~~The~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended: ~~June~~September 30, 2021



o		TRANSITION REPORT PURSUANT TO SECTION 13 OFOR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____ to _____

Commission file number: 000-51018

THE BANCORP, INC.

(Exact name of registrant as specified in its charter)


Delaware		23-3016517
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

409 Silverside Road, Wilmington, DE 19809		(302) 385-5000
(Address of principal executive offices and zip code)		(Registrant's telephone number, including area code)

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



Title of Each Class	Trading Symbol(s)	Name of each Exchange on Which Registered
Common Stock, par value $1.00 per share	TBBK	Nasdaq Global Select

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 No o

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). Yes x No o

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 x	Non-accelerated filer o
Smaller reporting company o	Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of ~~July 30,~~October 29, 2021, there were ~~57,022,400~~56,980,415 outstanding shares of common stock, $1.00 par value.

THE BANCORP, INC

Form 10-Q Index


		Page
Part I Financial Information
Item 1.	Financial Statements:	4

	Consolidated Balance Sheets – ~~June~~September 30, 2021 (unaudited) and December 31, 2020	4

	Unaudited Consolidated Statements of Operations – Three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020	5

	Unaudited Consolidated Statements of Comprehensive Income – Three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020	6

	Unaudited Consolidated Statements of Changes in Shareholders’ Equity – ~~Six~~Nine months ended ~~June~~September 30, 2021 and 2020	7

	Unaudited Consolidated Statements of Cash Flows – ~~Six~~Nine months ended ~~June~~September 30, 2021 and 2020	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4440

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7467

Item 4.	Controls and Procedures	7467

Part II Other Information

Item 1.	Legal Proceedings	7568
Item 1A.	Risk Factors	7568
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7568
Item 3.	Defaults Upon Senior Securities	7568
Item 4.	Mine Safety Disclosures	7568
Item 5.	Other Information	7569
Item 6.	Exhibits	7670

Signatures		7771

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
		(unaudited)				(unaudited)
		(in thousands, except share data)				(in thousands, except share data)
ASSETS
Cash and cash equivalents
Cash and due from banks	$	5,470	$	5,984	$	6,687	$	5,984
Interest earning deposits at Federal Reserve Bank		583,498		339,531		310,642		339,531
Total cash and cash equivalents		588,968		345,515		317,329		345,515

Investment securities, available-for-sale, at fair value		1,106,075		1,206,164		1,054,223		1,206,164
Commercial loans, at fair value		1,690,216		1,810,812		1,550,025		1,810,812
Loans, net of deferred loan fees and costs		2,915,344		2,652,323		3,136,662		2,652,323
Allowance for credit losses		(15,292)		(16,082)		(16,159)		(16,082)
Loans, net		2,900,052		2,636,241		3,120,503		2,636,241
Federal Home Loan Bank and Atlantic Central Bankers Bank stock		1,667		1,368		1,663		1,368
Premises and equipment, net		17,392		17,608		16,602		17,608
Accrued interest receivable		18,668		20,458		17,180		20,458
Intangible assets, net		2,646		2,845		2,547		2,845
Other real estate owned						2,145		—
Deferred tax asset, net		10,923		9,757		12,237		9,757
Investment in unconsolidated entity, at fair value		24,988		31,294		—		31,294
Assets held-for-sale from discontinued operations		97,496		113,650		87,904		113,650
Other assets		91,516		81,129		86,105		81,129
Total assets	$	6,550,607	$	6,276,841	$	6,268,463	$	6,276,841

LIABILITIES
Deposits
Demand and interest checking	$	5,225,024	$	5,205,010	$	4,734,352	$	5,205,010
Savings and money market		459,688		257,050		378,160		257,050
Total deposits		5,684,712		5,462,060		5,112,512		5,462,060

Securities sold under agreements to repurchase		42		42		42		42
Short-term borrowings						300,000		—
Senior debt		98,498		98,314		98,590		98,314
Subordinated debentures		13,401		13,401		13,401		13,401
Other long-term borrowings		39,901		40,277		39,715		40,277
Other liabilities		94,944		81,583		66,226		81,583
Total liabilities		5,931,498		5,695,677		5,630,486		5,695,677

SHAREHOLDERS' EQUITY
Common stock - authorized, 75,000,000 shares of $1.00 par value; 57,458,287 and 57,550,629
shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		57,458		57,551
Common stock - authorized, 75,000,000 shares of $1.00 par value; 57,330,846 and 57,550,629
shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively						57,331		57,551
Additional paid-in capital		363,241		377,452		357,528		377,452
Retained earnings		183,853		128,453		212,114		128,453
Accumulated other comprehensive income		14,557		17,708		11,004		17,708
Total shareholders' equity		619,109		581,164		637,977		581,164

Total liabilities and shareholders' equity	$	6,550,607	$	6,276,841	$	6,268,463	$	6,276,841

The accompanying notes are an integral part of these consolidated statements.

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS



	For the three months ended June 30,				For the six months ended June 30,				For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
	(in thousands, except per share data)								(in thousands, except per share data)
Interest income
Loans, including fees	$	49,454	$	41,577	$	97,358	$	80,893	$	46,426	$	44,433	$	143,784	$	125,326
Investment securities:
Taxable interest		7,201		10,188		16,009		20,683		6,882		7,911		22,891		28,594
Tax-exempt interest		25		27		53		59		25		28		78		87
Interest earning deposits		300		107		483		1,730		167		106		650		1,836
		56,980		51,899		113,903		103,365		53,500		52,478		167,403		155,843
Interest expense
Deposits		1,519		1,510		3,285		9,738		1,209		1,730		4,494		11,468
Short-term borrowings		—		15		8		180		7		1		15		181
Senior debt		1,280		—		2,559		—		1,279		633		3,838		633
Subordinated debentures		112		128		225		290		112		118		337		408
		2,911		1,653		6,077		10,208		2,607		2,482		8,684		12,690
Net interest income		54,069		50,246		107,826		93,157		50,893		49,996		158,719		143,153
Provision for credit losses		(951)		922		(129)		4,501		1,613		1,297		1,484		5,798
Net interest income after provision for credit losses		55,020		49,324		107,955		88,656		49,280		48,699		157,235		137,355

Non-interest income
ACH, card and other payment processing fees		1,904		1,707		3,700		3,553		1,905		1,760		5,605		5,313
Prepaid, debit card and related fees		19,447		18,673		38,655		37,213		18,223		19,434		56,878		56,647
Net realized and unrealized gains (losses) on commercial loans,
at fair value		2,579		(940)		4,575		(6,096)		4,306		684		8,881		(5,412)
Change in value of investment in unconsolidated entity		—		—		—		(45)		—		—		—		(45)
Leasing related income		1,767		443		2,732		1,276		1,968		1,519		4,700		2,795
Other		164		483		273		1,064		186		955		459		2,019
Total non-interest income		25,861		20,366		49,935		36,965		26,588		24,352		76,523		61,317

Non-interest expense
Salaries and employee benefits		27,087		25,492		52,745		48,233		25,094		26,417		77,839		74,650
Depreciation and amortization		706		828		1,415		1,672		729		785		2,144		2,457
Rent and related occupancy cost		1,271		1,396		2,521		2,815		1,256		1,376		3,777		4,191
Data processing expense		1,146		1,177		2,272		2,346		1,209		1,192		3,481		3,538
Printing and supplies		130		168		196		326		81		114		277		440
Audit expense		391		407		754		808		356		397		1,110		1,205
Legal expense		2,044		2,229		4,098		3,142		1,251		994		5,349		4,136
Amortization of intangible assets		100		147		199		294		99		147		298		441
FDIC insurance		2,589		2,918		4,969		5,507		266		2,180		5,235		7,687
Software		3,706		3,386		7,390		6,863		4,045		3,595		11,435		10,458
Insurance		1,026		695		1,771		1,318		1,110		741		2,881		2,059
Telecom and IT network communications		409		402		814		794		413		392		1,227		1,186
Consulting		240		346		504		601		448		410		952		1,011
Other		3,038		3,029		6,118		6,319		3,027		3,286		9,145		9,605
Total non-interest expense		43,883		42,620		85,766		81,038		39,384		42,026		125,150		123,064
Income from continuing operations before income taxes		36,998		27,070		72,124		44,583		36,484		31,025		108,608		75,608
Income tax expense		7,840		6,787		16,906		11,139		8,289		7,894		25,195		19,033
Net income from continuing operations	$	29,158	$	20,283	$	55,218	$	33,444	$	28,195	$	23,131	$	83,413	$	56,575
Discontinued operations
Income (loss) from discontinued operations before income taxes		361		(274)		237		(1,049)		87		(1,671)		324		(2,720)
Income tax expense (benefit)		84		(59)		55		(264)		21		(1,794)		76		(2,058)
Income (loss) from discontinued operations, net of tax		277		(215)		182		(785)		66		123		248		(662)
Net income	$	29,435	$	20,068	$	55,400	$	32,659	$	28,261	$	23,254	$	83,661	$	55,913

Net income per share from continuing operations - basic	$	0.51	$	0.35	$	0.96	$	0.58	$	0.49	$	0.40	$	1.45	$	0.98
Net income (loss) per share from discontinued operations - basic	$	—	$	—	$	0.01	$	(0.01)	$	—	$	—	$	0.01	$	(0.01)
Net income per share - basic	$	0.51	$	0.35	$	0.97	$	0.57	$	0.49	$	0.40	$	1.46	$	0.97

Net income per share from continuing operations - diluted	$	0.49	$	0.35	$	0.93	$	0.58	$	0.48	$	0.40	$	1.41	$	0.97
Net income (loss) per share from discontinued operations - diluted	$	—	$	—	$	0.01	$	(0.01)	$	—	$	—	$	0.01	$	(0.01)
Net income per share - diluted	$	0.50	$	0.35	$	0.94	$	0.57	$	0.48	$	0.40	$	1.42	$	0.96

The accompanying notes are an integral part of these consolidated statements.

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the three months ended June 30,				For the six months ended June 30,				For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
	(in thousands)								(in thousands)

Net income	$	29,435	$	20,068	$	55,400	$	32,659	$	28,261	$	23,254	$	83,661	$	55,913
Other comprehensive (loss) income, net of reclassifications into net income:

Other comprehensive (loss) income
Securities available-for-sale:
Change in net unrealized (losses) gains during the period		(82)		18,060		(4,325)		20,182		(4,867)		(114)		(9,192)		20,068
Reclassification adjustments for losses included in income		—		—		7		—		—		—		7		—
Amortization of losses previously held as available-for-sale		—		—		—		5		—		—		—		5
Other comprehensive (loss) income		(82)		18,060		(4,318)		20,187		(4,867)		(114)		(9,185)		20,073

Income tax (benefit) expense related to items of other comprehensive income
Securities available-for-sale:
Change in net unrealized (losses) gains during the period		(22)		4,876		(1,169)		5,449		(1,314)		(31)		(2,483)		5,418
Reclassification adjustments for losses included in income		—		—		2		—		—		—		2		—
Amortization of losses previously held as available-for-sale		—		—		—		1		—		—		—		1
Income tax (benefit) expense related to items of other comprehensive income		(22)		4,876		(1,167)		5,450		(1,314)		(31)		(2,481)		5,419

Other comprehensive (loss) income, net of tax and reclassifications into net income		(60)		13,184		(3,151)		14,737		(3,553)		(83)		(6,704)		14,654
Comprehensive income	$	29,375	$	33,252	$	52,249	$	47,396	$	24,708	$	23,171	$	76,957	$	70,567

The accompanying notes are an integral part of these consolidated statements.

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


For the six months ended June 30, 2021
For the nine months ended September 30, 2021													For the nine months ended September 30, 2021
(in thousands, except share data)	(in thousands, except share data)												(in thousands, except share data)

										Accumulated												Accumulated
	Common				Additional				other				Common				Additional				other
	stock		Common		paid-in		Retained		comprehensive				stock		Common		paid-in		Retained		comprehensive
	shares		stock		capital		earnings		income		Total		shares		stock		capital		earnings		income		Total

Balance at January 1, 2021		57,550,629	$	57,551	$	377,452	$	128,453	$	17,708	$	581,164		57,550,629	$	57,551	$	377,452	$	128,453	$	17,708	$	581,164
Net income		—		—		—		25,965		—		25,965		—		—		—		25,965		—		25,965
Common stock issued from option exercises,
net of tax benefits		61,500		61		404		—		—		465		61,500		61		404		—		—		465
Common stock issued from restricted units,
net of tax benefits		230,212		230		(230)		—		—		—		230,212		230		(230)		—		—		—
Stock-based compensation		—		—		2,261		—		—		2,261		—		—		2,261		—		—		2,261
Common stock repurchases		(594,428)		(594)		(9,406)		—		—		(10,000)		(594,428)		(594)		(9,406)		—		—		(10,000)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(3,091)		(3,091)		—		—		—		—		(3,091)		(3,091)
Balance at March 31, 2021		57,247,913	$	57,248	$	370,481	$	154,418	$	14,617	$	596,764		57,247,913	$	57,248	$	370,481	$	154,418	$	14,617	$	596,764

Net income		—	$	—	$	—	$	29,435	$	—	$	29,435		—	$	—	$	—	$	29,435	$	—	$	29,435
Common stock issued from option exercises,
net of tax benefits		217,368		217		547		—		—		764		217,368		217		547		—		—		764
Common stock issued from restricted units,
net of tax benefits		442,321		442		(442)		—		—		—		442,321		442		(442)		—		—		—
Stock-based compensation		—		—		2,206		—		—		2,206		—		—		2,206		—		—		2,206
Common stock repurchases		(449,315)		(449)		(9,551)		—		—		(10,000)		(449,315)		(449)		(9,551)		—		—		(10,000)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(60)		(60)		—		—		—		—		(60)		(60)
Balance at June 30, 2021		57,458,287	$	57,458	$	363,241	$	183,853	$	14,557	$	619,109		57,458,287	$	57,458	$	363,241	$	183,853	$	14,557	$	619,109

Net income														—	$	—	$	—	$	28,261	$	—	$	28,261
Common stock issued from option exercises,
net of tax benefits														313,446		314		1,790		—		—		2,104
Stock-based compensation														—		—		2,056		—		—		2,056
Common stock repurchases														(440,887)		(441)		(9,559)		—		—		(10,000)
Other comprehensive loss net of
reclassification adjustments and tax														—		—		—		—		(3,553)		(3,553)
Balance at September 30, 2021														57,330,846	$	57,331	$	357,528	$	212,114	$	11,004	$	637,977

The accompanying notes are an integral part of these consolidated statements.

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


For the six months ended June 30, 2020
For the nine months ended September 30, 2020														For the nine months ended September 30, 2020
(in thousands, except share data)	(in thousands, except share data)													(in thousands, except share data)
											Accumulated												Accumulated
	Common					Additional				other				Common				Additional				other
	stock		Common			paid-in		Retained		comprehensive				stock		Common		paid-in		Retained		comprehensive
	shares		stock			capital		earnings		income		Total		shares		stock		capital		earnings		income		Total

Balance at January 1, 2020		56,840,521	$	56,841		$	370,867	$	50,742	$	6,047	$	484,497		56,840,521	$	56,841	$	370,867	$	50,742	$	6,047	$	484,497
Adoption of current expected credit loss
accounting, net of taxes		—		—			—		(2,373)		—		(2,373)		—		—		—		(2,373)		—		(2,373)
Net income		—		—			—		12,591		—		12,591		—		—		—		12,591		—		12,591
Common stock issued from option exercises,
net of tax benefits		74,000		74			546		—		—		620		74,000		74		546		—		—		620
Common stock issued from restricted units,
net of tax benefits		411,035		411	—		(411)		—		—		—		411,035		411		(411)		—		—		—
Stock-based compensation		—		—			1,216		—		—		1,216		—		—		1,216		—		—		1,216
Other comprehensive income net of
reclassification adjustments and tax		—		—			—		—		1,553		1,553		—		—		—		—		1,553		1,553
Balance at March 31, 2020		57,325,556	$	57,326		$	372,218	$	60,960	$	7,600	$	498,104		57,325,556	$	57,326	$	372,218	$	60,960	$	7,600	$	498,104

Net income		—	$	—		$	—	$	20,068	$	—	$	20,068		—	$	—	$	—	$	20,068	$	—	$	20,068
Common stock issued from restricted units,
Common stock issued from option exercises,
net of tax benefits		129,752		129			(129)		—		—		—		129,752		129		(129)		—		—		—
Stock-based compensation		—		—			1,723		—		—		1,723		—		—		1,723		—		—		1,723
Other comprehensive income net of
reclassification adjustments and tax		—		—			—		—		13,184		13,184		—		—		—		—		13,184		13,184
Balance at June 30, 2020		57,455,308	$	57,455		$	373,812	$	81,028	$	20,784	$	533,079		57,455,308	$	57,455	$	373,812	$	81,028	$	20,784	$	533,079

Net income															—	$	—	$	—	$	23,254	$	—	$	23,254
Common stock issued from restricted units,
net of tax benefits															35,566		36		(36)		—		—		—
Stock-based compensation															—		—		2,209		—		—		2,209
Other comprehensive loss net of
reclassification adjustments and tax															—		—		—		—		(83)		(83)
Balance at September 30, 2020															57,490,874	$	57,491	$	375,985	$	104,282	$	20,701	$	558,459

The accompanying notes are an integral part of these consolidated statements.

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the six months				For the nine months
	ended June 30,				ended September 30,
	2021		2020		2021		2020
		(in thousands)				(in thousands)
Operating activities
Net income from continuing operations	$	55,218	$	33,444	$	83,413	$	56,575
Net income (loss) from discontinued operations		182		(785)		248		(662)
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Depreciation and amortization		1,614		1,966		2,442		2,898
Provision for credit losses		(129)		4,501		1,484		5,798
Net amortization of investment securities discounts/premiums		2,358		9,008		3,216		13,929
Stock-based compensation expense		4,467		2,940		6,523		5,149
Commercial loans, at fair value originated during the period		(45,643)		(634,860)
Sales and payments on commercial loans, at fair value		168,748		3,689
(Gain) loss on commercial loans, at fair value		(3,723)		135		(7,267)		126
(Gain) loss from discontinued operations		(1,107)		707		(1,492)		668
Fair value adjustment on investment in unconsolidated entity		—		45		—		45
Change in fair value of commercial loans, at fair value		838		3,600		1,330		3,054
Change in fair value of derivatives		(1,330)		2,361		(1,328)		2,233
Loss on sales of investment securities		7		—		7		—
Decrease (increase) in accrued interest receivable		1,790		(5,278)		3,278		(5,233)
(Increase) decrease in other assets		(11,471)		15,303		(6,216)		8,050
(Decrease) increase in other liabilities		(14,917)		8,824
Net cash provided by (used in) operating activities		156,902		(554,400)
Change in fair value of discontinued assets held-for-sale						498		—
Decrease in other liabilities						(14,744)		(2,770)
Net cash provided by operating activities						71,392		89,860

Investing activities
Purchase of investment securities available-for-sale		(153,481)		(23,059)		(246,958)		(27,658)
Proceeds from redemptions and prepayments of securities available-for-sale		276,679		114,855		386,369		173,892
Net cash paid due to acquisitions, net of cash acquired		—		(3,920)		—		(3,920)
Net decrease in repossessed assets		792		—		927		10,529
Net increase in loans		(263,597)		(506,680)		(485,647)		(672,666)
Net decrease in discontinued loans held-for-sale		15,444		10,337		21,882		13,710
Commercial loans, at fair value originated or drawn during the period						(62,151)		(683,696)
Payments on commercial loans, at fair value						351,239		10,586
Purchases of premises and equipment		(1,284)		(834)		(1,237)		(999)
Change in receivable from investment in unconsolidated entity		(6)		6		18		45
Return of investment in unconsolidated entity		6,306		5,045		7,337		7,326
Decrease in discontinued assets held-for-sale		1,817		1,150		4,858		4,026
Net cash used in investing activities		(117,330)		(403,100)		(23,363)		(1,168,825)

Financing activities
Net increase in deposits		222,652		493,169
Net (decrease) increase in deposits						(349,548)		336,732
Net decrease in securities sold under agreements to repurchase		—		(40)		—		(40)
Proceeds of short-term borrowings						300,000		—
Proceeds of senior debt offering						—		98,160
Proceeds from the issuance of common stock		1,229		620		3,333		619
Repurchase of common stock		(20,000)		—
Net cash provided by financing activities		203,881		493,749
Repurchases of common stock						(30,000)		—
Net cash (used in) provided by financing activities						(76,215)		435,471

Net increase (decrease) in cash and cash equivalents		243,453		(463,751)
Net decrease in cash and cash equivalents						(28,186)		(643,494)

Cash and cash equivalents, beginning of period		345,515		944,472		345,515		944,472

Cash and cash equivalents, end of period	$	588,968	$	480,721	$	317,329	$	300,978

Supplemental disclosure:
Interest paid	$	6,555	$	9,295	$	10,343	$	11,098
Taxes paid	$	23,250	$	6,090	$	31,057	$	16,694
Non-cash investing and financing activities
Investment securities purchased and not settled	$	29,608	$	—
Loans settled in acquisition	$	—	$	3,961	$	—	$	3,961
Transfers of discontinued loans to discontinued other real estate owned	$	—	$	3,780
Transfer of loans from investment in unconsolidated entity upon its dissolution					$	22,926	$	—
Transfer of real estate owned from investment in unconsolidated entity upon its dissolution					$	2,145	$	3,780
Leased vehicles transferred to repossessed assets	$	690	$	15,318	$	757	$	15,318

The accompanying notes are an integral part of these consolidated statements.

‎

THE BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Structure of Company

The Bancorp, Inc., or (“the Company”), is a Delaware corporation and a registered financial holding company. Its primary subsidiary is The Bancorp Bank, or (“the Bank”), which is wholly owned by the Company. The Bank is a Delaware chartered commercial bank located in Wilmington, Delaware and is a Federal Deposit Insurance Corporation (“FDIC”) insured institution. In its continuing operations, the Bank has 4 primary lines of national specialty lending: securities-backed lines of credit (“SBLOC”) and cash value of insurance-backed lines of credit (“IBLOC”), leasing (direct lease financing), Small Business Administration (“SBA”) loans and ~~prior~~ ~~to 2020,~~ non-SBA commercial real estate (“CRE”) loans (the “CRE loans”). Prior to 2020, The Company generated non-SBA CRE loans for sale into capital markets primarily through loan securitizations which issued commercial mortgage backed securities (“CMBS”). In 2020, the Company decided to retain the CRE loans on its balance sheet and no future securitizations are currently planned. In the third quarter of 2021, the ~~Bank began~~Company resumed originating non-SBA CRE loans, after suspending ~~originating~~the origination of such loans for most of 2020 and the first half of 2021. Additionally, in 2020, the Company began originating advisor financing loans to investment advisors for debt refinance, acquisition of other advisory firms or internal succession. Through the Bank, the Company also provides banking services nationally, which include prepaid and debit cards, private label banking, deposit accounts to investment advisors’ customers, card payment and other payment processing.

The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they are examined periodically by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses may be affected by state and federal legislation and regulations.

Note 2. Significant Accounting Policies

Basis of Presentation

The financial statements of the Company, as of ~~June~~September 30, 2021 and for the three and ~~six~~nine month periods ended ~~June~~September 30, 2021 and 2020, are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 ~~(“the 2020~~(the “2020 Form 10-K”). The results of operations for the ~~six~~nine month period ended ~~June~~September 30, 2021 may not necessarily be indicative of the results of operations for the full year ending December 31, 2021. Reclassifications have been made to the 2020 consolidated financial statements to conform to the 2021 presentation. Specifically, the minimal service fees on deposit accounts which were shown separately on the income statement are now shown in other income. In the first quarter of 2021, the Company changed its presentation of treasury stock acquired through common stock repurchases. To simplify presentation, common stock repurchases previously shown separately as treasury stock, are now shown as reductions in common stock and additional paid-in capital.

There have been no significant changes to the Significant Accounting Policies as described in the 2020 Form 10-K. Those significant accounting policies remain unchanged at ~~June~~September 30, 2021, except those relating to the COVID-19 pandemic for which management has updated their assessment of related risks and uncertainties. Those risks have been reduced as a result of increased vaccination rates, the significant reopening of the economy and the elimination of the vast majority of the Company’s COVID-related loan payment deferrals. Additionally, previous balance sheets included investment in unconsolidated entity, which reflected the Company’s balance of the Walnut Street investment. Walnut Street was comprised of Bancorp loans sold to that entity, which was partially financed by an independent investor. In the third quarter of 2021, The Bancorp and that investor dissolved the entity, as the remaining balance did not warrant ongoing administrative and accounting expenses. As a result of the dissolution, the investment in unconsolidated entity, which had a June 30, 2021 balance of $25.0 million, was reclassified as follows. Approximately $22.9 million of loans were reclassified to commercial loans, at fair value and $2.1 million was reclassified to other real estate owned, as those assets continue to be reported at fair value.

Our non-SBA commercial real estate loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest earning assets and have again begun originating such loans, primarily to replace the impact of loan payoffs. These new originations are identified as real estate bridge loans and are held for investment in the loan portfolio. Prior originations originally intended for securitizations which were accounted for at fair value, continue to be accounted for at fair value, and are included in the balance sheet in “commercial loans, at fair value.”

Note 3. Stock-based Compensation

The Company recognizes compensation expense for stock options in accordance with Financial Accounting Standards Board (“FASB”) ASC 718, “Stock Based Compensation”. The expense of the option is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is typically the vesting period. For grants subject to a service condition, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. In accordance with ASC 718, the Company estimates the number of options for which the requisite service is expected to be rendered. At ~~June~~September 30, 2021, the Company had 4 active stock-based compensation plans.

The Company granted 100,000 stock options with a vesting period of four years during the ~~six~~nine month period ended ~~June~~September 30, 2021. The weighted average grant-date fair value was $8.51. The Company granted 300,000 stock options with a vesting period of four years during the ~~six~~nine month period ended ~~June~~September 30, 2020. The weighted average grant-date fair value was $3.02. There were ~~342,500~~657,500 common stock options exercised in the ~~six~~nine month period ended ~~June~~September 30, 2021. There were 74,000 common stock options exercised in the ~~six~~nine month period ended ~~June~~September 30, 2020.

A summary of the Company’s stock options is presented below.



				Weighted average						Weighted average
				remaining						remaining
		Weighted average		contractual	Aggregate			Weighted average		contractual	Aggregate
	Options	exercise price		term (years)	intrinsic value		Options	exercise price		term (years)	intrinsic value
Outstanding at January 1, 2021	1,161,604	$	7.62	4.75	$	7,001,843	1,161,604	$	7.62	4.75	$	7,001,843
Granted	100,000		18.81	9.62		420,000	100,000		18.81	9.37		664,000
Exercised	(342,500)		8.16	—		5,117,800	(657,500)		7.51	—		10,465,250
Expired	—		—	—		—	—		—	—		—
Forfeited	—		—	—		—	—		—	—		—
Outstanding at June 30, 2021	919,104	$	8.64	6.25	$	13,207,092
Exercisable at June 30, 2021	561,552	$	7.54	3.48	$	8,685,541
Outstanding at September 30, 2021							604,104	$	9.60	6.81	$	9,574,056
Exercisable at September 30, 2021							246,552	$	8.50	4.03	$	4,180,078

The Company granted 313,697 restricted stock units (“RSUs”) in the first ~~six~~nine months of 2021 of which 261,073 have a vesting period of three years and 52,624 have a vesting period of one year. At issuance, the 313,697 RSUs granted in the first ~~six~~nine months of 2021 had a fair value of $18.81 per unit. In the first ~~six~~nine months of 2020, the Company granted 1,531,702 RSUs of which 1,387,602 have a vesting period of three years and 144,100 have a vesting period of one year. At issuance, the 1,531,702 RSUs granted in the first ~~six~~nine months of 2020 had a fair value of $6.87 per unit.

A summary of the status of the Company’s RSUs is presented below.



		Weighted average		Average remaining		Weighted average		Average remaining
		grant date		contractual		grant date		contractual
	RSUs	fair value		term (years)	RSUs	fair value		term (years)
Outstanding at January 1, 2021	1,787,943	$	7.49	1.50	1,787,943	$	7.49	1.50
Granted	313,697		18.81	2.28	313,697		18.81	2.03
Vested	(672,533)		7.72	—	(672,533)		7.72	—
Forfeited	(39,290)		7.57	—	(50,487)		8.73	—
Outstanding at June 30, 2021	1,389,817	$	9.93	1.38
Outstanding at September 30, 2021					1,378,620	$	9.91	1.12

As of ~~June~~September 30, 2021, there was a total of ~~$11.4~~$9.3 million of unrecognized compensation cost related to unvested awards under share-based plans. This cost is expected to be recognized over a weighted average period of approximately ~~1.7~~1.5 years. Related compensation expense for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~$4.5~~$6.5 million and ~~$3.0~~$5.1 million, respectively. The total issuance date fair value of RSUs vested and options exercised during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 was ~~$6.7~~$7.6 million and ~~$5.0~~$5.3 million, respectively. The total intrinsic value of the options exercised and RSUs vested in those respective periods was ~~$19.9~~$25.3 million and ~~$6.2~~$6.5 million, respectively.

For the periods ended ~~June~~September 30, 2021 and 2020, the Company estimated the fair value of each stock option grant on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:



	June 30,		September 30,
	2021	2020	2021	2020
Risk-free interest rate	1.19%	0.68%	1.19%	0.68%
Expected dividend yield	—	—	—	—
Expected volatility	45.61%	45.20%	45.61%	45.20%
Expected lives (years)	6.3	6.3	6.3	6.3

Expected volatility is based on the historical volatility of the Company’s stock and peer group comparisons over the expected life of the grant. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury strip rate in effect at the time of the grant. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee terminations. In accordance with ASC 718, Stock Based Compensation, stock based compensation expense for the period

ended ~~June~~September 30, 2021 is based on awards that are ultimately expected to vest and has been reduced for estimated forfeitures. The Company estimated forfeitures using historical data based upon the groups identified by management.

Note 4. Earnings Per Share

The Company calculates earnings per share under ASC 260, “Earnings Per Share”. Basic earnings per share exclude dilution and are computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

The following tables show the Company’s earnings per share for the periods presented:



	For the three months ended						For the three months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders	$	29,158		57,230,576	$	0.51	$	28,195		57,198,778	$	0.49
Effect of dilutive securities
Common stock options and restricted stock units		—		1,792,349		(0.02)		—		1,429,528		(0.01)
Diluted earnings per share
Net earnings available to common shareholders	$	29,158		59,022,925	$	0.49	$	28,195		58,628,306	$	0.48



1
	For the three months ended						For the three months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from discontinued operations
Net earnings available to common shareholders	$	277		57,230,576	$	—	$	66		57,198,778	$	—
Effect of dilutive securities
Common stock options and restricted stock units		—		1,792,349		—		—		1,429,528		—
Diluted earnings per share
Net earnings available to common shareholders	$	277		59,022,925	$	—	$	66		58,628,306	$	—



1
	For the three months ended						For the three months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	29,435		57,230,576	$	0.51	$	28,261		57,198,778	$	0.49
Effect of dilutive securities
Common stock options and restricted stock units		—		1,792,349		(0.01)		—		1,429,528		(0.01)
Diluted earnings per share
Net earnings available to common shareholders	$	29,435		59,022,925	$	0.50	$	28,261		58,628,306	$	0.48

Note: The total of diluted earnings per share from continuing and discontinued operations does not equal diluted earnings per share due to rounding.

Stock options for ~~819,104~~504,104 shares, exercisable at prices between ~~$6.75~~$6.87 and $18.81 per share, were outstanding at ~~June~~September 30, 2021, and included in the dilutive earnings per share computation. Stock options for 100,000 shares were anti-dilutive and not included in the earnings per share calculation.



	For the six months ended						For the nine months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders	$	55,218		57,232,557	$	0.96	$	83,413		57,221,174	$	1.45
Effect of dilutive securities
Common stock options and restricted stock units		—		1,854,399		(0.03)		—		1,710,972		(0.04)
Diluted earnings per share
Net earnings available to common shareholders	$	55,218		59,086,956	$	0.93	$	83,413		58,932,146	$	1.41



	For the six months ended						For the nine months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from discontinued operations
Net earnings available to common shareholders	$	182		57,232,557	$	0.01	$	248		57,221,174	$	0.01
Effect of dilutive securities
Common stock options and restricted stock units		—		1,854,399		—		—		1,710,972		—
Diluted earnings per share
Net earnings available to common shareholders	$	182		59,086,956	$	0.01	$	248		58,932,146	$	0.01



	For the six months ended						For the nine months ended
	June 30, 2021						September 30, 2021
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	55,400		57,232,557	$	0.97	$	83,661		57,221,174	$	1.46
Effect of dilutive securities
Common stock options and restricted stock units		—		1,854,399		(0.03)		—		1,710,972		(0.04)
Diluted earnings per share
Net earnings available to common shareholders	$	55,400		59,086,956	$	0.94	$	83,661		58,932,146	$	1.42



	For the three months ended						For the three months ended
	June 30, 2020						September 30, 2020
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders	$	20,283		57,489,719	$	0.35	$	23,131		57,588,168	$	0.40
Effect of dilutive securities
Common stock options and restricted stock units		—		310,396		—		—		883,024		—
Diluted earnings per share
Net earnings available to common shareholders	$	20,283		57,800,115	$	0.35	$	23,131		58,471,192	$	0.40



	For the three months ended
	September 30, 2020
	Income		Shares		Per share
	(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)
Basic earnings per share from discontinued operations
Net earnings available to common shareholders	$	123		57,588,168	$	—
Effect of dilutive securities
Common stock options and restricted stock units		—		883,024		—
Diluted earnings per share
Net earnings available to common shareholders	$	123		58,471,192	$	—

For the three months ended
June 30, 2020
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic loss per share from discontinued operations
Net loss
$
(215)
57,489,719
$
—
Effect of dilutive securities
Common stock options and restricted stock units
—
310,396
—
Diluted loss per share
Net loss
$
(215)
57,800,115
$
—



	For the three months ended						For the three months ended
	June 30, 2020						September 30, 2020
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	20,068		57,489,719	$	0.35	$	23,254		57,588,168	$	0.40
Effect of dilutive securities
Common stock options and restricted stock units		—		310,396		—		—		883,024		—
Diluted earnings per share
Net earnings available to common shareholders	$	20,068		57,800,115	$	0.35	$	23,254		58,471,192	$	0.40

Stock options for ~~488,500~~1,056,604 shares, exercisable at prices between $6.75 and ~~$7.36~~$8.57 per share, were outstanding at ~~June~~September 30, 2020, and included in the dilutive earnings per share computation. Stock options for ~~894,104~~326,000 were anti-dilutive and not included in the earnings per share calculation.



	For the six months ended						For the nine months ended
	June 30, 2020						September 30, 2020
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders	$	33,444		57,355,282	$	0.58	$	56,575		57,433,477	$	0.98
Effect of dilutive securities
Common stock options and restricted stock units		—		501,509		—		—		618,356		(0.01)
Diluted earnings per share
Net earnings available to common shareholders	$	33,444		57,856,791	$	0.58	$	56,575		58,051,833	$	0.97



	For the six months ended						For the nine months ended
	June 30, 2020						September 30, 2020
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic loss per share from discontinued operations
Net loss	$	(785)		57,355,282	$	(0.01)	$	(662)		57,433,477	$	(0.01)
Effect of dilutive securities
Common stock options and restricted stock units		—		501,509		—		—		618,356		—
Diluted loss per share
Net loss	$	(785)		57,856,791	$	(0.01)	$	(662)		58,051,833	$	(0.01)



	For the six months ended						For the nine months ended
	June 30, 2020						September 30, 2020
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	32,659		57,355,282	$	0.57	$	55,913		57,433,477	$	0.97
Effect of dilutive securities
Common stock options and restricted stock units		—		501,509		—		—		618,356		(0.01)
Diluted earnings per share
Net earnings available to common shareholders	$	32,659		57,856,791	$	0.57	$	55,913		58,051,833	$	0.96

Stock options for ~~691,500~~1,056,604 shares, exercisable at prices between $6.75 and ~~$8.50~~$8.57 per share, were outstanding at ~~June~~September 30, 2020, and included in the dilutive earnings per share computation. Stock options for ~~691,104~~326,000 were anti-dilutive and not included in the earnings per share calculation.

Note 5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities classified as available-for-sale at ~~June~~September 30, 2021 and December 31, 2020 are summarized as follows (in thousands):



Available-for-sale	June 30, 2021								September 30, 2021
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value		cost		gains		losses		value
U.S. Government agency securities	$	41,129	$	2,015	$	(52)	$	43,092	$	37,489	$	1,680	$	(49)	$	39,120
Asset-backed securities *		318,080		431		(53)		318,458		368,502		481		(70)		368,913
Tax-exempt obligations of states and political subdivisions		3,559		198		—		3,757		3,559		181		—		3,740
Taxable obligations of states and political subdivisions		46,041		3,342		—		49,383		46,013		3,044		—		49,057
Residential mortgage-backed securities		218,671		8,073		(144)		226,600		193,037		6,442		(209)		199,270
Collateralized mortgage obligation securities		102,131		2,185		(42)		104,274		74,628		1,715		(1)		76,342
Commercial mortgage-backed securities		346,525		8,323		(919)		353,929		305,922		6,572		(1,218)		311,276
Corporate debt securities		10,000		—		(3,418)		6,582		10,000		—		(3,495)		6,505
	$	1,086,136	$	24,567	$	(4,628)	$	1,106,075	$	1,039,150	$	20,115	$	(5,042)	$	1,054,223


	June 30, 2021								September 30, 2021
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
* Asset-backed securities as shown above	cost		gains		losses		value		cost		gains		losses		value
Federally insured student loan securities	$	25,806	$	49	$	(27)	$	25,828	$	24,709	$	85	$	(14)	$	24,780
Collateralized loan obligation securities		292,274		382		(26)		292,630		343,793		396		(56)		344,133
	$	318,080	$	431	$	(53)	$	318,458	$	368,502	$	481	$	(70)	$	368,913



Available-for-sale	December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
U.S. Government agency securities	$	44,960	$	2,357	$	(120)	$	47,197
Asset-backed securities *		238,678		143		(460)		238,361
Tax-exempt obligations of states and political subdivisions		4,042		248		—		4,290
Taxable obligations of states and political subdivisions		47,884		4,180		—		52,064
Residential mortgage-backed securities		256,914		9,765		(96)		266,583
Collateralized mortgage obligation securities		145,260		3,281		(11)		148,530
Commercial mortgage-backed securities		359,125		12,717		(4,562)		367,280
Corporate debt securities		85,043		63		(3,247)		81,859
	$	1,181,906	$	32,754	$	(8,496)	$	1,206,164


	December 31, 2020
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
* Asset-backed securities as shown above	cost		gains		losses		value
Federally insured student loan securities	$	28,013	$	38	$	(93)	$	27,958
Collateralized loan obligation securities		210,665		105		(367)		210,403
	$	238,678	$	143	$	(460)	$	238,361

Investments in Federal Home Loan Bank (“FHLB”) and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $1.7 million and $1.4 million at ~~June~~September 30, 2021 and December 31, 2020, respectively. The amount of FHLB stock required to be held is based on the amount of borrowings, and after ~~such borrowings,~~repayment thereof, the stock may be redeemed.

The amortized cost and fair value of the Company’s investment securities at ~~June~~September 30, 2021, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-for-sale				Available-for-sale
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
Due before one year	$	1,225	$	1,226	$	1,215	$	1,214
Due after one year through five years		165,750		174,481		156,589		164,150
Due after five years through ten years		223,777		228,022		238,612		241,810
Due after ten years		695,384		702,346		642,734		647,049
	$	1,086,136	$	1,106,075	$	1,039,150	$	1,054,223

At ~~June~~September 30, 2021 and December 31, 2020, 0 investment securities were encumbered through pledging or otherwise.

Fair values of available-for-sale securities are based on the fair market values supplied by a third-party market data provider, or where such third-party market data is not available, fair values are based on discounted cash flows. The third-party market data provider uses a pricing matrix which it creates daily, taking into consideration actual trade data, projected prepayments, and when relevant, projected credit defaults and losses.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at ~~June~~September 30, 2021 (dollars in thousands):



Available-for-sale		Less than 12 months				12 months or longer				Total					Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	2	$	—	$	—	$	2,847	$	(52)	$	2,847	$	(52)	2	$	—	$	—	$	2,817	$	(49)	$	2,817	$	(49)
Asset-backed securities	15		87,176		(51)		1,264		(2)		88,440		(53)	27		148,324		(68)		1,233		(2)		149,557		(70)
Residential mortgage-backed securities	10		7,432		(113)		2,385		(31)		9,817		(144)	14		13,688		(118)		3,743		(91)		17,431		(209)
Collateralized mortgage obligation securities	3		4,967		(40)		3,215		(2)		8,182		(42)	1		—		—		424		(1)		424		(1)
Commercial mortgage-backed securities	11		53,561		(588)		63,801		(331)		117,362		(919)	11		44,203		(658)		66,139		(560)		110,342		(1,218)
Corporate debt securities	1		—		—		6,582		(3,418)		6,582		(3,418)	1		—		—		6,505		(3,495)		6,505		(3,495)
Total unrealized loss position
investment securities	42	$	153,136	$	(792)	$	80,094	$	(3,836)	$	233,230	$	(4,628)	56	$	206,215	$	(844)	$	80,861	$	(4,198)	$	287,076	$	(5,042)

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2020 (dollars in thousands):



Available-for-sale		Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	5	$	594	$	(2)	$	5,322	$	(118)	$	5,916	$	(120)
Asset-backed securities	24		123,447		(337)		29,563		(123)		153,010		(460)
Residential mortgage-backed securities	12		6,221		(35)		6,650		(61)		12,871		(96)
Collateralized mortgage obligation securities	6		2,505		(10)		3,489		(1)		5,994		(11)
Commercial mortgage-backed securities	4		69,486		(4,562)		—		—		69,486		(4,562)
Corporate debt securities	2		—		—		31,796		(3,247)		31,796		(3,247)
Total unrealized loss position
investment securities	53	$	202,253	$	(4,946)	$	76,820	$	(3,550)	$	279,073	$	(8,496)

The Company owns 1 single issuer trust preferred security issued by an insurance company. The security is not rated by any bond rating service. At ~~June~~September 30, 2021, it had a book value of $10.0 million and a fair value of ~~$6.6~~$6.5 million. This security is presented in the corporate debt securities classification in the tables above.

The Company has evaluated the securities in the above tables as of ~~June~~September 30, 2021 and has concluded that 0ne of these securities required an allowance for credit loss. The Company evaluates whether an allowance for credit loss is required by considering primarily the following factors: (a) the extent to which the fair value is less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on interest and principal payments it is contractually obligated to make, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that the securities that are in an unrealized loss position are in a loss position because of changes in market interest rates after the securities were purchased. The Company’s unrealized loss for other debt securities, which include one single issuer trust preferred security, is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level. As a result of its review, the Company concluded that an allowance was not required to recognize credit losses.

Note 6. Loans

The Company has several lending lines of business including small business comprised primarily of SBA loans, direct lease financing, SBLOC, IBLOC, real estate bridge lending, investment advisor financing and other specialty and consumer lending. Prior to 2020, the Company also originated real estate bridge loans for sale into commercial mortgage-backed securitizations or to secondary government guaranteed loan markets. At origination, the Company elected fair value treatment for these loans as they were originally held-for-sale, to better reflect the economics of the transactions. Currently, the Company intends to hold these loans on its balance sheet, and thus no longer accounts for these loans as held-for-sale. The Company continues to present these loans at fair value. At ~~June~~September 30, 2021, the fair value of these loans was ~~$1.69~~$1.55 billion, and their amortized cost was ~~$1.69~~$1.55 billion. Included in “Net realized and unrealized gains (losses) on commercial loans, at fair value” in the consolidated statements of operations are changes in the estimate in fair value of such loans. For the ~~six~~nine months ended ~~June~~September 30, 2021, net unrealized ~~losses~~gains recognized for such changes in fair value were ~~$478,000~~$285,000, which reflected $15,000 of ~~which $246,000 was~~loss attributable to credit weaknesses. For the ~~six~~nine months ended ~~June~~September 30, 2020, unrealized losses recognized for such changes in fair value were ~~$3.6~~$3.1 million of which ~~$546,000~~$490,000 was attributable to credit weaknesses. The Bank also pledged the majority of its loans held for investment at amortized cost and commercial loans at fair value to the Federal Home Loan Bank and to the Federal Reserve Bank for lines of credit. The Federal Home Loan Bank line is periodically utilized to manage liquidity, but the Federal Reserve line has not generally been used. However, in light of the impact of the COVID-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has periodically borrowed against its Federal Reserve line on an overnight basis. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. The lines are maintained consistent with the Bank’s liquidity policy which maximizes potential liquidity. At ~~June~~September 30, 2021, ~~$1.77~~$1.80 billion of loans were pledged to the Federal Reserve and ~~$1.15 billion~~$891.6 million of loans were pledged to the Federal Home Loan Bank. ~~There~~At September 30, 2021, there were $300 million of advances outstanding against the Federal Reserve line and 0 ~~balances~~amount outstanding against ~~these lines at that date.~~the Federal Home Loan Bank line.

Prior to 2020, the Company periodically sponsored the structuring of commercial mortgage loan securitizations. The Company has sponsored six of these securitizations since 2017 which are described in the 2020 Form 10-K. The loans previously sold to the commercial mortgage-backed securitizations, and now originated and held on the balance sheet at fair value, are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which are already cash flowing. Servicing rights are not retained. Each of the securitizations is considered a variable interest entity of which the Company is not the primary beneficiary and therefore are not consolidated in its financial statements. Further, true sale accounting has been applicable to each of the securitizations, as supported by a review performed by an independent third-party consultant. In each of the securitizations, the Company has obtained

a tranche of certificates which are accounted for as available-for-sale debt securities. The securities are recorded at fair value at acquisition, which is determined by an independent third-party based on the discounted cash flow method using unobservable (level 3) inputs. The loans securitized are structured with some prepayment protection and with extension options which are common for rehabilitation loans. It was expected such prepayment protection and extension options would generally offset the impact of prepayments which would therefore not be significant. Accordingly, prepayments on CRE securities were not originally assumed in the first four securitizations. However, as a result of higher than expected prepayments on CRE2 annual prepayments of 15% on CRE5 were assumed, beginning after the first-year anniversary of the CRE5 securitization. For CRE6, there was no premium or discount associated with the tranche purchased and prepayments were accordingly not ~~estimated.~~estimated. During the third quarter of 2021, the remaining principal balances of certificates owned by the Company from the CRE1 and CRE4 securitizations which respectively amounted to $7.1 million and $25.6 million at June 30, 2021, were fully repaid.

Because of credit enhancements for each security, cash flows were not reduced by expected losses. For each of the securitizations, the Company has recorded a gain which is comprised of (i) the excess of consideration received by the Company in the transaction over the carrying value of the loans at securitization, less related transactions costs incurred; and (ii) the recognition of previously deferred origination and exit fees.

In 2020, the Company decided to not pursue securitizations and no future securitizations are currently planned. The loans currently retained total approximately ~~$1.5~~$1.3 billion and are mostly comprised of multi-family loans, specifically apartment buildings. The ~~$1.5~~$1.3 billion comprises the majority of the commercial loans, at fair value on the ~~June~~September 30, 2021 balance sheet, with the balance of that category comprised of the government guaranteed portion of SBA loans.

The Company analyzes credit risk prior to making loans on an individual loan basis. The Company considers relevant aspects of the borrowers’ financial position and cash flow, past borrower performance, management’s knowledge of market conditions, collateral and the ratio of loan amounts to estimated collateral value in making its credit determinations.

Major classifications of loans, excluding commercial loans at fair value, are as follows (in thousands):


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
SBL non-real estate	$	228,958	$	255,318	$	171,845	$	255,318
SBL commercial mortgage		343,487		300,817		367,272		300,817
SBL construction		18,494		20,273		23,117		20,273
Small business loans *		590,939		576,408		562,234		576,408
Direct lease financing		506,424		462,182		514,068		462,182
SBLOC / IBLOC **		1,729,628		1,550,086		1,834,523		1,550,086
Advisor financing ***		72,190		48,282		81,143		48,282
Other specialty lending		2,092		2,179
Other consumer loans ****		3,748		4,247
Real estate bridge lending						128,699		—
Other loans ****						4,917		6,426
		2,905,021		2,643,384		3,125,584		2,643,384
Unamortized loan fees and costs		10,323		8,939		11,078		8,939
Total loans, net of unamortized loan fees and costs	$	2,915,344	$	2,652,323	$	3,136,662	$	2,652,323


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
SBL loans, net of deferred costs of $2,462 and $1,536
for June 30, 2021 and December 31, 2020, respectively	$	593,401	$	577,944
SBL loans, net of deferred costs of $4,238 and $1,536
for September 30, 2021 and December 31, 2020, respectively					$	566,472	$	577,944
SBL loans included in commercial loans, at fair value		225,534		243,562		214,301		243,562
Total small business loans	$	818,935	$	821,506	$	780,773	$	821,506

* The preceding table shows small business loans and small business loans held at fair value. The small business loans held at fair value are comprised of the government guaranteed portion of SBA 7a loans at the dates indicated. A reduction in SBL non-real estate loans from ~~$305.4 million at March 31, 2021 to~~ $229.0 million at June 30, 2021 to $171.8 million at September 30, 2021 resulted from U.S. government repayments of ~~$60.8~~$58.2 million of Paycheck Protection Program (“PPP”) loans authorized by The Consolidated Appropriations Act, ~~2021 and the repayment of $19.7 million of a line of credit to another institution related to PPP loans.~~2021. PPP loans totaled ~~$129.4~~$71.3 million at ~~June~~September 30, 2021 and $165.7 million at December 31, 2020, respectively.

** Securities Backed Lines of Credit, or SBLOC, are collateralized by marketable securities, while Insurance Backed Lines of Credit, or IBLOC, are collateralized by the cash surrender value of insurance policies. At ~~June~~September 30, 2021 and December 31, 2020, respectively, IBLOC loans amounted to ~~$596.9~~$686.8 million and $437.2 million.

*** In 2020, the Company began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third-party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.

**** Included in the table above under ~~other consumer~~Other loans are demand deposit overdrafts reclassified as loan balances totaling ~~$424,000~~$272,000 and $663,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit losses and have been immaterial.

The following table provides information about loans individually evaluated for credit loss at ~~June~~September 30, 2021 and December 31, 2020 (in thousands):



	June 30, 2021										September 30, 2021
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	465	$	3,114	$	—	$	415	$	—	$	408	$	3,497	$	—	$	413	$	—
SBL commercial mortgage		2,183		2,207		—		2,060		—		2,183		2,206		—		2,091		—
Direct lease financing		635		635		—		535		—		289		289		—		474		—
Consumer - home equity		540		540		—		549		4		325		325		—		493		7
With an allowance recorded
SBL non-real estate		2,264		2,264		(1,559)		2,677		24		1,825		1,825		(1,163)		2,464		12
SBL commercial mortgage		984		984		(510)		3,866		—		984		984		(510)		3,145		—
SBL construction		711		711		(34)		711		—		711		711		(34)		711		—
Direct lease financing		—		—		—		173		—		141		141		(91)		165		—
Consumer - home equity		10		10		(10)		3		—
Consumer - other												14		14		(14)		6		—
Total
SBL non-real estate		2,729		5,378		(1,559)		3,092		24		2,233		5,322		(1,163)		2,877		12
SBL commercial mortgage		3,167		3,191		(510)		5,926		—		3,167		3,190		(510)		5,236		—
SBL construction		711		711		(34)		711		—		711		711		(34)		711		—
Direct lease financing		635		635		—		708		—		430		430		(91)		639		—
Consumer - other												14		14		(14)		6		—
Consumer - home equity		550		550		(10)		552		4		325		325		—		493		7
	$	7,792	$	10,465	$	(2,113)	$	10,989	$	28	$	6,880	$	9,992	$	(1,812)	$	9,962	$	19



	December 31, 2020
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	387	$	2,836	$	—	$	370	$	3
SBL commercial mortgage		2,037		2,037		—		1,253		—
Direct lease financing		299		299		—		3,352		—
Consumer - home equity		557		557		—		554		10
With an allowance recorded
SBL non-real estate		3,044		3,044		(2,129)		3,257		15
SBL commercial mortgage		5,268		5,268		(1,010)		2,732		—
SBL construction		711		711		(34)		711		—
Direct lease financing		452		452		(4)		716		—
Consumer - home equity		—		—		—		24		—
Total
SBL non-real estate		3,431		5,880		(2,129)		3,627		18
SBL commercial mortgage		7,305		7,305		(1,010)		3,985		—
SBL construction		711		711		(34)		711		—
Direct lease financing		751		751		(4)		4,068		—
Consumer - home equity		557		557		—		578		10
	$	12,755	$	15,204	$	(3,177)	$	12,969	$	28

The loan review department recommends non-accrual status for loans to the surveillance committee, where interest income appears to be uncollectible or a protracted delay in collection becomes evident. The surveillance committee further vets and approves the non-accrual status.

The following table summarizes non-accrual loans with and without an allowance for credit losses (“ACL”) as of the periods indicated ~~(in~~

(in thousands):


	June 30, 2021						December 31, 2020		September 30, 2021						December 31, 2020
	Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total non-accrual loans		Total non-accrual loans		Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total non-accrual loans		Total non-accrual loans
SBL non-real estate	$	2,070	$	465	$	2,535	$	3,159	$	1,300	$	408	$	1,708	$	3,159
SBL commercial mortgage		984		2,183		3,167		7,305		984		2,183		3,167		7,305
SBL construction		711		—		711		711		711		—		711		711
Direct leasing		—		635		635		751		141		289		430		751
Consumer		10		288		298		301
Consumer - home equity										—		76		76		301
Consumer - other										14		—		14		—
	$	3,775	$	3,571	$	7,346	$	12,227	$	3,150	$	2,956	$	6,106	$	12,227

The Company had no $2.1 million of other real estate owned at September 30, 2021 and 0 other real estate owned at December 31, 2020 in continuing ~~operations at June 30, 2021 or December 31, 2020.~~operations. The following table summarizes the Company’s non-accrual loans, ~~and~~ loans past due 90 days or more, and other real estate owned at ~~June~~September 30, 2021 and December 31, 2020, respectively:



	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Non-accrual loans
SBL non-real estate	$	2,535	$	3,159	$	1,708	$	3,159
SBL commercial mortgage		3,167		7,305		3,167		7,305
SBL construction		711		711		711		711
Direct leasing		635		751		430		751
Consumer		298		301
Consumer - home equity						76		301
Consumer - other						14		—
Total non-accrual loans		7,346		12,227		6,106		12,227

Loans past due 90 days or more and still accruing		1,550		497		1,569		497
Total non-performing loans		8,896		12,724		7,675		12,724
Other real estate owned						2,145		—
Total non-performing assets	$	8,896	$	12,724	$	9,820	$	12,724

Interest which would have been earned on loans classified as non-accrual for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, was ~~$172,000~~$247,000 and ~~$214,000,~~$459,000, respectively. NaN income on non-accrual loans was recognized during the ~~six~~nine months ended ~~June~~September 30, 2021. In the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 a total of ~~$36,000~~$39,000 and ~~$197,000,~~$361,000, respectively, was reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period.

The Company’s loans that were modified as of ~~June~~September 30, 2021 and December 31, 2020 and considered troubled debt restructurings are as follows (dollars in thousands):



	June 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
	Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment
SBL non-real estate		7	$	768	$	768		8	$	911	$	911		8	$	1,190	$	1,190		8	$	911	$	911
Direct lease financing		1		233		233		1		251		251		—		—		—		1		251		251
Consumer		2		460		460		2		469		469
Consumer - home equity														1		249		249		2		469		469
Total(1)		10	$	1,461	$	1,461		11	$	1,631	$	1,631		9	$	1,439	$	1,439		11	$	1,631	$	1,631

(1) Troubled debt restructurings include non-accrual loans of ~~$1.0 million~~$665,000 and $1.1 million at ~~June~~September 30, 2021 and December 31, 2020, respectively.

The balances below provide information as to how the loans were modified as troubled debt restructuring loans as of ~~June~~September 30, 2021 and December 31, 2020 (in thousands):



	June 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
	Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity
SBL non-real estate	$	—	$	—	$	768	$	—	$	16	$	895	$	—	$	—	$	1,190	$	—	$	16	$	895
Direct lease financing		—		233		—		—		251		—		—		—		—		—		251		—
Consumer		—		—		460		—		—		469
Consumer - home equity														—		—		249		—		—		469
Total(1)	$	—	$	233	$	1,228	$	—	$	267	$	1,364	$	—	$	—	$	1,439	$	—	$	267	$	1,364

(1) Troubled debt restructurings include non-accrual loans of ~~$1.0 million~~$665,000 and $1.1 million at ~~June~~September 30, 2021 and December 31, 2020, respectively.

The Company had 0 commitments to extend additional credit to loans classified as troubled debt restructurings as of ~~June~~September 30, 2021 or December 31, 2020.

When loans are classified as troubled debt restructurings, the Company estimates the value of underlying collateral and repayment sources. A specific reserve in the allowance for credit losses is established if the collateral valuation, less disposition costs, is lower than the recorded loan value. The amount of the specific reserve serves to increase the provision for credit losses in the quarter the loan is classified as a troubled debt restructuring. As of ~~June~~September 30, 2021, there were 109 troubled debt restructured loans with a balance of ~~$1.5~~$1.4 million which had specific reserves of ~~$327,000.~~$626,000. Substantially all of these reserves related to the non-guaranteed portion of SBA loans for start-up businesses.

The following table summarizes loans that were restructured within the 12 months ended ~~June~~September 30, 2021 that have subsequently defaulted (in thousands):


	June 30, 2021			September 30, 2021
	Number	Pre-modification recorded investment		Number	Pre-modification recorded investment
SBL non-real estate	1	$	205	1	$	205
Total	1	$	205	1	$	205

The SBA began, in April 2020, to make six months of principal and interest payments on SBA 7a loans, which are generally 75% guaranteed by the U.S. government. As of ~~June~~September 30, 2021, the Company had ~~$358.1~~$369.7 million of related guaranteed balances, and additionally had ~~$129.4~~$71.3 million of PPP loan balances which were also guaranteed. The majority of the six months of support expired in the fourth quarter of 2020, and the Company is generally ~~approving~~approved COVID-19 pandemic-related deferrals for principal and interest payments as ~~they are~~ requested by borrowers. Additionally, the Company ~~has, and is, granting~~granted such deferrals for certain other loans. The Consolidated Appropriations Act, 2021, became law in December 2020, ~~and provides~~provide for at least an additional two months of principal and interest payments on SBA 7a loans, with up to five months of payments for hotel, restaurant and other more highly impacted loans. Unlike the six months of COVID-19 Aid, Relief, and Economic Security Act (“CARES Act”) payments, these additional payments are capped at $9,000 per month. Per section 4013 of the CARES Act, accounting and banking regulators have determined that loans with COVID-19 pandemic-related deferrals of principal and interest payments will not, during the deferral period, be classified as restructured. Such treatment is temporary and will terminate after the earlier of the end of the national emergency, or December 31, 2021. As of September

30, 2021, substantially all borrowers with prior COVID-19 deferrals had resumed making their payments, with $1.3 million of principal remaining in deferral status as of that date.

Effective January 1, 2020, current expected credit loss (“CECL”) accounting replaced the prior incurred loss model that recognized losses when it became probable that a credit loss would be incurred, with a new requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Loans are deemed uncollectible based on individual facts and circumstances including the quality of repayment sources, the length of collection efforts and the probability and timing of recoveries. During the first quarter of 2020, upon adoption of the guidance, the allowance for credit losses was increased by $2.6 million. Additionally, $569,000 was established as an allowance for off-balance sheet credit losses (for unfunded loan commitments) and recorded in other liabilities. These amounts did not impact our Consolidated Statement of Operations, as the guidance required these cumulative differences between the two accounting conventions to flow through retained earnings, net of their income tax benefit. The following table shows the effect of the adoption of CECL as of January 1, 2020 and the ~~June~~September 30, 2021 allowance for credit loss (in thousands).


	December 31, 2019				January 1, 2020				June 30, 2021				December 31, 2019				January 1, 2020				September 30, 2021
	Incurred loss method				CECL (day 1 adoption)				CECL				Incurred loss method				CECL (day 1 adoption)				CECL
	Amount		% of Segment		Amount		% of Segment		Amount		% of Segment		Amount		% of Segment		Amount		% of Segment		Amount		% of Segment
Allowance for credit losses on loans and leases
SBL non real estate	$	4,985		5.89%	$	4,765		5.63%	$	5,017		2.19%	$	4,985		5.89%	$	4,765		5.63%	$	5,378		3.13%
SBL commercial mortgage		1,472		0.67%		2,009		0.92%		2,629		0.77%		1,472		0.67%		2,009		0.92%		2,795		0.76%
SBL construction		432		0.95%		571		1.26%		301		1.63%		432		0.95%		571		1.26%		370		1.60%
Direct lease financing		2,426		0.56%		4,788		1.10%		5,718		1.13%		2,426		0.56%		4,788		1.10%		5,637		1.10%
SBLOC		440		0.05%		440		0.05%		566		0.05%		440		0.05%		440		0.05%		574		0.05%
IBLOC		113		0.08%		72		0.05%		298		0.05%		113		0.08%		72		0.05%		343		0.05%
Advisor financing		—		—		—		—		541		0.75%		—		—		—		—		609		0.75%
Other specialty lending (1)		12		0.39%		170		5.56%		168		8.03%
Consumer - other		40		0.88%		60		1.32%		54		1.44%
Real estate bridge lending														—		—		—		—		245		0.19%
Other loans (1)														52		0.68%		230		3.02%		208		4.23%
Unallocated		318				—				—				318				—				—
	$	10,238		0.56%	$	12,875		0.71%	$	15,292		0.52%	$	10,238		0.56%	$	12,875		0.71%	$	16,159		0.52%

Liabilities:
Allowance for credit losses on off-balance sheet credit exposures		—				569				927				—				569				1,088
Total allowance for credit losses	$	10,238			$	13,444			$	16,219			$	10,238			$	13,444			$	17,247

(1)Included in ~~other specialty lending~~Other loans are ~~$27.9~~$25.0 million of SBA loans purchased for Community Reinvestment Act (“CRA”) purposes as of ~~June~~September 30, 2021. These loans are classified as SBL in our loan tables.

Management estimates the allowance using relevant available internal and external historical loan performance information, current economic conditions and reasonable and supportable forecasts. Historical credit loss experience provides the initial basis for the estimation of expected credit losses over the estimated remaining life of the loans. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance. The review of the appropriateness of the allowance is performed by the Chief Credit Officer and presented to the audit committee for their review. The allowance for credit losses includes reserves on loan pools with similar risk characteristics based on a lifetime loss-rate model, or vintage analysis, as described in the following paragraph. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of the collateral, a reserve for deficiency is established within the allowance. Expected credit losses for such collateral dependent loans are based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs as appropriate.

For purposes of determining the pool-basis reserve, the loans not assigned an individual reserve are segregated by product type, to recognize differing risk characteristics within portfolio segments. A historical loss rate is calculated for each product type, except SBLOC, IBLOC, real estate bridge lending and ~~IBLOC,~~investment advisor financing, based upon historical net charge-offs for that product. The loss rate is determined by classifying charge-off losses according to the year the related loans were originated, which is referred to as vintage analysis. The loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime losses. For SBLOC and IBLOC, since losses have not been incurred, probability of loss/loss given default considerations are utilized. ~~Additionally,~~ For real estate bridge lending, industry loss rate statistics were utilized. Due to the specialized nature of investment advisor financing, industry loss rate statistics are not available. Accordingly, factors based upon the nature of the underlying collateral were utilized, namely the income streams resulting from investment portfolios which represent the primary repayment source

for such loans. For all loan pools the Company adds to the allowance a component for each pool based upon qualitative factors such as the Company’s current loan performance statistics as determined by pool. These qualitative factors adjust for asset specific differences between historical loss experience and the current portfolio for each pool. The qualitative factors are intended to address factors that may not be reflected in historical loss rates and otherwise unaccounted for in the quantitative process. A similar process is employed to calculate an allowance assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That allowance is recorded in other liabilities. These qualitative factors may increase ~~or decrease~~ the allowance compared to historical loss ~~rates. However, expected~~rates. Expected losses provided for in the allowance are ~~primarily~~ based on applying historical loss rates over the estimated remaining lives of the ~~loans.~~loans, when historical loss rate information is available. The qualitative factor percentages are applied against the portfolio balance as of the end of the period. Even though portions of the allowance may be allocated to loans that have been individually measured for credit deterioration, the entire allowance is available for any credit that, in management’s judgment, should be charged off.

The Company ranks its qualitative factors in five levels: minimal risk, low, moderate, moderate-high and high. When the Company adopted CECL as of January 1, 2020, the management assumption was that some degree of economic slowdown should be considered over the next eighteen months. That belief reflected the length of the current economic expansion and the relatively high level of unsustainable deficit spending. Accordingly, certain of the Company’s qualitative factors were set at moderate as of January 1, 2020. Based on the uncertainty as to how the COVID-19 pandemic would impact the Company’s loan pools, the Company increased other qualitative factors to moderate and moderate high in 2020. In the second quarter of 2021, the Company reassessed these factors and reversed increases to moderate-high for certain pools, based upon increased vaccination rates and significant reopening of the economy. The economic qualitative factor

is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company’s charge-offs in its lines of business have been non-existent for SBLOC and IBLOC, notwithstanding stressed economic periods. Additionally, the charge-off histories for SBL and leasing have not correlated with economic conditions. While specific or groups of economic factors did not correlate with actual historical losses, multiple economic factors are considered. For the non-guaranteed portion of SBA loans and leasing, the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history was the primary quantitative element in the forecasts.

Below are the portfolio segments used to pool loans with similar risk characteristics and align with the Company’s methodology for measuring expected credit losses. These pools have similar risk and collateral characteristics, and certain of these pools are broken down further in determining and applying the vintage loss estimates previously discussed. For instance, within the direct lease financing pool, government and public institution leases are considered separately. Additionally, the Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The special mention classification indicates weaknesses that may, if not cured, threaten the borrower’s future repayment ability. A substandard classification reflects an existing weakness indicating the possible inadequacy of net worth and other repayment sources. These classifications are used both by regulators and peers, as they have been correlated with an increased probability of credit losses. A summary of the Company’s primary portfolio pools and loans accordingly classified, by year of origination, at ~~June~~September 30, 2021 and December 31, 2020 are as follows (in thousands):

2322

As of June 30, 2021
2021
2020
2019
2018
2017
Prior
Revolving loans at amortized cost
Total
SBL non real estate
Non-rated*
$
100,415
$
36,163
$
—
$
—
$
—
$
—
$
—
$
136,578
Pass
11,040
18,567
9,376
10,421
5,942
14,446
—
69,792
Special mention
—
—
—
707
—
905
—
1,612
Substandard
—
—
—
19
739
1,963
—
2,721
Total SBL non-real estate
111,455
54,730
9,376
11,147
6,681
17,314
—
210,703
SBL commercial mortgage
Non-rated
4,790
—
—
—
—
—
—
4,790
Pass
39,469
53,526
78,860
51,966
38,707
61,198
—
323,726
Special mention
—
—
1,853
—
—
252
—
2,105
Substandard
—
—
—
—
—
3,167
—
3,167
Total SBL commercial mortgage
44,259
53,526
80,713
51,966
38,707
64,617
—
333,788
SBL construction
Non-rated
302
—
—
—
—
—
—
302
Pass
1,700
11,547
1,184
3,050
—
—
—
17,481
Special mention
—
—
—
—
—
711
—
711
Total SBL construction
2,002
11,547
1,184
3,050
—
711
—
18,494
Direct lease financing
Non-rated
32,418
16,093
2,283
1,524
636
200
—
53,154
Pass
119,758
197,836
73,598
39,129
14,946
4,402
—
449,669
Substandard
415
2,343
40
132
156
515
—
3,601
Total direct lease financing
152,591
216,272
75,921
40,785
15,738
5,117
—
506,424
SBLOC
Non-rated
—
—
—
—
—
—
3,688
3,688
Pass
—
—
—
—
—
—
1,129,061
1,129,061
Total SBLOC
—
—
—
—
—
—
1,132,749
1,132,749
IBLOC
Non-rated
—
—
—
—
—
—
224,226
224,226
Pass
—
—
—
—
—
—
372,653
372,653
Total IBLOC
—
—
—
—
—
—
596,879
596,879
Other specialty
Non-rated
—
—
—
—
—
—
—
—
Pass
102
115
3,377
5,042
6,619
14,743
—
29,998
Substandard
—
—
—
—
48
—
—
48
Total other specialty**
102
115
3,377
5,042
6,667
14,743
—
30,046
Advisor financing
Non-rated
11,847
3,182
—
—
—
—
—
15,029
Pass
13,417
43,744
—
—
—
—
—
57,161
Total advisor financing
25,264
46,926
—
—
—
—
—
72,190
Consumer
Non-rated
500
244
—
—
13
1,406
—
2,163
Pass
—
—
—
—
—
1,298
—
1,298
Substandard
—
—
—
—
—
287
—
287
Total consumer
500
244
—
—
13
2,991
—
3,748
$
336,173
$
383,360
$
170,571��
$
111,990
$
67,806
$
105,493
$
1,729,628
$
2,905,021
Unamortized loan fees and costs
—
—
—
—
—
—
—
10,323
Total
$
2,915,344


As of September 30, 2021	2021		2020		2019		2018		2017		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated*	$	66,244	$	8,844	$	—	$	—	$	—	$	—	$	—	$	75,088
Pass		21,814		17,432		9,180		9,563		5,534		12,934		—		76,457
Special mention		79		—		—		687		—		873		—		1,639
Substandard		—		—		—		18		574		1,282		—		1,874
Total SBL non-real estate		88,137		26,276		9,180		10,268		6,108		15,089		—		155,058

SBL commercial mortgage
Non-rated		9,707		—		4,500		—		—		—		—		14,207
Pass		62,268		55,850		77,930		46,916		38,465		58,177		—		339,606
Special mention		—		—		1,853		—		—		249		—		2,102
Substandard		—		—		—		—		—		3,167		—		3,167
Total SBL commercial mortgage		71,975		55,850		84,283		46,916		38,465		61,593		—		359,082

SBL construction
Pass		3,194		13,958		1,411		3,844		—		—		—		22,407
Substandard		—		—		—		—		—		711		—		711
Total SBL construction		3,194		13,958		1,411		3,844		—		711		—		23,118

Direct lease financing
Non-rated		44,973		14,486		2,088		1,291		474		126		—		63,438
Pass		168,932		166,215		65,411		32,392		11,573		2,956		—		447,479
Substandard		792		2,170		39		58		78		14		—		3,151
Total direct lease financing		214,697		182,871		67,538		33,741		12,125		3,096		—		514,068

SBLOC
Non-rated		—		—		—		—		—		—		4,465		4,465
Pass		—		—		—		—		—		—		1,143,291		1,143,291
Total SBLOC		—		—		—		—		—		—		1,147,756		1,147,756

IBLOC
Non-rated		—		—		—		—		—		—		277,567		277,567
Pass		—		—		—		—		—		—		409,200		409,200
Total IBLOC		—		—		—		—		—		—		686,767		686,767

Advisor financing
Non-rated		1,847		264		—		—		—		—		—		2,111
Pass		34,452		44,580		—		—		—		—		—		79,032
Total advisor financing		36,299		44,844		—		—		—		—		—		81,143

Real estate bridge lending
Pass		128,699		—		—		—		—		—		—		128,699
Total real estate bridge lending		128,699		—		—		—		—		—		—		128,699

Other loans
Non-rated		428		184		—		—		4		217		677		1,510
Pass		101		114		3,323		4,820		5,632		12,977		1,278		28,245
Substandard		—		14		—		—		48		—		76		138
Total other loans**		529		312		3,323		4,820		5,684		13,194		2,031		29,893

	$	543,530	$	324,111	$	165,735	$	99,589	$	62,382	$	93,683	$	1,836,554	$	3,125,584

Unamortized loan fees and costs		—		—		—		—		—		—		—		11,078
Total															$	3,136,662

*Included in the SBL non real estate non-rated total of ~~$136.6~~$75.1 million, were ~~$129.4~~$71.3 million of PPP loans which are government guaranteed.

**Included in ~~other specialty lending~~Other loans are ~~$27.9~~$25.0 million of SBA loans purchased for CRA purposes as of ~~June~~September 30, 2021. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.


As of December 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated*	$	170,910	$	—	$	—	$	—	$	—	$	—	$	—	$	170,910
Pass		10,775		10,943		12,002		5,454		7,153		9,964		—		56,291
Special mention		—		—		731		—		499		767		—		1,997
Substandard		—		—		20		1,489		1,347		1,491		—		4,347
Total SBL non-real estate		181,685		10,943		12,753		6,943		8,999		12,222		—		233,545

SBL commercial mortgage
Non-rated		17,592		2,758		—		—		—		—		—		20,350
Pass		26,971		76,975		46,099		39,219		32,505		35,298		—		257,067
Special mention		—		1,852		—		—		—		257		—		2,109
Substandard		—		—		—		—		77		7,605		—		7,682
Total SBL commercial mortgage		44,563		81,585		46,099		39,219		32,582		43,160		—		287,208

SBL construction
Non-rated		566		—		—		—		—		—		—		566
Pass		6,769		1,146		11,081		—		—		—		—		18,996
Substandard		—		—		—		—		711		—		—		711
Total SBL construction		7,335		1,146		11,081		—		711		—		—		20,273
		.
Direct lease financing
Non-rated		23,273		2,888		2,189		1,093		447		7		—		29,897
Pass		249,946		90,156		53,638		23,944		9,091		1,106		—		427,881
Substandard		3,536		45		97		152		536		38		—		4,404
Total direct lease financing		276,755		93,089		55,924		25,189		10,074		1,151		—		462,182

SBLOC
Non-rated		—		—		—		—		—		—		3,772		3,772
Pass		—		—		—		—		—		—		1,109,161		1,109,161
Total SBLOC		—		—		—		—		—		—		1,112,933		1,112,933

IBLOC
Non-rated		—		—		—		—		—		—		132,777		132,777
Pass		—		—		—		—		—		—		304,376		304,376
Total IBLOC		—		—		—		—		—		—		437,153		437,153

Advisor financing
Non-rated		22,341		—		—		—		—		—		—		22,341
Pass		25,941		—		—		—		—		—		—		25,941
Total advisor financing		48,282		—		—		—		—		—		—		48,282

Other loans
Non-rated		1,221		—		—		14		—		1,558		—		2,793
Pass		376		3,569		6,225		7,320		7,228		13,996		—		38,714
Substandard		—		—		—		—		—		301		—		301
Total other loans**		1,597		3,569		6,225		7,334		7,228		15,855		—		41,808

Total	$	560,217	$	190,332	$	132,082	$	78,685	$	59,594	$	72,388	$	1,550,086	$	2,643,384

Unamortized loan fees and costs		—		—		—		—		—		—		—		8,939
Total															$	2,652,323

As of December 31, 2020
2020
2019
2018
2017
2016
Prior
Revolving loans at amortized cost
Total
SBL non real estate
Non-rated*
$
170,910
$
—
$
—
$
—
$
—
$
—
$
—
$
170,910
Pass
10,775
10,943
12,002
5,454
7,153
9,964
—
56,291
Special mention
—
—
731
—
499
767
—
1,997
Substandard
—
—
20
1,489
1,347
1,491
—
4,347
Total SBL non-real estate
181,685
10,943
12,753
6,943
8,999
12,222
—
233,545
SBL commercial mortgage
Non-rated
17,592
2,758
—
—
—
—
—
20,350
Pass
26,971
76,975
46,099
39,219
32,505
35,298
—
257,067
Special mention
—
1,852
—
—
—
257
—
2,109
Substandard
—
—
—
—
77
7,605
—
7,682
Total SBL commercial mortgage
44,563
81,585
46,099
39,219
32,582
43,160
—
287,208
SBL construction
Non-rated
566
—
—
—
—
—
—
566
Pass
6,769
1,146
11,081
—
—
—
—
18,996
Substandard
—
—
—
—
711
—
—
711
Total SBL construction
7,335
1,146
11,081
—
711
—
—
20,273
.
Direct lease financing
Non-rated
23,273
2,888
2,189
1,093
447
7
—
29,897
Pass
249,946
90,156
53,638
23,944
9,091
1,106
—
427,881
Substandard
3,536
45
97
152
536
38
—
4,404
Total direct lease financing
276,755
93,089
55,924
25,189
10,074
1,151
—
462,182
SBLOC
Non-rated
—
—
—
—
—
—
3,772
3,772
Pass
—
—
—
—
—
—
1,109,161
1,109,161
Total SBLOC
—
—
—
—
—
—
1,112,933
1,112,933
IBLOC
Non-rated
—
—
—
—
—
—
132,777
132,777
Pass
—
—
—
—
—
—
304,376
304,376
Total IBLOC
—
—
—
—
—
—
437,153
437,153
Other specialty
Non-rated
288
—
—
—
—
—
—
288
Pass
376
3,569
6,225
7,320
7,228
12,555
—
37,273
Total other specialty**
664
3,569
6,225
7,320
7,228
12,555
—
37,561
Advisor financing
Non-rated
22,341
—
—
—
—
—
—
22,341
Pass
25,941
—
—
—
—
—
—
25,941
Total advisor financing
48,282
—
—
—
—
—
—
48,282
Consumer
Non-rated
933
—
—
14
—
1,558
—
2,505
Pass
—
—
—
—
—
1,441
—
1,441
Substandard
—
—
—
—
—
301
—
301
Total consumer
933
—
—
14
—
3,300
—
4,247
Total
$
560,217
$
190,332
$
132,082
$
78,685
$
59,594
$
72,388
$
1,550,086
$
2,643,384
Unamortized loan fees and costs
—
—
—
—
—
—
—
8,939
Total
$
2,652,323

*Included in the SBL non real estate non-rated total of $170.9 million, were $165.7 million of PPP loans which are government guaranteed.

**Included in ~~other specialty lending~~Other loans are $35.4 million of SBA loans purchased for CRA purposes as of December 31, 2020. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.

SBL. Substantially all small business loans consist of SBA loans. The Bank participates in loan programs established by the SBA, including the 7(a) Loan Guarantee Program and the 504 Fixed Asset Financing Program and a temporary program, the PPP. The 7(a) Loan Guarantee Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees

of loans made by banks and non-bank lending institutions for specific business purposes, including long or short term working capital; funds for the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA. The 504 Fixed Asset Financing Program includes the financing of real estate and commercial mortgages. In 2020 and 2021, the Company also participated in PPP, which provides short-term loans to small businesses. PPP loans are fully guaranteed by the U.S. government. This program was a specific response to the COVID-19 pandemic, and these loans are expected to be reimbursed by the U.S. government within one year of their origination. The Company segments the SBL portfolio into four pools: non real estate, commercial mortgage and construction to capture the risk characteristics of each pool, and the PPP loans discussed above. In the table above, the PPP loans are included in non-rated SBL non real estate. The qualitative factors for SBL loans focus on pool loan performance, underlying collateral for collateral dependent loans and changes in economic conditions. Additionally, the construction segment adds a qualitative factor for general construction risk, such as construction delays. The U.S. government guaranteed portion of 7a loans and PPP loans, which are fully guaranteed, are not included in the risk pools because they have inherently different risk characteristics, because of the U.S. government guarantee.

Direct lease financing. The Company provides lease financing for commercial and government vehicle fleets and, to a lesser extent, provides lease financing for other equipment. Leases are either open-end or closed-end. An open-end lease is one in which, at the end of the lease term, the lessee must pay the difference between the amount at which the Company sells the leased asset and the stated termination value. Termination value is a contractual value agreed to by the parties at the inception of a lease as to the value of the leased asset at the end of the lease term. A closed-end lease is one for which no such payment is due on lease termination. In a closed-end lease, the risk that the amount received on a sale of the leased asset will be less than the residual value is assumed by the Bank, as lessor. The qualitative factors for direct lease financing focus on underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

SBLOC. SBLOC loans are made to individuals, trusts and entities and are secured by a pledge of marketable securities maintained in one or more accounts with respect to which the Company obtains a securities account control agreement. The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on demand. Maximum SBLOC line amounts are calculated by applying a standard ‘advance rate’ calculation against the eligible security type depending on asset class: typically, up to 50% for equity securities and mutual fund securities and 80% for investment grade (Standard & Poor’s rating of BBB- or higher, or Moody’s rating of Baa3 or higher) municipal or corporate debt securities. Substantially all SBLOCs have full recourse to the borrower. The underlying securities collateral for SBLOC loans is monitored on a daily basis to confirm the composition of the client portfolio and its daily market value. The primary qualitative factor in the SBLOC analysis is the ratio of loans outstanding to market value. This factor has been maintained at low levels, which has remained appropriate as losses have not materialized despite the historic declines in the equity markets during 2020, during which there were 0 losses. Significant losses have not been incurred since inception of this line of business. Additionally, the advance rates noted above were established to provide the Company with protection from declines in market conditions from the origination date of the lines of credit.

IBLOC. IBLOC loans are collateralized by the cash surrender value of insurance policies. Should a loan default, the primary risks for IBLOCs are if the insurance company issuing the policy were to become insolvent, or if that company would fail to recognize the Bank’s assignment of policy proceeds. To mitigate these risks, insurance company ratings are periodically evaluated for compliance with Bank standards. Additionally, the Bank utilizes assignments of cash surrender value, which legal counsel has concluded are enforceable. The qualitative factors for IBLOC primarily focus on the concentration risk with insurance companies.

Advisor financing. In 2020, the Bank began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third-party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate. The qualitative factors for advisor financing focus on changes in lending policies and procedures, portfolio performance and economic conditions.

Real estate bridge lending. Real estate bridge loans are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which are already cash flowing, and which are securitized by those properties. The portfolio is comprised primarily of apartments. Prior to 2020, such loans were originated for securitization and loans which had been originated but not securitized continue to accounted for at fair value in commercial loans, at fair value, on the balance sheet. In 2021, originations resumed and are being held for investment in loans, net of deferred fees and cost, on the balance sheet.

Other specialty lending and consumer loans. Other specialty lending loans and consumer loans are categories of loans which the Company generally no longer offers. The loans primarily are consumer loans and home equity loans. The qualitative factors for all other specialty lending and consumer loans focus on changes in the underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

Expected credit losses are estimated over the estimated remaining lives of loans. The estimate excludes possible extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by us.

The Company does not measure an allowance for credit losses on accrued interest receivable balances, because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status.

Allowance for credit losses on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted through the provision for credit losses. The estimate considers the likelihood that funding will occur over the estimated life of the commitment. The amount of the allowance in the liability account as of ~~June~~September 30, 2021 was ~~$927,000.~~$1.1 million.

A detail of the changes in the allowance for credit losses by loan category and summary of loans evaluated individually and collectively for credit deterioration is as follows (in thousands):



	June 30, 2021																				September 30, 2021
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		Unallocated		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge lending		Other loans		Unallocated		Total
Beginning 1/1/2021	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	150	$	49	$	—	$	16,082	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	—	$	199	$	—	$	16,082
Charge-offs		(321)		(23)		—		(193)		(15)		—		—		—		—		(552)		(896)		(23)		—		(248)		(15)		—		—		(10)		—		(1,192)
Recoveries		15		—		—		7		—		—		—		—		—		22		18		9		—		50		—		—		—		—		—		77
Provision (credit)*		263		(663)		(27)		(139)		104		179		18		5		—		(260)		1,196		(506)		42		(208)		157		247		245		19		—		1,192
Ending balance	$	5,017	$	2,629	$	301	$	5,718	$	864	$	541	$	168	$	54	$	—	$	15,292	$	5,378	$	2,795	$	370	$	5,637	$	917	$	609	$	245	$	208	$	—	$	16,159

Ending balance: Individually evaluated for expected credit loss	$	1,559	$	510	$	34	$	—	$	—	$	—	$	—	$	10	$	—	$	2,113	$	1,163	$	510	$	34	$	91	$	—	$	—	$	—	$	14	$	—	$	1,812

Ending balance: Collectively evaluated for expected credit loss	$	3,458	$	2,119	$	267	$	5,718	$	864	$	541	$	168	$	44	$	—	$	13,179	$	4,215	$	2,285	$	336	$	5,546	$	917	$	609	$	245	$	194	$	—	$	14,347

Loans:
Ending balance**	$	228,958	$	343,487	$	18,494	$	506,424	$	1,729,628	$	72,190	$	2,092	$	3,748	$	10,323	$	2,915,344	$	171,845	$	367,272	$	23,117	$	514,068	$	1,834,523	$	81,143	$	128,699	$	4,917	$	11,078	$	3,136,662

Ending balance: Individually evaluated for expected credit loss	$	2,729	$	3,167	$	711	$	635	$	—	$	—	$	—	$	550	$	—	$	7,792	$	2,233	$	3,167	$	711	$	430	$	—	$	—	$	—	$	339	$	—	$	6,880

Ending balance: Collectively evaluated for expected credit loss	$	226,229	$	340,320	$	17,783	$	505,789	$	1,729,628	$	72,190	$	2,092	$	3,198	$	10,323	$	2,907,552	$	169,612	$	364,105	$	22,406	$	513,638	$	1,834,523	$	81,143	$	128,699	$	4,578	$	11,078	$	3,129,782

2726


	December 31, 2020																				December 31, 2020
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		Unallocated		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other loans		Unallocated		Total
Beginning 12/31/2019	$	4,985	$	1,472	$	432	$	2,426	$	553	$	—	$	12	$	40	$	318	$	10,238	$	4,985	$	1,472	$	432	$	2,426	$	553	$	—	$	52	$	318	$	10,238
1/1 CECL adjustment		(220)		537		139		2,362		(41)		—		158		20		(318)		2,637		(220)		537		139		2,362		(41)		—		178		(318)		2,637
Charge-offs		(1,350)		—		—		(2,243)		—		—		—		—		—		(3,593)		(1,350)		—		—		(2,243)		—		—		—		—		(3,593)
Recoveries		103		—		—		570		—		—		—		—		—		673		103		—		—		570		—		—		—		—		673
Provision (credit)*		1,542		1,306		(243)		2,928		263		362		(20)		(11)		—		6,127		1,542		1,306		(243)		2,928		263		362		(31)		—		6,127
Ending balance	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	150	$	49	$	—	$	16,082	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	199	$	—	$	16,082

Ending balance: Individually evaluated for expected credit loss	$	2,129	$	1,010	$	34	$	4	$	—	$	—	$	—	$	—	$	—	$	3,177	$	2,129	$	1,010	$	34	$	4	$	—	$	—	$	—	$	—	$	3,177

Ending balance: Collectively evaluated for expected credit loss	$	2,931	$	2,305	$	294	$	6,039	$	775	$	362	$	150	$	49	$	—	$	12,905	$	2,931	$	2,305	$	294	$	6,039	$	775	$	362	$	199	$	—	$	12,905

Loans:
Ending balance**	$	255,318	$	300,817	$	20,273	$	462,182	$	1,550,086	$	48,282	$	2,179	$	4,247	$	8,939	$	2,652,323	$	255,318	$	300,817	$	20,273	$	462,182	$	1,550,086	$	48,282	$	6,426	$	8,939	$	2,652,323

Ending balance: Individually evaluated for expected credit loss	$	3,431	$	7,305	$	711	$	751	$	—	$	—	$	—	$	557	$	—	$	12,755	$	3,431	$	7,305	$	711	$	751	$	—	$	—	$	557	$	—	$	12,755

Ending balance: Collectively evaluated for expected credit loss	$	251,887	$	293,512	$	19,562	$	461,431	$	1,550,086	$	48,282	$	2,179	$	3,690	$	8,939	$	2,639,568	$	251,887	$	293,512	$	19,562	$	461,431	$	1,550,086	$	48,282	$	5,869	$	8,939	$	2,639,568



	June 30, 2020																				September 30, 2020
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		Unallocated		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other loans		Unallocated		Total
Beginning 12/31/2019	$	4,985	$	1,472	$	432	$	2,426	$	553	$	—	$	12		40	$	318	$	10,238	$	4,985	$	1,472	$	432	$	2,426	$	553	$	—	$	52		318	$	10,238
1/1 CECL adjustment		(220)		537		139		2,362		(41)		—		158		20		(318)		2,637		(220)		537		139		2,362		(41)		—		178		(318)		2,637
Charge-offs		(1,048)		—		—		(1,552)		—		—		—		—		—		(2,600)		(1,350)		—		—		(2,178)		—		—		—		—		(3,528)
Recoveries		60		—		—		84		—		—		—		—		—		144		82		—		—		502		—		—		—		—		584
Provision (credit)*		949		605		(58)		2,488		131		116		(17)		(8)		—		4,206		1,304		1,543		(148)		2,735		202		199		(39)		—		5,796
Ending balance	$	4,726	$	2,614	$	513	$	5,808	$	643	$	116	$	153		52	$	—	$	14,625	$	4,801	$	3,552	$	423	$	5,847	$	714	$	199	$	191		—	$	15,727

Ending balance: Individually evaluated for expected credit loss	$	1,991	$	136	$	26	$	536	$	—	$	—	$	—	$	—	$	—	$	2,689	$	1,818	$	1,010	$	26	$	43	$	—	$	—	$	—	$	—	$	2,897

Ending balance: Collectively evaluated for expected credit loss	$	2,735	$	2,478	$	487	$	5,272	$	643	$	116	$	153	$	52	$	—	$	11,936	$	2,983	$	2,542	$	397	$	5,804	$	714	$	199	$	191	$	—	$	12,830

Loans:
Ending balance**	$	293,692	$	259,020	$	33,193	$	422,505	$	1,287,350	$	15,529	$	2,706	$	4,003	$	4,739	$	2,322,737	$	293,488	$	270,264	$	27,169	$	430,675	$	1,428,253	$	26,600	$	6,003	$	6,308	$	2,488,760

Ending balance: Individually evaluated for expected credit loss	$	3,345	$	3,007	$	711	$	2,879	$	—	$	—	$	—	$	574	$	—	$	10,516	$	3,220	$	7,517	$	711	$	804	$	—	$	—	$	567	$	—	$	12,819

Ending balance: Collectively evaluated for expected credit loss	$	290,347	$	256,013	$	32,482	$	419,626	$	1,287,350	$	15,529	$	2,706	$	3,429	$	4,739	$	2,312,221	$	290,268	$	262,747	$	26,458	$	429,871	$	1,428,253	$	26,600	$	5,436	$	6,308	$	2,475,941

*The amount shown as the provision for the period, reflects the provision on credit losses for loans, while the income statement provision for credit losses includes the provision for unfunded commitments.

** The ending balance for loans in the unallocated column represents deferred costs and fees.

The Company did 0t have loans acquired with deteriorated credit quality at either ~~June~~September 30, 2021 or December 31, 2020.

A detail of the Company’s delinquent loans by loan category is as follows (in thousands):



	June 30, 2021														September 30, 2021
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	711	$	891	$	1,005	$	2,535	$	5,142	$	223,816	$	228,958	$	1,622	$	848	$	1,085	$	1,708	$	5,263	$	166,582	$	171,845
SBL commercial mortgage		—		520		417		3,167		4,104		339,383		343,487		17		208		417		3,167		3,809		363,463		367,272
SBL construction		—		—		—		711		711		17,783		18,494		—		—		—		711		711		22,406		23,117
Direct lease financing		492		439		128		635		1,694		504,730		506,424		994		211		67		430		1,702		512,366		514,068
SBLOC / IBLOC		6,936		—		—		—		6,936		1,722,692		1,729,628		1,389		—		—		—		1,389		1,833,134		1,834,523
Advisor financing		—		—		—		—		—		72,190		72,190		—		—		—		—		—		81,143		81,143
Other specialty lending		—		—		—		—		—		2,092		2,092
Consumer - other		—		13		—		—		13		972		985
Consumer - home equity		—		—		—		298		298		2,465		2,763
Real estate bridge lending																—		—		—		—		—		128,699		128,699
Other loans																—		—		—		90		90		4,827		4,917
Unamortized loan fees and costs		—		—		—		—		—		10,323		10,323		—		—		—		—		—		11,078		11,078
	$	8,139	$	1,863	$	1,550	$	7,346	$	18,898	$	2,896,446	$	2,915,344	$	4,022	$	1,267	$	1,569	$	6,106	$	12,964	$	3,123,698	$	3,136,662

‎



	December 31, 2020														December 31, 2020
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,760	$	805	$	110	$	3,159	$	5,834	$	249,484	$	255,318	$	1,760	$	805	$	110	$	3,159	$	5,834	$	249,484	$	255,318
SBL commercial mortgage		87		961		—		7,305		8,353		292,464		300,817		87		961		—		7,305		8,353		292,464		300,817
SBL construction		—		—		—		711		711		19,562		20,273		—		—		—		711		711		19,562		20,273
Direct lease financing		2,845		941		78		751		4,615		457,567		462,182		2,845		941		78		751		4,615		457,567		462,182
SBLOC / IBLOC		650		247		309		—		1,206		1,548,880		1,550,086		650		247		309		—		1,206		1,548,880		1,550,086
Advisor financing		—		—		—		—		—		48,282		48,282		—		—		—		—		—		48,282		48,282
Other specialty lending		—		—		—		—		—		2,179		2,179
Consumer - other		—		—		—		—		—		1,164		1,164
Consumer - home equity		—		—		—		301		301		2,782		3,083
Other loans																—		—		—		301		301		6,125		6,426
Unamortized loan fees and costs		—		—		—		—		—		8,939		8,939		—		—		—		—		—		8,939		8,939
	$	5,342	$	2,954	$	497	$	12,227	$	21,020	$	2,631,303	$	2,652,323	$	5,342	$	2,954	$	497	$	12,227	$	21,020	$	2,631,303	$	2,652,323

The scheduled maturities of the direct financing leases reconciled to the total lease receivables in the consolidated balance sheet, are as follows (in thousands):


Remaining 2021	$	87,508	$	47,882
2022		135,440		146,333
2023		101,403		111,954
2024		59,336		69,895
2025		26,316		34,726
2026 and thereafter		7,188		12,823
Total undiscounted cash flows		417,191		423,613
Residual value *		141,336		142,558
Difference between undiscounted cash flows and discounted cash flows		(52,103)		(52,103)
Present value of lease payments recorded as lease receivables	$	506,424	$	514,068

*Of the ~~$141,336,000, $30,830,000~~$142,558,000, $31,122,000 is not guaranteed by the lessee or other guarantors.

Note 7. Transactions with Affiliates

The Bank did 0t maintain any deposits for various affiliated companies as of ~~June~~September 30, 2021 and December 31, 2020, respectively.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons. All loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender. At ~~June~~September 30, 2021, these loans were current as to principal and interest payments and did not involve more than normal risk of collectability. Loans to these related parties amounted to ~~$3.7~~$3.2 million at ~~June~~September 30, 2021 and $4.7 million at December 31, 2020.

The Bank has periodically purchased securities through J.V.B. Financial Group, LLC (“JVB”), a broker dealer in which the Company’s former Chairman is a registered representative and has a minority interest. Prices for these securities are verified to market rates and no separate commissions or fees are paid to that firm. The Company’s former Chairman also serves as the President, a director and the Chief Investment Officer of Cohen & Company Financial Limited (formerly Euro Dekania Management Ltd.), a wholly-owned subsidiary of Cohen & Company Inc. (formerly Institutional Financial Markets Inc.), the parent company of JVB. In the first ~~six~~nine months of 2021 and 2020, the Company did ~~not~~0t purchase any securities from JVB. The Company’s former Chairman retired effective October 31, 2021.

Mr. Hersh Kozlov, a director of the Company, is a partner at Duane Morris LLP, an international law firm. The Company paid Duane Morris LLP ~~$1.3~~$1.5 million and ~~$734,000~~$1.4 million for legal services for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, respectively.

3028

Note 8. Fair Value Measurements

ASC 825, “Financial Instruments”, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Accordingly, estimated fair values are determined by the Company using the best available data and an estimation methodology it believes to be suitable for each category of financial instruments. Also, it is the Company’s general practice and intent to hold its financial instruments to maturity whether or not categorized as “available-for-sale” and not to engage in trading or sales activities although it has sold loans in the past and may do so in the future. For fair value disclosure purposes, the Company utilized certain value measurement criteria required under ASC 820, “Fair Value Measurements and Disclosures”, as discussed below.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

Cash and cash equivalents, which are comprised of cash and due from banks, the Company’s balance at the Federal Reserve Bank and securities purchased under agreements to resell, had recorded values of ~~$589.0~~$317.3 million and $345.5 million as of ~~June~~September 30, 2021 and December 31, 2020, respectively, which approximated fair values.

The estimated fair values of investment securities are based on quoted market prices, if available, or estimated using a methodology based on management’s inputs. Level 3 investment security fair values are based on the present valuing of cash flows, which discounts expected cash flows from principal and interest using yield to maturity, or yield to call as appropriate, at the measurement date. In the ~~second~~third quarter of 2021 and 2020, there were 0 transfers between the three levels.

FHLB and Atlantic Central Bankers Bank stock is held as required by those respective institutions and is carried at cost. Federal law requires a member institution of the FHLB to hold stock according to predetermined formulas. Atlantic Central Bankers Bank requires its correspondent banking institutions to hold stock as a condition of membership.

~~Commercial~~Commercial loans held at fair value are comprised of commercial real estate loans and SBA loans which had been originated for sale or securitization in the secondary market, and which are now being held on the balance sheet. Commercial real estate loans and SBA loans are valued using a discounted cash flow analysis based upon pricing for similar loans where market indications of the sales price of such loans are not ~~available.~~available, on a pooled basis.

The net loan portfolio is valued using the present value of discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. Accrued interest receivable has a carrying value that approximates fair value.

On December 30, 2014, the Bank entered into an agreement for, and closed on, the sale of a portion of its discontinued commercial loan portfolio. The purchaser of the loan portfolio was a newly formed entity, 2014-1 LLC (Walnut Street). The price paid to the Bank for the loan portfolio which had a face value of approximately $267.6 million, was approximately $209.6 million, of which approximately $193.6 million was in the form of 2 notes issued by Walnut Street to the Bank; a senior note in the principal amount of approximately $178.2 million bearing interest at 1.5% per year and maturing in December 2024 and a subordinate note in the principal amount of approximately $15.4 million, bearing interest at 10.0% per year and maturing in December 2024. The balance of these notes comprises the balance of the investment in unconsolidated entity on the consolidated balance sheets, which iswas measured at fair value at each balance sheet date. The fair value was initially established by the sales price and the investment iswas marked quarterly to fair value, as determined using a discounted cash flow analysis. The change in value of investment in unconsolidated entity in the consolidated statements of operations ~~reflects~~reflected changes in estimated fair value. Interest paid to the bank on the notes iswas credited to principal. In the third quarter of 2021, The Bancorp and the other investor dissolved the entity, as the remaining balance did not warrant ongoing administrative and accounting expenses. As a result of the dissolution, the investment in unconsolidated entity, which had a June 30, 2021 balance of $25.0 million, was reclassified as follows. Approximately $22.9 million of loans were reclassified to commercial loans, at fair value and $2.1 million was reclassified to other real estate owned, as those assets continue to be reported at fair value.

Assets held-for-sale from discontinued operations are recorded at the lower of cost basis or market value. For loans, market value was determined using the discounted cash flow approach which converts expected cash flows from the loan portfolio by unit of measurement to a present value estimate. Unit of measurement was determined by loan type and for significant loans on an individual loan basis. Loan fair values are based on “unobservable inputs” that are based on available information. Level 3 fair values are based on the present value of cash flows by unit of measurement. For commercial loans other than SBA loans, a market adjusted rate to discount expected cash flows from outstanding principal and interest to expected maturity at the measurement date was utilized. For SBA loans, market

indications for similar loans were utilized on a pooled basis. For other real estate owned, market value is based upon appraisals of the underlying collateral by third-party appraisers, reduced by 7% to 10% for estimated selling costs.

The estimated fair values of demand deposits (comprised of interest and non-interest bearing checking accounts, savings accounts, and certain types of money market accounts) are equal to the amount payable on demand at the reporting date (generally, their carrying amounts). The fair values of securities sold under agreements to repurchase and short-term borrowings are equal to their carrying amounts as they are short-term borrowings.

Time deposits, when outstanding, senior debt and subordinated debentures have a fair value estimated using a discounted cash flow calculation that applies current interest rates to discount expected cash flows. The carrying amount of accrued interest payable approximates its fair value. Long term borrowings resulted from sold loans which did not qualify for true sale accounting. They are presented in the amount of the principal of such loans.

The fair values of interest rate swaps, recorded in other assets or other liabilities, are determined using models that use readily observable market inputs and a market standard methodology applied to the contractual terms of the derivatives, including the period to maturity and interest rate indices.

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered immaterial.

The following tables provide information regarding carrying amounts and estimated fair values (in thousands) as of the dates indicated:



	June 30, 2021										September 30, 2021
					Quoted prices in		Significant other		Significant						Quoted prices in		Significant other		Significant
					active markets for		observable		unobservable						active markets for		observable		unobservable
	Carrying		Estimated		identical assets		inputs		inputs		Carrying		Estimated		identical assets		inputs		inputs
	amount		fair value		(Level 1)		(Level 2)		(Level 3)		amount		fair value		(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale	$	1,106,075	$	1,106,075	$	—	$	1,003,536	$	102,539	$	1,054,223	$	1,054,223	$	—	$	984,961	$	69,262
Federal Home Loan Bank and Atlantic Central Bankers Bank stock		1,667		1,667		—		—		1,667		1,663		1,663		—		—		1,663
Commercial loans, at fair value		1,690,216		1,690,216		—		—		1,690,216		1,550,025		1,550,025		—		—		1,550,025
Loans, net of deferred loan fees and costs		2,915,344		2,910,287		—		—		2,910,287		3,136,662		3,129,602		—		—		3,129,602
Investment in unconsolidated entity		24,988		24,988		—		—		24,988
Assets held-for-sale from discontinued operations		97,496		97,496		—		—		97,496		87,904		87,904		—		—		87,904
Interest rate swaps, liability		1,018		1,018		—		1,018		—		895		895		—		895		—
Demand and interest checking		5,225,024		5,225,024		—		5,225,024		—		4,734,352		4,734,352		—		4,734,352		—
Savings and money market		459,688		459,688		—		459,688		—		378,160		378,160		—		378,160		—
Senior debt		98,498		104,793		—		104,793		—		98,590		101,433		—		101,433		—
Subordinated debentures		13,401		8,629		—		—		8,629		13,401		8,663		—		—		8,663
Securities sold under agreements to repurchase		42		42		42		—		—		42		42		42		—		—
Short-term borrowings												300,000		300,000		300,000		—		—



	December 31, 2020
					Quoted prices in		Significant other		Significant
					active markets for		observable		unobservable
	Carrying		Estimated		identical assets		inputs		inputs
	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale	$	1,206,164	$	1,206,164	$	—	$	1,027,213	$	178,951
Federal Home Loan Bank and Atlantic Central Bankers Bank stock		1,368		1,368		—		—		1,368
Commercial loans, at fair value		1,810,812		1,810,812		—		—		1,810,812
Loans, net of deferred loan fees and costs		2,652,323		2,650,613		—		—		2,650,613
Investment in unconsolidated entity		31,294		31,294		—		—		31,294
Assets held-for-sale from discontinued operations		113,650		113,650		—		—		113,650
Interest rate swaps, liability		2,223		2,223		—		2,223		—
Demand and interest checking		5,205,010		5,205,010		—		5,205,010		—
Savings and money market		257,050		257,050		—		257,050		—
Senior debt		98,314		104,111		—		104,111		—
Subordinated debentures		13,401		9,102		—		—		9,102
Securities sold under agreements to repurchase		42		42		42		—		—

3230

December 31, 2020
Quoted prices in
Significant other
Significant
active markets for
observable
unobservable
Carrying
Estimated
identical assets
inputs
inputs
amount
fair value
(Level 1)
(Level 2)
(Level 3)
Investment securities, available-for-sale
$
1,206,164
$
1,206,164
$
—
$
1,027,213
$
178,951
Federal Home Loan Bank and Atlantic Central Bankers Bank stock
1,368
1,368
—
—
1,368
Commercial loans, at fair value
1,810,812
1,810,812
—
—
1,810,812
Loans, net of deferred loan fees and costs
2,652,323
2,650,613
—
—
2,650,613
Investment in unconsolidated entity
31,294
31,294
—
—
31,294
Assets held-for-sale from discontinued operations
113,650
113,650
—
—
113,650
Interest rate swaps, liability
2,223
2,223
—
2,223
—
Demand and interest checking
5,205,010
5,205,010
—
5,205,010
—
Savings and money market
257,050
257,050
—
257,050
—
Senior debt
98,314
104,111
—
104,111
—
Subordinated debentures
13,401
9,102
—
—
9,102
Securities sold under agreements to repurchase
42
42
42
—
—

The assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy, are summarized below (in thousands) as of the dates indicated:



			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted prices in		Significant other		Significant				Quoted prices in		Significant other		Significant
				active markets for	observable		unobservable					active markets for	observable		unobservable
	Fair value		identical assets		inputs		inputs		Fair value		identical assets		inputs		inputs
		June 30, 2021	(Level 1)		(Level 2)		(Level 3)			September 30, 2021	(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities	$	43,092	$	—	$	43,092	$	—	$	39,120	$	—	$	39,120	$	—
Asset-backed securities		318,458		—		318,458		—		368,913		—		368,913		—
Obligations of states and political subdivisions		53,140		—		53,140		—		52,797		—		52,797		—
Residential mortgage-backed securities		226,600		—		226,600		—		199,270		—		199,270		—
Collateralized mortgage obligation securities		104,274		—		104,274		—		76,342		—		76,342		—
Commercial mortgage-backed securities		353,929		—		257,972		95,957		311,276		—		248,519		62,757
Corporate debt securities		6,582		—		—		6,582		6,505		—		—		6,505
Total investment securities, available-for-sale		1,106,075		—		1,003,536		102,539		1,054,223		—		984,961		69,262
Commercial loans, at fair value		1,690,216		—		—		1,690,216		1,550,025		—		—		1,550,025
Investment in unconsolidated entity		24,988		—		—		24,988
Assets held-for-sale from discontinued operations		97,496		—		—		97,496		87,904		—		—		87,904
Interest rate swaps, liability		1,018		—		1,018		—		895		—		895		—
	$	2,917,757	$	—	$	1,002,518	$	1,915,239	$	2,691,257	$	—	$	984,066	$	1,707,191



			Fair Value Measurements at Reporting Date Using
			Quoted prices in		Significant other		Significant
				active markets for	observable		unobservable
	Fair value		identical assets		inputs		inputs
		December 31, 2020	(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities	$	47,197	$	—	$	47,197	$	—
Asset-backed securities		238,361		—		238,361		—
Obligations of states and political subdivisions		56,354		—		56,354		—
Residential mortgage-backed securities		266,583		—		266,583		—
Collateralized mortgage obligation securities		148,530		—		148,530		—
Commercial mortgage-backed securities		367,280		—		270,188		97,092
Corporate debt securities		81,859		—		—		81,859
Total investment securities, available-for-sale		1,206,164		—		1,027,213		178,951
Commercial loans, at fair value		1,810,812		—		—		1,810,812
Investment in unconsolidated entity		31,294		—		—		31,294
Assets held-for-sale from discontinued operations		113,650		—		—		113,650
Interest rate swaps, liability		2,223		—		2,223		—
	$	3,159,697	$	—	$	1,024,990	$	2,134,707

In addition, ASC 820 establishes a common definition for fair value to be applied to assets and liabilities. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures concerning fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 valuation is based on quoted market prices for identical assets or liabilities to which the Company has access at the measurement date. Level 2 valuation is based on other observable inputs for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability such as yield curves, volatilities, prepayment speeds, credit risks, default rates, or inputs that are derived principally from, or corroborated through, observable market data by market-corroborated reports. Level 3 valuation is based on “unobservable inputs” which the Company believes is the best information available in the circumstances. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

‎

3431

The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):



	Fair Value Measurements Using								Fair Value Measurements Using
	Significant Unobservable Inputs								Significant Unobservable Inputs
	(Level 3)								(Level 3)

	Available-for-sale				Commercial loans				Available-for-sale				Commercial loans,
	securities				at fair value				securities				at fair value
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Beginning balance	$	178,951	$	117,333	$	1,810,812	$	1,180,546	$	178,951	$	117,333	$	1,810,812	$	1,180,546
Transfers from investment in unconsolidated entity										—		—		22,926		—
Reclass of held-to-maturity securities to available-for-sale		—		85,151		—		—		—		85,151		—		—
Total (losses) or gains (realized/unrealized)
Included in earnings		—		—		2,534		(1,883)		(676)		—		5,315		(1,883)
Included in other comprehensive loss		(428)		(2,121)		—		—		(1,096)		(2,121)		—		—
Purchases, issuances, sales and settlements
Issuances		—		—		45,643		721,590		—		—		62,151		721,590
Settlements		(75,984)		(21,412)		(168,773)		(89,441)		(107,917)		(21,412)		(351,179)		(89,441)
Ending balance	$	102,539	$	178,951	$	1,690,216	$	1,810,812	$	69,262	$	178,951	$	1,550,025	$	1,810,812

Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.	$	—	$	—	$	(1,188)	$	(3,567)	$	(879)	$	—	$	(1,953)	$	(3,567)

The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):


	Fair Value Measurements Using								Fair Value Measurements Using
	Significant Unobservable Inputs								Significant Unobservable Inputs
	(Level 3)								(Level 3)

	Investment in				Assets held-for-sale				Investment in				Assets held-for-sale
	unconsolidated entity				from discontinued operations				unconsolidated entity				from discontinued operations
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Beginning balance	$	31,294	$	39,154	$	113,650	$	140,657	$	31,294	$	39,154	$	113,650	$	140,657
Transfers to commercial loans, at fair value										(22,926)		—		—		—
Transfers to other real estate owned										(2,145)		—		—		—
Total (losses) or gains (realized/unrealized)
Included in earnings		—		(45)		975		(3,326)		—		(45)		1,115		(3,326)
Purchases, issuances, sales, settlements and charge-offs
Issuances		—		—		2,757		4,942		—		—		3,715		4,942
Sales		—		—		(85)		(1,482)		—		—		(2,020)		(1,482)
Settlements		(6,306)		(7,815)		(19,801)		(26,846)		(6,223)		(7,815)		(28,556)		(26,846)
Charge-offs		—		—		—		(295)		—		—		—		(295)
Ending balance	$	24,988	$	31,294	$	97,496	$	113,650	$	—	$	31,294	$	87,904	$	113,650

Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.	$	—	$	(45)	$	191	$	(2,664)	$	—	$	(45)	$	498	$	(2,664)

The Company’s other real estate owned activity is summarized below (in thousands) as of the dates indicated:


	September 30, 2021		December 31, 2020
Beginning balance	$	0	$	—
Transfers from investment in unconsolidated entity		2,145		—
Ending balance	$	2,145	$	—

3532



	Level 3 instruments only						Level 3 instruments only
						Weighted						Weighted
	Fair value at				Range at	average at	Fair value at				Range at	average at
	June 30, 2021		Valuation techniques	Unobservable inputs	June 30, 2021	June 30, 2021	September 30, 2021		Valuation techniques	Unobservable inputs	September 30, 2021	September 30, 2021

Commercial mortgage backed investment
securities (a)	$	95,957	Discounted cash flow	Discount rate	3.10%-7.71%	4.04%	$	62,757	Discounted cash flow	Discount rate	3.11%-7.71%	4.00%
Insurance liquidating trust preferred security (b)		6,582	Discounted cash flow	Discount rate	7.00%	7.00%		6,505	Discounted cash flow	Discount rate	7.00%	7.00%
Federal Home Loan Bank and Atlantic
Central Bankers Bank stock		1,667	Cost	N/A	N/A	N/A		1,663	Cost	N/A	N/A	N/A
Loans, net of deferred loan fees and costs (c)		2,910,287	Discounted cash flow	Discount rate	1.00% - 7.00%	3.08%		3,129,602	Discounted cash flow	Discount rate	1.00% - 7.00%	3.60%

Commercial - SBA (d)		225,534	Traders' pricing	Offered quotes	$100.00 - $114.10	$104.00		214,301	Traders' pricing	Offered quotes	$100 - $106	$103.5
Commercial - fixed (e)		79,348	Discounted cash flow	Discount rate	5.27%-7.54%	5.86%
Commercial - floating (f)		1,385,334	Discounted cash flow	Discount rate	4.35%-9.80%	4.90%
Non-SBA CRE - fixed (e)								85,075	Discounted cash flow	Discount rate	5.72%-7.44%	5.85%
Non-SBA CRE - floating (f)								1,250,649	Discounted cash flow	Discount rate	3.96%-8.2%	4.86%
Commercial loans, at fair value		1,690,216						1,550,025

Investment in unconsolidated entity (g)		24,988	Discounted cash flow	Discount rate	4.00%	4.00%
Assets held-for-sale from discontinued operations (g)								87,904	Discounted cash flow	Discount rate	3.37%-6.58%	4.69%
				Default rate	1.00%	1.00%
Assets held-for-sale from discontinued operations (h)		97,496	Discounted cash flow	Discount rate,	2.71% - 6.80%	3.97%
Subordinated debentures (h)								8,663	Discounted cash flow	Discount rate	7.00%	7.00%
				Credit analysis
Subordinated debentures (i)		8,629	Discounted cash flow	Discount rate	7.00%	7.00%
Other real estate owned								2,145	Appraised value	N/A	N/A	N/A


		Level 3 instruments only						Level 3 instruments only
						Weighted						Weighted
	Fair value at				Range at	average at	Fair value at				Range at	average at
	December 31, 2020		Valuation techniques	Unobservable inputs	December 31, 2020	December 31, 2020	December 31, 2020		Valuation techniques	Unobservable inputs	December 31, 2020	December 31, 2020
Commercial mortgage backed investment
securities	$	97,092	Discounted cash flow	Discount rate	3.68%-8.30%	4.62%	$	97,092	Discounted cash flow	Discount rate	3.68%-8.30%	4.62%
Insurance liquidating trust preferred security		6,765	Discounted cash flow	Discount rate	6.61%	6.61%		6,765	Discounted cash flow	Discount rate	6.61%	6.61%
Corporate debt securities		75,094	Traders' pricing	Price indications	$100.13	$100.13		75,094	Traders' pricing	Price indications	$100.13	$100.13
Federal Home Loan Bank and Atlantic
Central Bankers Bank stock		1,368	Cost	N/A	N/A	N/A		1,368	Cost	N/A	N/A	N/A
Loans, net of deferred loan fees and costs		2,650,613	Discounted cash flow	Discount rate	1.00% - 6.36%	2.82%		2,650,613	Discounted cash flow	Discount rate	1.00% - 6.36%	2.82%

Commercial - SBA		243,562	Traders' pricing	Offered quotes	$100.00 - $117.80	$105.60		243,562	Traders' pricing	Offered quotes	$100.00 - $117.80	$105.60
Commercial - fixed		87,288	Discounted cash flow	Discount rate	5.16%-7.32%	6.03%
Commercial - floating		1,479,962	Discounted cash flow	Discount rate	3.96% -9.70%	4.91%
Non-SBA CRE - fixed								87,288	Discounted cash flow	Discount rate	5.16%-7.32%	6.03%
Non-SBA CRE - floating								1,479,962	Discounted cash flow	Discount rate	3.96% -9.70%	4.91%
Commercial loans, at fair value		1,810,812						1,810,812

Investment in unconsolidated entity		31,294	Discounted cash flow	Discount rate	3.93%	3.93%		31,294	Discounted cash flow	Discount rate	3.93%	3.93%
				Default rate	1.00%	1.00%				Default rate	1.00%	1.00%
Assets held-for-sale from discontinued operations		113,650	Discounted cash flow	Discount rate,	2.55%-6.83%	4.15%		113,650	Discounted cash flow	Discount rate,	2.55%-6.83%	4.15%
				Credit analysis						Credit analysis
Subordinated debentures		9,102	Discounted cash flow	Discount rate	6.61%	6.61%		9,102	Discounted cash flow	Discount rate	6.61%	6.61%

The valuations for each of the instruments above, as of the balance sheet date, isare subject to judgments, assumptions and uncertainties, changes in which could have a significant impact on such valuations. ~~All weighted~~Weighted averages were calculated by using the discount rate for each individual security or loan weighted by its market value, except for SBA loans. For SBA loans, traders’ pricing indications for pools determined by date of loan origination were weighted. For commercial loans recorded at fair value ~~investment in unconsolidated entity~~ and assets held-for-sale from discontinued operations, changes in fair value are reflected in the income statement. Changes in fair value of securities which are unrelated to credit are recorded through equity. Changes in the fair value of loans recorded at amortized

cost which are unrelated to credit are a disclosure item, without impact on the financial statements. The notes below refer to the ~~June~~September 30, 2021 table.

a)Commercial mortgage backed investment securities, consisting of Bank ~~issued~~sponsored CRE securities, are valued using discounted cash flow analyses. The discount rates applied are based upon market observations for comparable securities and implicitly assume market averages for defaults and loss severities. Each of the securities has some credit enhancement, or protection from other tranches in the issue, which limit their valuation exposure to credit losses. Nonetheless, increases in expected default rates

or loss severities on the loans underlying the issue could reduce their value. In market environments in which investors demand greater yield compensation for credit risk, the discount rate applied would ordinarily be higher and the valuation lower. Changes in prepayments and loss experience could also change the interest earned on these holdings in future periods and impact fair values.

b)Insurance liquidating trust preferred is a single debenture which is valued using discounted cash flow analysis. The discount rate used is based on the market rate on comparable relatively illiquid instruments and credit analysis. A change in the liquidating trust’s ability to repay the note, or an increase in interest rates, particularly for privately placed debentures, would affect the discount rate and thus the valuation. As a single security, the weighted average rate shown is the actual rate applied to the security.

c)Loans, net of deferred loan fees and costs are valued using discounted cash flow analysis. Discount rates are based upon available information for estimated current origination rates for each loan type. Origination rates may fluctuate based upon changes in the risk free (Treasury) rate and credit experience for each loan type. At ~~June~~September 30, 2021, the balance included ~~$129.4~~$71.3 million of Paycheck Protection Program loans, which bear interest at 1%, but also earn fees.

d)Commercial-SBL (SBA Loans) are comprised of the government guaranteed portion of SBA insured loans. Their valuation is based upon dealer pricing indications. A limited number of broker/dealers originate the pooled securities for which the loans are purchased and as a result, prices can fluctuate based on such limited market demand, although the government guarantee has resulted in consistent historical demand. Valuations are also impacted by prepayment assumptions resulting from both voluntary payoffs and defaults.

e)~~Commercial-fixed~~Non-SBA CRE-fixed are fixed rate non-SBA commercial real estate mortgages. Discount rates used in applying discounted cash flow analysis are ~~determined by an independent valuation consultant~~ based upon loan terms, the ~~general level of interest~~current origination rates for similar loans and the quality of the credit. ~~Certain of these loans are fair valued by a third-party, based upon discounting at market rates for similar loans.~~

f)~~Commercial-floating~~Non-SBA CRE-floating are floating rate non-SBA loans, the vast majority of which are secured by multi-family properties. These are bridge loans designed to provide owners time and funding for property improvements and are generally valued internally using discounted cash flow analysis. The discount rate for the vast majority of these loans, which are multi-family, was based upon current origination rates for similar loans. Certain of these loans are fair valued by a third-party, based upon discounting at market rates for similar loans.

g)~~Investment in unconsolidated entity is in non-accrual status, and changes in its value, determined by discounted cash flows, are recorded in the income statement under “Change in value of investment in unconsolidated entity”.~~ A constant default rate of 1%, net of recoveries, on cash flowing loans was utilized. Changes in market interest rates, credit quality or payment experience could result in a change in the current valuation.

h)Assets held-for-sale from discontinued operations are valued using discounted cash flow by an independent valuation consultant using loan performance, other credit characteristics and market interest rate comparisons. Changes in those factors could change the valuation.

i)h)Subordinated debentures are comprised of 2 subordinated notes issued by the Company, maturing in 2038 with a floating rate of 3-month LIBOR plus 3.25%. These notes are valued using discounted cash flow analysis. The discount rate is based on the market rate for comparable relatively illiquid instruments. Changes in those market rates, or the credit of the Company could result in changes in the valuation.

Assets measured at fair value on a nonrecurring basis, segregated by fair value hierarchy, during the periods shown are summarized below (in thousands):



			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted prices in active		Significant other		Significant				Quoted prices in active		Significant other		Significant
			markets for identical		observable		unobservable				markets for identical		observable		unobservable
	Fair value		assets		inputs		inputs (1)		Fair value		assets		inputs		inputs (1)
Description	June 30, 2021		(Level 1)		(Level 2)		(Level 3)		September 30, 2021		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans (1)	$	5,679	$	—	$	—	$	5,679	$	5,068	$	—	$	—	$	5,068
Other real estate owned										2,145		—		—		2,145
Intangible assets		2,646		—		—		2,646		2,547		—		—		2,547
	$	8,325	$	—	$	—	$	8,325	$	9,760	$	—	$	—	$	9,760



			Fair Value Measurements at Reporting Date Using
			Quoted prices in active		Significant other		Significant
			markets for identical		observable		unobservable
	Fair value		assets		inputs		inputs (1)
Description	December 31, 2020		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans (1)	$	9,578	$	—	$	—	$	9,578
Intangible assets		2,845		—		—		2,845
	$	12,423	$	—	$	—	$	12,423

(1)The method of valuation approach for the collateral dependent loans was the market value approach based upon appraisals of the underlying collateral by external appraisers, reduced by 7% to 10% for estimated selling costs. Intangible assets are valued based upon internal analyses.

At ~~June~~September 30, 2021, principal on collateral dependent loans and troubled debt restructurings, which is accounted for on the basis of the value of underlying collateral, is shown at estimated fair value of ~~$5.7~~$5.1 million. To arrive at that fair value, related loan principal of ~~$7.8~~$6.9 million was reduced by specific reserves of ~~$2.1~~$1.8 million within the allowance for credit losses as of that date, representing the deficiency between principal and estimated collateral values, which were reduced by estimated costs to sell. When the deficiency is deemed uncollectible, it is charged off by reducing the specific reserve and decreasing principal. Included in the collateral dependent

loans at ~~June~~September 30, 2021 were 109 troubled debt restructured loans with a balance of ~~$1.5~~$1.4 million, which had specific reserves of ~~$327,000.~~$626,000. Valuation techniques consistent with the market and/or cost approach were used to measure fair value and primarily included observable inputs for the individual collateral dependent loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy. ~~There was 0 other real estate owned in continuing operations at either~~ ~~June 30, 2021 or December 31, 2020.~~

Note 9. Derivatives

The Company utilizes derivative instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics on certain non-SBA CRE loans held at fair value. These instruments are not accounted for as effective hedges. As of ~~June~~September 30, 2021, the Company had entered into ~~four~~three interest rate swap agreements with an aggregate notional amount of ~~$31.6~~$21.3 million. These swap agreements provide for the Company to receive an adjustable rate of interest based upon the three-month LIBOR. The Company recorded a net gain of $1.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to recognize the fair value of the derivative instruments which is reported in net realized and unrealized gains (losses) on commercial loans, at fair value, in the consolidated statements of operations. The amount payable by the Company under these swap agreements was ~~$893,000~~$895,000 at ~~June~~September 30, 2021, which is reported in other liabilities. The Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of ~~$2.8~~$2.3 million as of ~~June~~September 30, 2021.

The maturity dates, notional amounts, interest rates paid and received and fair value of the Company’s remaining interest rate swap agreements as of ~~June~~September 30, 2021 are summarized below (dollars in thousands):



	June 30, 2021								September 30, 2021
Maturity date	Notional amount		Interest rate paid		Interest rate received		Fair value		Notional amount		Interest rate paid		Interest rate received		Fair value
August 4, 2021		10,300		1.12%		0.18%		(9)
December 23, 2025		6,800		2.16%		0.14%		(386)		6,800		2.16%		0.13%		(348)
December 24, 2025		8,200		2.17%		0.13%		(473)		8,200		2.17%		0.13%		(426)
July 20, 2026		6,300		1.44%		0.19%		(150)		6,300		1.44%		0.13%		(121)
Total	$	31,600					$	(1,018)	$	21,300					$	(895)

Note 10. Other Identifiable Intangible Assets

In May 2016, the Company purchased approximately $60.0 million of lease receivables which resulted in a customer list intangible of $3.4 million that is being amortized over a 10 year period. Amortization expense is $340,000 per year ($~~1.6~~1.5 million over the next five years). The gross carrying amount of the customer list intangible is $3.4 million, and as of ~~June~~September 30, 2021 and December 31, 2020, respectively, the accumulated amortization was $1.8 million and $1.6 million.

In January 2020, the Company purchased McMahon Leasing and subsidiaries for approximately $8.7 million allocated as follows: $3.9 million extinguishment of debt, $3.1 million investment in subsidiary, $1.1 million to intangibles and $550,000 primarily comprised of fair value adjustments to the lease receivables and inventory. In the acquisition, the Company acquired $9.9 million of lease receivables, $958,000 in automobile inventory and other assets. The excess of the consideration issued over the book value of the

assets acquired was $1.6 million which was comprised of the aforementioned $1.1 million of intangibles and $550,000 of fair value adjustments. The fair value of the leases was $453,000 over their book value which is being amortized over the lives of the leases, with the balance of the $550,000 reflecting automobile inventory fair value adjustments. The $1.1 million of intangibles is comprised of a customer list intangible of $689,000, goodwill of $263,000 and a trade name valuation of $135,000. The customer list intangible is being amortized over a 12 year period and accumulated depreciation was ~~$86,000~~$100,000 at ~~June~~September 30, 2021. Amortization expense is $57,000 per year ($285,000 over the next five years).

Note 11. Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04 which addressed optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, resulting from the phase-out of the LIBOR reference rate. The interest rates on certain of the Company’s securities, the majority of commercial loans held at fair value and its trust preferred securities outstanding (classified as subordinated debenture on the balance sheet), utilize LIBOR as a reference rate. To maximize management and accounting flexibility for holders of instruments using LIBOR as a benchmark, the guidance permitted a one-time transfer of such instruments from held-to-maturity to available-for-sale. The Company made such a transfer of four LIBOR-based securities, which comprised its held-to-maturity portfolio, in the first quarter of 2020. While the Company discontinued LIBOR based originations in 2021, certain of its financial instruments outstanding use LIBOR based pricing, including its non-SBA commercial loans, at fair value. However, these loans are short-term and generally expected to be repaid by the June 2023 LIBOR end date. When the Company resumed originating non-SBA commercial loans in third quarter 2021 which are identified separately as real estate bridge lending, it utilized the secured overnight financing rate (SOFR). In addition, the Bank owns certain investment securities, including collateralized loan obligations (CLOs) and U.S. government agency adjustable-rate mortgages which utilize LIBOR based pricing. CLOs generally have language regarding an

index alternative should LIBOR no longer be available. U.S. government agencies generally have the ability to adjust interest rate indices as necessary. There is less clarity for the Company’s student loan securities, its subordinated debentures and its derivatives based upon publicly available information. However, these types of instruments are relatively widely held and industry standards continue to be considered by trustees and other governing bodies. The Company ~~is assessing~~continues to assess the potential impact of the phase-out of LIBOR ~~expected to become effective in 2023,~~on those instruments and any other potential impacts, and related accounting guidance.

Note 12. Shareholder’s Equity

On November 5, 2020, the Company’s Board of Directors (“the “Board”) authorized a common stock repurchase program (the ~~“Common~~“2021 Common Stock Repurchase Program”). Under the Common Stock Repurchase Program, repurchased shares may be reissued for various corporate purposes. The Company is authorized to repurchase up to $10.0 million in each quarter of 2021 depending on the share price, securities laws and stock exchange rules which regulate such repurchases. This plan may be modified or terminated at any time. During the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company repurchased ~~449,315~~440,887 shares and ~~1,043,743~~1,484,630 shares, respectively, of its common stock in the open market under the ~~repurchase plan~~2021 Common Stock Repurchase Plan at an average cost of ~~$22.26~~$22.68 per share and ~~$19.16~~$20.21 per share, respectively. In the first quarter of 2021, the Company changed its presentation of treasury stock acquired through common stock repurchases. To simplify presentation, common stock repurchases previously shown separately as treasury stock are now shown as reductions in common stock and additional paid-in capital.

On October 20, 2021, the Board approved a revised stock repurchase program for the upcoming 2022 fiscal year (the “2022 Common Stock Repurchase Plan”).The amount that the Company intends to repurchase has been increased to $15.0 million in value of the Company’s common stock per fiscal quarter in 2022, for a maximum amount of $60.0 million.

Note 13. Regulatory Matters

It is the policy of the Federal Reserve that financial holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that a financial holding company should not maintain a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries.

Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. Under Delaware banking law, the Bank’s directors may declare dividends on common or preferred stock of so much of its net profits as they judge expedient, but the Bank must, before the declaration of a dividend on common stock from net profits, carry 50% of its net profits from the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 50% of its capital stock and thereafter must carry 25% of its net profits for the preceding period for which the dividend is paid to its surplus fund until its surplus fund amounts to 100% of its capital stock.

In addition to these explicit limitations, federal and state regulatory agencies are authorized to prohibit a banking subsidiary or financial holding company from engaging in an unsafe or unsound practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Moreover, capital requirements may be modified based upon regulatory rules or by regulatory discretion at any time reflecting a variety of factors including deterioration in asset quality.

3936

The following table sets forth our regulatory capital amounts and ratios for the periods indicated:



	Tier 1 capital	Tier 1 capital	Total capital	Common equity	Tier 1 capital	Tier 1 capital	Total capital	Common equity
	to average	to risk-weighted	to risk-weighted	tier 1 to risk	to average	to risk-weighted	to risk-weighted	tier 1 to risk
	assets ratio	assets ratio	assets ratio	weighted assets	assets ratio	assets ratio	assets ratio	weighted assets

As of June 30, 2021
As of September 30, 2021
The Bancorp, Inc.	8.52%	15.39%	15.78%	15.39%	9.82%	15.69%	16.10%	15.69%
The Bancorp Bank	8.73%	15.75%	16.14%	15.75%	10.24%	16.29%	16.69%	16.29%
"Well capitalized" institution (under FDIC regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

As of December 31, 2020
The Bancorp, Inc.	9.20%	14.43%	14.84%	14.43%	9.20%	14.43%	14.84%	14.43%
The Bancorp Bank	9.11%	14.27%	14.68%	14.27%	9.11%	14.27%	14.68%	14.27%
"Well capitalized" institution (under FDIC regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

Note 14. Legal

On June 12, 2019, the Bank was served with a qui tam lawsuit filed in the Superior Court of the State of Delaware, New Castle County. The Delaware Department of Justice intervened in the litigation. The case is titled The State of Delaware, Plaintiff, Ex rel. Russell S. Rogers, Plaintiff-Relator, v. The Bancorp Bank, Interactive Communications International, Inc., and InComm Financial Services, Inc., Defendants. The lawsuit alleges that the defendants violated the Delaware False Claims Act by not paying balances on certain open-loop “Vanilla” prepaid cards to the State of Delaware as unclaimed property. The complaint seeks actual and treble damages, statutory penalties, and attorneys’ fees. The Bank has filed an answer denying the allegations and continues to vigorously defend the claims. The Bank and other defendants previously filed a motion to dismiss the action, but the motion was denied, and the case is in preliminary stages of discovery. At this time, the Company is unable to determine whether the ultimate resolution of the matter will have a material adverse effect on the Company’s financial condition or operations.

The Company has received and is responding to two non-public fact-finding inquiries from the SEC, which in each case is seeking to determine if violations of the federal securities laws have occurred. The Company refers to these inquiries collectively as the SEC matters. On October 9, 2019, the Company received a subpoena seeking records related generally to the Bank’s debit card issuance activity and gross dollar volume data, among other things. The Company responded to the subpoena and subsequent subpoenas issued to the Company. Unrelated to the first inquiry, on April 10, 2020, the Company received a subpoena in connection with the Bank’s CMBS business seeking records related to various offerings as well as CMBS securities held by the Bank. Since inception of these SEC matters to the present, the Company has been cooperating fully with the SEC. The SEC has not made any findings, or alleged any wrongdoings, with respect to the SEC matters. The costs related to responding to and cooperating with the SEC staff may be material, and could continue to be material at least through the completion of the SEC matters.

On June 2, 2020, the Bank was served with a complaint filed in the Supreme Court of the State of New York, titled Cascade Funding, LP – Series 6, Plaintiff v. The Bancorp Bank, Defendant. The lawsuit arises from a Purchase and Sale Agreement between Cascade Funding, LP – Series 6 (“Cascade”) and the Bank, pursuant to which Cascade was to purchase certain mortgage loan assets from the Bank for securitization. Cascade improperly attempted to invoke a market disruption clause in the agreement to avoid the purchase. Cascade’s failure to close the transaction constituted a breach of the agreement and, accordingly, the Bank terminated the agreement, effective April 29, 2020. Pursuant to the agreement, the Bank retained Cascade’s deposit of approximately $12.5 million. The lawsuit asserts three causes of action: (i) breach of contract; (ii) injunction and specific performance; and (iii) declaratory judgment. Cascade seeks the return of its deposit plus interest and attorneys’ fees and costs. On October 4, 2021, Cascade filed a motion for summary judgment, which is still pending before the court. The Bank is vigorously defending this ~~matter and the case is in the discovery phase.~~matter. At this time, the Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.

On January 12, 2021, three former employees of the Bank filed separate complaints against the Company in the Supreme Court of the State of New York, New York County. The Company subsequently removed all three lawsuits to the United States District Court for the Southern District of New York. The cases are captioned: John Edward Barker, Plaintiff v. The Bancorp, Inc., Defendant; Alexander John Kamai, Plaintiff v. The Bancorp, Inc., Defendant; and John Patrick McGlynn III, Plaintiff v. The Bancorp, Inc., Defendant. The lawsuits arise from the Bank’s termination of the plaintiffs’ employment in connection with the restructuring of its CMBS business. The plaintiffs seek damages in the following amounts: $4,135,142 (Barker), $901,088 (Kamai) and $2,909,627 (McGlynn). The Company intends to vigorously defend these matters. On June 11, 2021, the Company filed a motion to dismiss in each case. The motions are still pending before the court. Given the early stage of the lawsuits, the Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.

4037

On September 14, 2021, Cachet Financial Services (“Cachet”) filed an adversary proceeding against the Bank in the United States Bankruptcy Court for the Central District of California, titled Cachet Financial Services v. The Bancorp Bank. The case was filed within the context of Cachet’s pending Chapter 11 bankruptcy case. The Bank previously served as the Originating Depository Financial Institution (“ODFI”) for Automated Clearing House (“ACH”) transactions in connection with Cachet’s payroll services business. The complaint in the matter primarily arises from the Bank’s termination of its Payroll Processing ODFI Agreement with Cachet on October 23, 2019 for safety and soundness reasons. The complaint alleges eight causes of action: (i) breach of contract; (ii) negligence; (iii) intentional interference with contract; (iv) conversion; (v) express indemnity; (vi) implied indemnity; (vii) accounting; and (viii) objection to the Bank’s proof of claim in the bankruptcy case. Cachet seeks approximately $150 million in damages and disallowance of the Bank’s proof of claim. The Bank has not been served with the complaint to date but intends to vigorously defend against Cachet’s claims. Given the early stage of the lawsuit, the Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.

In addition, the Company is a party to various routine legal proceedings arising out of the ordinary course of business. The Company believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition or operations.

Note 15. Segment Financials

The Company performed a strategic evaluation of its businesses in the third quarter of 2014. As a result of the evaluation, the Company decided to discontinue its commercial lending operations, as described in Note 16, Discontinued Operations. The shift from a traditional bank balance sheet led the Company to evaluate its continuing operations. Based on the continuing operations of the Company, it was determined that there would be 4 segments of the business: specialty finance, payments, corporate and discontinued operations. The chief decision maker for these segments is the Chief Executive Officer. Specialty finance includes the origination of non-SBA CRE loans, SBA loans, direct lease financing and security-backed lines of credit, cash value insurance policy-backed lines of credit and deposits generated by those business lines. Payments include prepaid card accounts, card payments, ACH processing and deposits generated by those business lines. Corporate includes the Company’s investment portfolio, corporate overhead and non-allocated expenses. Investment income is reallocated to the payments segment. These operating segments reflect the way the Company views its current operations.

The following tables provide segment information for the periods indicated:



	For the three months ended June 30, 2021										For the three months ended September 30, 2021
	Specialty finance		Payments		Corporate		Discontinued operations		Total		Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)										(in thousands)
Interest income	$	49,406	$	—	$	7,574	$	—	$	56,980	$	46,313	$	—	$	7,187	$	—	$	53,500
Interest allocation		—		7,574		(7,574)		—		—		—		7,187		(7,187)		—		—
Interest expense		248		1,158		1,505		—		2,911		239		916		1,452		—		2,607
Net interest income (loss)		49,158		6,416		(1,505)		—		54,069		46,074		6,271		(1,452)		—		50,893
Provision for credit losses		(951)		—		—		—		(951)		1,613		—		—		—		1,613
Non-interest income		4,438		21,391		32		—		25,861		6,408		20,166		14		—		26,588
Non-interest expense		17,042		18,328		8,513		—		43,883		16,452		16,286		6,646		—		39,384
Income (loss) from continuing operations before taxes		37,505		9,479		(9,986)		—		36,998		34,417		10,151		(8,084)		—		36,484
Income tax expense		—		—		7,840		—		7,840		—		—		8,289		—		8,289
Income (loss) from continuing operations		37,505		9,479		(17,826)		—		29,158		34,417		10,151		(16,373)		—		28,195
Income from discontinued operations		—		—		—		277		277		—		—		—		66		66
Net income (loss)	$	37,505	$	9,479	$	(17,826)	$	277	$	29,435	$	34,417	$	10,151	$	(16,373)	$	66	$	28,261

For the three months ended June 30, 2020
Specialty finance
Payments
Corporate
Discontinued operations
Total
(in thousands)
Interest income
$
41,552
$
—
$
10,347
$
—
$
51,899
Interest allocation
—
10,347
(10,347)
—
—
Interest expense
219
1,081
353
—
1,653
Net interest income (loss)
41,333
9,266
(353)
—
50,246
Provision for credit losses
922
—
—
—
922
Non-interest income
(178)
20,416
128
—
20,366
Non-interest expense
17,590
17,261
7,769
—
42,620
Income (loss) from continuing operations before taxes
22,643
12,421
(7,994)
—
27,070
Income tax expense
—
—
6,787
—
6,787
Income (loss) from continuing operations
22,643
12,421
(14,781)
—
20,283
Loss from discontinued operations
—
—
—
(215)
(215)
Net income (loss)
$
22,643
$
12,421
$
(14,781)
$
(215)
$
20,068

4138



	For the six months ended June 30, 2021										For the three months ended September 30, 2020
	Specialty finance		Payments		Corporate		Discontinued operations		Total		Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)										(in thousands)
Interest income	$	97,236	$	—	$	16,667	$	—	$	113,903	$	44,408	$	—	$	8,070	$	—	$	52,478
Interest allocation		—		16,667		(16,667)		—		—		—		8,070		(8,070)		—		—
Interest expense		484		2,382		3,211		—		6,077		232		1,234		1,016		—		2,482
Net interest income (loss)		96,752		14,285		(3,211)		—		107,826		44,176		6,836		(1,016)		—		49,996
Provision for credit losses		(129)		—		—		—		(129)		1,297		—		—		—		1,297
Non-interest income		7,456		42,434		45		—		49,935		2,395		21,933		24		—		24,352
Non-interest expense		34,392		36,380		14,994		—		85,766		17,236		16,939		7,851		—		42,026
Income (loss) from continuing operations before taxes		69,945		20,339		(18,160)		—		72,124		28,038		11,830		(8,843)		—		31,025
Income tax expense		—		—		16,906		—		16,906		—		—		7,894		—		7,894
Income (loss) from continuing operations		69,945		20,339		(35,066)		—		55,218		28,038		11,830		(16,737)		—		23,131
Income from discontinued operations		—		—		—		182		182		—		—		—		123		123
Net income (loss)	$	69,945	$	20,339	$	(35,066)	$	182	$	55,400	$	28,038	$	11,830	$	(16,737)	$	123	$	23,254



	For the six months ended June 30, 2020										For the nine months ended September 30, 2021
	Specialty finance		Payments		Corporate		Discontinued operations		Total		Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)										(in thousands)
Interest income	$	80,846	$	—	$	22,519	$	—	$	103,365	$	143,549	$	—	$	23,854	$	—	$	167,403
Interest allocation		—		22,519		(22,519)		—		—		—		23,854		(23,854)		—		—
Interest expense		559		6,147		3,502		—		10,208		723		3,298		4,663		—		8,684
Net interest income (loss)		80,287		16,372		(3,502)		—		93,157		142,826		20,556		(4,663)		—		158,719
Provision for credit losses		4,501		—		—		—		4,501		1,484		—		—		—		1,484
Non-interest income		(4,017)		40,837		145		—		36,965		13,864		62,600		59		—		76,523
Non-interest expense		34,506		34,406		12,126		—		81,038		50,844		52,666		21,640		—		125,150
Income (loss) from continuing operations before taxes		37,263		22,803		(15,483)		—		44,583		104,362		30,490		(26,244)		—		108,608
Income tax expense		—		—		11,139		—		11,139		—		—		25,195		—		25,195
Income (loss) from continuing operations		37,263		22,803		(26,622)		—		33,444		104,362		30,490		(51,439)		—		83,413
Loss from discontinued operations		—		—		—		(785)		(785)
Income from discontinued operations												—		—		—		248		248
Net income (loss)	$	37,263	$	22,803	$	(26,622)	$	(785)	$	32,659	$	104,362	$	30,490	$	(51,439)	$	248	$	83,661

June 30, 2021
Specialty finance
Payments
Corporate
Discontinued operations
Total
(in thousands)
Total assets
$
4,632,863
$
37,957
$
1,782,291
$
97,496
$
6,550,607
Total liabilities
$
300,211
$
5,284,404
$
346,883
$
—
$
5,931,498



	For the nine months ended September 30, 2020
	Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)
Interest income	$	125,254	$	—	$	30,589	$	—	$	155,843
Interest allocation		—		30,589		(30,589)		—		—
Interest expense		791		7,381		4,518		—		12,690
Net interest income (loss)		124,463		23,208		(4,518)		—		143,153
Provision for credit losses		5,798		—		—		—		5,798
Non-interest income		(1,622)		62,770		169		—		61,317
Non-interest expense		51,742		51,345		19,977		—		123,064
Income (loss) from continuing operations before taxes		65,301		34,633		(24,326)		—		75,608
Income tax expense		—		—		19,033		—		19,033
Income (loss) from continuing operations		65,301		34,633		(43,359)		—		56,575
Loss from discontinued operations		—		—		—		(662)		(662)
Net income (loss)	$	65,301	$	34,633	$	(43,359)	$	(662)	$	55,913



	September 30, 2021
	Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)
Total assets	$	4,706,208	$	39,702	$	1,434,649	$	87,904	$	6,268,463
Total liabilities	$	342,746	$	4,691,158	$	596,582	$	—	$	5,630,486



	December 31, 2020
	Specialty finance		Payments		Corporate		Discontinued operations		Total
		(in thousands)
Total assets	$	4,491,768	$	32,976	$	1,638,447	$	113,650	$	6,276,841
Total liabilities	$	304,908	$	4,877,674	$	513,095	$	—	$	5,695,677

4239

Note 16. Discontinued Operations

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The loans which constitute the commercial loan portfolio are in the process of disposition including transfers to other financial institutions. As such, financial results of the commercial lending operations are presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed of are presented as assets held-for-sale on the consolidated balance sheets.

The following table presents financial results of the commercial lending business included in net loss from discontinued operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (in thousands):



	For the three months ended June 30,				For the six months ended June 30,				For the three months ended September 30,				For the nine months ended September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Interest income	$	781	$	1,094	$	1,634	$	2,368	$	754	$	890	$	2,388	$	3,259
Interest expense		—		—		—		—		—		—		—		—
Net interest income		781		1,094		1,634		2,368		754		890		2,388		3,259

Non-interest income		1		1		3		14		48		4		51		18
Non-interest expense		421		1,369		1,400		3,431		715		2,565		2,115		5,997

Income (loss) before taxes		361		(274)		237		(1,049)		87		(1,671)		324		(2,720)
Income tax expense (benefit)		84		(59)		55		(264)		21		(1,794)		76		(2,058)
Net income (loss)	$	277	$	(215)	$	182	$	(785)	$	66	$	123	$	248	$	(662)

The following table presents assets held-for-sale from discontinued operations at ~~June~~September 30, 2021 and December 31, 2020 (in thousands):


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Loans, net	$	75,872	$	91,316	$	69,435	$	91,316
Other real estate owned		21,624		22,334		18,469		22,334
Total assets	$	97,496	$	113,650	$	87,904	$	113,650

Non-interest expense for the respective three and ~~six~~nine month periods ended ~~June~~September 30, 2021 reflected ~~$981,000~~$384,000 and ~~$1.1~~$1.5 million of recoveries of prior losses on loans. For the respective three and ~~six~~nine month periods ended ~~June~~September 30, 2020 non-interest expense included loan fair value and realized losses of ~~$171,000~~$1.4 million and ~~$707,000.~~$2.3 million. Also in non-interest expense are expenses and losses related to other real estate owned of ~~$919,000~~$745,000 and ~~$1.5~~$2.3 million for the three and ~~six~~nine month periods ~~June~~ended September 30, 2021 and ~~$676,000~~$2.1 million and ~~$1.7~~$3.8 million for the three and ~~six~~nine month periods ~~June~~ended September 30, 2020, respectively. Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flow analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans. These credit and collateral related assumptions are subject to uncertainty. The results of discontinued operations do not include any future severance payments. Of the approximately $1.1 billion in book value of loans in that portfolio as of the September 30, 2014 date of discontinuance of operations, ~~$97.5~~$87.9 million of loans and other real estate owned remain in assets held-for-sale on the ~~June~~September 30, 2021 consolidated balance sheet as a result of loan sales, principal paydowns and fair value charges as of ~~June~~September 30, 2021. The Company is attempting to dispose of those remaining loans and other real estate owned.

Additionally, the consolidated balance sheet reflects $25.0 million in investment in unconsolidated entity, which is comprised of notes owned by the Company as a result of the sale of certain discontinued loans to Walnut Street, see Note 8, Fair Value Measurements. The investment in Walnut Street is classified as continuing operations in the accompanying consolidated financial statements.

Note 17. Subsequent Events

The Company evaluated its ~~June~~September 30, 2021 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. ~~The Company is not aware of any subsequent events which would require recognition or disclosure~~On October 20, 2021, the Board approved the 2022 Common Stock Repurchase Program for the upcoming 2022 fiscal year, as discussed in ~~the financial statements.~~

‎

Note 12.

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

Forward-Looking Statements

When used in this Form 10-Q, the words “believes”, “anticipates”, “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties more particularly described in Item 1A, under the caption “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in other of our public filings with the Securities and Exchange Commission. These risks and uncertainties could cause actual results to differ materially from those expressed or implied in this Form 10-Q. We caution readers not to place undue reliance on these forward-looking statements, which

speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q except as required by applicable law.

In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Recent and COVID-19 Pandemic Related Developments

As a result of increased COVID-19 vaccination rates and significant reopening of the economy during 2021, year-to-date 2021 net income of ~~$55.4~~$83.7 million ~~reflected second quarter 2021 reversals of 2020 CECL provisions for credit losses we had taken~~did not reflect significant charges related to ~~economic factors arising out of~~ the ~~COVID-19~~ pandemic. ~~Those reversals were reflected in a $951,000 credit to the allowance for credit losses for second quarter 2021, compared to a provision of $922,000 in the second quarter of 2020.~~ Net income of ~~$32.7~~$55.9 million for the ~~six~~nine month period ended ~~June~~September 30, 2020 ~~additionally~~ reflected pre-tax charges of approximately ~~$6.1~~$5.4 million primarily for unrealized losses related to non-SBA commercial real estate (“CRE”) loans, at fair value, which were directly related to the economic impact of COVID-19.

~~As of July 5, 2021, approximately 98% of~~Total loan balances not guaranteed by the United States government for borrowers with Covid-19 payment deferrals ~~for borrowers impacted by COVID-19,~~ had ~~expired, and substantially all~~been reduced to $1.3 million as of such borrowers made their July 5, 2021 payments. Of the $47.4 million of non-guaranteed principal that was in deferral at March 31, 2021, only $968,000 remained in deferral at July 5, 2021, and payments had recommenced on all but $2.6 million of non-government guaranteed principal. We are considering further deferrals on only $1.7 million of such principal.September 30, 2021. Approximately 75% of the SBA 7a loan portfolio is government guaranteed; however, the unguaranteed portion of 7a loans may represent an elevated risk. The U.S. government paid principal and interest on those loans for a six month period which began in April 2020. In February 2021, pursuant to federal legislation adopted in response to the COVID-19 pandemic, the U.S. government began making payments for at least a two month period on such loans, and for ~~up to~~as long as a five month period for loans more impacted by the COVID-19 pandemic, such as loans for hotels and restaurants. Unlike the six payments made under the prior legislation, these payments ~~are~~were limited to $9,000 per month. No additional payments have currently been authorized; however, lenders may defer payments on loans with COVID-related payment issues through December 31, 2021 or the end of the national emergency, whichever comes first. Because only ~~$968,000~~$1.3 million of non-government guaranteed ~~loans~~loan balances remained in deferral at ~~July 5,~~September 30, 2021, and the vast majority of borrowers previously in deferral had made their payments due ~~on or~~ by that date, we do not anticipate that additional government payment support will be required.

In addition to the continuation of Federal Reserve rate reductions in the first quarter of 2020, U.S. government efforts to address the economic impact of the COVID-19 pandemic ~~include~~included several actions which have and will directly impact us as follows:

The Paycheck Protection Program (“PPP”) ~~provides~~provided for our ~~making~~having made loans as an SBA lender which are fully guaranteed by the U.S. government to allow businesses to continue funding their payrolls and related costs. In second quarter 2020, under the CARES Act, we originated approximately 1,250 PPP loans under the original program, totaling in excess of $200 million, which ~~we expect will net~~resulted in approximately $5.5 million of fees and interest. The average loan size was approximately $165,000, with over 90% of the loans under $350,000. While it was originally anticipated that these fees would be recognized earlier, subsequent legislation and rulemaking resulted in their estimated recognition over approximately eleven months which began in April 2020. At ~~June~~September 30, 2021 most of these loans had been repaid by the U.S. government. The Consolidated Appropriations Act, 2021 provided funding for additional PPP loans beginning in first quarter 2021. In that new lending program we originated approximately 630 PPP loans, totaling approximately $100 million, which ~~we expect will net~~resulted in approximately $3.4 million of fees and interest. The average loan size was approximately $155,000, with over 90% of the loans under $350,000. As that new legislation included lost revenue thresholds for participation, our loan volume and fees were less than for the 2020 PPP. These fees are being recognized over an 11 month period, which is the estimated period of repayment by the U.S. government, beginning in February 2021. No future PPP loans have been authorized by legislation. Accordingly, we expect that the ~~$129.4~~$71.3 million of PPP loans outstanding at September 30, 2021 will be repaid and not be replaced, and revenues will not be realized from any new PPP loans. In ~~second~~third quarter ~~2020,~~2021, we recognized ~~$1.3~~$1.2 million in interest and fees on such loans, compared to ~~$1.6~~$2.1 million in ~~second~~the third quarter of 2020.



The SBA began, in February 2021, to make between two and five months of principal and interest payments, up to $9,000 per month on SBA 7a loans, which are generally 75% guaranteed by the U.S. government. The payments of up to five months were for businesses more greatly impacted by the COVID-19 pandemic such as hotels and restaurants. As of ~~June~~September 30, 2021, we had ~~$357.7~~$369.7 million of related guaranteed balances, and additionally had ~~$129.4~~$71.3 million of PPP loans which were also guaranteed.

Deferrals for principal and interest payments related to the pandemic may be granted through the earlier of December 31, 2021 or the end of the national emergency.

Accounting and banking regulators have determined that loans with deferrals of principal and interest payments related to the COVID-19 pandemic will not, during the deferral period noted above, be classified as restructured.

~~In the second quarter of 2021, we received $3.0 million of fees from a line of credit to another institution to fund PPP loans, which is not expected to recur.~~ We have experienced ~~some~~ early payoffs in our non-SBA multi-family (apartment) CRE loans, at fair value ~~portfolio~~ and ~~accordingly,~~in the third quarter of 2021, began originating similar loans to offset the impact of such prepayments. A net reduction of $1.9 million in interest income ~~on such loans decreased slightly~~resulted in third quarter 2021 compared to ~~second~~third quarter ~~2020. However,~~2020, as the impact of the prepayments exceeded interest from the new originations. Additionally, non-interest income reflected an increase of ~~$3.5~~$3.6 million in net realized and unrealized gains (losses) on commercial loans at fair value primarily ~~resulting from exit and prepayment~~reflecting fees ~~from~~related to those ~~loan payoffs. We have begun generating new CRE loans with the first closings occurring in the third quarter.~~prepayments. Also, in ~~second~~third quarter 2021, the tax rate was approximately ~~21%~~23%,

compared to higher rates in recent periods, as a result of tax benefits related to stock-based compensation which were recognized as a result of the increase in the Company’s stock price.

Key Performance Indicators

We use a number of key performance indicators to measure our overall financial performance. We describe how we calculate and use a number of these performance indicators and analyze their results below.

Return on assets and return on equity. Two performance indicators we believe are commonly used within the banking industry to measure overall financial performance are return on assets and return on equity. Return on assets measures the amount of earnings compared to the level of assets utilized to generate those earnings. It is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings. It is derived by dividing net income by average shareholders’ equity.

Net interest margin and credit losses. The largest component of our earnings is net interest income, or the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits. The key performance indicator for net interest income is net interest margin, derived by dividing net interest income by average interest-earning assets. Higher levels of earnings and net interest income, on lower levels of assets, equity and interest-earning assets are generally desirable. However, these indicators must be considered in light of regulatory capital requirements which impact equity, and credit risk inherent in loans. Accordingly, the magnitude of credit losses is an additional key performance indicator.

Other performance indicators. Other performance indicators we use include loan growth, non-interest income growth, the level of non-interest expense and various capital measures.

Results of performance indicators. In the past approximately five years, we have transitioned from a balance sheet which was significantly comprised of local Philadelphia commercial real estate loans, to other types of lending which we believe are lower risk. These include: multi-family (apartment) loans in selected national regions; loans collateralized by securities (“SBLOC”) and the cash value of life insurance (“IBLOC”); SBA loans, a significant portion of which are government guaranteed or must have loan-to-value ratios lower than other forms of lending; and leasing to which we have access to underlying vehicles. ~~These loan~~Loan balances in these categories have grown significantly, which we believe has contributed to improved financial performance over the past five years.

~~Our most recent improved~~Improved financial performance is reflected in a number of these performance indicators. In ~~second~~third quarter 2021, return on assets and return on equity amounted to ~~1.67%~~1.76% and ~~19.42%~~17.84% (annualized), respectively, compared to ~~1.33%~~1.48% and ~~15.61%~~16.90% (annualized) in ~~second~~third quarter 2020. For the ~~six~~nine month period ended ~~June~~September 30, 2021, return on assets and return on equity amounted to ~~1.62%~~1.66% and ~~18.62%~~18.35% (annualized), respectively, compared to ~~1.13%~~1.25% and ~~12.87%~~14.29% (annualized) for the ~~six~~nine month period ended ~~June~~September 30, 2020. Improvements in return on asset and equity ~~performance indicators~~ in 2021 reflected increases in loan interest, including interest from loan growth, which more than offset reductions in securities interest. The reductions in securities interest reflected lower balances and the impact of the lower rate environment. Loan interest included $3.0 million and $1.4 million of fees, respectively, in the second and first quarters of 2021, related to a line of credit to another institution for PPP loans, which are not expected to recur. Increased returns on assets and equity in 2021 also reflected higher non-interest income. While as a result of the pandemic unrealized losses were recognized in 2020, gains on non-SBA CRE loans, at fair value resulted primarily from ~~exit and prepayment~~ fees related to loan prepayments in ~~2021, as a result of loan payoffs. Payments and leasing related fees also increased between these periods.~~2021. Net interest margin was ~~3.19%~~3.35% in ~~second~~third quarter 2021 versus ~~3.53%~~3.37% in ~~second~~third quarter 2020 and ~~3.26%~~3.29% versus ~~3.43%~~3.41%, respectively, for the ~~six~~nine month periods ended ~~June~~September 30, 2021 and 2020. The reduction in 2021 reflects the impact of temporarily increased balances held at the Federal Reserve earning nominal rates, which resulted from COVID-19 stimulus payments, and lower loan and securities yields ~~on securities~~ resulting from the lower rate environment. The lower rate environment may also continue to impact loan yields. The impact of lower yields on securities and loans in second quarter 2021 was offset by the $3.0 million of non-recurring fees noted previously. One capital measure utilized in the banking industry is the ratio of equity to assets, which is derived by

dividing period-end shareholders’ equity by period-end total assets. At ~~June~~September 30, 2021, that ratio was ~~9.45%~~10.18%, compared to ~~8.58%~~9.05% a year earlier. The increase reflected higher levels of capital from retained earnings, while assets, after increasing temporarily due to stimulus payments, returned to pre-stimulus levels.

Overview

We are a Delaware financial holding company and our primary subsidiary, which we wholly own, is The Bancorp Bank, which we refer to as the Bank. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending:

SBLOC, IBLOC, and investment advisor financing;

leasing (direct lease financing);

small business loans, primarily SBA loans, and

non-SBA commercial real estate (“CRE”) loans primarily multi-family (apartments) originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest earning assets and have again begun originating such loans, primarily to replace the impact of loan payoffs..

SBLOCs and IBLOCs are loans which are generated through affinity groups and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally. IBLOC loans are typically viewed as an alternative to standard policy loans from insurance companies and are utilized by our existing advisor base as well as insurance agents throughout the country. Investment advisor financing are loans made to investment advisors for purposes of debt refinance, acquisition of another investment firm or internal succession. Vehicle fleet and, to a lesser extent, other equipment leases are generated in a number of Atlantic Coast and other states and are collateralized primarily by vehicles. SBA loans are made nationally and are collateralized by commercial properties and other types of collateral. Our non-SBA ~~CRE~~commercial real estate loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest earning assets and have again begun originating such loans, primarily to replace the impact of loan payoffs. These new originations are identified as real estate bridge loans and are held for investment in the loan portfolio. Prior originations originally intended for securitizations which were accounted for at fair value, continue to be accounted for at fair value, and are included in the balance sheet in “commercial loans, at fair value.”

The majority of our deposit accounts and non-interest income are generated in our payments business line, the name for which has been changed to Fintech Solutions Group, which consists of consumer deposit accounts accessed by prepaid or debit cards, or issuing, automated clearing house, or ACH accounts, other payments such as rapid funds transfer and the collection of payments through credit card companies on behalf of merchants. The issuing deposit accounts are comprised of debit and prepaid card accounts that are generated by independent companies that market directly to end users. Our issuing deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others. Our ACH accounts facilitate bill payments, and our acquiring accounts provide clearing and settlement services for payments made to merchants which must be settled through associations such as Visa or MasterCard. We also provide banking services to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers. These services include loan and deposit accounts for investment advisory companies through our institutional banking department. We typically provide these services under the name and through the facilities of each organization with whom we develop a relationship. We refer to this, generally, as affinity banking.

In the third quarter of 2014, we decided to discontinue our Philadelphia-based commercial lending operations. The loans which constitute that portfolio are in the process of disposition. This represents a strategic shift to a focus on our national specialty lending programs, including small fleet leasing, SBLOC, SBA lending, and, prior to 2020, non-SBA CRE securitization. We have been and anticipate using the proceeds from disposition to acquire investment securities and to provide liquidity to fund growth in our continuing specialty lending lines. Yields we obtain from reinvestment of the proceeds will be subject to economic and other conditions at the time of reinvestment, including market interest rates, many of which will be beyond our control. We cannot predict whether income resulting from the reinvestment of loans we hold for sale resulting from discontinued operations will match or exceed the amount from the sold loans. Of the approximate $1.1 billion in book value of loans in that commercial and residential portfolio as of the September 30, 2014 date of discontinuance of operations, $97.5 million of loans and other real estate owned remained in assets held-for-sale from discontinued operations on the June 30, 2021 balance sheet, which reflects the impact of related sales, paydowns and fair value charges. Additionally, that balance sheet reflects $25.0 million in investment in an unconsolidated entity, Walnut Street, which is comprised of notes owned by the Company as a result of the sale of certain discontinued loans.

Our net income of ~~$29.4~~$28.3 million for the ~~second~~third quarter of 2021 increased from ~~$20.1~~$23.3 million for the ~~second~~third quarter of 2020, reflecting increases in net interest and non-interest ~~income.~~income and a decrease in non-interest expense. The ~~$3.8 million~~$897,000 increase in net interest income reflected increases in loan interest, including interest from loan growth, which more than offset reductions in securities interest. ~~That increase reflected $3.0 million of fees on a short-term line of credit to another institution to initially fund PPP loans, which is not expected to recur.~~ SBLOC, IBLOC and ~~IBLOC~~investment advisor loans totaled ~~$1.73~~$1.92 billion at ~~June~~September 30, 2021, compared to ~~$1.29~~$1.45 billion at ~~June~~September 30, 2020, reflecting ~~34.4%~~31.7% annual growth. Related interest increased ~~$2.7~~$3.4 million. Leasing balances totaled ~~$506.4~~$514.1 million at ~~June~~September 30, 2021, compared to ~~$422.5~~$430.7 million at ~~June~~September 30, 2020, reflecting ~~19.9%~~19.4% growth. Related interest increased ~~$1.1 million.~~$768,000. Excluding the impact of PPP, SBA loans totaled ~~$689.5~~$709.5 million compared to ~~$601.4~~$633.4 million at those respective dates, an increase of ~~14.6%, resulting in $1.0 million in higher~~12.0%; however, the impact of SBA growth on interest ~~income.~~income was largely offset by lower PPP fees and interest. Increases in loan

interest were ~~partially~~ offset by a ~~$3.0~~$1.0 million decrease in securities interest resulting from lower securities balances and the impact of the lower rate environment. Interest expense increased ~~$1.3 million,~~$125,000, primarily as a result of senior debt issued in the third quarter of 2020. Our largest funding sources, prepaid and debit card account deposits, contractually adjust to only a portion of increases or decreases in market rates, as reflected in an 18 basis point cost of funds in ~~second~~third quarter 2021. A ~~negative $951,000~~$1.6 million provision for credit losses in ~~second~~third quarter 2021, compared to a ~~$922,000~~$1.3 million provision in ~~second~~third quarter 2020. Prepaid, debit card and other payment related fees are the largest driver of non-interest income. Such fees for ~~second~~third quarter 2021 ~~increased $1.0~~decreased $1.1 million over the comparable 2020 period. While interest income on non-SBA CRE loans ~~at fair value~~ decreased ~~slightly,~~$1.9 million as a result of loan prepayments, non-interest income reflected an increase of ~~$3.5~~$3.6 million in net realized and unrealized gains (losses) on commercial loans, at fair value ~~resulting from exit and prepayment~~primarily reflecting fees ~~on loan payoffs.~~related to those prepayments. We have begun generating new CRE loans with the first closings occurring in the third quarter, which are intended to replace these prepayments and other related loan payoffs. Additionally, leasing income increased ~~$1.3 million~~$449,000 over the prior year quarter. The increase reflected the impact of the reopening of vehicle auctions after COVID-19 pandemic shutdowns, and higher vehicle market prices due to vehicle shortages. For those periods, non-interest expense ~~increased $1.3 million.~~decreased $2.6 million which reflected a $1.9 million reduction in Federal Deposit Insurance Corporation (“FDIC”) insurance expense.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe that the determination of our allowance for credit losses on loans, leases and securities, our determination of the fair value of financial instruments and the level in which an instrument is placed within the valuation hierarchy, and income taxes involve a higher degree of judgment and complexity than our other significant accounting policies.

We determine our allowance for credit losses using the current expected credit losses method, or CECL, with the objective of maintaining a reserve level we believe to be sufficient to absorb our estimated probable credit losses. We base our determination of the adequacy of

the allowance on periodic evaluations of our loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amount of loss we may incur on a defaulted loan, expected commitment usage, the amounts and timing of expected future cash flows on credit deteriorated loans, value of collateral, estimated losses on consumer loans, and historical loss experience. We also evaluate economic conditions and uncertainties in estimating losses and inherent risks in our loan portfolio. To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings. See “Allowance for Credit Losses”.

The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, we estimate fair value. Our valuation methods and inputs consider factors such as types of underlying assets or liabilities, rates of estimated credit losses, interest rate or discount rate and collateral. Our best estimate of fair value involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor refinancing.

At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period.

We periodically review our investment portfolio to determine whether unrealized losses on securities result from credit, based on evaluations of the creditworthiness of the issuers or guarantors, and underlying collateral, as applicable. In addition, we consider the continuing performance of the securities. We recognize credit losses through the Consolidated Statements of Operations. If management believes market value losses are not credit related, we recognize the reduction in other comprehensive income, through equity. We evaluate whether a credit loss exists by considering primarily the following factors: (a) the extent to which the fair value has been less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral and (e) the payment structure of the security. If a credit loss is determined, we estimate expected future cash flows to estimate the credit loss amount with a quantitative and qualitative process that incorporates information received from first-party sources and internal assumptions and judgments regarding the future performance of the security.

We account for our stock-based compensation plans based on the fair value of the awards made, which include stock options, restricted stock, and performance based shares. To assess the fair value of the awards made, management makes assumptions as to expected stock

price volatility, option terms, forfeiture rates and dividend rates. All these estimates and assumptions may be susceptible to significant change that may impact earnings in future periods.

We account for income taxes under the liability method whereby we determine deferred tax assets and liabilities based on the difference between the carrying values on our consolidated financial statements and the tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

Results of Operations

~~Second~~Third quarter 2021 to ~~second~~third quarter 2020

Net Income: Income from continuing operations before income taxes was ~~$37.0~~$36.5 million in the ~~second~~third quarter of 2021 compared to ~~$27.1~~$31.0 million in the ~~second~~third quarter of 2020. Net income from continuing operations for the ~~second~~third quarter of 2021 was ~~$29.2~~$28.2 million, or ~~$0.49~~$0.48 per diluted share, compared to ~~$20.3~~$23.1 million, or ~~$0.35~~$0.40 per diluted share, for the ~~second~~third quarter of 2020. Income from continuing operations increased between those respective periods primarily as a result of lower non-interest expense and higher ~~net interest income and~~ non-interest income. After discontinued operations, net income for the ~~second~~third quarter of 2021 amounted to ~~$29.4~~$28.3 million, compared to ~~$20.1~~$23.3 million for the ~~second~~third quarter of 2020. Net interest income for the ~~second~~third quarter of 2021 increased ~~7.6%~~1.8%, to ~~$54.1~~$50.9 million from ~~$50.2~~$50.0 million in the ~~second~~third quarter of 2020. The increase reflected increases in loan interest as a result of higher loan balances, partially offset by reductions in securities interest resulting from lower balances, and lower loan yields which reflected the impact of Federal Reserve rate reductions. Loan interest in second quarter 2021 included $3.0 million of fees from a line of credit to another institution to fund PPP loans, which is not expected to recur and which offset the impact of decreases in other loan yields. The provision for credit losses ~~decreased $1.9~~increased $316,000 to $1.6 million ~~to a credit for the provision for credit losses of $951,000~~ in the ~~second~~third quarter of 2021 compared to ~~$922,000~~$1.3 million in the ~~second~~third quarter of 2020. Non-interest income (excluding security gains and losses) increased ~~$5.5~~$2.2 million, reflecting an ~~improvement~~increase in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value of ~~$3.5~~$3.6 million. The ~~$3.5~~$3.6 million ~~improvement was~~increase primarily ~~the result~~reflected fees related to prepayments of ~~exit and prepayment fees on~~ non-SBA CRE loan payoffs in the ~~second~~third quarter of ~~2021, versus unrealized losses in the second quarter of 2020 which were due to changes in fair value related to the COVID-19 pandemic.~~2021. Non-SBA CRE loans, at fair value are primarily comprised of ~~multifamily~~multi-family (apartment) loans. While previously we had securitized such loans, in 2020 we decided to retain these loans in our portfolio and no future securitizations are currently planned. In the third quarter of 2021, we began newly originating such loans. Prepaid, debit card and other payment fees are the primary driver of non-interest income and ~~increased $971,000,~~decreased $1.1 million, or ~~4.8%~~5.0%, to ~~$21.4~~$20.1 million, in the ~~second~~third quarter of 2021 compared to ~~second~~third quarter 2020. Non-interest expense ~~increased $1.3~~decreased $2.6 million, or ~~3.0%~~6.3%, to ~~$43.9~~$39.4 million in the ~~second~~third quarter of 2021 compared to ~~$42.6~~$42.0 million in the ~~second~~third quarter of 2020, reflecting a ~~$1.6~~$1.9 million ~~increase~~decrease in ~~salary~~FDIC insurance expense between those periods. Additionally, the 2021 effective tax rate was lower compared to other recent periods. Diluted income per share was ~~$0.50~~$0.48 in the ~~second~~third quarter of 2021 compared to ~~$0.35~~$0.40 diluted income per share in the ~~second~~third quarter of 2020 primarily reflecting the ~~factors noted above.~~above factors.

Net Interest Income: Our net interest income for the ~~second~~third quarter of 2021 increased to ~~$54.1~~$50.9 million, an increase of ~~$3.8 million,~~$897,000, or ~~7.6%~~1.8%, from ~~$50.2~~$50.0 million in the ~~second~~third quarter of 2020. Our interest income for the ~~second~~third quarter of 2021 increased to ~~$57.0~~$53.5 million, an increase of ~~$5.1~~$1.0 million, or ~~9.8%~~1.9%, from ~~$51.9~~$52.5 million for the ~~second~~third quarter of 2020. The increase in interest income resulted primarily from higher loan balances. Our average loans and leases increased to $4.58 billion for the ~~second~~third quarter of 2021 from ~~$3.93~~$4.21 billion for the ~~second~~third quarter of 2020, an increase of ~~$643.8~~$368.4 million, or ~~16.4%~~8.8%. Related interest income increased ~~$7.9~~$2.0 million on a tax equivalent basis. The increase in average loans primarily reflected growth in SBLOC, IBLOC, investment advisor loans and ~~IBLOC,~~ direct lease financing, ~~and small~~partially offset by decreases in PPP loans. Small business loans which ~~are mostly~~also grew, have generally been comprised of SBA loans. However, in 2020 and 2021 they reflected balances of pandemic related PPP loans guaranteed by the U.S. government which repaid significant amounts of those loans in 2021, accounting for the decrease. The balance of our commercial loans, at fair value also decreased, primarily reflecting non-SBA CRE loan ~~payoffs, the vast majority of which are collateralized by apartment buildings.~~payoffs. In the third quarter of 2021, we began newly originating such loans, referred to as real estate bridge loans. Of the total ~~$7.9~~$2.0 million net increase in loan interest income, the largest ~~increases were~~increase was $3.4 million for SBLOC, IBLOC and investment advisor financing loans, ~~to $11.0 million and $3.8 million for SBA~~while interest on non-SBA commercial real estate loans ~~to $13.1 million. The increase in SBA loan interest reflects $3.0 million of~~ ~~fees which were earned on a short-term line of credit to another institution to initially fund PPP loans. Excluding those fees and other PPP interest, SBA loan interest increased $1.0~~decreased $1.9 million. Our average investment securities of ~~$1.09~~$1.02 billion for the ~~second~~third quarter of 2021 decreased ~~$253.5~~$288.7 million from ~~$1.34~~$1.30 billion for the ~~second~~third quarter of 2020. Related tax equivalent interest income decreased ~~$3.0~~$1.0 million primarily reflecting a decrease in ~~balances and secondarily reflecting a decrease in yields.~~balances. Yields on loans generally decreased as a result of the impact of the Federal Reserve’s 2020 rate decreases, partially offset by the weighted average 4.8% interest rate floors on non-SBA CRE loans, at fair value. While interest income increased by ~~$5.1~~$1.0 million, interest expense increased by ~~$1.3 million~~$125,000 primarily as a result of the interest expense on the senior debt issued in the third quarter of 2020.

Our net interest margin (calculated by dividing net interest income by average interest earning assets) for the ~~second~~third quarter of 2021 was ~~3.19%~~3.35% compared to ~~3.53%~~3.37% for the ~~second~~third quarter of 2020, a decrease of 342 basis points. While the yield on interest earning assets decreased 291 basis ~~points,~~point, the cost of deposits and interest bearing liabilities ~~increased 6 basis points, or~~did not change, for a net change of 351 basis ~~points.~~point. The decrease in net interest margin reflected the impact of ~~higher balances maintained at the Federal Reserve as a result of deposits of stimulus payments resulting from March 2021 federal legislation.~~lower yields on loans. Balances at the Federal Reserve earn nominal rates of interest. Average interest earning deposits at the Federal Reserve Bank increased ~~$693.9~~$66.1 million, or ~~162.8%~~16.0%, to ~~$1.12 billion~~$479.4 million in the ~~second~~third quarter of 2021 from ~~$426.2~~$413.3 million in the ~~second~~third quarter of 2020. The ~~reduction in the~~ net interest margin ~~resulting from higher Federal Reserve~~

~~balances and lower overall loan yields, was offset by~~reflected the impact of $3.0 million of fees on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average interest earning assets. The net interest margin reflects the 4.8% weighted average floor on non-SBA CRE loans, at fair ~~value.~~value, the prepayments for which contributed to a decrease in the average yield on loans. In the ~~second~~third quarter of 2021, the average yield on our loans ~~increased~~decreased to ~~4.32%~~4.05% from 4.22% for the ~~second~~third quarter of 2020, ~~an increase~~a decrease of 1017 basis points. The increase reflected the impact of $3 million of fees from the aforementioned line of credit to another institution to fund PPP loans, which are not expected to recur, and without which loan yields would have decreased. Yields on taxable investment securities in the ~~second~~third quarter of 2021 ~~decreased~~increased to ~~2.66%~~2.72% compared to ~~3.05%~~2.43% for the ~~second~~third quarter of 2020, ~~a decrease~~an increase of 3929 basis points. Yields on investment securities were impacted by the timing of prepayments. The cost of total deposits and interest bearing liabilities ~~increased 6 basis points to~~was 0.18% for the ~~second~~third quarter of 2021 ~~compared to 0.12% in~~as well as the ~~second~~third quarter of ~~2020, reflecting the impact of the aforementioned senior debt issuance.~~2020.

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Average Daily Balances. The following table presents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated:



	Three months ended June 30,												Three months ended September 30,
	2021						2020						2021						2020
	Average				Average		Average				Average		Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate		Balance		Interest		Rate
	(dollars in thousands)												(dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs**	$	4,572,712	$	49,378		4.32%	$	3,925,515	$	41,448		4.22%
Loans, net of deferred loan fees and costs **													$	4,573,431	$	46,357		4.05%	$	4,202,054	$	44,318		4.22%
Leases-bank qualified*		5,783		96		6.64%		9,217		162		7.03%		5,031		87		6.92%		8,026		146		7.28%
Investment securities-taxable		1,081,419		7,201		2.66%		1,334,368		10,188		3.05%		1,012,007		6,882		2.72%		1,300,191		7,911		2.43%
Investment securities-nontaxable*		3,878		32		3.30%		4,402		35		3.18%		3,558		32		3.60%		4,041		35		3.46%
Interest earning deposits at Federal Reserve Bank		1,120,039		300		0.11%		426,174		107		0.10%		479,350		167		0.14%		413,259		106		0.10%
Net interest earning assets		6,783,831		57,007		3.36%		5,699,676		51,940		3.65%		6,073,377		53,525		3.53%		5,927,571		52,516		3.54%

Allowance for credit losses		(16,406)						(14,822)						(16,277)						(14,587)
Assets held-for-sale from discontinued operations		98,895		781		3.16%		130,530		1,094		3.35%		90,598		754		3.33%		124,916		890		2.85%
Other assets		201,539						228,443						214,715						195,125
	$	7,067,859					$	6,043,827					$	6,362,413					$	6,233,025

Liabilities and shareholders' equity:
Deposits:
Demand and interest checking	$	5,736,776	$	1,327		0.09%	$	5,140,167	$	1,390		0.11%	$	5,124,189	$	1,063		0.08%	$	5,079,711	$	1,591		0.13%
Savings and money market		526,112		192		0.15%		234,201		120		0.20%		404,775		146		0.14%		484,323		139		0.11%
Total deposits		6,262,888		1,519		0.10%		5,374,368		1,510		0.11%		5,528,964		1,209		0.09%		5,564,034		1,730		0.12%

Short-term borrowings		—		—		—		16,428		15		0.37%		13,097		7		0.21%		3,260		1		0.12%
Repurchase agreements		41		—		—		41		—		—		41		—		—		41		—		—
Subordinated debt		13,401		112		3.34%		13,401		128		3.82%		13,401		112		3.34%		13,401		118		3.52%
Senior debt		100,239		1,280		5.11%		—		—		—		100,329		1,279		5.10%		53,260		633		4.75%
Total deposits and liabilities		6,376,569		2,911		0.18%		5,404,238		1,653		0.12%		5,655,832		2,607		0.18%		5,633,996		2,482		0.18%

Other liabilities		83,353						123,997						78,038						53,260
Total liabilities		6,459,922						5,528,235						5,733,870						5,687,256

Shareholders' equity		607,937						515,592						628,543						545,769
	$	7,067,859					$	6,043,827					$	6,362,413					$	6,233,025

Net interest income on tax equivalent basis *			$	54,877					$	51,381					$	51,672					$	50,924

Tax equivalent adjustment				27						41						25						38

Net interest income			$	54,850					$	51,340					$	51,647					$	50,886

Net interest margin *						3.19%						3.53%						3.35%						3.37%

* Full taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
** Includes commercial loans, at fair value for 2021 previously classified as held-for-sale at June 30, 2020. All periods include non-accrual loans.
NOTE: In the table above, the 2021 interest on loans reflects $3.0 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans also includes $1.3 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $1.6 million. Increases in interest earning deposits at the Federal Reserve Bank reflect increased deposits resulting from stimulus payments distributed to a large segment of the population, resulting from December 2020 federal legislation.
* Fully taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.													* Fully taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
** Includes commercial loans, at fair value. All periods include non-accrual loans.													** Includes commercial loans, at fair value. All periods include non-accrual loans.
NOTE: In the table above, interest on loans for 2021 includes $1.2 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $2.1 million.													NOTE: In the table above, interest on loans for 2021 includes $1.2 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $2.1 million.

For the ~~second~~third quarter of 2021, average interest earning assets increased to ~~$6.78~~$6.07 billion, an increase of ~~$1.08 billion,~~$145.8 million, or ~~19.0%~~2.5%, from ~~$5.70~~$5.93 billion in the ~~second~~third quarter of 2020. The increase reflected increased average balances of loans and leases of ~~$643.8 billion,~~$368.4 million, or ~~16.4%~~8.8%, partially offset by decreased average investment securities of ~~$253.5~~$288.7 million, or ~~18.9%~~22.1%. For those respective periods, average demand and interest checking deposits increased ~~$596.6~~$44.5 million, or ~~11.6%~~0.9%, primarily as a result of deposit growth in prepaid and debit card accounts. The $79.5 million decrease in average savings and money market balances between these respective periods reflected the impact of the exit of a single affinity group. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

Provision for Credit Losses. Our provision for credit losses was $1.6 million for the third quarter of 2021 compared to $1.3 million for the third quarter of 2020, or a net increase of $316,000. The increase reflected the impact of an increase in SBA non-real estate charge-offs. The allowance for credit losses was $16.2 million, or 0.52%, of total loans at September 30, 2021, from $16.1 million, or 0.61%, of total loans at December 31, 2020. We believe that our allowance is adequate to cover expected losses. For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for credit losses”, “-Net charge-offs,” and “-Non-performing loans, loans 90 days delinquent and still accruing, and troubled debt restructurings,” below and Note 6 to the consolidated financial statements.

5046

Non-Interest Income. Non-interest income was $26.6 million in the third quarter of 2021 compared to $24.4 million in the third quarter of 2020. The $2.2 million, or 9.2%, increase between those respective periods was primarily the result of an improvement in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value. Net realized and unrealized gains (losses) on such loans increased to a gain of $4.3 million from $684,000. The $3.6 million improvement was primarily the result of fees related to prepayments and payoffs of non-SBA CRE loans in 2021 and also included $1.4 million of increases in fair value reflecting reversals of 2020 fair value decreases related to COVID-19. Prepaid, debit card and related fees decreased $1.2 million, or 6.2%, to $18.2 million for the third quarter of 2021 compared to $19.4 million in third quarter 2020. The decrease primarily reflected the impact of the exit of a single affinity group which transitioned its accounts and related payments to its own bank. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. ACH, card and other payment processing fees increased $145,000, or 8.2%, to $1.9 million for the third quarter of 2021 compared to $1.8 million in the third quarter of 2020, reflecting increased rapid funds transfer volume. Leasing related income increased $449,000, or 29.6%, to $2.0 million for the third quarter of 2021 from $1.5 million for the third quarter of 2020. The increase reflected the impact of the reopening of vehicle auctions after COVID-19 pandemic shutdowns, and higher vehicle market prices due to vehicle shortages. Other non-interest income decreased $769,000, or 80.5%, to $186,000 for the third quarter of 2021 from $955,000 in the third quarter of 2020, which had included the recovery of certain fees which had previously been written off.

Non-Interest Expense. Total non-interest expense was $39.4 million for the third quarter of 2021, a decrease of $2.6 million, or 6.3%, compared to $42.0 million for the third quarter of 2020. Salaries and employee benefits decreased to $25.1 million for the third quarter of 2021, a decrease of $1.3 million, or 5.0%, from $26.4 million for the third quarter of 2020. Lower salary expense in 2021 reflected lower incentive compensation related expense. Depreciation and amortization decreased $56,000, or 7.1%, to $729,000 in the third quarter of 2021 from $785,000 in the third quarter of 2020, which reflected reduced spending on fixed assets and equipment. Rent and occupancy decreased $120,000, or 8.7%, to $1.3 million in the third quarter of 2021 from $1.4 million in the third quarter of 2020 reflecting a reduction in leased space and a relocation to lower cost space. Data processing increased $17,000, or 1.4%, to $1.2 million in the third quarter of 2021 from $1.2 million in the third quarter of 2020. Printing and supplies decreased $33,000, or 28.9%, to $81,000 in the third quarter of 2021 from $114,000 in the third quarter of 2020, reflecting fewer paper based accounts and processes. Audit expense decreased $41,000, or 10.3%, to $356,000 in the third quarter of 2021 from $397,000 in the third quarter of 2020. Legal expense increased $257,000, or 25.9%, to $1.3 million in the third quarter of 2021 from $994,000 in the third quarter of 2020. The increase reflected costs associated with the Cascade matter. Additionally, costs continue to be incurred with respect to two fact-finding inquiries by the SEC staff. These matters are described in Note 14 to the financial statements. Amortization of intangible assets decreased by $48,000, or 32.7%, to $99,000 in the third quarter of 2021 from $147,000 in the third quarter of 2020. FDIC insurance expense decreased $1.9 million, or 87.8%, to $266,000 for the third quarter of 2021 from $2.2 million in the third quarter of 2020 primarily due to a reduction in the Bank’s assessment rate. The reduction in expense primarily reflected the cumulative impact of the reclassification of certain of our deposits from brokered to non-brokered on the assessment rate. Prior to the current quarter’s insurance rate reduction to approximately 10 basis points annually of average liabilities, the rate approximated 16 basis points. We believe that the insurance rate will continue to be lower than the 16 basis points. However, the rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced rates will continue. Software expense increased $450,000, or 12.5%, to $4.0 million in the third quarter of 2021 from $3.6 million in the third quarter of 2020. The increases reflected expenditures for information technology to improve efficiency and scalability, including expenses related to remote operations and cybersecurity, and upgrades for SBA loan processing. Insurance expense increased $369,000, or 49.8%, to $1.1 million in the third quarter of 2021 compared to $741,000 in the third quarter of 2020, reflecting higher rates. Telecom and IT network communications increased $21,000, or 5.4%, to $413,000 in the third quarter of 2021 from $392,000 in the third quarter of 2020. Consulting increased $38,000, or 9.3%, to $448,000 in the third quarter of 2021 from $410,000 in the third quarter of 2020. Other non-interest expense decreased $259,000, or 7.9%, to $3.0 million in the third quarter of 2021 from $3.3 million in the third quarter of 2020. The decrease reflected a $124,000 reduction in prepaid account related losses.

Income Taxes. Income tax expense for continuing operations was $8.3 million for the third quarter of 2021 compared to $7.9 million in the third quarter of 2020. A 22.7% effective tax rate in the third quarter 2021 and a 25.4% effective tax rate in the third quarter of 2020 primarily reflected a 21% federal tax rate and the impact of various state income taxes. The reduction in effective tax rate for 2021 reflected the impact of an excess tax deduction related to stock-based compensation recorded as a discrete item in 2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant date of stock based compensation.

First nine months 2021 to first nine months 2020

Net Income: Income from continuing operations before income taxes was $108.6 million in the first nine months of 2021 compared to $75.6 million in the first nine months of 2020. Net income from continuing operations for the first nine months of 2021 was $83.4 million, or $1.41 per diluted share, compared to $56.6 million, or $0.97 per diluted share, for the first nine months of 2020. Income from continuing operations increased between those respective periods primarily as a result of higher net interest income and non-interest income. After discontinued operations, net income for the first nine months of 2021 amounted to $83.7 million, compared to $55.9 million for the first nine months of 2020. Net interest income for the first nine months of 2021 increased 10.9%, to $158.7 million from $143.2 million in the first nine months of 2020. The increase reflected increases in loan interest as a result of higher loan balances partially offset by reductions in securities interest resulting from lower balances, and lower yields which reflected the impact of Federal Reserve rate reductions. Loan interest in 2021 included $4.6 million of interest from a line of credit to another institution to fund PPP loans, which is not expected to recur and which offset the impact of decreases in other loan yields. Lower interest expense also reflected the impact of the Federal Reserve’s 1.50% of rate reductions which occurred toward the end of first quarter 2020. The provision for credit losses decreased $4.3 million to a provision for credit losses of $1.5 million in the first nine months of 2021 compared to a $5.8 million provision in the first nine months of 2020. The reduction reflected the reversal of charges in 2020 related to the COVID-19 pandemic and the impact of lower charge-offs in 2021. Non-interest income (excluding security gains and losses) increased $15.2 million, reflecting an increase in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value of $14.3 million which was primarily the result of unrealized losses in the first nine months of 2020 due to changes in fair value related to the COVID-19 pandemic and fees related to prepayments and payoffs of non-SBA CRE loans in 2021. The vast majority of non-SBA CRE loans at fair value are comprised of multi-family (apartment) loans. Prepaid, debit card and other payment fees are the primary driver of non-interest income and increased $231,000, or 0.4% to $56.9 million in the first nine months of 2021 compared to $56.6 million for the first nine months of 2020. Non-interest expense increased $2.1 million, or 1.7%, to $125.2 million in the first nine months of 2021 compared to $123.1 million in the first nine months of 2020, reflecting a $3.2 million increase in salary expense and a $1.2 million increase in legal expense between those periods which were partially offset by a $2.5 million reduction in our FDIC insurance expense. Additionally, the 2021 effective tax rate was lower compared to other recent periods. Diluted income per share was $1.42 in the first nine months of 2021 compared to $0.96 diluted income per share in the first nine months of 2020 primarily reflecting the above factors.

Net Interest Income: Our net interest income for the first nine months of 2021 increased to $158.7 million, an increase of $15.6 million, or 10.9%, from $143.2 million in the first nine months of 2020. Our interest income for the first nine months of 2021 increased to $167.4 million, an increase of $11.6 million, or 7.4%, from $155.8 million for the first nine months of 2020. The increase in interest income resulted primarily from higher loan balances. Our average loans and leases increased to $4.55 billion for the first nine months of 2021 from $3.81 billion for the first nine months of 2020, an increase of $739.7 million, or 19.4%. Related interest income increased $18.4 million on a tax equivalent basis. The increase in average loans primarily reflected growth in SBLOC, IBLOC, investment advisor loans and direct lease financing, partially offset by decreases in PPP loans. Small business loans which also grew, have generally been comprised of SBA loans. However, in 2020 and 2021 they reflected balances of pandemic related PPP loans guaranteed by the U.S. government which repaid significant amounts of those loans in 2021, accounting for the decrease. The balance of our commercial loans, at fair value also decreased primarily reflecting non-SBA CRE loan payoffs. In third quarter 2021 we began newly originating such loans, referred to as real estate bridge loans. Of the total $18.4 million increase in loan interest income, the largest increases were $7.2 million for SBLOC, IBLOC and investment advisor financing and $7.5 million for SBA loans. The increase in SBA loan interest reflects $4.6 million in fees which were earned on a short-term line of credit to another institution to initially fund PPP loans. Excluding those fees and other PPP interest, SBA loan interest increased $1.8 million. While SBA balances, excluding PPP, grew over the prior year period, lower rates partially offset the impact of higher balances. Our average investment securities of $1.10 billion for the first nine months of 2021 decreased $249.3 million from $1.35 billion for the first nine months of 2020. Related tax equivalent interest income decreased $5.7 million primarily reflecting a decrease in balances and secondarily reflecting a decrease in yields. Yields on loans and securities decreased as a result of the impact of the Federal Reserve’s 2020 rate decreases on variable rate obligations, partially offset by the weighted average 4.8% interest rate floors on the non-SBA CRE loans, at fair value. While interest income increased by $11.6 million, interest expense decreased by $4.0 million as deposits also repriced to the lower rate environment. Decreases in deposit interest expense were partially offset by the impact of the senior debt issuance in August 2020.

Our net interest margin (calculated by dividing net interest income by average interest earning assets) for the first nine months of 2021 was 3.29% compared to 3.41% for the first nine months of 2020, a decrease of 12 basis points. While the yield on interest earning assets decreased 24 basis points, the cost of deposits and interest bearing liabilities decreased 13 basis points, or a net change of 11 basis points. The decrease in net interest margin reflected the impact of higher balances maintained at the Federal Reserve as a result of deposits of stimulus payments resulting from December 2020 and March 2021 federal legislation. Balances at the Federal Reserve earn nominal rates of interest. Average interest earning deposits at the Federal Reserve Bank increased $337.3 million, or 75.9%, to $781.6 million in the first nine months of 2021 from $444.3 million in the first nine months of 2020. The reduction in the net interest margin resulting from higher Federal Reserve balances and lower overall loan yields, was partially offset by the impact of $4.6 million of interest and fees on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average interest earning assets. The net interest margin reflects the 4.8% weighted average floor on non-SBA CRE loans, at fair value. Yields on variable rate loans generally fell as a result of the Federal Reserve rate reductions. In the first nine months of 2021, the average yield on our loans decreased to 4.21% from 4.39% for the first nine months of 2020, a decrease of 18 basis points. Yields on taxable investment securities

in the first nine months of 2021 decreased to 2.79% compared to 2.84% for the first nine months of 2020, a decrease of 5 basis points. The cost of total deposits and interest bearing liabilities decreased 13 basis points to 0.19% for the first nine months of 2021 compared to 0.32% in the first nine months of 2020, also resulting from the impact of the aforementioned Federal Reserve rate reductions.



	Nine months ended September 30,
	2021						2020
	Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate
	(dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs **	$	4,541,262	$	143,546		4.21%	$	3,798,104	$	124,924		4.39%
Leases-bank qualified*		5,925		301		6.77%		9,401		509		7.22%
Investment securities-taxable		1,094,633		22,891		2.79%		1,343,211		28,594		2.84%
Investment securities-nontaxable*		3,824		99		3.45%		4,537		110		3.23%
Interest earning deposits at Federal Reserve Bank		781,606		650		0.11%		444,323		1,836		0.55%
Net interest earning assets		6,427,250		167,487		3.47%		5,599,576		155,973		3.71%

Allowance for credit losses		(16,254)						(13,225)
Assets held-for-sale from discontinued operations		99,472		2,388		3.20%		130,880		3,259		3.32%
Other assets		225,802						243,629
	$	6,736,270					$	5,960,860

Liabilities and shareholders' equity:
Deposits:
Demand and interest checking	$	5,452,604	$	4,007		0.10%	$	4,858,666	$	9,676		0.27%
Savings and money market		446,016		487		0.15%		298,049		309		0.14%
Time		—		—		—		106,113		1,483		1.86%
Total deposits		5,898,620		4,494		0.10%		5,262,828		11,468		0.29%

Short-term borrowings		8,717		15		0.23%		25,419		181		0.95%
Repurchase agreements		41		—		—		51		—		—
Subordinated debt		13,401		337		3.35%		13,401		408		4.06%
Senior debt		100,237		3,838		5.11%		17,883		633		4.72%
Total deposits and liabilities		6,021,016		8,684		0.19%		5,319,582		12,690		0.32%

Other liabilities		105,683						119,961
Total liabilities		6,126,699						5,439,543

Shareholders' equity		609,571						521,317
	$	6,736,270					$	5,960,860

Net interest income on tax equivalent basis *			$	161,191					$	146,542

Tax equivalent adjustment				84						130

Net interest income			$	161,107					$	146,412

Net interest margin *						3.29%						3.41%

* Fully taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
** Includes commercial loans, at fair value. All periods include non-accrual loans.
NOTE: In the table above, the 2021 interest on loans reflects $4.6 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans in 2021 also includes $4.9 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $3.7 million. Increases in interest earning deposits at the Federal Reserve Bank reflect increased deposits resulting from stimulus payments distributed to a large segment of the population, resulting from December 2020 federal legislation.

For the first nine months of 2021, average interest earning assets increased to $6.43 billion, an increase of $827.7 million, or 14.8%, from $5.60 billion in the first nine months of 2020. The increase reflected increased average balances of loans and leases of $739.7 million, or 19.4%, partially offset by decreased average investment securities of $249.3 million, or 18.5%. For those respective periods, average demand and interest checking deposits increased $593.9 million, or 12.2%, primarily as a result of deposit growth in prepaid and debit card accounts. The ~~$291.9~~$148.0 million increase in average savings and money market balances between these respective periods reflected growth in interest bearing accounts offered by our affinity group clients to prepaid and debit card account customers. A portion of ~~second quarter~~the nine month average deposit growth resulted from economic stimulus payments related to the pandemic, and is temporary as described in “Liquidity and Capital Resources”. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

Provision for Credit Losses. Our ~~credit for the~~ provision for credit losses was ~~$951,000~~$1.5 million for the ~~second quarter~~first nine months of 2021 compared to a provision for credit losses of ~~$922,000~~$5.8 million for the ~~second quarter~~first nine months of ~~2020, or a net $1.9 million reduction.~~2020. The reduction reflected ~~second quarter~~the reversal of charges in 2021 ~~reversals of 2020 CECL provisions for credit losses~~ for economic factors related to the COVID-19 ~~pandemic. The decrease also reflected~~pandemic which were incurred in 2020, and the ~~recovery~~impact of ~~an allowance on a loan resolution.~~lower charge-offs in 2021. The allowance for credit losses ~~decreased to $15.3~~was $16.2 million, or 0.52%, of total loans at ~~June~~September 30, 2021, ~~from~~compared to $16.1 million, or 0.61%, of total loans at December 31, 2020. We believe that our allowance is adequate to cover expected losses. For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for credit losses”, “-Net charge-offs,” and “-Non-performing loans, loans 90 days delinquent and still accruing, and troubled debt restructurings,” below and Note 6 to the consolidated financial statements.

Non-Interest Income. Non-interest income was ~~$25.9~~$76.5 million in the ~~second quarter~~first nine months of 2021 compared to ~~$20.4~~$61.3 million in the ~~second quarter~~first nine months of 2020. The ~~$5.5~~$15.2 million, or ~~27.0%~~24.8%, increase between those respective periods was primarily the result of an ~~improvement~~increase in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value. Net realized and unrealized gains (losses) on such loans increased to a gain of ~~$2.6~~$8.9 million from a loss of ~~$940,000.~~$5.4 million. The ~~$3.5~~$14.3 million ~~improvement~~change was primarily the result of ~~exit~~fees related to prepayments and ~~prepayment fees on~~payoffs of non-SBA CRE ~~loan payoffs in 2021 and unrealized losses on such~~ loans in the second quarter of 2021 and unrealized losses in 2020 due to changes in fair value related to the COVID-19 pandemic. In ~~the~~ third quarter of 2021, we began newly originating such ~~loans, the vast majority of which are collateralized by apartment buildings.~~loans. Prepaid, debit card and related fees increased ~~$774,000,~~$231,000, or ~~4.1%~~0.4%, to ~~$19.4~~$56.9 million for the ~~second quarter~~first nine months of 2021 compared to ~~$18.7~~$56.6 million in ~~second quarter~~the first nine months 2020. The increase reflected higher transaction volume. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. ACH, card and other payment processing fees increased ~~$197,000,~~$292,000, or ~~11.5%~~5.5%, to ~~$1.9~~$5.6 million for the ~~second quarter~~first nine months of 2021 compared to ~~$1.7~~$5.3 million in the ~~second quarter~~first nine months of ~~2020.~~2020, reflecting increased rapid funds transfer volume. Leasing related income increased ~~$1.3~~$1.9 million, or ~~298.9%~~68.2%, to ~~$1.8~~$4.7 million for the ~~second quarter~~first nine months of 2021 from ~~$443,000~~$2.8 million for the ~~second quarter~~first nine months of 2020. The increase reflected the impact of the reopening of vehicle auctions after COVID-19 pandemic shutdowns, and higher vehicle market prices due to vehicle shortages. Other non-interest income decreased ~~$319,000,~~$1.6 million, or ~~66.0%~~77.3%, to ~~$164,000~~$459,000 for the ~~second quarter~~first nine months of 2021 from ~~$483,000~~$2.0 million in the ~~second quarter~~first nine months of ~~2020.~~2020, which had included the recovery of certain fees which had previously been written off.

Non-Interest Expense. Total non-interest expense was ~~$43.9~~$125.2 million for the ~~second quarter~~first nine months of 2021, an increase of ~~$1.3~~$2.1 million, or ~~3.0%~~1.7%, compared to ~~$42.6~~$123.1 million for the ~~second quarter~~first nine months of 2020. Salaries and employee benefits increased to ~~$27.1~~$77.8 million for the ~~second quarter~~first nine months of 2021, an increase of ~~$1.6~~$3.2 million, or ~~6.3%~~4.3%, from ~~$25.5~~$74.7 million for the ~~second quarter~~first nine months of 2020. Higher salary expense in 2021 reflected higher incentive compensation expense, including equity compensation, and higher compliance expense, primarily related to the payments business. Depreciation and amortization decreased ~~$122,000,~~$313,000, or ~~14.7%~~12.7%, to ~~$706,000~~$2.1 million in the ~~second quarter~~first nine months of 2021 from ~~$828,000~~$2.5 million in the ~~second quarter~~first nine months of 2020, which reflected reduced spending on fixed assets and equipment. Rent and occupancy decreased ~~$125,000,~~$414,000, or ~~9.0%~~9.9%, to ~~$1.3~~$3.8 million in the ~~second quarter~~first nine months of 2021 from ~~$1.4~~$4.2 million in the ~~second quarter~~first nine months of 2020 reflecting a reduction in leased space and a relocation to lower cost space. Data processing decreased ~~$31,000,~~$57,000, or ~~2.6%~~1.6%, to ~~$1.1~~$3.5 million in the ~~second quarter~~first nine months of 2021 from ~~$1.2~~$3.5 million in the ~~second quarter~~first nine months of 2020. Printing and supplies decreased ~~$38,000,~~$163,000, or ~~22.6%~~37.0%, to ~~$130,000~~$277,000 in the ~~second quarter~~first nine months of 2021 from ~~$168,000~~$440,000 in the ~~second quarter~~first nine months of 2020, reflecting fewer paper based accounts and processes. Audit expense decreased ~~$16,000,~~$95,000, or ~~3.9%~~7.9%, to ~~$391,000~~$1.1 million in the ~~second quarter~~first nine months of 2021 from ~~$407,000 in the second quarter of 2020. Legal expense decreased $185,000, or 8.3%, to $2.0~~$1.2 million in the ~~second quarter~~first nine months of 2020. Legal expense increased $1.2 million, or 29.3%, to $5.3 million in the first nine months of 2021 from ~~$2.2~~$4.1 million in the ~~second quarter~~first nine months of ~~2020. The decrease reflected lower~~2020, reflecting increased costs associated with the Cascade matter and two fact-finding inquiries by the SEC ~~staff~~ as described in Note 14 to the consolidated financial ~~statements.~~statements. Amortization of intangible assets decreased by ~~$47,000,~~$143,000, or ~~32.0%~~32.4%, to ~~$100,000~~$298,000 in the ~~second quarter~~first nine months of 2021 from ~~$147,000~~$441,000 in the ~~second quarter~~first nine months of 2020. ~~The reduction reflected the completion of the amortization of our customer list intangible for the Stored Value Solutions purchase from Marshall Bankfirst~~. ~~Federal Deposit Insurance Corporation (“FDIC”)~~FDIC insurance expense decreased ~~$329,000,~~$2.5 million, or ~~11.3%~~31.9%, to ~~$2.6~~$5.2 million for the ~~second quarter~~first nine months of 2021 from ~~$2.9~~$7.7 million in the ~~second quarter~~first nine months of 2020 primarily due to a reduction in the Bank’s assessment rate. The reduction in expense primarily reflected the cumulative impact of the reclassification of certain of our deposits from brokered to non-brokered on the assessment rate. Prior to the insurance rate ~~which was partially offset by an increase~~reduction in third quarter 2021 to approximately 10 basis points annually of average liabilities, ~~against~~the rate approximated 16 basis points. We believe that the insurance rate will continue to be lower than the 16 basis points. However, the rate is subject to multiple factors which ~~insurance~~may significantly change the amount assessed. Accordingly, we cannot assure you that reduced rates ~~are applied.~~will continue. Software expense increased ~~$320,000,~~$977,000, or ~~9.5%~~9.3%, to ~~$3.7~~$11.4 million in the ~~second quarter~~first nine months of 2021 from ~~$3.4~~$10.5 million in the ~~second quarter~~first nine months of 2020. The increases reflected expenditures for information technology to improve efficiency and scalability, including expenses related to remote operations and cybersecurity and upgrades for ~~ACH payment systems and~~ SBA loan processing. Insurance expense increased ~~$331,000,~~$822,000, or ~~47.6%~~39.9%, to ~~$1.0~~$2.9 million in the ~~second quarter~~first nine months of 2021 compared to ~~$695,000~~$2.1 million in the ~~second quarter~~first nine months of 2020, reflecting higher rates. Telecom and IT network communications increased ~~$7,000,~~$41,000, or ~~1.7%~~3.5%, to ~~$409,000~~$1.2 million in the ~~second quarter~~first nine months of 2021 from ~~$402,000~~$1.2 million in the ~~second quarter~~first nine months of 2020. Consulting decreased ~~$106,000,~~$59,000, or ~~30.6%~~5.8%, to ~~$240,000~~$952,000 in the ~~second quarter~~first nine months of 2021 from ~~$346,000~~$1.0 million in the ~~second quarter~~first nine months of 2020. Other non-interest expense ~~increased $9,000,~~decreased $460,000, or ~~0.3%~~4.8%, to ~~$3.0~~$9.1 million in the ~~second quarter~~first nine months of 2021 from ~~$3.0~~$9.6 million in the ~~second quarter~~first nine months of 2020. The $460,000 decrease reflected a $386,000 reduction in travel expenses which was partially offset by other expense increases, including a $90,000 increase in fraud losses.

Income Taxes. Income tax expense for continuing operations was ~~$7.8~~$25.2 million for the ~~second quarter~~first nine months of 2021 compared to ~~$6.8~~$19.0 million in the ~~second quarter~~first nine months of 2020. A ~~21.2%~~23.2% effective tax rate in ~~the second quarter~~ 2021 and a ~~25.1%~~25.2% effective tax rate in ~~the second quarter~~ 2020 primarily reflected a 21% federal tax rate and the impact of various state income taxes. The reduction in effective tax rate for 2021

reflected the impact of an excess tax deduction related to stock-based compensation recorded as a discrete item in 2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant ~~date.~~

~~First six months 2021 to first six months 2020~~

~~Net Income:~~ Income from continuing operations before income taxes was $72.1 million in the first six months of 2021 compared to $44.6 million in the first six months of 2020. Net income from continuing operations for the first six months of 2021 was $55.2 million, or $0.93 per diluted share, compared to $33.4 million, or $0.58 per diluted share, for the first six months of 2020. Income from continuing operations increased between those respective periods primarily as a result of higher net interest income and non-interest income. After discontinued operations, net income for the first six months of 2021 amounted to $55.4 million, compared to $32.7 million for the first six months of 2020. Net interest income for the first six months of 2021 increased 15.7%, to $107.8 million from $93.2 million in the first six months of 2020. The increase reflected increases in loan interest as a result of higher loan balances partially offset by reductions in securities interest resulting from lower balances, and lower yields which reflected the impact of Federal Reserve rate reductions. Loan interest in 2021 included $4.5 million in interest from a line of credit to another institution to fund PPP loans, which is not expected to recur and which offset the impact of decreases in other loan yields. Lower interest expense also reflected the impactdate of the Federal Reserve’s 1.5% rate reductions which occurred toward the end of first quarter 2020. The provision for credit losses decreased $4.6 million to a credit for the provision for credit losses of $129,000 in the first six months of 2021 compared to a $4.5 million provision in the first six months of 2020. Non-interest income (excluding security gains and losses) increased $13.0 million, reflecting an improvement in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value of $10.7 million. The $10.7 million improvement was primarily the result of unrealized losses in the first six months of 2020 due to changes in fair value related to the COVID-19 pandemic and prepayment and exit penalties on non-SBA CRE loans in 2021. The vast majority of non-SBA CRE loans at fair value are comprised of multifamily (apartment) loans. Prepaid, debit card and other payment fees are the primary driver of non-interest income and increased $1.6 million, or 3.90% to $42.4 million in the first six months of 2021 compared to $40.8 million for the first six months of 2020. Non-interest expense increased $4.7 million, or 5.8%, to $85.8 million in the first six months of 2021 compared to $81.0 million in the first six months of 2020, reflecting a $4.5 million increase in salary expense and a $956,000 increase in legal expense between those periods. Additionally, the 2021 effective tax rate was lower compared to other recent periods. Diluted income per share was $0.94 in the first six months of 2021 compared to $0.57 diluted income per share in the first six months of 2020 primarily reflecting the factors noted above.

~~Net Interest Income:~~ Our net interest income for the first six months of 2021 increased to $107.8 million, an increase of $14.7 million, or 15.7%, from $93.2 million in the first six months of 2020. Our interest income for the first six months of 2021 increased to $113.9 million, an increase of $10.5 million, or 10.2%, from $103.4 million for the first six months of 2020. The increase in interest income resulted primarily from higher loan balances. Our average loans and leases increased to $4.53 billion for the first six months of 2021 from $3.60 billion for the first six months of 2020, an increase of $927.3 million, or 25.7%. Related interest income increased $16.4 million on a tax equivalent basis. The increase in average loans primarily reflected growth in SBLOC and IBLOC, direct lease financing and small business loans which are mostly comprised of SBA loans. The balance of our commercial loans, at fair value decreased primarily reflecting non-SBA CRE loan payoffs, the vast majority of which are collateralized by apartment buildings. In third quarter 2021 we began newly originating such loans. Of the total $16.4 million increase in loan interest income, the largest increases were $3.6 million for non-SBA CRE loans, at fair value to $36.0 million, $3.8 million for SBLOC, IBLOC and advisor financing to $20.9 million and $7.6 million for SBA loans to $25.1 million. The increase in SBA loans reflects $4.5 million in ~~fees which were earned on a short-term line of credit to another institution to initially fund PPP loans~~. Excluding those fees and other PPP interest, SBA loan interest increased $989,000. While SBA balances excluding PPP grew over the prior year period, lower rates partially offset the impact of higher balances. Our average investment securities of $1.14 billion for the first six months of 2021 decreased $229.2 million from $1.37 billion for the first six months of 2020. Related tax equivalent interest income decreased $4.7 million primarily reflecting a decrease in balances and secondarily reflecting a decrease in yields. Yields on loans and securities decreased as a result of the impact of the Federal Reserve’s 2020 rate decreases on variable rate obligations, ~~partially offset by the weighted average 4.8% interest rate floors on the non-SBA CRE loans, at fair value~~. While interest income increased by $10.5 million, interest expense decreased by $4.1 million as deposits also repriced to the lower rate environment. Decreases in deposit interest expense were partially offset by the impact of the senior debt issuance in August 2020.

Our net interest margin (calculated by dividing net interest income by average interest earning assets) for the first six months of 2021 was 3.26% compared to 3.43% for the first six months of 2020, a decrease of 17 basis points. While the yield on interest earning assets decreased 36 basis points, the cost of deposits and interest bearing liabilities decreased 20 basis points, or a net change of 16 basis points. The decrease in net interest margin reflected the impact of higher balances maintained at the Federal Reserve as a result of deposits of stimulus payments resulting from December 2020 and March 2021 federal legislation. Balances at the Federal Reserve earn nominal rates of interest. Average interest earning deposits at the Federal Reserve Bank increased $475.2 million, or 103.3%, to $935.2 million in the first six months of 2021 from $460.0 million in the first six months of 2020. The reduction in the net interest margin resulting from higher Federal Reserve balances and lower overall loan yields, was partially offset by the impact of $4.5 million of interest and fees on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average interest earning assets. The net interest margin reflects the 4.8% weighted average floor on non-SBA CRE loans, at fair value. Yields on variable rate loans generally fell as a result of the Federal Reserve rate reductions. In the first six months of 2021, the average yield on our loansstock compensation.

decreased to 4.30% from 4.49% for the first six months of 2020, a decrease of 19 basis points. Yields on taxable investment securities in the first six months of 2021 decreased to 2.82% compared to 3.03% for the first six months of 2020, a decrease of 21 basis points. The cost of total deposits and interest bearing liabilities decreased 20 basis points to 0.20% for the first six months of 2021 compared to 0.40% in the first six months of 2020, also resulting from the impact of the aforementioned Federal Reserve rate reductions.

5350

~~Average Daily Balances.~~ The following table presents the average daily balances of assets, liabilities and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the periods indicated:

Six months ended June 30,
2021
2020
Average
Average
Average
Average
Balance
Interest
Rate
Balance
Interest
Rate
(dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs **
$
4,524,911
$
97,189
4.30%
$
3,593,921
$
80,607
4.49%
Leases - bank qualified*
6,379
214
6.71%
10,096
362
7.17%
Investment securities-taxable
1,136,631
16,009
2.82%
1,364,956
20,683
3.03%
Investment securities-nontaxable*
3,960
67
3.38%
4,788
75
3.13%
Interest earning deposits at Federal Reserve Bank
935,239
483
0.10%
460,025
1,730
0.75%
Net interest earning assets
6,607,120
113,962
3.45%
5,433,786
103,457
3.81%
Allowance for credit losses
(16,241)
(12,532)
Assets held-for-sale from discontinued operations
103,983
1,634
3.14%
133,903
2,368
3.54%
Other assets
203,821
233,088
$
6,898,683
$
5,788,245
Liabilities and shareholders' equity:
Deposits:
Demand and interest checking
$
5,619,608
$
2,944
0.10%
$
4,746,928
$
8,085
0.34%
Savings and money market
466,978
341
0.15%
203,888
170
0.17%
Time
—
—
—
159,752
1,483
1.86%
Total deposits
6,086,586
3,285
0.11%
5,110,568
9,738
0.38%
Short-term borrowings
6,491
8
0.25%
36,620
180
0.98%
Repurchase agreements
41
—
—
57
—
—
Subordinated debt
13,401
225
3.36%
13,401
290
4.33%
Senior debt
100,190
2,559
5.11%
—
—
—
Total deposits and liabilities
6,206,709
6,077
0.20%
5,160,646
10,208
0.40%
Other liabilities
91,837
118,811
Total liabilities
6,298,546
5,279,457
Shareholders' equity
600,137
508,788
$
6,898,683
$
5,788,245
Net interest income on tax equivalent basis *
$
109,519
$
95,617
Tax equivalent adjustment
59
92
Net interest income
$
109,460
$
95,525
Net interest margin *
3.26%
3.43%
* Full taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
** Includes commercial loans, at fair value for 2021 previously classified as held-for-sale at June 30, 2020. All periods include non-accrual loans.
NOTE: In the table above, the 2021 interest on loans reflects $4.5 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans also includes $3.7 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $1.6 million. Increases in interest earning deposits at the Federal Reserve Bank reflect increased deposits resulting from stimulus payments distributed to a large segment of the population, resulting from December 2020 federal legislation.

For the first six months of 2021, average interest earning assets increased to $6.61 billion, an increase of $1.17 billion, or 21.6%, from $5.43 billion in the first six months of 2020. The increase reflected increased average balances of loans and leases of $927.3 million, or 25.7%, partially offset by decreased average investment securities of $229.2 million, or 16.7%. For those respective periods, average demand and interest checking deposits increased $872.7 million, or 18.4%, primarily as a result of deposit growth in prepaid and debit

card accounts. The $263.1 million increase in average savings and money market balances between these respective periods reflected growth in interest bearing accounts offered by our affinity group clients to prepaid and debit card account customers. A portion of second quarter deposit growth resulted from economic stimulus payments related to the pandemic, and is temporary as described in “Liquidity and Capital Resources”. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

~~Provision for Credit Losses~~. Our credit for the provision for credit losses was $129,000 for the first six months of 2021 compared to a provision for credit losses of $4.5 million for the first six months of 2020. The decrease reflected second quarter reversals of 2020 CECL provisions for credit losses for economic factors related to the COVID-19 pandemic. The allowance for credit losses decreased to $15.3 million, or 0.52%, of total loans at June 30, 2021, from $16.1 million, or 0.61%, of total loans at December 31, 2020. We believe that our allowance is adequate to cover expected losses. For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for credit losses”, “-Net charge-offs,” and “-Non-performing loans, loans 90 days delinquent and still accruing, and troubled debt restructurings,” below and Note 6 to the consolidated financial statements.

~~Non-Interest Income.~~ Non-interest income was $49.9 million in the first six months of 2021 compared to $37.0 million in the first six months of 2020. The $13.0 million, or 35.1%, increase between those respective periods was primarily the result of an improvement in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value. Net realized and unrealized gains (losses) on such loans increased to a gain of $4.6 million from a loss of $6.1 million. The $10.7 million improvement was primarily the result of exit and prepayment fees on loan payoffs in the second quarter of 2021 and unrealized losses in 2020 due to changes in fair value related to the COVID-19 pandemic. We are planning to hold loans which were originated for securitizations in our portfolio and are not currently planning any further securitizations. In the third quarter of 2021, we began newly originating such loans, the vast majority of which are collateralized by apartment buildings. Prepaid, debit card and related fees increased $1.4 million, or 3.9%, to $38.7 million for the first six months of 2021 compared to $37.2 million in first six months 2020. The increase reflected higher transaction volume. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. ACH, card and other payment processing fees increased $147,000, or 4.1%, to $3.7 million for the first six months of 2021 compared to $3.6 million in the first six months of 2020. Leasing related income increased $1.5 million, or 114.1%, to $2.7 million for the first six months of 2021 from $1.3 million for the first six months of 2020. The increase reflected the impact of the reopening of vehicle auctions after COVID-19 pandemic shutdowns, and higher vehicle market prices due to vehicle shortages. Other non-interest income decreased $791,000, or 74.3%, to $273,000 for the first six months of 2021 from $1.1 million in the first six months of 2020.

~~Non-Interest Expense~~. Total non-interest expense was $85.8 million for the first six months of 2021, an increase of $4.7 million, or 5.8%, compared to $81.0 million for the first six months of 2020. Salaries and employee benefits increased to $52.7 million for the first six months of 2021, an increase of $4.5 million, or 9.4%, from $48.2 million for the first six months of 2020. Higher salary expense in 2021 reflected higher incentive compensation expense, including equity compensation, and higher compliance expense, primarily related to the payments business. Depreciation and amortization decreased $257,000, or 15.4%, to $1.4 million in the first six months of 2021 from $1.7 million in the first six months of 2020, which reflected reduced spending on fixed assets and equipment. Rent and occupancy decreased $294,000, or 10.4%, to $2.5 million in the first six months of 2021 from $2.8 million in the first six months of 2020 reflecting a reduction in leased space and a relocation to lower cost space. Data processing decreased $74,000, or 3.2%, to $2.3 million in the first six months of 2021 from $2.3 million in the first six months of 2020. Printing and supplies decreased $130,000, or 39.9%, to $196,000 in the first six months of 2021 from $326,000 in the first six months of 2020, reflecting fewer paper based accounts and processes. Audit expense decreased $54,000, or 6.7%, to $754,000 in the first six months of 2021 from $808,000 in the first six months of 2020. Legal expense increased $956,000, or 30.4%, to $4.1 million in the first six months of 2021 from $3.1 million in the first six months of 2020, reflecting increased costs associated with ~~two fact-finding inquiries by the SEC as described in Note 14 to the consolidated financial statements~~. Amortization of intangible assets decreased by $95,000, or 32.3%, to $199,000 in the first six months of 2021 from $294,000 in the first six months of 2020. The reduction reflected the completion of the amortization of our customer list intangible for the Stored Value Solutions purchase from Marshall Bankfirst. Federal Deposit Insurance Corporation (“FDIC”) insurance expense decreased $538,000, or 9.8%, to $5.0 million for the first six months of 2021 from $5.5 million in the first six months of 2020 primarily due to a reduction in the Bank’s assessment rate which was partially offset by an increase in average liabilities, against which insurance rates are applied. Software expense increased $527,000, or 7.7%, to $7.4 million in the first six months of 2021 from $6.9 million in the first six months of 2020. The increases reflected expenditures for information technology to improve efficiency and scalability, including expenses related to remote operations and cybersecurity, and upgrades for ACH payment systems and SBA loan processing. Insurance expense increased $453,000, or 34.4%, to $1.8 million in the first six months of 2021 compared to $1.3 million in the first six months of 2020, reflecting higher rates. Telecom and IT network communications increased $20,000, or 2.5%, to $814,000 in the first six months of 2021 from $794,000 in the first six months of 2020. Consulting decreased $97,000, or 16.1%, to $504,000 in the first six months of 2021 from $601,000 in the first six months of 2020. Other non-interest expense decreased $201,000, or 3.2%, to $6.1 million in the first six months of 2021 from $6.3 million in the first six months of 2020. The $201,000 decrease reflected a $670,000 reduction in travel expenses which was partially offset by other expense increases, including a $222,000 increase in fraud losses.

~~Income Taxes.~~ Income tax expense for continuing operations was $16.9 million for the first six months of 2021 compared to $11.1 million in the first six months of 2020. A 23.4% effective tax rate in 2021 and a 25.0% effective tax rate in 2020 primarily reflected a 21% federal tax rate and the impact of various state income taxes. The reduction in effective tax rate for 2021 reflected the impact of an

excess tax deduction related to stock-based compensation recorded as a discrete item in 2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant date.

Liquidity and Capital Resources

Liquidity defines our ability to generate funds to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. We invest the funds we do not need for daily operations primarily in overnight federal funds or in our interest-bearing account at the Federal Reserve.

Our primary source of funding has been deposits. Average total deposits ~~increased~~decreased by ~~$888.5~~$35.1 million, or ~~16.5%~~0.6%, to ~~$6.26~~$5.53 billion for ~~second~~third quarter 2021 compared to ~~second~~third quarter 2020. ~~While that increase primarily~~That decrease reflected ~~increases~~the impact of a client relationship transitioning to its own bank, offsetting growth in ~~transaction accounts from~~other debit and prepaid card account ~~balances, it~~balances. That exit also was reflected ~~an increase~~ in average savings and money market ~~accounts of $291.9~~account balances which decreased $79.5 million between those periods. ~~The growth in savings and money market accounts reflected growth in interest-bearing accounts offered by our affinity group clients to prepaid and debit card account customers.~~ A portion of ~~second quarter~~2021 deposit growth resulted from economic stimulus payments related to the pandemic, and iswas temporary. ~~By June 30, 2021 deposits had decreased from the $6.26 billion quarterly average for the second quarter of 2021, to $5.68 billion. A portion of the increase in deposits were retained at the~~ Federal Reserve ~~and related~~ average balances ~~at that institution~~increased to $479.4 million in ~~second~~third quarter 2021 ~~increased to $1.1 billion~~ from ~~$426.2~~$413.3 million in ~~second~~third quarter 2020. By ~~June~~September 30, 2021, that balance had been reduced to ~~$583.5~~$310.6 million, ~~as a result of the~~reflecting outflows of ~~the~~certain stimulus payment deposits. ~~The increased deposits were utilized to fund loan growth, as were securities prepayments, which accelerated after the Federal Reserve’s first quarter 2020 rate reductions.~~ Overnight borrowings are also periodically utilized as a funding source to facilitate cash management, but average balances have generally not been significant.

Our primary source of liquidity is available-for-sale securities which amounted to ~~$1.11~~$1.05 billion at ~~June~~September 30, 2021 compared to $1.21 billion at December 31, 2020. In excess of $500 million of our available-for-sale securities are U.S. government agency securities which are highly liquid and may be pledged as collateral for our Federal Home Loan Bank line of credit. Loan repayments, also a source of funds, were exceeded by new loan disbursements during ~~second~~third quarter 2021. As a result, at ~~June~~September 30, 2021 outstanding loans amounted to ~~$2.92~~$3.14 billion, compared to $2.65 billion at the prior year end, an increase of ~~$263.0~~$484.3 million, which was funded by deposits and securities prepayments. Commercial loans, at fair value decreased to ~~$1.69~~$1.55 billion from $1.81 billion between those respective dates, a decrease of ~~$120.6~~$260.8 million, which also provided funding for other loan categories. In 2019 and previous years, these loans were generally originated for sale into securitizations at six month intervals, but in 2020 we decided to retain such loans on the balance sheet. After we suspended originating such loans after first quarter 2020, we began newly originating non-SBA CRE loans in the third quarter of 2021. Our liquidity planning has not previously placed undue reliance on securitizations, and while our future planning excludes the impact of securitizations, other liquidity sources, primarily deposits, are determined to be adequate.

While we do not have a traditional branch system, we believe that our core deposits, which include our demand, interest checking, savings and money market accounts, have similar characteristics to those of a bank with a branch system. The majority of our deposit accounts are obtained with the assistance of third-parties and as a result have historically been classified as brokered by the FDIC. Prior FDIC guidance for classification of deposit accounts as brokered was relatively broad, and generally included accounts which were referred to or “placed” with the institution by other companies. If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over brokered deposits without the consent of the FDIC. In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted. In December 2020, the FDIC issued a new regulation which, ~~should result~~in the third quarter of 2021, resulted in certain of our deposits being reclassified from brokered to ~~non-brokered, although~~non-brokered. As a result, the majority of our deposits have been reclassified as non-brokered. Certain accounts currently remain classified as brokered and require applications to the FDIC ~~has~~for reclassification. As of September 30, 2021, approximately $1.77 billion of our total deposit accounts of $5.11 billion were not ~~yet confirmed~~insured by FDIC insurance, which requires identification of the ~~extent~~depositor and is limited to $250,000 per identified depositor. Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts, should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are comprised of small balances, such ~~reclassifications.~~as anonymous gift cards and corporate incentive cards for which there is no identified depositor. We do not believe that such uninsured accounts present a significant liquidity risk.

We focus on customer service which we believe has resulted in a history of customer loyalty. Certain components of our deposits do experience seasonality, creating greater excess liquidity at certain times. The largest deposit inflows occur in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.

While consumer deposit accounts including prepaid and debit card accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve. As of ~~June~~September 30, 2021, we had a line of credit with the Federal Reserve which exceeded one billion dollars, which may be collateralized by various types of loans, but which we generally have not used. To mitigate the impact of the COVID-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has borrowed on its line on an overnight basis and may do so in the future. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. We may access our line of credit with the FHLB after pledging U.S. government agency securities, which is permitted at any time, to allow daily access to the line. As of June 30, 2021, we had eligible securities which would result in approximately $500 million of availability. Additionally, we have pledged ~~approximately $1.15~~in excess of $1.0 billion of multi-family loans to the FHLB. As a result, we have approximately ~~$1.0 billion~~$900 million of availability on our line of credit which we can access at any time. Additionally, in excess of $400 million of our available-for-sale securities are U.S. government agency securities which are highly liquid and may be pledged as additional collateral. As of ~~June~~September 30, 2021, we had no amounts outstanding on ~~either~~the FHLB line and $300 million outstanding on the Federal Reserve ~~or FHLB lines.~~line. We expect to continue to maintain our facilities with the FHLB and Federal Reserve. We actively monitor our positions and contingent funding sources daily.

5651

As a holding company conducting substantially all our business through our subsidiaries, our near term needs for liquidity consists principally of cash needed to make required interest payments on our trust preferred securities and senior debt. Our sources of liquidity have primarily come in the form of dividends from the Bank to the holding company, and the issuance of debt. In the third quarter of 2020, holding company cash was increased by approximately $98.2 million as a result of the net proceeds of a senior debt offering. As of ~~June~~September 30, 2021, we had cash reserves of approximately $89.2 million at the holding company. A reduction from the prior quarter end reflected the impact of $10.0 million of common stock repurchases. The ~~quarterly~~biannual interest payments on the $100.0 million of senior debt are approximately ~~$1.2~~$2.4 million based on a fixed rate of 4.75%. Current quarterly interest payments on the $13.4 million of subordinated debentures are approximately $118,000 based on a floating rate of 3.25% over London Inter-bank Offered Rate (“LIBOR”). The senior debt matures in August 2025 and the subordinated debentures mature in March 2038. In lieu of repayment of debt from Bank dividends, industry practice includes the issuance of new debt to repay maturing debt.

Included in our cash and cash-equivalents at ~~June~~September 30, 2021 were ~~$583.5~~$310.6 million of interest earning deposits which primarily consisted of deposits with the Federal Reserve.

Net redemptions of investment securities for the ~~six~~nine months ended ~~June~~September 30, 2021 were ~~$123.2~~$139.4 million compared to net redemptions of ~~$91.8~~$146.2 million for the prior year period. We had outstanding commitments to fund loans, including unused lines of credit, of $2.13 billion and $2.17 billion as of ~~June~~September 30, 2021 and December 31, 2020, respectively. The majority of our commitments are variable rate and originate with security backed lines of credit. ~~Such~~The recorded amount of such commitments ~~are normally~~has, for many accounts, been based on the full amount of collateral in a customer’s investment account. ~~However, such commitments have historically been drawn at only a fraction of the total commitment.~~ The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingency source of funding.

We must comply with capital adequacy guidelines issued by the FDIC. A bank must, in general, have a Tier 1 leverage ratio of 5.00%, a ratio of Tier I capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity tier 1 to risk weighted assets of 6.5% to be considered “well capitalized.” The Tier I leverage ratio is the ratio of Tier 1 capital to average assets for the quarter. “Tier I capital” includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At ~~June~~September 30, 2021, we were “well capitalized” under banking regulations.

The reduction in the leverage ratio from year end reflected significant deposit inflows toward the end of first quarter 2021, which resulted primarily from stimulus payments authorized by the December 2020 legislation noted previously.

The following table sets forth our regulatory capital amounts and ratios for the periods indicated:



	Tier 1 capital	Tier 1 capital	Total capital	Common equity	Tier 1 capital	Tier 1 capital	Total capital	Common equity
	to average	to risk-weighted	to risk-weighted	tier 1 to risk	to average	to risk-weighted	to risk-weighted	tier 1 to risk
	assets ratio	assets ratio	assets ratio	weighted assets	assets ratio	assets ratio	assets ratio	weighted assets

As of June 30, 2021
As of September 30, 2021
The Bancorp, Inc.	8.52%	15.39%	15.78%	15.39%	9.82%	15.69%	16.10%	15.69%
The Bancorp Bank	8.73%	15.75%	16.14%	15.75%	10.24%	16.29%	16.69%	16.29%
"Well capitalized" institution (under FDIC regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

As of December 31, 2020
The Bancorp, Inc.	9.20%	14.43%	14.84%	14.43%	9.20%	14.43%	14.84%	14.43%
The Bancorp Bank	9.11%	14.27%	14.68%	14.27%	9.11%	14.27%	14.68%	14.27%
"Well capitalized" institution (under FDIC regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

Asset and Liability Management

The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of an institution’s interest margin resulting from changes in market interest rates.

We monitor, manage and control interest rate risk through a variety of techniques, including the use of traditional interest rate sensitivity analysis (also known as “gap analysis”) and an interest rate risk management model. With the interest rate risk management model, we project future net interest income and then estimate the effect of various changes in interest rates on that projected net interest income. We also use the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Traditional gap analysis involves arranging our interest earning assets and interest bearing liabilities by repricing periods and

then computing the difference (or “interest rate sensitivity gap”) between the assets and liabilities that we estimate will reprice during each time period and cumulatively through the end of each time period.

Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest earning assets and interest bearing liabilities will respond to general changes in market rates, future cash flows and discount rates. Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net interest income. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.

The following table sets forth the estimated maturity or repricing structure of our interest earning assets and interest bearing liabilities at ~~June~~September 30, 2021. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of demand and interest bearing demand deposits and savings deposits are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates. We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest bearing demand accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to the affinity groups which are based upon a rate index, and therefore are included in interest expense. We have adjusted the demand and interest checking balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances. The vast majority of loans at their interest rate floors are included in commercial loans, at fair value and totaled approximately ~~$1.47~~$1.33 billion at ~~June~~September 30, 2021. The table does not assume any prepayment of fixed-rate loans and mortgage-backed securities are scheduled based on their anticipated cash flow, including prepayments based on historical data and current market trends. The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities is beyond our control as, for example, prepayments of loans and withdrawal of deposits. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels.



	1-90		91-364		1-3		3-5		Over 5		1-90		91-364		1-3		3-5		Over 5
	Days		Days		Years		Years		Years		Days		Days		Years		Years		Years
	(dollars in thousands)										(dollars in thousands)
Interest earning assets:
Commercial loans, at fair value	$	1,567,662	$	9,456	$	37,914	$	10,375	$	64,809	$	1,435,292	$	7,168	$	25,198	$	17,518	$	64,849
Loans, net of deferred loan fees and costs		2,140,434		81,441		268,148		321,088		104,233		2,303,657		95,002		242,542		344,558		150,903
Investment securities		497,612		126,170		188,954		186,102		107,237		518,667		120,235		158,099		165,368		91,854
Interest earning deposits		583,498		—		—		—		—		310,642		—		—		—		—
Total interest earning assets		4,789,206		217,067		495,016		517,565		276,279		4,568,258		222,405		425,839		527,444		307,606

Interest bearing liabilities:
Demand and interest checking		3,364,861		130,710		130,710		—		—		3,092,910		49,629		49,629		—		—
Savings and money market		114,922		229,844		114,922		—		—		94,540		189,080		94,540		—		—
Securities sold under agreements to repurchase		42		—		—		—		—		42		—		—		—		—
Short-term borrowings												300,000		—		—		—		—
Senior debt and subordinated debentures		13,401		—		—		98,498		—		13,401		—		—		98,590		—
Total interest bearing liabilities		3,493,226		360,554		245,632		98,498		—		3,500,893		238,709		144,169		98,590		—
Gap	$	1,295,980	$	(143,487)	$	249,384	$	419,067	$	276,279	$	1,067,365	$	(16,304)	$	281,670	$	428,854	$	307,606
Cumulative gap	$	1,295,980	$	1,152,493	$	1,401,877	$	1,820,944	$	2,097,223	$	1,067,365	$	1,051,061	$	1,332,731	$	1,761,585	$	2,069,191
Gap to assets ratio		20%		(2)%		4%		6%		4%		17%		—		4%		7%		5%
Cumulative gap to assets ratio		20%		18%		22%		28%		32%		17%		17%		21%		28%		33%

* While demand deposits are non-interest bearing, related fees paid to affinity groups may reprice according to specified indices.

The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience

when interest rates change may deviate significantly from those assumed in calculating the data shown in the table. Accordingly, actual results can and often do differ from projections. While the gap table above shows a positive gap, interest rate increases of up to 200 basis points might be required to increase net interest income, as a result of interest rate floors.

Financial Condition

General. Our total assets at ~~June~~September 30, 2021 were ~~$6.55~~$6.27 billion, of which our total loans were ~~$2.92~~$3.14 billion, and our commercial loans, at fair value were ~~$1.69~~$1.55 billion. At December 31, 2020, our total assets were $6.28 billion, of which our total loans were $2.65 billion, and our commercial loans, at fair value were $1.81 billion. The ~~increase~~decrease in assets reflected a decrease in deposits ~~resulting from~~ which, after increasing temporarily due to stimulus payments authorized by 2020 federal legislation to address the economic impact of ~~COVID-19.~~COVID-19, returned to pre-stimulus levels.

Interest earning deposits and federal funds sold. At ~~June~~September 30, 2021, we had a total of ~~$583.5~~$310.6 million of interest earning deposits compared to $339.5 million at December 31, 2020, ~~an increase~~a decrease of ~~$244.0~~$28.9 million. These deposits were comprised primarily of balances at the Federal ~~Reserve, and reflect the impact of stimulus payments.~~Reserve.

Investment portfolio. For detailed information on the composition and maturity distribution of our investment portfolio, see Note 5 to the consolidated financial statements. Total investment securities decreased to ~~$1.11~~$1.05 billion at ~~June~~September 30, 2021, a decrease of ~~$100.1~~$151.9 million, or ~~8.3%~~12.6%, from December 31, 2020. The decrease reflected prepayments on mortgage backed-securities as a result of the lower rate environment.

Under the accounting guidance related to CECL, changes in fair value of securities unrelated to credit losses, continue to be recognized through equity. However, credit-related losses are recognized through an allowance, rather than through a reduction in the amortized cost of the security. ~~The~~CECL accounting guidance ~~for the new CECL allowance includes a provision for~~also permits the reversal of allowances for credit ~~impairments~~deterioration in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield. That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, we recognized no credit-related losses on our portfolio.

Investments in Federal Home Loan and Atlantic Central Bankers Bank stock are recorded at cost and amounted to $1.7 million at ~~June~~September 30, 2021 and $1.4 million at December 31, 2020. Federal Home Loan Bank stock purchases are required in order to borrow from the Federal Home Loan Bank. Both the FHLB and Atlantic Central Bankers Bank require its correspondent banking institutions to hold stock as a condition of membership.

At ~~June~~September 30, 2021 and December 31, 2020 no investment securities were encumbered through ~~pledging as there were no borrowings as of those dates.~~pledging.

~~As of June 30, 2021, the~~The remaining principal balance of the security we owned issued by CRE-1 was $7.1 million. Repayment is expected from the workout or disposition of commercial real estate collateral, all proceeds of which will first repay our $7.1 million balance. The collateral consists of a hotel in a high-density populated area in a northeastern major metropolitan area. The hotel was valued at $27.0 million, based upon a 2020 appraisal, obtained after the COVID-19 pandemic began.repaid on August 17, 2021. As of ~~June~~September 30, 2021, the principal balance of the security we owned issued by CRE-2 was $12.6 million. Repayment is expected from the workout or disposition of commercial real estate collateral, after repayment of more senior tranches. Our $12.6 million security had ~~27%~~41% excess credit support; thus, losses of ~~27%~~41% of remaining security balances would have to be incurred, prior to any loss on our security. Additionally, the commercial real estate collateral supporting ~~five~~four of the remaining ~~seven~~five loans was re-appraised in 2020 and 2021. The updated appraised value is approximately ~~$129.0~~$79.9 million. The remaining principal to be repaid on all securities is approximately ~~$114.0~~$76.1 million. The excess of the appraised amount over the remaining principal to be repaid on all securities further reduces credit risk, in addition to the ~~27%~~41% credit support within the securitization structure. However, any future reappraisals ~~for remaining properties~~ could result in further decreases in collateral valuation. While available information indicates that the value of existing collateral ~~valuation~~ will be adequate to repay our security, there can be no assurance that such valuations will be realized upon loan resolutions, and that deficiencies will not exceed the ~~27%~~41% credit support.

5954

The following table shows the contractual maturity distribution and the weighted average yield of our investment portfolio security as of ~~June~~September 30, 2021 (in thousands):


				After			After											After			After
	Zero			one to			five to			Over					Zero			one to			five to			Over
	to one		Average	five		Average	ten		Average	ten		Average			to one		Average	five		Average	ten		Average	ten		Average
Available-for-sale	year		yield	years		yield	years		yield	years		yield	Total		year		yield	years		yield	years		yield	years		yield	Total
U.S. Government agency securities	$	—	—	$	6,241	2.23%	$	20,801	2.81%	$	16,050	2.24%	$	43,092	$	—	—	$	5,007	2.27%	$	18,823	2.76%	$	15,290	2.31%	$	39,120
Asset-backed securities		—	—		6,844	1.52%		123,927	1.43%		187,687	1.58%		318,458		—	—		6,638	1.54%		145,596	1.42%		216,679	1.63%		368,913
Tax-exempt obligations of states and political subdivisions *		—	—		2,536	2.99%		1,221	2.30%		—	—		3,757		—	—		2,523	2.99%		1,217	2.30%		—	—		3,740
Taxable obligations of states and political subdivisions		—	—		33,518	3.20%		15,865	3.62%		—	—		49,383		—	—		37,927	3.19%		11,130	3.83%		—	—		49,057
Residential mortgage-backed securities		1,226	2.61%		47,997	2.41%		23,071	2.82%		154,306	1.61%		226,600		1,214	2.48%		37,287	2.41%		22,135	2.84%		138,634	1.56%		199,270
Collateralized mortgage obligation securities		—	—		—	—		9,466	2.03%		94,808	2.02%		104,274		—	—		—	—		8,875	2.30%		67,467	1.96%		76,342
Commercial mortgage-backed securities		—	—		77,345	2.62%		33,671	0.87%		242,913	3.12%		353,929		—	—		74,768	2.54%		34,034	0.87%		202,474	3.78%		311,276
Corporate debt securities		—	—		—	—		—	—		6,582	2.96%		6,582		—	—		—	—		—	—		6,505	2.97%		6,505
Total	$	1,226		$	174,481		$	228,022		$	702,346		$	1,106,075	$	1,214		$	164,150		$	241,810		$	647,049		$	1,054,223
Weighted average yield			2.61%			2.62%			1.79%			2.20%					2.48%			2.62%			1.72%			2.35%

* If adjusted to their taxable equivalents, yields would approximate 3.78% and 2.91% for one to five years and five to ten years, respectively, at a Federal tax rate of 21%.

Commercial loans, at fair value. Commercial loans, at fair value are comprised of non-SBA CRE loans and SBA loans which had been originated for sale or securitization ~~in the secondary market~~ through first quarter 2020, and which are now being held on the balance sheet. Non-SBA CRE loans and SBA loans are valued using a discounted cash flow analysis based upon pricing for similar loans where market indications of the sales price of such loans are not available, on a pooled basis. Commercial loans, at fair value decreased to ~~$1.69~~$1.55 billion at ~~June~~September 30, 2021 from $1.81 billion at December 31, 2020. The decrease resulted from loan ~~payoffs~~prepayments and ~~payments~~payoffs. In the third quarter of 2021 we began newly originating non-SBA CRE loans, after having suspended such originations for most of 2020 and the first half of 2021. These originations reflect lending criteria similar to the existing loan portfolio and are primarily comprised of multi-family (apartment buildings) collateral. See “Commercial real estate loans held at fair value, excluding SBA loans…” below. Interest rates shown in that table represent rate floors, set at origination. Rates on new loans will vary with market rates for such loans and are planned to be held for investment.

Loan portfolio. Total loans increased to ~~$2.92~~$3.14 billion at ~~June~~September 30, 2021 from $2.65 billion at December 31, 2020.

The following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (in

thousands):


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
SBL non-real estate	$	228,958	$	255,318	$	171,845	$	255,318
SBL commercial mortgage		343,487		300,817		367,272		300,817
SBL construction		18,494		20,273		23,117		20,273
Small business loans *		590,939		576,408		562,234		576,408
Direct lease financing		506,424		462,182		514,068		462,182
SBLOC / IBLOC **		1,729,628		1,550,086		1,834,523		1,550,086
Advisor financing ***		72,190		48,282		81,143		48,282
Other specialty lending		2,092		2,179
Other consumer loans ****		3,748		4,247
Real estate bridge lending						128,699		—
Other loans ****						4,917		6,426
		2,905,021		2,643,384		3,125,584		2,643,384
Unamortized loan fees and costs		10,323		8,939		11,078		8,939
Total loans, net of unamortized loan fees and costs	$	2,915,344	$	2,652,323	$	3,136,662	$	2,652,323


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
SBL loans, net of deferred costs of $2,462 and $1,536
for June 30, 2021 and December 31, 2020, respectively	$	593,401	$	577,944
SBL loans, net of deferred costs of $4,238 and $1,536
for September 30, 2021 and December 31, 2020, respectively					$	566,472	$	577,944
SBL loans included in commercial loans, at fair value		225,534		243,562		214,301		243,562
Total small business loans	$	818,935	$	821,506	$	780,773	$	821,506

30, 2021 resulted from U.S. government repayments of ~~$60.8~~$58.2 million of PPP loans authorized by The Consolidated Appropriations Act, ~~2021 and the repayment of $19.7 million of a line of credit to another institution related to PPP loans.~~2021. PPP loans totaled ~~$129.4~~$71.3 million at ~~June~~September 30, 2021 and $165.7 million at December 31, 2020, respectively.

*** In 2020, ~~the Company~~we began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third-party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.

The following table summarizes our small business loan portfolio, including SBA loans held at fair value, by loan category as of ~~June~~September 30, 2021 (in thousands):


	Loan principal
U.S. government guaranteed portion of SBA loans (a)	$	~~357,703~~369,673
Paycheck Protection Program loans (PPP) (a)		~~129,446~~71,262
Commercial mortgage SBA (b)		~~189,341~~194,831
Construction SBA (c)		~~8,562~~12,770
Non-guaranteed portion of U.S. government guaranteed loans (d)		~~105,831~~104,300
Non-SBA small business loans (e)		~~18,339~~18,428
Total principal	$	~~809,222~~771,264
Unamortized fees and costs		~~9,713~~9,509
Total small business loans	$	~~818,935~~780,773

(a)This is the portion of SBA 7a loans (7a) and PPP loans which have been guaranteed by the U.S. government, and therefore are assumed to have no credit risk.

(b)Substantially all these loans are made under the SBA 504 Fixed Asset Financing program (504) which dictates origination date loan-to-value percentages (“LTV”), generally 50-60%, to which the Bank adheres.

(c)Of the ~~$8.6~~$12.8 million in Construction SBA loans, ~~$8.3~~$10.9 million are 504 first mortgages with an origination date LTV of 50-60% and ~~$0.3~~$1.9 million are SBA interim loans with an approved SBA post-construction full takeout/payoff.

(d)The ~~$105.8~~$104.3 million represents the non-guaranteed portion of 7a loans which are 70% or more guaranteed by the U.S. government. 7a loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates. In addition, all 7a ~~loans~~ and 504 loans require the personal guaranty of all 20% or greater owners.

(e)The ~~$18.3~~$18.4 million of non-SBA loans is comprised of approximately 20 conventional coffee/doughnut/carryout franchisee note purchases. The majority of purchased notes were made to multi-unit operators, ~~and~~ are considered seasoned and have performed as agreed. ~~A $2.0 million guaranty by the seller, for an 11% first loss piece, is in place until August 2021.~~

6256

The following table summarizes our small business loan portfolio, excluding the government guaranteed portion of SBA 7a loans and PPP loans, by loan type as of ~~June~~September 30, 2021 (in thousands):


	SBL commercial mortgage*		SBL construction*		SBL non-real estate		Total		% Total	SBL commercial mortgage*		SBL construction*		SBL non-real estate		Total		% Total
Hotels (except casino hotels) and motels	$	66,129	$	3,121	$	21	$	69,271	22%
Hotels and motels										$	66,500	$	3,914	$	21	$	70,435	21%
Full-service restaurants		15,672		1,183		3,392		20,247	6%		15,873		1,411		3,364		20,648	6%
Baked goods stores											4,382		—		10,733		15,115	5%
Child day care services		16,217		—		882		17,099	5%		13,934		—		975		14,909	5%
Baked goods stores		4,382		—		10,737		15,119	5%
Car washes		9,877		1,532		180		11,589	4%		9,859		1,610		176		11,645	4%
Lessors of nonresidential buildings (except miniwarehouses)											10,199		—		—		10,199	3%
Assisted living facilities for the elderly		9,533		—		—		9,533	3%		9,522		—		—		9,522	3%
Offices of lawyers		9,494		—		—		9,494	3%		9,432		—		—		9,432	3%
Lessors of nonresidential buildings (except miniwarehouses)		8,920		—		—		8,920	3%
Funeral homes and funeral services		7,648		347		—		7,995	2%		8,706		—		—		8,706	3%
General warehousing and storage											7,168		—		—		7,168	2%
Limited-service restaurants		2,039		968		4,593		7,600	2%		2,022		1,212		3,240		6,474	2%
General warehousing and storage		7,234		—		—		7,234	2%
All other amusement and recreation industries		4,977		33		1,103		6,113	2%
Fitness and recreational sports centers											462		3,650		2,004		6,116	2%
Amusement and recreation industries											4,956		33		1,092		6,081	2%
Outpatient mental health and substance abuse centers		4,971		—		—		4,971	2%		4,957		—		—		4,957	1%
Other spectator sports		4,848		—		—		4,848	1%
Fitness and recreational sports centers		464		2,167		1,956		4,587	1%
Spectator sports											4,835		—		—		4,835	1%
Perishable prepared food manufacturing											4,500		—		39		4,539	1%
Gasoline stations with convenience stores		4,304		—		—		4,304	1%		4,424		—		—		4,424	1%
Offices of dentists		3,371		100		40		3,511	1%		3,498		131		37		3,666	1%
Other warehousing and storage		3,261		—		—		3,261	1%
Warehousing and storage											3,242		—		—		3,242	1%
New car dealers		3,161		—		—		3,161	1%		3,105		—		—		3,105	1%
All other miscellaneous wood product manufacturing		3,025		—		—		3,025	1%
Miscellaneous wood product manufacturing											3,020		—		—		3,020	1%
Plumbing, heating, and air-conditioning contractors											2,760		—		151		2,911	1%
Offices of physicians (except mental health specialists)		2,743		—		13		2,756	1%		2,743		—		11		2,754	1%
All other miscellaneous general purpose machinery manufacturing		2,465		—		—		2,465	1%
Technical and trade schools											47		2,652		—		2,699	1%
General purpose machinery manufacturing											2,449		—		—		2,449	1%
Pet care (except veterinary) services		1,863		—		503		2,366	1%		1,899		—		474		2,373	1%
Landscaping services											725		—		1,626		2,351	1%
Sewing, needlework, and piece goods stores											2,335		—		—		2,335	1%
Automotive body, paint, and interior repair and maintenance		1,746		—		591		2,337	1%		1,737		—		575		2,312	1%
Sewing, needlework, and piece goods stores		2,337		—		—		2,337	1%
Caterers		2,120		—		177		2,297	1%
Vocational rehabilitation services											2,274		—		—		2,274	1%
Amusement arcades		2,261		—		—		2,261	1%		2,244		—		—		2,244	1%
Lessors of other real estate property		2,222		—		—		2,222	1%
Plumbing, heating, and air-conditioning contractors		2,038		—		154		2,192	1%
Landscaping services		562		—		1,629		2,191	1%
Offices of real estate agents and brokers		2,120		—		—		2,120	1%
Independent artists, writers, and performers		2,046		—		—		2,046	1%
Lessors of real estate property											2,242		—		—		2,242	1%
Other**		44,095		1,389		27,118		72,602	20%		48,742		1,034		25,369		75,145	20%
	$	258,145	$	10,840	$	53,089	$	322,074	100%	$	264,793	$	15,647	$	49,887	$	330,327	100%

* Of the SBL commercial mortgage and SBL construction loans, ~~$61.0~~$62.0 million represents the total of the non-guaranteed portion of SBA 7a loans and non-SBA loans. The balance of those categories represents SBA 504 loans with 50%-60% origination date loan-to-values.

** Loan types less than $2.0 million are spread over a hundred different classifications such as Commercial Printing, Pet and Pet Supplies Stores, Securities Brokerage, etc.

6357

The following table summarizes our small business loan portfolio, excluding the government guaranteed portion of SBA 7a loans and PPP loans, by state as of ~~June~~September 30, 2021 (in thousands):


	SBL commercial mortgage*		SBL construction*		SBL non-real estate		Total		% Total	SBL commercial mortgage*		SBL construction*		SBL non-real estate		Total		% Total
Florida	$	53,638	$	33	$	8,225	$	61,896	19%	$	56,390	$	383	$	7,581	$	64,354	19%
California		42,053		1,183		4,275		47,511	15%		41,984		1,411		4,002		47,397	14%
North Carolina		23,167		2,161		2,711		28,039	9%		23,478		3,876		2,872		30,226	9%
Pennsylvania		23,031		347		2,887		26,265	8%		22,536		—		2,742		25,278	8%
Illinois											22,317		—		2,647		24,964	8%
New York		17,456		3,121		5,419		25,996	8%		13,860		3,914		3,561		21,335	6%
Illinois		22,697		—		2,725		25,422	8%
New Jersey											12,065		—		6,670		18,735	6%
Texas		11,908		—		4,792		16,700	5%		11,967		—		3,927		15,894	5%
New Jersey		7,337		—		5,708		13,045	4%
Virginia		9,251		—		1,972		11,223	3%		9,286		—		1,681		10,967	3%
Tennessee		10,424		—		781		11,205	3%		10,472		—		433		10,905	3%
Colorado											2,964		5,261		1,510		9,735	3%
Georgia		7,287		—		1,885		9,172	3%		7,277		—		1,700		8,977	3%
Colorado		3,383		3,699		1,590		8,672	3%
Michigan		3,222		—		1,528		4,750	1%		4,160		—		1,357		5,517	2%
Washington		3,169		—		190		3,359	1%		3,145		—		185		3,330	1%
Ohio		2,703		—		513		3,216	1%		2,684		—		561		3,245	1%
Other states		17,419		296		7,888		25,603	9%		20,208		802		8,458		29,468	9%
	$	258,145	$	10,840	$	53,089	$	322,074	100%	$	264,793	$	15,647	$	49,887	$	330,327	100%

The following table summarizes the 10 largest loans in our small business loan portfolio, including loans held at fair value, as of ~~June~~September 30, 2021 (in thousands):


Type*	State	SBL commercial mortgage*
Hotel	Florida	$	8,728
Lawyer's office	California	$	~~8,744~~8,697
~~Hotel~~	~~Florida~~		~~8,729~~
~~General warehouse and storage~~Warehouse	Pennsylvania		~~7,234~~7,168
Hotel	North Carolina		~~5,775~~5,774
Assisted living facility	Florida		~~5,192~~5,186
~~Outpatient mental~~Mental health and substance abuse ~~center~~centers	Florida		~~4,971~~4,957
Hotel	North Carolina		4,747
Prepared food manufacturing	New Jersey		4,500
Hotel	Pennsylvania		~~4,172~~4,171
Hotel	Tennessee		3,786
~~Gasoline station~~	~~Virginia~~		~~3,636~~
Total		$	~~56,986~~57,714

* All the top 10 loans are 504 SBA loans with 50%-60% origination date loan-to-value. The top 10 loan table above does not include loans to the extent that they are U.S. government guaranteed.

Commercial real estate loans, ~~held at fair value,~~ excluding SBA loans, are as follows including LTV at origination as of ~~June~~September 30, 2021 (dollars in thousands):


	# Loans	Balance		Weighted average origination date LTV		Weighted average interest rate
Real estate bridge lending (multi-family apartments)*	15	$	128,699		75%		4.22%

Commercial real estate loans, at fair value:
Multi-family (apartments)*	115	$	1,193,030		76%		4.75%
Hospitality (hotels and lodging)	9		65,804		65%		5.69%
Retail	6		60,838		71%		4.33%
Other	8		21,687		73%		5.16%
	138		1,341,359		75%		4.78%
Fair value adjustment			(5,635)
Total commercial real estate loans, at fair value			1,335,724
Total commercial real estate loans		$	1,464,423		75%		4.75%

*In the third quarter of 2021, we resumed the origination of multi-family apartment loans. These are similar to the multi-family apartment loans carried at fair value, but at origination are intended to be held on the balance sheet, so are not accounted for at fair value.

# Loans
Balance
Weighted average origination date LTV
Weighted average minimum interest rate
Multifamily (apartments)
136
$
1,322,949
76%
4.75%
Hospitality (hotels and lodging)
11
74,911
65%
5.74%
Retail
6
43,912
71%
4.65%
Other
7
27,765
70%
5.24%
160
$
1,469,537
75%
4.81%
Fair value adjustment
(4,855)
Total
$
1,464,682

6458

The following table summarizes our commercial real estate loans held at fair value, excluding SBA loans, by state as of ~~June~~September 30, 2021 (in thousands):


	Balance		Origination date LTV		Balance		Origination date LTV
Texas	$	425,603		77%	$	459,040		77%
Georgia		173,687		77%		193,175		76%
Arizona		107,680		76%		78,795		75%
North Carolina		69,123		78%		78,643		77%
Ohio						58,176		69%
Alabama		56,773		76%		56,822		76%
Ohio		57,093		69%
Virginia						56,576		73%
Other states each <$55 million		579,578		73%		483,196		73%
Total	$	1,469,537		75%	$	1,464,423		75%

The following table summarizes our 15 largest commercial real estate loans held at fair value, excluding SBA loans as of ~~June~~September 30, 2021 (in thousands). All these loans are multi-family loans.


	Balance		Origination date LTV		Balance		Origination date LTV
North Carolina	$	44,113		78%	$	44,112		78%
Texas		38,629		79%		38,851		79%
Texas		36,255		80%		36,634		80%
Pennsylvania		33,581		77%
Missouri						30,000		72%
Texas		29,524		75%		29,962		75%
Nevada		28,540		80%		28,540		80%
Texas		27,240		77%		27,240		77%
Arizona		26,940		79%		27,169		79%
Mississippi		26,811		79%		26,862		79%
North Carolina		25,011		77%		25,010		77%
Texas		24,667		77%		24,667		77%
Texas		24,385		77%		24,652		77%
Alabama		22,684		77%		22,733		77%
Texas						20,578		79%
Georgia		20,630		79%		19,849		79%
Texas		20,577		79%
15 Largest loans	$	429,587		78%	$	426,859		78%

The following table summarizes our institutional banking portfolio by type as of ~~June~~September 30, 2021 (in thousands):


Type	Principal		% of total	Principal		% of total
Securities backed lines of credit (SBLOC)	$	1,132,749	63%	$	1,147,756	60%
Insurance backed lines of credit (IBLOC)		596,879	33%		686,767	36%
Advisor financing		72,190	4%		81,143	4%
Total	$	1,801,818	100%	$	1,915,666	100%

For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While equities have fallen in excess of 30% in recent years, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been less, for two reasons. First, many collateral accounts are “balanced” and accordingly, have a component of debt securities, which have either not decreased in value as much as equities, or in some cases may have increased in value. Secondly, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means. Additionally, borrowers often utilize only a portion of collateral value, which lowers the percentage of principal to the market value of collateral.

The following table summarizes our top 10 SBLOC loans as of ~~June~~September 30, 2021 (in thousands):

Principal amount
% Principal to collateral
$
60,000
41%
17,000
37%
15,800
54%
14,428
26%
11,518
29%
10,044
38%
9,465
30%
8,316
71%
8,179
23%
8,180
51%
Total and weighted average
$
162,930
40%


	Principal amount		% Principal to collateral
	$	19,050		65%
		17,000		37%
		14,428		27%
		11,571		29%
		9,465		33%
		9,034		36%
		8,609		53%
		8,358		71%
		8,220		23%
		8,144		46%
Total and weighted average	$	113,879		43%

IBLOC loans are backed by the cash value of life insurance policies which have been assigned to us. We lend up to 100% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, ~~seven~~eight insurance companies have been approved and, as of ~~April 17,~~August 14, 2021 all were rated ~~Superior (A+~~A (excellent or better) by AM BEST.

The following table summarizes our direct lease financing portfolio* by type as of ~~June~~September 30, 2021 (in thousands):


	Principal balance		% Total		Principal balance		% Total
Construction	$	82,651		16%	$	94,889		18%
Government agencies and public institutions**		76,581		15%		76,647		15%
Waste management and remediation services						63,879		12%
Real estate and rental and leasing		66,176		13%		56,112		11%
Waste management and remediation services		63,244		12%
Retail trade		48,124		10%		46,540		9%
Wholesale trade		40,247		8%
Wholesale purchase						34,248		7%
Transportation and warehousing		28,403		6%		28,683		6%
Health care and social assistance		25,299		5%		25,996		5%
Professional, scientific, and technical services		19,449		4%		19,693		4%
Manufacturing						16,107		3%
Wholesale trade						14,757		3%
Educational services		15,655		3%		7,992		2%
Manufacturing		15,262		3%
Finance and insurance		6,737		1%
Other		18,596		4%		28,525		5%
Total	$	506,424		100%	$	514,068		100%

* Of the total ~~$506.4~~$514.1 million of direct lease financing, ~~$464.6~~$463.6 million consisted of vehicle leases with the remaining balance consisting of equipment leases.

** Includes public universities and school districts.

The following table summarizes our direct lease financing portfolio by state as of ~~June~~September 30, 2021 (in thousands):


	Principal balance		% Total		Principal balance		% Total
Florida	$	91,946		18%	$	92,744		18%
California		53,322		11%		47,740		9%
New Jersey		36,820		7%		39,856		8%
Utah						35,013		7%
New York		32,640		6%		33,200		6%
Pennsylvania		31,201		6%		31,590		6%
Utah		31,041		6%
Maryland		24,373		5%		24,765		5%
North Carolina		24,234		5%		24,523		5%
Texas		16,879		3%		19,059		4%
Connecticut		15,561		3%		16,371		3%
Washington		15,502		3%		15,385		3%
Missouri		14,070		3%
Georgia		10,988		2%		12,241		2%
Idaho		9,591		2%		10,636		2%
Tennessee						9,561		2%
Alabama		9,117		2%		9,219		2%
Other states		89,139		18%		92,165		18%
Total	$	506,424		100%	$	514,068		100%

The following table presents selected loan categories by maturity for the period indicated:


		June 30, 2021								September 30, 2021
		Within		One to five		After				Within		One to five		After
		one year		years		five years		Total		one year		years		five years		Total
		(in thousands)								(in thousands)
SBL non-real estate	$	8,218	$	153,664	$	67,076	$	228,958	$	9,765	$	93,810	$	68,270	$	171,845
SBL commercial mortgage		9,012		5,553		328,922		343,487		10,792		5,908		350,572		367,272
SBL construction		317		2,062		16,115		18,494		2,624		—		20,493		23,117
Real estate bridge lending										—		128,699		—		128,699
	$	17,547	$	161,279	$	412,113	$	590,939	$	23,181	$	228,417	$	439,335	$	690,933

Loans at fixed rates			$	129,447	$	—	$	129,447			$	71,270	$	—	$	71,270
Loans at variable rates				31,832		412,113		443,945				157,147		439,335		596,482
Total			$	161,279	$	412,113	$	573,392			$	228,417	$	439,335	$	667,752

Allowance for credit losses. We review the adequacy of our allowance for credit losses on at least a quarterly basis to determine that the provision for credit losses is made in an amount necessary to maintain our allowance at a level that is appropriate, based on management’s estimate of current expected credit losses. Our Chief Credit Officer oversees the loan review department processes and

measures the adequacy of the allowance for credit losses independently of loan production officers. For detailed information on the allowance for credit loss methodology, please see Note 6 to the consolidated financial statements.

At ~~June~~September 30, 2021, the allowance for credit losses amounted to ~~$15.3~~$16.2 million which represented a ~~$790,000 decrease~~$77,000 increase compared to the $16.1 million at December 31, 2020. Troubled debt restructured loans are individually considered by comparing collateral values with principal outstanding and establishing specific reserves within the allowance. At ~~June~~September 30, 2021, there were 109 troubled debt restructured loans with a balance of ~~$1.5~~$1.4 million which had specific reserves of ~~$327,000.~~$626,000. These reserves related primarily to the non-guaranteed portion of SBA loans for start-up businesses.

A description of loan review coverage targets is set forth below.

At ~~June~~September 30, 2021, in excess of 50% of the total continuing loan portfolio had been reviewed. The targeted coverages and scope of the reviews are risk-based and vary according to each portfolio. These thresholds are maintained as follows:

Securities Backed Lines of Credit (SBLOC) – The targeted review threshold for 2021 is 40%, including a sample focusing on the largest 25% of SBLOCs by ~~commitment reviewed quarterly.~~commitment. A random sample of a minimum of 20 ~~of the remaining loans~~ will be reviewed each quarter. At ~~June~~September 30, 2021, approximately ~~58%~~55% of the SBLOC portfolio had been reviewed.

Insurance Backed Lines of Credit (IBLOC) – The targeted review threshold for 2021 is 40%, including a sample focusing on the largest 25% of IBLOCs by ~~commitment reviewed quarterly.~~commitment. A random sample of a minimum of 20 ~~of the remaining loans~~ will be reviewed each quarter. At ~~June~~September 30, 2021, approximately ~~63%~~56% of the IBLOC portfolio had been reviewed.

Advisor Financing – The targeted review threshold for 2021 is 50%. At ~~June~~September 30, 2021, approximately ~~92%~~96% of the advisor financing portfolio had been reviewed. The loan balance review threshold is $1.0 million.

Small Business Loans – The targeted review threshold for 2021 is 60%, to be rated and/or reviewed within 90 days of funding, less fully guaranteed loans purchased for CRA, or fully guaranteed PPP loans. The loan balance review threshold is $1.5 million and additionally includes any classified loans. At ~~June~~September 30, 2021, approximately ~~79%~~74% of the non-government guaranteed loan portfolio had been reviewed.

Leasing – The targeted review threshold for 2021 is 35%. At ~~June~~September 30, 2021, approximately ~~53%~~48% of the leasing portfolio had been reviewed. The loan balance review threshold is $1.5 million.

Commercial Loans, at fair value (floating rate excluding SBA, which are included in Small Business Loans above) – The targeted review threshold for 2021 is 60%. Floating rate loans will be reviewed initially within 90 days of funding and will be monitored on an ongoing basis as to payment status. Subsequent reviews will be performed for relationships over $10 million. At ~~June~~September 30, 2021, approximately 100% of the non-SBA CRE floating rate loans outstanding for more than 90 days had been reviewed.

Commercial Loans, at fair value (fixed rate excluding SBA which are included in Small Business Loans above) – The targeted review threshold for 2021 is 100%. At ~~June~~September 30, 2021, approximately 100% of the non-SBA CRE fixed rate portfolio had been reviewed.

Specialty Lending – Specialty Lending, defined as commercial loans unique in nature that do not fit into other established categories, will have a review coverage threshold of 100% for non-CRA loans. At ~~June~~September 30, 2021, approximately 100% of the non-CRA loans had been reviewed.

Home Equity Lines of Credit or HELOC – The targeted review threshold for 2021 is 50%. Due to the small number and outstanding balances of HELOCs only the largest loans will be subject to review. The remaining loans are monitored and, if necessary, adversely classified under the Uniform Retail Credit Classification and Account Management Policy. At ~~June~~September 30, 2021, approximately ~~57%~~67% of the HELOC portfolio had been reviewed.

The following tables present delinquencies by type of loan as of the dates specified (in thousands):



	June 30, 2021														September 30, 2021
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	711	$	891	$	1,005	$	2,535	$	5,142	$	223,816	$	228,958	$	1,622	$	848	$	1,085	$	1,708	$	5,263	$	166,582	$	171,845
SBL commercial mortgage		—		520		417		3,167		4,104		339,383		343,487		17		208		417		3,167		3,809		363,463		367,272
SBL construction		—		—		—		711		711		17,783		18,494		—		—		—		711		711		22,406		23,117
Direct lease financing		492		439		128		635		1,694		504,730		506,424		994		211		67		430		1,702		512,366		514,068
SBLOC / IBLOC		6,936		—		—		—		6,936		1,722,692		1,729,628		1,389		—		—		—		1,389		1,833,134		1,834,523
Advisor financing		—		—		—		—		—		72,190		72,190		—		—		—		—		—		81,143		81,143
Other specialty lending		—		—		—		—		—		2,092		2,092
Consumer - other		—		13		—		—		13		972		985
Consumer - home equity		—		—		—		298		298		2,465		2,763
Real estate bridge lending																—		—		—		—		—		128,699		128,699
Other loans																—		—		—		90		90		4,827		4,917
Unamortized loan fees and costs		—		—		—		—		—		10,323		10,323		—		—		—		—		—		11,078		11,078
	$	8,139	$	1,863	$	1,550	$	7,346	$	18,898	$	2,896,446	$	2,915,344	$	4,022	$	1,267	$	1,569	$	6,106	$	12,964	$	3,123,698	$	3,136,662



	December 31, 2020														December 31, 2020
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,760	$	805	$	110	$	3,159	$	5,834	$	249,484	$	255,318	$	1,760	$	805	$	110	$	3,159	$	5,834	$	249,484	$	255,318
SBL commercial mortgage		87		961		—		7,305		8,353		292,464		300,817		87		961		—		7,305		8,353		292,464		300,817
SBL construction		—		—		—		711		711		19,562		20,273		—		—		—		711		711		19,562		20,273
Direct lease financing		2,845		941		78		751		4,615		457,567		462,182		2,845		941		78		751		4,615		457,567		462,182
SBLOC / IBLOC		650		247		309		—		1,206		1,548,880		1,550,086		650		247		309		—		1,206		1,548,880		1,550,086
Advisor financing		—		—		—		—		—		48,282		48,282		—		—		—		—		—		48,282		48,282
Other specialty lending		—		—		—		—		—		2,179		2,179
Consumer - other		—		—		—		—		—		1,164		1,164
Consumer - home equity		—		—		—		301		301		2,782		3,083
Other loans																—		—		—		301		301		6,125		6,426
Unamortized loan fees and costs		—		—		—		—		—		8,939		8,939		—		—		—		—		—		8,939		8,939
	$	5,342	$	2,954	$	497	$	12,227	$	21,020	$	2,631,303	$	2,652,323	$	5,342	$	2,954	$	497	$	12,227	$	21,020	$	2,631,303	$	2,652,323

Although we consider our allowance for credit losses to be adequate based on information currently available, future additions to the allowance may be necessary due to changes in economic conditions, our ongoing loss experience and that of our peers, changes in management’s assumptions as to future delinquencies, recoveries and losses, deterioration of specific credits and management’s intent with regard to the disposition of loans and leases.

The following table summarizes select asset quality ratios for each of the periods indicated:



	For the six months ended		For the nine months ended
	or as of June 30,		or as of September 30,
	2021	2020	2021	2020
Ratio of:
Allowance for credit losses to total loans(1)	0.52%	0.63%	0.52%	0.63%
Allowance for credit losses to non-performing loans *	171.90%	141.87%	210.54%	127.87%
Non-performing loans to total loans*	0.31%	0.44%	0.24%	0.49%
Non-performing assets to total assets *	0.14%	0.17%	0.16%	0.20%
Net charge-offs to average loans	0.02%	0.07%	0.04%	0.08%

* Includes loans 90 days past due still accruing interest.

(1) Because SBLOC and IBLOC loans are respectively collateralized by marketable securities and the cash value of life insurance, management excludes those loans from the ratio of the allowance for credit losses to total loans in its internal analysis. Accordingly, the adjusted ratio used in such internal analysis is 1.2%.

The ratio of the allowance for credit losses to total loans decreased to 0.52% as of ~~June~~September 30, 2021 from 0.63% at ~~June~~September 30, 2020. While the loan portfolio increased ~~significantly~~ which reduced the ratio, the largest component of that growth was in SBLOC, collateralized by marketable securities and IBLOC, ~~loans~~collateralized by the cash value of life insurance, both of which have experienced nominal losses and which require minimal allowance coverage in our CECL model. Additionally, the amount of non-performing loans and reserves thereon decreased. The ratio of the allowance for credit losses to non-performing loans increased to ~~171.90%~~210.54% at ~~June~~September 30, 2021, ~~from 141.87%~~from127.87% at ~~June~~September 30, 2020, primarily as a result of the decrease in non-performing ~~loans, driven primarily by a decrease in non-accrual direct lease financing.~~SBA loans. That decrease was also reflected in the lower ratio of non-performing assets to total assets which decreased to ~~0.14%~~0.16% at ~~June~~September 30, 2021 from ~~0.17%~~0.20% at ~~June~~September 30, 2020. Net charge-offs to average loans decreased to ~~0.02%~~0.04% for the ~~six~~nine months ended ~~June~~September 30, 2021 from ~~0.07%~~0.08% for the ~~six~~nine months ended ~~June~~September 30, 2020. The decrease reflected higher charge-offs in the prior year period, primarily in direct lease financing and SBL non-real estate loans.

Net charge-offs. Net charge-offs were ~~$530,000~~$1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021, a decrease of ~~$1.9~~$1.8 million from net charge-offs of ~~$2.5~~$2.9 million during the same period of 2020. The decrease in charge-offs in 2021 resulted primarily from a decrease in direct lease financing and non real estate SBL charge-offs. SBL charge-offs result primarily from the non-government guaranteed portion of SBA loans.

6962

The following tables reflect the relationship of average loan volume and net charge-offs by segment (dollars in thousands):


	June 30, 2021																September 30, 2021
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge lending		Other loans
Charge-offs	$	321	$	23	$	—	$	193	$	15	$	—	$	—	$	—	$	896	$	23	$	—	$	248	$	15	$	—	$	—	$	10
Recoveries		15		—		—		7		—		—		—		—		18		9		—		50		—		—		—		—
Net charge-offs	$	306	$	23	$	—	$	186	$	15	$	—	$	—	$	—	$	878	$	14	$	—	$	198	$	15	$	—	$	—	$	10

Average loan balance	$	242,138	$	322,152	$	19,384	$	484,303	$	1,639,857	$	60,236	$	2,136	$	3,998	$	213,582	$	334,045	$	21,695	$	488,125	$	1,692,305	$	64,713	$	—	$	5,672
Ratio of net charge-offs during the period to average loans during the period		0.13%		0.01%		—		0.04%		—		—		—		—		0.41%		—		—		0.04%		—		—		—		—


	June 30, 2020																September 30, 2020
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other specialty lending		Other consumer loans		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Other loans
Charge-offs	$	1,048	$	—	$	—	$	1,552	$	—	$	—	$	—	$	—	$	1,350	$	—	$	—	$	2,178	$	—	$	—	$	—
Recoveries		60		—		—		84		—		—		—		—		82		—		—		502		—		—		—
Net charge-offs	$	988	$	—	$	—	$	1,468	$	—	$	—	$	—	$	—	$	1,268	$	—	$	—	$	1,676	$	—	$	—	$	—

Average loan balance	$	189,136	$	238,565	$	39,252	$	428,483	$	1,155,885	$	7,765	$	2,881	$	4,279	$	189,034	$	244,187	$	36,240	$	432,568	$	1,226,337	$	13,300	$	6,806
Ratio of net charge-offs during the period to average loans during the period		0.52%		—		—		0.34%		—		—		—		—		0.67%		—		—		0.39%		—		—		—

Non-accrual loans, loans 90 days delinquent and still accruing, other real estate owned and troubled debt restructurings. Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest, and is in the process of collection. Troubled debt restructurings are loans with terms that have been renegotiated to provide a reduction or deferral of interest or principal, because of a weakening in the financial positions of the borrowers. ~~The Company~~We had no$2.1 million of other real estate owned (“OREO”) at September 30, 2021 and no OREO at December 31, 2020 in continuing ~~operations at June 30, 2021 or December 31, 2020.~~operations. The following tables summarize our non-performing loans, OREO, and loans past due 90 days or more still accruing interest.



	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Non-accrual loans
SBL non-real estate	$	2,535	$	3,159	$	1,708	$	3,159
SBL commercial mortgage		3,167		7,305		3,167		7,305
SBL construction		711		711		711		711
Direct leasing		635		751		430		751
Consumer		298		301
Consumer - home equity						76		301
Consumer - other						14		—
Total non-accrual loans		7,346		12,227		6,106		12,227

Loans past due 90 days or more and still accruing		1,550		497		1,569		497
Total non-performing loans		8,896		12,724		7,675		12,724
Other real estate owned						2,145		—
Total non-performing assets	$	8,896	$	12,724	$	9,820	$	12,724

Loans that were modified as of ~~June~~September 30, 2021 and December 31, 2020 and considered troubled debt restructurings are as follows ~~(dollars~~

dollars in thousands):



	September 30, 2021						December 31, 2020
	Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment
SBL non-real estate		8	$	1,190	$	1,190		8	$	911	$	911
Direct lease financing		—		—		—		1		251		251
Consumer - home equity		1		249		249		2		469		469
Total(1)		9	$	1,439	$	1,439		11	$	1,631	$	1,631

7063

June 30, 2021
December 31, 2020
Number
Pre-modification recorded investment
Post-modification recorded investment
Number
Pre-modification recorded investment
Post-modification recorded investment
SBL non-real estate
7
$
768
$
768
8
$
911
$
911
Direct lease financing
1
233
233
1
251
251
Consumer
2
460
460
2
469
469
Total(1)
10
$
1,461
$
1,461
11
$
1,631
$
1,631

(1) Troubled debt restructurings include non-accrual loans of ~~$1.0 million~~$665,000 and $1.1 million at ~~June~~September 30, 2021 and December 31, 2020, respectively.

The balances below provide information as to how the loans were modified as troubled debt restructurings loans at ~~June~~September 30, 2021 and December 31, 2020 (in thousands):



	June 30, 2021						December 31, 2020						September 30, 2021						December 31, 2020
	Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity
SBL non-real estate	$	—	$	—	$	768	$	—	$	16	$	895	$	—	$	—	$	1,190	$	—	$	16	$	895
Direct lease financing		—		233		—		—		251		—		—		—		—		—		251		—
Consumer		—		—		460		—		—		469
Consumer - home equity														—		—		249		—		—		469
Total(1)	$	—	$	233	$	1,228	$	—	$	267	$	1,364	$	—	$	—	$	1,439	$	—	$	267	$	1,364

(1) Troubled debt restructurings include non-accrual loans of ~~$1.0 million~~$665,000 and $1.1 million at ~~June~~September 30, 2021 and December 31, 2020, respectively.

The ~~Company~~tables above do not include loans which are reported at fair value. A $30.0 million credit, collateralized by a commercial retail property with multiple tenants, is included in commercial loans, at fair value. The underlying collateral consists of a multi-tenant shopping center and the loan value had been previously written down as a result of a decreased occupancy rate. By December 31, 2020 the center had been substantially all leased and previous write-downs had been reversed. On March 13, 2019, we renewed this loan for four years and reduced the interest rate to the following: LIBOR plus 2% in year one, increasing 0.5% each year until the fourth year when the rate will be LIBOR plus 3.5% which will also be the rate for a one year extension, if exercised. The loan is performing in accordance with those restructured terms.

We had no commitments to extend additional credit to loans classified as troubled debt restructurings as of ~~June~~September 30, 2021 or December 31, 2020.

The following table summarizes loans that were restructured within the 12 months ended ~~June~~September 30, 2021 that have subsequently defaulted (in thousands):


	June 30, 2021			September 30, 2021
	Number	Pre-modification recorded investment		Number	Pre-modification recorded investment
SBL non-real estate	1	$	205	1	$	205
Total	1	$	205	1	$	205

The following table provides information about credit deteriorated loans at ~~June~~September 30, 2021 and December 31, 2020 (dollars in thousands):



	June 30, 2021										September 30, 2021
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	465	$	3,114	$	—	$	415	$	—	$	408	$	3,497	$	—	$	413	$	—
SBL commercial mortgage		2,183		2,207		—		2,060		—		2,183		2,206		—		2,091		—
Direct lease financing		635		635		—		535		—		289		289		—		474		—
Consumer - home equity		540		540		—		549		4		325		325		—		493		7
With an allowance recorded
SBL non-real estate		2,264		2,264		(1,559)		2,677		24		1,825		1,825		(1,163)		2,464		12
SBL commercial mortgage		984		984		(510)		3,866		—		984		984		(510)		3,145		—
SBL construction		711		711		(34)		711		—		711		711		(34)		711		—
Direct lease financing		—		—		—		173		—		141		141		(91)		165		—
Consumer - home equity		10		10		(10)		3		—
Consumer - other												14		14		(14)		6		—
Total
SBL non-real estate		2,729		5,378		(1,559)		3,092		24		2,233		5,322		(1,163)		2,877		12
SBL commercial mortgage		3,167		3,191		(510)		5,926		—		3,167		3,190		(510)		5,236		—
SBL construction		711		711		(34)		711		—		711		711		(34)		711		—
Direct lease financing		635		635		—		708		—		430		430		(91)		639		—
Consumer - other												14		14		(14)		6		—
Consumer - home equity		550		550		(10)		552		4		325		325		—		493		7
	$	7,792	$	10,465	$	(2,113)	$	10,989	$	28	$	6,880	$	9,992	$	(1,812)	$	9,962	$	19

7164



	December 31, 2020
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
SBL non-real estate	$	387	$	2,836	$	—	$	370	$	3
SBL commercial mortgage		2,037		2,037		—		1,253		—
Direct lease financing		299		299		—		3,352		—
Consumer - home equity		557		557		—		554		10
With an allowance recorded
SBL non-real estate		3,044		3,044		(2,129)		3,257		15
SBL commercial mortgage		5,268		5,268		(1,010)		2,732		—
SBL construction		711		711		(34)		711		—
Direct lease financing		452		452		(4)		716		—
Consumer - home equity		—		—		—		24		—
Total
SBL non-real estate		3,431		5,880		(2,129)		3,627		18
SBL commercial mortgage		7,305		7,305		(1,010)		3,985		—
SBL construction		711		711		(34)		711		—
Direct lease financing		751		751		(4)		4,068		—
Consumer - home equity		557		557		—		578		10
	$	12,755	$	15,204	$	(3,177)	$	12,969	$	28

We had ~~$7.3~~$6.1 million of non-accrual loans at ~~June~~September 30, 2021 compared to $12.2 million of non-accrual loans at December 31, 2020. The ~~$4.9 million~~$6.1million decrease in non-accrual loans was primarily due to ~~$4.2~~$4.3 million of loans placed on non-accrual status partially offset by ~~$8.7~~$9.4 million of loan payments and ~~$413,000~~$1.0 million of charge-offs. Loans past due 90 days or more still accruing interest amounted to $1.6 million at ~~June~~September 30, 2021 and $497,000 at December 31, 2020. The $1.1 million increase reflected ~~$1.7~~$1.9 million of additions, ~~$564,000~~$778,000 of loan payments and $67,000 of loans moved to non-accrual.

We had $2.1 million of OREO at September 30, 2021 and no OREO at ~~June 30, 2021 and~~ December 31, 2020 in continuing ~~operations and~~operations. The $2.1 million resulted from the dissolution of the Walnut Street investment as described under Investment in Unconsolidated Entity below. There was no other activity during the ~~quarter.~~period.

We evaluate loans under an internal loan risk rating system as a means of identifying problem loans. At ~~June~~September 30, 2021 and December 31, 2020 loans accordingly classified were segregated by year of origination and are shown in Note 6 to the consolidated financial statements.

Premises and equipment, net. Premises and equipment amounted to ~~$17.4~~$16.6 million at ~~June~~September 30, 2021 compared to $17.6 million at December 31, 2020. The decrease reflected depreciation and reduced purchases.

Investment in Unconsolidated Entity. On December 30, 2014, the Bank entered into an agreement for, and closed on, the sale of a portion of its discontinued commercial loan portfolio. The purchaser of the loan portfolio was a newly formed entity, Walnut Street 2014-1 Issuer, LLC, or Walnut Street. The price paid to the Bank for the loan portfolio, which had a face value of approximately $267.6 million, was approximately $209.6 million, of which approximately $193.6 million was in the form of two notes issued by Walnut Street to the Bank; a senior note in the principal amount of approximately $178.2 million bearing interest at 1.5% per year and maturing in December 2024 and a subordinate note in the principal amount of approximately $15.4 million, bearing interest at 10.0% per year and maturing in December 2024. In the third quarter of 2021, The Bancorp and the other investor dissolved the entity, as the remaining balance did not warrant ongoing administrative and accounting expenses. As a result of ~~these notes comprise~~ the ~~$25.0 million~~dissolution, the investment in unconsolidated entity, atwhich had a June 30, ~~2021. A $30.0~~2021 balance of $25.0 million, ~~credit, collateralized by a commercial retail property with multiple tenants, is comprised~~was reclassified as follows. Approximately $22.9 million of ~~a $17.0 million loan which had been sold~~loans were reclassified to ~~Walnut Street, and $13.0 million loan which is included in~~ commercial loans, at fair ~~value. The underlying collateral consists of a multi-tenant shopping center~~value and ~~the loan value had been previously written down~~$2.1 million was reclassified to other real estate owned, as a result of a decreased occupancy rate. By December 31, 2020 the center had been substantially all leased and previous write-downs had been reversed. On March 13, 2019, we renewed this loan for four years and reduced the interest ratethose assets continue to ~~the following: LIBOR plus 2% in year one, increasing 0.5% each year until the fourth year when the rate will~~ be ~~LIBOR plus 3.5% which will also be the rate for a one year extension, if exercised. The loan is performing in accordance with those restructured terms.~~reported at fair value.

Assets held-for-sale from discontinued operations. Assets held-for-sale as a result of discontinued operations, primarily commercial, commercial mortgage and construction loans, amounted to ~~$97.5~~$87.9 million at ~~June~~September 30, 2021 and were comprised of ~~$75.9~~$69.4 million of net loans and ~~$21.6~~$18.5 million of OREO. The ~~June~~September 30, 2021 balance of OREO includes a Florida mall which has been written down to $15.0 million. We expect to continue our efforts to dispose of the mall, which was appraised in ~~June~~September 2020 for $17.5 million. At December 31, 2020, discontinued assets of $113.6 million were comprised of $91.3 million of net loans and $22.3 million of OREO. We continue our efforts to transfer the loans to other financial institutions, and dispose of the OREO.

Deposits. Our primary source of funding is deposit acquisition. We offer a variety of deposit accounts with a range of interest rates and terms, including demand, checking and money market accounts. The majority of our deposits are generated through prepaid card and other payments related deposit accounts. One strategic focus is growing these accounts through affinity groups. At ~~June~~September 30, 2021, we had total deposits of ~~$5.68~~$5.11 billion compared to $5.46 billion at December 31, 2020, ~~an increase~~a decrease of ~~$222.7~~$349.5 million, or ~~4.1%~~6.4%. The ~~increase~~decrease reflected ~~growth in demand and interest checking and savings and money market accounts. The increase in savings and money market account balances~~ reflected ~~growth in interest bearing accounts offered by our~~the impact of the exit of a single affinity ~~group clients to prepaid and debit card account customers.~~group.

The following table presents the average balance and rates paid on deposits for the periods indicated (in thousands):

For the six months ended
For the year ended
June 30, 2021
December 31, 2020
Average
Average
Average
Average
balance
rate
balance
rate
Demand and interest checking *
$
5,619,608
0.10%
$
4,864,236
0.23%
Savings and money market
466,978
0.15%
291,204
0.15%
Time
—
—
79,439
1.87%
Total deposits
$
6,086,586
0.11%
$
5,234,879
0.25%



	For the nine months ended			For the year ended
	September 30, 2021			December 31, 2020
	Average		Average	Average		Average
	balance		rate	balance		rate

Demand and interest checking *	$	5,452,604	0.10%	$	4,864,236	0.23%
Savings and money market		446,016	0.15%		291,204	0.15%
Time		—	—		79,439	1.87%
Total deposits	$	5,898,620	0.10%	$	5,234,879	0.25%

* Non-interest bearing demand accounts are not paid interest. The amount shown as interest reflects the fees paid to affinity groups, which are based upon a rate index, and therefore classified as interest expense.

Short-term borrowings. Short-term borrowings consist of amounts borrowed on our line of credit with the Federal Reserve Bank (“FRB”) or FHLB. There were $300.0 million of borrowings against our Federal Reserve line September 30, 2021 and no ~~outstanding short-term~~other borrowings at ~~June~~September 30, 2021 ~~and~~or December 31, 2020. We generally utilize overnight borrowings to manage our daily reserve requirements at the Federal Reserve. Period-end and year-to-date information for the dates shown is as follows.


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
		(dollars in thousands)				(dollars in thousands)
Short-term borrowings
Balance at period end	$	—	$	—	$	300,000	$	—
Average for the three months ended June 30, 2021		—		na
Average for the three months ended September 30, 2021						13,097		na
Average during the year		6,491		27,322		8,717		27,322
Maximum month-end balance		—		140,000		300,000		140,000
Weighted average rate during the period		0.25%		0.72%		0.23%		0.72%
Rate at period end		—		—		0.25%		—

Senior debt. On August 13, 2020, ~~the Company~~we issued $100.0 million of senior debt with a maturity date of August 15, 2025, and a 4.75% interest rate, with interest paid semi-annually on March 15 and September 15. The Senior Notes are the Company’s direct, unsecured and unsubordinated obligations and rank equal in priority with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all our existing and future subordinated indebtedness. In lieu of repayment of debt from Bank dividends, industry practice includes the issuance of new debt to repay maturing debt.

Borrowings. At ~~June~~September 30, 2021, we had other long-term borrowings of ~~$39.9~~$39.7 million compared to $40.3 million at December 31, 2020. The borrowings consisted of sold loans which were accounted for as a secured borrowing because they did not qualify for true sale accounting. We do not have any policy prohibiting us from incurring debt. Subordinated debentures of $13.4 million are grandfathered to qualify as tier 1 capital at the Bank, mature in March 2038 and carry a floating rate of 3-Month LIBOR plus 3.25%.

Other liabilities. Other liabilities amounted to ~~$94.9~~$66.2 million at ~~June~~September 30, 2021 compared to $81.6 million at December 31, ~~2020, representing an increase of $13.4 million.~~ 2020.

The ~~increase~~difference reflected ~~securities purchased for which payment had not yet been made.~~changes in taxes payable.

Off-balance sheet arrangements. There were no off-balance sheet arrangements during the ~~six~~nine months ended ~~June~~September 30, 2021 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

‎

7366

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Except as discussed in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” there has been no material change in our assessment of our sensitivity to market risk since our presentation in our Annual Report on Form 10-K for the year ended December 31, 2020.

Information with respect to quantitative and qualitative disclosures about market risk is included under the section entitled “Asset and Liability Management” in Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Members of our operational management and internal audit meet regularly to provide an established structure to report any weaknesses or other issues with controls, or any matter that has not been reported previously, to our Chief Executive Officer and Chief Financial Officer, and, in turn to the Audit Committee of our Board of Directors. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

There has been no change in our internal control over financial reporting that occurred during the quarter ended ~~June~~September 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

7467

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of Legal Proceedings, see Part I, Financial Information, “Notes to Unaudited Consolidated Financial Statements, Note 14--Legal.” which is incorporated herein by reference.

Item 1A. Risk Factors

Our business, financial condition, operating results and cash flows could be impacted by the factors in Item 1A. Risk Factors in the Form 10-K for the year ended December 31, 2020. There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

Information on Stock Repurchases

On November 5, 2020, the Company’s Board of Directors (the “Board”) authorized a common stock repurchase program (the “Common Stock Repurchase Program”). Under the 2021 Common Stock Repurchase Program, repurchased shares may be reissued for various corporate purposes. The Company is authorized to purchase up to $10.0 million in each quarter of 2021 depending on the share price, securities laws and stock exchange rules which regulate such repurchases. This plan may be modified or terminated at any time, but if not terminated earlier, will terminate on December 31, 2021.

On October 20, 2021, the Board approved a revised stock repurchase program for the upcoming 2022 fiscal year (the “2022 Common Stock Repurchase Program”). The amount that the Company intends to repurchase has been increased to $15.0 million in value of the Company’s common stock per fiscal quarter in 2022, for a maximum amount of $60.0 million. Under the stock repurchase program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”). The Board also authorized the Company to enter into written trading plans under Rule 10b5-1 of the Exchange Act. The Company cannot predict when or if it will repurchase any shares of common stock and the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors.

The following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended ~~June~~September 30, 2021:

Period
Total number of shares purchased (1)
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
(dollars in thousands except per share data)
April 1, 2021 - April 30, 2021
311,585
$
21.44
311,585
$
23,319
May 1, 2021 - May 31, 2021
137,730
24.10
137,730
20,000
June 1, 2021 - June 30, 2021
—
—
—
20,000
Total
449,315
22.26
449,315
20,000


Period	Total number of shares purchased (1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (1)
	(dollars in thousands except per share data)
July 1, 2021 - July 31, 2021	440,887	$	22.68	440,887	$	—
August 1, 2021 - August 31, 2021	—		—	—		—
September 1, 2021 - September 30, 2021	—		—	—		—
Total	440,887		22.68	440,887		10,000

(1)On November 5, 2020, the Company’s Board of Directors approved a stock repurchase plan, under which the Company was authorized to purchase shares up to $10.0 million in each quarter through the end of 2021, at which date the current plan terminates. See the description of the 2021 Common Stock Repurchase Program and the 2022 Common Stock Repurchase Plan above in the paragraphs preceding this table which describes the maximum dollar value that may yet be purchased under these plans in the fourth quarter of 2021 and each quarter of 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety ~~Disclosure~~Disclosures

Not applicable.

Item 5. Other Information

None.

‎

7569

Item 6. Exhibits


Exhibit No.		Description


3.1.1		Certificate of Incorporation filed July 20, 1999, amended July 27, 1999, amended June 7, 2001, and amended October 8, 2002⁽¹⁾

3.1.2		Amendment to Certificate of Incorporation filed July 30, 2009⁽²⁾

3.1.3		Amendment to Certificate of Incorporation filed May 18, 2016⁽²⁾

3.2		Amended and Restated Bylaws⁽³⁾

10.1		Letter Agreement with Daniel G. Cohen⁽⁴⁾

31.1		Rule 13a-14(a)/15d-14(a) Certifications *

31.2		Rule 13a-14(a)/15d-14(a) Certifications *

32.1		Section 1350 Certifications *

32.2		Section 1350 Certifications *

101.INS		Inline XBRL Instance Document **

101.SCH		Inline XBRL Taxonomy Extension Schema Document *

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *

*		Filed herewith
**		The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

(1) Filed previously as an exhibit to our Registration Statement on Form S-4, registration number 333-117385, and by this reference incorporated herein.

(2) Filed previously as an exhibit to our quarterly report on Form 10-Q filed November 9, 2016, and by this reference incorporated herein (File No. 000-51018).

(3) Filed previously as an exhibit to our annual report on Form 10-K filed March 16, 2017, and by this reference incorporated herein (File No. 000-51018).

(4) Filed previously as an exhibit to our current report on Form 8-K filed October 20, 2021, and by this reference incorporated herein (File No. 000-51018).

‎

7670

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		THE BANCORP, INC.
		(Registrant)

~~August 9,~~November 5, 2021		/S/ DAMIAN KOZLOWSKI
Date		Damian Kozlowski
		Chief Executive Officer

~~August 9,~~November 5, 2021		/S/ PAUL FRENKIEL
Date		Paul Frenkiel Executive Vice President of Strategy,
		Chief Financial Officer and Secretary

7771



	Six months ended June 30,
	2021						2020
	Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate
	(dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs **	$	4,524,911	$	97,189		4.30%	$	3,593,921	$	80,607		4.49%
Leases - bank qualified*		6,379		214		6.71%		10,096		362		7.17%
Investment securities-taxable		1,136,631		16,009		2.82%		1,364,956		20,683		3.03%
Investment securities-nontaxable*		3,960		67		3.38%		4,788		75		3.13%
Interest earning deposits at Federal Reserve Bank		935,239		483		0.10%		460,025		1,730		0.75%
Net interest earning assets		6,607,120		113,962		3.45%		5,433,786		103,457		3.81%

Allowance for credit losses		(16,241)						(12,532)
Assets held-for-sale from discontinued operations		103,983		1,634		3.14%		133,903		2,368		3.54%
Other assets		203,821						233,088
	$	6,898,683					$	5,788,245

Liabilities and shareholders' equity:
Deposits:
Demand and interest checking	$	5,619,608	$	2,944		0.10%	$	4,746,928	$	8,085		0.34%
Savings and money market		466,978		341		0.15%		203,888		170		0.17%
Time		—		—		—		159,752		1,483		1.86%
Total deposits		6,086,586		3,285		0.11%		5,110,568		9,738		0.38%

Short-term borrowings		6,491		8		0.25%		36,620		180		0.98%
Repurchase agreements		41		—		—		57		—		—
Subordinated debt		13,401		225		3.36%		13,401		290		4.33%
Senior debt		100,190		2,559		5.11%		—		—		—
Total deposits and liabilities		6,206,709		6,077		0.20%		5,160,646		10,208		0.40%

Other liabilities		91,837						118,811
Total liabilities		6,298,546						5,279,457

Shareholders' equity		600,137						508,788
	$	6,898,683					$	5,788,245

Net interest income on tax equivalent basis *			$	109,519					$	95,617

Tax equivalent adjustment				59						92

Net interest income			$	109,460					$	95,525

Net interest margin *						3.26%						3.43%

* Full taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
** Includes commercial loans, at fair value for 2021 previously classified as held-for-sale at June 30, 2020. All periods include non-accrual loans.
NOTE: In the table above, the 2021 interest on loans reflects $4.5 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans also includes $3.7 million of interest and fees on PPP loans. In 2020 the table above includes comparable PPP interest and fees of $1.6 million. Increases in interest earning deposits at the Federal Reserve Bank reflect increased deposits resulting from stimulus payments distributed to a large segment of the population, resulting from December 2020 federal legislation.


	Principal amount		% Principal to collateral
	$	60,000		41%
		17,000		37%
		15,800		54%
		14,428		26%
		11,518		29%
		10,044		38%
		9,465		30%
		8,316		71%
		8,179		23%
		8,180		51%
Total and weighted average	$	162,930		40%