues~~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 ~~situation closely, updating plans where necessary,~~globe; various, and often conflicting, governmental strategies to address COVID-19 , including for the variants of ~~COVID, to ensure that they comply with the latest governmental guidelines~~COVID; and ~~health conditions.~~

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. GAAP, ~~including adjusted net income and adjusted net income per share,~~ 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.

~~Table of Contents~~

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.

Table of Contents

Reconciliation of non-GAAP Financial Measures

Three Months Ended

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

(Dollar amounts in thousands, except per share data)

2021

2020

2021

2021

2020

Net interest income (GAAP)

$
17,202

$
16,291

$
17,879

$
35,081

$
24,352

Total non-interest income

2,302

968

1,119

3,421

1,824

Total non-interest expense

10,954

11,548

11,788

22,742

21,034

Pre-tax pre-provision earnings (non-GAAP)

$
8,550

$
5,711

$
7,210

$
15,760

$
5,142

Total adjustments to non-interest expense

—

(560)

(684)

(684)

(2,223)

Adjusted pre-tax pre-provision earnings (non-GAAP)

$
8,550

$
6,271

$
7,894

$
16,444

$
7,365

Return on average assets (GAAP)

0.99
%

0.38
%

0.90
%

0.95
%

0.24
%
Adjusted return on average assets (non-GAAP)

Annualized pre-tax pre-provision ROAA (non-GAAP)

1.33
%

1.19
%

1.36
%

1.35
%

0.67
%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)

1.33
%

1.30
%

1.45
%

1.40
%

0.96
%

June 30, 2021

December 31, 2020

Total loans (GAAP)

$
1,680,186

$
1,643,373

Add allowance for loan loss

10,418

16,259

Add unearned loan origination fees (costs), net

6,839

5,578

Add loans held for sale

2,039

1,270

Total gross loans

$
1,699,482

$
1,666,480

Less PPP loans

144,118

189,977

Total gross loans excluding Professional Bank PPP loans (non-GAAP)

$
1,555,364

$
1,476,503

Add purchase accounting loan marks

16,133

18,835

Total gross loans excluding PPP loans and loan marks (non-GAAP)

$
1,571,497

$
1,495,338

Allowance for loan loss as a % of total loans (GAAP)

0.62
%

0.99
%
Allowance for loan loss as a % of total gross loans excluding Professional Bank PPP loans (non-GAAP)

0.67
%

1.10
%
Loan marks + allowance for loan loss / total gross loans excluding PPP loans and loan marks (non-GAAP)

1.69
%

2.35
%


	Three Months Ended September 30,						Three Months Ended June 30,			Nine Months Ended September 30,
(Dollar amounts in thousands, except per share data)	2021			2020			2021			2021			2020
Net interest income (GAAP)	$	19,104		$	17,460		$	17,202		$	54,185		$	41,812
Total non-interest income	1,476			963			2,302			4,897			2,787
Total non-interest expense	11,624			11,713			10,954			34,366			32,747
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)			—			(684)			(3,301)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	8,956		$	7,788		$	8,550		$	25,400		$	15,153

Return on average assets (GAAP)	0.97		%	0.18		%	0.99		%	0.96		%	0.21		%
Adjusted return on average assets (non-GAAP)
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)	1.39		%	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 1934, as amended, we carried out an evaluation under the supervision and with the participation of our 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~~ 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 ~~June~~September 30, 2021, our disclosure controls and 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.

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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 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.

The section titled Risk Factors in Part I, Item 1A of our 2020 Form 10-K included a discussion of the many risks and 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. ~~There are~~Other than as noted below, there have been no material changes to our risk factors as previously described under Item 1A of our 2020 Form 10-K.

Presidential Directive to the Occupational Safety and 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 Florida) may be announced in areas in which 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 material adverse effect on our business, financial conditions, and result of operations.

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

~~(a)~~

~~Not applicable.~~

(a)

~~(b)~~

~~Use of Proceeds.~~

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 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 ~~June~~September 30, 2021, we 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, fund $800 thousand with the remaining proceeds pushed down to the Bank for general corporate purposes, including working capital and capital expenditures. None of the proceeds were used as payments to our directors or officers (or their associates), or to our affiliates or 10% 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.~~

(c)

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

As detailed in our 10-K Part II, Item 5 for the 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 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 iswas available to purchase outstanding shares of the Company’s Class A voting common stock. Under this

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program, shares may be repurchased in privately negotiated and/or open market transactions,

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including under plans complying with Rule 10b5-1 under the Exchange Act. The purchases made during the three months ended ~~June~~September 30, 2021, are shown below:

Approximate Dollar

Value of Shares that

Total Number of

Average Price

May yet be Purchased
Periods

Shares Purchased

Paid per Share

Under the Plan
April 1, 2021 to April 30, 2021:

443

16.99

4,060,469
May 1, 2021 to May 31, 2021:

55,229

17.95

8,995,600
June 1, 2021 to June 30, 2021:

137,617

17.86

6,537,348
Total - 2nd Quarter

193,289

$
17.88

$
6,537,348


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

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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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.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.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
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

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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 ~~August 16,~~November 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