UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934

(Mark One)

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

For the quarterly period ended September 30, ~~2021~~2022

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

For the transition period from ___________ to ___________


For the quarterly period ended						Commission file
September 30, ~~2021~~2022						number 001-39215

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


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

396 Alhambra Circle, Suite 255,

Coral Gables, FL 33134 786 483-1757

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

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

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Class A Common Stock

PFHD

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

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


Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

		Emerging growth company	x

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

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

Number of shares of common stock outstanding as of November ~~9, 2021: 13,426,141~~4, 2022: 13,814,427

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited).

PROFESSIONAL HOLDING CORP.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	40,074	$	62,305	Cash and due from banks	$	43,863	$	38,469
Interest-bearing deposits		680,333		129,291
Interest earning deposits						Interest earning deposits	113,641		545,521
Federal funds sold	Federal funds sold	23,736		25,376		Federal funds sold	15,762		13,477
Cash and cash equivalents	Cash and cash equivalents	744,143		216,972		Cash and cash equivalents	173,266		597,467
Securities available for sale, at fair value - taxable	Securities available for sale, at fair value - taxable	94,218		65,110		Securities available for sale, at fair value - taxable	150,517		175,536
Securities available for sale, at fair value - tax exempt		19,462		22,398
Securities held to maturity (fair value September 30, 2021 – $269, December 31, 2020 – $1,561)		259		1,547
Securities available for sale, at fair value - tax-exempt						Securities available for sale, at fair value - tax-exempt	26,863		18,765
Securities held to maturity (fair value September 30, 2022 – $178, December 31, 2021 – $242)						Securities held to maturity (fair value September 30, 2022 – $178, December 31, 2021 – $242)	194		236
Equity securities	Equity securities	6,703		6,005		Equity securities	6,182		6,638
Loans, net of allowance of $11,478 and $16,259 as of September 30, 2021, and December 31, 2020, respectively		1,675,773		1,641,422
Loans, net of allowance of $16,485 and $12,704 as of September 30, 2022 and December 31, 2021, respectively						Loans, net of allowance of $16,485 and $12,704 as of September 30, 2022 and December 31, 2021, respectively	1,988,410		1,764,460
Loans held for sale	Loans held for sale	284		1,270		Loans held for sale	—		165
Federal Home Loan Bank stock, at cost		2,341		3,229
Federal Reserve Bank stock, at cost		5,416		4,762
Accrued interest receivable		5,336		6,666
Premises and equipment, net	Premises and equipment, net	3,807		4,370		Premises and equipment, net	7,867		9,020
Bank owned life insurance	Bank owned life insurance	38,204		37,360		Bank owned life insurance	54,534		38,485
Deferred tax asset		9,283		10,525
Goodwill		24,621		24,621
Core deposit intangibles		1,212		1,422
Goodwill and intangibles						Goodwill and intangibles	25,579		25,766
Other assets	Other assets	15,174		9,591		Other assets	41,465		27,573
Total assets	Total assets	$	2,646,236	$	2,057,270	Total assets	$	2,474,877	$	2,664,111
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits	Deposits					Deposits
Demand – noninterest bearing	Demand – noninterest bearing	$	799,389	$	475,598	Demand – noninterest bearing	$	758,042	$	674,003
Demand – interest bearing	Demand – interest bearing	328,667		232,367		Demand – interest bearing	308,167		310,362
Money market and savings	Money market and savings	959,066		715,003		Money market and savings	976,766		1,121,330
Time deposits	Time deposits	267,624		236,575		Time deposits	145,316		265,693
Total deposits	Total deposits	2,354,746		1,659,543		Total deposits	2,188,291		2,371,388
Federal Home Loan Bank advances						Federal Home Loan Bank advances	—		35,000
Official checks	Official checks	4,194		4,447		Official checks	5,350		4,125
Federal Home Loan Bank advances		35,000		40,000
Other borrowings	Other borrowings	—		114,573		Other borrowings	—		10,000
Subordinated debt	Subordinated debt	10,016		10,153		Subordinated debt	24,467		—
Accrued interest and other liabilities	Accrued interest and other liabilities	14,259		12,989		Accrued interest and other liabilities	18,905		12,074
Total liabilities	Total liabilities	2,418,215		1,841,705		Total liabilities	2,237,013		2,432,587
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued	Preferred stock, 10,000,000 shares authorized, none issued	—		—		Preferred stock, 10,000,000 shares authorized, none issued	—		—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,323,965 and outstanding 13,416,667 shares as of September 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares on December 31, 2020		143		141
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2021, and December 31, 2020		—		—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,769,354 and outstanding 13,811,084 shares as of September 30, 2022, and authorized 50,000,000 shares, issued 14,393,750 and outstanding 13,446,400 shares at December 31, 2021						Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,769,354 and outstanding 13,811,084 shares as of September 30, 2022, and authorized 50,000,000 shares, issued 14,393,750 and outstanding 13,446,400 shares at December 31, 2021	148		144
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2022 and December 31, 2021						Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2022 and December 31, 2021	—		—
Treasury stock, at cost	Treasury stock, at cost	(15,246)		(9,209)		Treasury stock, at cost	(16,214)		(16,003)
Additional paid-in capital	Additional paid-in capital	210,898		208,995		Additional paid-in capital	216,703		212,012
Retained earnings	Retained earnings	32,160		14,756		Retained earnings	54,006		36,120
Accumulated other comprehensive income		66		882
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(16,779)		(749)
Total stockholders’ equity	Total stockholders’ equity	228,021		215,565		Total stockholders’ equity	237,864		231,524
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	2,646,236	$	2,057,270	Total liabilities and stockholders' equity	$	2,474,877	$	2,664,111

See accompanying notes to consolidated financial statements.

Table of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

(Dollar amounts in thousands, except share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Interest income	Interest income									Interest income
Loans, including fees	Loans, including fees	$	20,209	$	18,488	$	57,753	$	46,400	Loans, including fees	$	25,222	$	20,209	$	66,602	$	57,753
Investment securities - taxable	Investment securities - taxable	186		209		526		663		Investment securities - taxable	736		186		2,078		526
Investment securities - tax exempt		177		224		569		430
Investment securities - tax-exempt										Investment securities - tax-exempt	228		177		673		569
Dividend income on restricted stock	Dividend income on restricted stock	96		103		290		313		Dividend income on restricted stock	108		96		310		290
Other	Other	222		77		486		837		Other	871		222		2,194		486
Total interest income	Total interest income	20,890		19,101		59,624		48,643		Total interest income	27,165		20,890		71,857		59,624

Interest expense	Interest expense									Interest expense
Deposits	Deposits	1,476		1,165		4,223		5,408		Deposits	2,170		1,476		5,247		4,223
Federal Home Loan Bank advances	Federal Home Loan Bank advances	182		197		568		762		Federal Home Loan Bank advances	—		182		137		568
Subordinated debt	Subordinated debt	128		79		335		324		Subordinated debt	198		128		696		335
Other borrowings	Other borrowings	—		200		313		337		Other borrowings	—		—		24		313
Total interest expense	Total interest expense	1,786		1,641		5,439		6,831		Total interest expense	2,368		1,786		6,104		5,439

Net interest income	Net interest income	19,104		17,460		54,185		41,812		Net interest income	24,797		19,104		65,753		54,185
Provision for loan losses	Provision for loan losses	1,060		5,957		2,860		8,552		Provision for loan losses	1,343		1,060		4,434		2,860
Net interest income after provision for loan losses	Net interest income after provision for loan losses	18,044		11,503		51,325		33,260		Net interest income after provision for loan losses	23,454		18,044		61,319		51,325

Non-interest income
Noninterest income										Noninterest income
Service charges on deposit accounts	Service charges on deposit accounts	643		319		2,237		848		Service charges on deposit accounts	542		643		1,636		2,237
Income from Bank owned life insurance		281		123		844		378
Income from bank owned life insurance										Income from bank owned life insurance	400		281		1,049		844
SBA origination fees	SBA origination fees	21		—		166		114		SBA origination fees	90		21		138		166
SWAP fee income		208		149		781		622
Third party loan sales		161		252		462		519
Swap fee income										Swap fee income	—		208		112		781
Loans held for sale income										Loans held for sale income	6		161		122		462
Gain on sale and call of securities	Gain on sale and call of securities	1		1		23		16		Gain on sale and call of securities	—		1		13		23
Other	Other	161		119		384		290		Other	185		161		1,207		384
Total non-interest income		1,476		963		4,897		2,787
Total noninterest income										Total noninterest income	1,223		1,476		4,277		4,897

Non-interest expense
Noninterest expense										Noninterest expense
Salaries and employee benefits	Salaries and employee benefits	7,350		6,433		21,233		18,608		Salaries and employee benefits	8,003		7,350		26,696		21,233
Occupancy and equipment	Occupancy and equipment	935		1,196		2,942		3,051		Occupancy and equipment	1,001		935		3,013		2,942
Data processing	Data processing	303		374		869		971		Data processing	257		303		875		869
Marketing	Marketing	420		435		738		723		Marketing	565		420		886		738
Professional fees	Professional fees	689		562		2,087		1,723		Professional fees	830		689		2,635		2,087
Acquisition expenses	Acquisition expenses	—		1,078		684		3,301		Acquisition expenses	957		—		957		684
Regulatory assessments	Regulatory assessments	481		250		1,248		764		Regulatory assessments	254		481		1,276		1,248
Other	Other	1,446		1,385		4,565		3,606		Other	1,986		1,446		6,614		4,565
Total non-interest expense		11,624		11,713		34,366		32,747
Total noninterest expense										Total noninterest expense	13,853		11,624		42,952		34,366

Income before income taxes	Income before income taxes	7,896		753		21,856		3,300		Income before income taxes	10,824		7,896		22,644		21,856
Income tax provision (benefit)		1,608		(197)		4,452		536
Income tax provision										Income tax provision	2,351		1,608		4,758		4,452
Net income	Net income	6,288		950		17,404		2,764		Net income	$	8,473	$	6,288	$	17,886	$	17,404

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.48	$	0.07	$	1.30	$	0.24	Basic	$	0.63	$	0.48	$	1.33	$	1.30
Diluted	Diluted	$	0.45	$	0.07	$	1.25	$	0.21	Diluted	$	0.60	$	0.45	$	1.27	$	1.25

Other comprehensive income:	Other comprehensive income:									Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale		(288)		171		(1,081)		1,240
Unrealized holding loss on securities available for sale										Unrealized holding loss on securities available for sale	(7,176)		(288)		(21,484)		(1,081)
Tax effect	Tax effect	71		(43)		265		(315)		Tax effect	1,819		71		5,454		265
Other comprehensive gain (loss), net of tax		(217)		128		(816)		925
Other comprehensive loss, net of tax										Other comprehensive loss, net of tax	(5,357)		(217)		(16,030)		(816)
Comprehensive income	Comprehensive income	$	6,071	$	1,078	$	16,588	$	3,689	Comprehensive income	$	3,116	$	6,071	$	1,856	$	16,588

See accompanying notes to consolidated financial statements.

Table of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Dollar amounts in thousands, except share data)


		Common Stock			Treasury Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)				Total					Common Stock				Treasury Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Total
		Shares	Amount													Shares					Amount
Balance on July 1, 2020		13,444,635	$	139			$	(9,132)			$	202,438			$	8,265			$	724		$	202,434
Issuance of common stock, net of issuance cost		37,891	—		—				346		—		—				346
Balance on December 31, 2020																				Balance on December 31, 2020		13,534,829		$	141			$	(9,209)			$	208,995			$	14,756			$	882			$	215,565

Employee stock purchase plan	Employee stock purchase plan	—	—		—				24		—		—				24			Employee stock purchase plan		1,851		—		—				34				—				—				34
Stock based compensation	Stock based compensation	—	—		—				233		—		—				233			Stock based compensation		—		—		—				1,068				—				—				1,068
Exercise of stock options																				Exercise of stock options		92,710		1		—				811				—				—				812
Restricted stock issued																				Restricted stock issued		128,644		1		—				—				—				—				1
Treasury stock	Treasury stock	—	—		—				—		—		—				—			Treasury stock		(341,367)		—		(6,037)				(10)				—				—				(6,047)
Net income	Net income	—	—		—				—		950		—				950			Net income		—		—		—				—				17,404				—				17,404
Other comprehensive income		—	—		—				—		—		128				128
Balance on September 30, 2020		13,482,526	$	139	$	(9,132)			$	203,041	$	9,215	$	852			$	204,115
Other comprehensive loss																				Other comprehensive loss		—		—		—				—				—				(816)				(816)
Balance on September 30, 2021																				Balance on September 30, 2021		13,416,667		$	143	$	(15,246)			$	210,898			$	32,160			$	66			$	228,021

Balance on July 1, 2021		13,475,781	$	143	$	(13,544)			$	210,274	$	25,872	$	283			$	223,028
Issuance of common stock, net of issuance cost		28,296	—		—				268		—		—				268
Employee stock purchase plan		—	—		—				—		—		—				—
Balance on December 31, 2021																				Balance on December 31, 2021		13,446,400		$	144	$	(16,003)			$	212,012			$	36,120			$	(749)			$	231,524

Stock based compensation	Stock based compensation	6,189	—		—				359		—		—				359			Stock based compensation		—		—		—				2,776				—				—				2,776
Exercise of stock options																				Exercise of stock options		169,058		2		—				1,917				—				—				1,919
Restricted stock issued																				Restricted stock issued		206,546		2		—				(2)				—				—				—
Treasury stock	Treasury stock	(93,599)	—		(1,702)				(3)		—		—				(1,705)			Treasury stock		(10,920)		—		(211)				—				—				—				(211)
Net income	Net income	—	—		—				—		6,288		—				6,288			Net income		—		—		—				—				17,886				—				17,886
Other comprehensive income		—	—		—				—		—		(217)				(217)
Other comprehensive loss																				Other comprehensive loss		—		—		—				—				—				(16,030)				(16,030)
September 30, 2022																				September 30, 2022		13,811,084		$	148	$	(16,214)			$	216,703			$	54,006			$	(16,779)			$	237,864

Balance on June 30, 2021																				Balance on June 30, 2021		13,475,781		$	143	$	(13,544)			$	210,274			$	25,872			$	283			$	223,028

Stock based compensation expense																				Stock based compensation expense		—		—		—				359				—				—				359
Exercise of stock options																				Exercise of stock options		28,296		—		—				268				—				—				268
Restricted stock issued																				Restricted stock issued		6,189		—		—				—				—				—				—
Treasury stock																				Treasury stock		(93,599)		—		(1,702)				(3)				—				—				(1,705)
Net income																				Net income		—		—		—				—				6,288				—				6,288
Other comprehensive loss																				Other comprehensive loss		—		—		—				—				—				(217)				(217)
Balance on September 30, 2021	Balance on September 30, 2021	13,416,667	$	143	$	(15,246)			$	210,898	$	32,160	$	66			$	228,021		Balance on September 30, 2021		13,416,667		$	143	$	(15,246)			$	210,898			$	32,160			$	66			$	228,021

Balance on January 1, 2020		5,867,446	$	60	$	(4,155)			$	77,019	$	6,451	$	(73)			$	79,302
Issuance of common stock, net of issuance cost		3,702,558	37		—				60,567		—		—				60,604
Marquis Bancorp (MBI) acquisition		4,227,816	42		—				64,657		—		—				64,699
Employee stock purchase plan		—	—		—				82		—		—				82
Stock based compensation		—	—		—				725		—		—				725
Balance on June 30, 2022																				Balance on June 30, 2022		13,742,381		$	147	$	(16,201)			$	215,541			$	45,533			$	(11,422)			$	233,598

Stock based compensation expense																				Stock based compensation expense		—		—		—				547				—				—				547
Exercise of stock options																				Exercise of stock options		53,586		1		—				615				—				—				616
Restricted stock issued																				Restricted stock issued		15,793		—		—				—				—				—				—
Treasury stock	Treasury stock	(315,294)	—		(4,977)				(9)		—		—				(4,986)			Treasury stock		(676)		—		(13)				—				—				—				(13)
Net income	Net income	—	—		—				—		2,764		—				2,764			Net income		—		—		—				—				8,473				—				8,473
Other comprehensive income		—	—		—				—		—		925				925
Balance on September 30, 2020		13,482,526	$	139	$	(9,132)			$	203,041	$	9,215	$	852			$	204,115

Balance on January 1, 2021		13,534,829	$	141	$	(9,209)			$	208,995	$	14,756	$	882			$	215,565
Issuance of common stock, net of issuance cost		89,500	1		—				811		—		—				812
Employee stock purchase plan		1,851	—		—				34		—		—				34
Stock based compensation		131,854	1		—				1,068		—		—				1,069
Treasury stock		(341,367)	—		(6,037)				(10)		—		—				(6,047)
Net income		—	—		—				—		17,404		—				17,404
Other comprehensive income		—	—		—				—		—		(816)				(816)
Balance on September 30, 2021		13,416,667	$	143	$	(15,246)			$	210,898	$	32,160	$	66			$	228,021
Other comprehensive loss																				Other comprehensive loss		—		—		—				—				—				(5,357)				(5,357)
Balance on September 30, 2022																				Balance on September 30, 2022		13,811,084		$	148	$	(16,214)			$	216,703			$	54,006			$	(16,779)			$	237,864

See accompanying notes to consolidated financial statements

Table of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollar amounts in thousands, except share data)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	17,404	$	2,764	Net income	$	17,886	$	17,404
Adjustments to reconcile net income to net cash from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	Provision for loan losses	2,860		8,552		Provision for loan losses	4,434		2,860
Deferred income tax benefit (expense)		1,221		(2,981)
Amortization of purchase accounting adjustments						Amortization of purchase accounting adjustments	(4,752)		(4,651)

Depreciation and amortization	Depreciation and amortization	1,084		1,132		Depreciation and amortization	465		1,023
Gain on sale of securities		—		(4)

Gain on call of securities	Gain on call of securities	(23)		(12)		Gain on call of securities	(13)		(23)
Gain on loans held for sale						Gain on loans held for sale	(122)		(462)
Equity unrealized change in market value	Equity unrealized change in market value	102		(24)		Equity unrealized change in market value	513		102
Net amortization of securities	Net amortization of securities	2,137		(287)		Net amortization of securities	1,111		2,137
Net amortization of deferred loan fees	Net amortization of deferred loan fees	(6,589)		(2,371)		Net amortization of deferred loan fees	(3,577)		(6,589)
Loans held for sale		986		—

Income from bank owned life insurance		(844)		(378)
Originations of loans held for sale						Originations of loans held for sale	(7,973)		(22,367)
Proceeds from sales of loans held for sale						Proceeds from sales of loans held for sale	8,260		23,815
Income from bank-owned life insurance						Income from bank-owned life insurance	(1,049)		(844)
Loss on disposal of premises and equipment	Loss on disposal of premises and equipment	140		—		Loss on disposal of premises and equipment	4		140
Employee stock purchase plan	Employee stock purchase plan	34		82		Employee stock purchase plan	—		34
Stock compensation	Stock compensation	1,069		725		Stock compensation	2,776		1,069
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accrued interest payable (receivable)		1,330		(2,524)
Decrease (increase) in accrued interest receivable						Decrease (increase) in accrued interest receivable	(637)		1,330
Other assets	Other assets	(7,534)		3,110		Other assets	(8,178)		(5,269)
Official checks, accrued interest, interest payable and other liabilities		1,303		(2,054)
Official checks, accrued interest, and other liabilities						Official checks, accrued interest, and other liabilities	8,188		1,586
Net cash provided by operating activities	Net cash provided by operating activities	14,680		5,730		Net cash provided by operating activities	17,336		11,295

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale	Proceeds from maturities and paydowns of securities available for sale	16,749		10,407		Proceeds from maturities and paydowns of securities available for sale	20,942		16,749
Proceeds from calls of securities available for sale	Proceeds from calls of securities available for sale	4,812		8,500		Proceeds from calls of securities available for sale	4,135		4,812
Proceeds from maturities and paydowns of securities held to maturity		1,282		84
Proceeds from paydowns of securities held to maturity						Proceeds from paydowns of securities held to maturity	40		1,282
Purchase of securities available for sale	Purchase of securities available for sale	(50,922)		(60,693)		Purchase of securities available for sale	(30,736)		(50,922)
Proceeds from sale of securities available for sale		—		1,739

Purchase of equity securities	Purchase of equity securities	(800)		—		Purchase of equity securities	(57)		(800)
Loans originations, net of principal repayments	Loans originations, net of principal repayments	(41,886)		(299,867)		Loans originations, net of principal repayments	(220,284)		(38,098)
Purchase (redemption) of Federal Reserve Bank stock		(654)		10,540
Proceeds from maturities of Federal Home Loan Bank Stock		888		(2,688)
Purchase of Federal Home Loan Bank Stock		—		(660)
Purchases of premises and equipment		(588)		(486)
Proceeds from acquisition		—		26,860

Purchase of Federal Reserve Bank stock						Purchase of Federal Reserve Bank stock	(604)		(654)

Redemption of Federal Home Loan Bank Stock						Redemption of Federal Home Loan Bank Stock	981		888
Purchase of bank-owned life insurance						Purchase of bank-owned life insurance	(15,000)		—
Disposals (purchases) of premises and equipment, net						Disposals (purchases) of premises and equipment, net	145		(1,632)

Net cash used in investing activities	Net cash used in investing activities	(71,119)		(306,264)		Net cash used in investing activities	(240,438)		(68,375)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Net increase (decrease) in deposits	Net increase (decrease) in deposits	695,203		176,160		Net increase (decrease) in deposits	(182,807)		695,844
Proceeds from issuance of stock, net of issuance costs	Proceeds from issuance of stock, net of issuance costs	812		60,604		Proceeds from issuance of stock, net of issuance costs	1,919		812

Purchase of treasury stock	Purchase of treasury stock	(6,047)		(4,986)		Purchase of treasury stock	(211)		(6,047)
Proceeds from Federal Home Loan Bank advances		—		10,000

Repayments of Federal Home Loan advances	Repayments of Federal Home Loan advances	(5,000)		(40,000)		Repayments of Federal Home Loan advances	(35,000)		(5,000)
Net proceeds from issuance of subordinated notes payable						Net proceeds from issuance of subordinated notes payable	25,000		—

Repayment of line of credit	Repayment of line of credit	—		(9,999)		Repayment of line of credit	(10,000)		—
Proceeds from PPPLF advances		—		224,341

Repayments of PPPLF advances	Repayments of PPPLF advances	(101,358)		—		Repayments of PPPLF advances	—		(101,358)
Net cash provided by financing activities		583,610		416,120
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(201,099)		584,251

Increase in cash and cash equivalents		527,171		115,586

Cash and cash equivalents at beginning of period		216,972		198,950

Cash and cash equivalents at end of period		$	744,143	$	314,536

Supplemental cash flow information:
Cash paid during the period for interest		$	6,192	$	6,233
Cash paid during the period for taxes		4,200		2,186

Supplemental noncash disclosures:
Lease liabilities arising from obtaining right of use assets		$	—	$	1,680
Total assets acquired		—		589,760
Total liabilities assumed		—		540,712

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Increase (decrease) in cash and cash equivalents	(424,201)		527,171
Cash and cash equivalents at beginning of period	597,467		216,972
Cash and cash equivalents at end of period	$	173,266	$	744,143

Supplemental cash flow information:
Cash paid during the period for interest	$	6,114	$	6,192
Cash paid during the period for taxes, net of refunds	6,359		4,200

See accompanying notes to consolidated financial statements

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PROFESSIONAL HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tables in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying unaudited consolidated financial statements of Professional Holding Corp. and its subsidiary, Professional Bank (the “Bank” and collectively with Professional Holding Corp., the “Company”), have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the nine months ended September 30, ~~2021,~~2022, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021,~~2022, or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Use of Estimates:

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

~~Adoption of new accounting standards:~~

~~ASU 2019-12, Income Taxes (Topic 740)~~

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

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

In March 2020, FASB issued guidance which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting. The new standard is a result of the London Interbank Offered Rate ("LIBOR") likely being discontinued as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for applying U.S. Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The amendments in the update are effective for all entities between March 12, 2020, and December 31, 2022. The Company has established a cross-functional working group to guide the Company’s transition from LIBOR and has begun efforts to transition to alternative rates consistent with industry timelines. The Company has identified its products that utilize LIBOR and has implemented enhanced fallback language to facilitate the transition to alternative reference rates. The new guidance did not materially impact the Company’s Consolidated Financial Statements or disclosures.

~~Table of Contents~~

New accounting standards that have not yet been adopted:

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


ASU ~~2016-13,~~ 2022-02, Financial Instruments – Credit Losses (Topic 326)
Description			In ~~June 2016,~~March 2022, FASB issued ASU 2022-02 which eliminates the guidance on troubled debt restructurings and requires entities to ~~replace~~evaluate all loan modifications to determine if they result in a new loan or a continuation of the ~~incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement~~existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of ~~credit losses on financial assets measured at amortized cost, including loan receivables~~origination for loans and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments).leases.
Date of Adoption			~~For PBEs that are non-SEC filers and for SEC filers that are considered small reporting companies, it~~ASU 2022-02 is effective ~~for~~ January 1, 2023. ~~Early adoption is still permitted.~~
Effect on the Consolidated Financial Statements			The Company's management is in the process of evaluating credit loss estimation models. Updates to business processes and the documentation of accounting policy decisions are ongoing. The company may recognizeThis ASU will have an ~~increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the~~ impact on ~~the Company's consolidated~~our financial ~~statements has~~statement disclosures but not ~~yet been determined. The Company will adopt this accounting standard~~a material impact on our financial statements.


ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
Description			In June 2022, FASB issued ASU 2022-03 which clarifies that a contractual sale restriction should not be considered in measuring fair value. ASU 2022-03 also requires that entities disclose certain qualitative and quantitative information about securities with contractual sale restrictions.
Date of Adoption			ASU 2022-03 is effective January 1, 2023.
Effect on the Consolidated Financial Statements			We are evaluating the impact of this ASU, but it is not believed to be material.

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NOTE 2 — EARNINGS PER SHARE

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020
(Dollar amounts in thousands, except per share data)										(Dollar amounts in thousands, except per share data)	2022		2021		2022		2021
Basic earnings per share:	Basic earnings per share:									Basic earnings per share:
Net income	Net income	$	6,288	$	950	$	17,404	$	2,764	Net income	$	8,473	$	6,288	$	17,886	$	17,404
Total weighted average common stock outstanding	Total weighted average common stock outstanding	13,196,025		13,438,652		13,344,470		11,694,764		Total weighted average common stock outstanding	13,498,007		13,196,025		13,430,536		13,344,470
Net income per share		$	0.48	$	0.07	$	1.30	$	0.24
Basic earnings per common share										Basic earnings per common share	$	0.63	$	0.48	$	1.33	$	1.30
Diluted earnings per share:	Diluted earnings per share:									Diluted earnings per share:
Net income	Net income	$	6,288	$	950	$	17,404	$	2,764	Net income	$	8,473	$	6,288	$	17,886	$	17,404
Total weighted average common stock outstanding	Total weighted average common stock outstanding	13,196,025		13,438,652		13,344,470		11,694,764		Total weighted average common stock outstanding	13,498,007		13,196,025		13,430,536		13,344,470
Add: Dilutive effect of employee stock options		659,402		1,117,563		568,613		1,290,819
Add: dilutive effect of employee restricted stock and options										Add: dilutive effect of employee restricted stock and options	742,008		659,402		661,214		568,613
Total weighted average diluted stock outstanding	Total weighted average diluted stock outstanding	13,855,427		14,556,215		13,913,083		12,985,583		Total weighted average diluted stock outstanding	14,240,015		13,855,427		14,091,750		13,913,083
Net income per share		$	0.45	$	0.07	$	1.25	$	0.21
Dilutive earnings per common share										Dilutive earnings per common share	$	0.60	$	0.45	$	1.27	$	1.25

Anti-dilutive restricted stock and options										Anti-dilutive restricted stock and options	$	16,874	$	7,357	$	49,167	$	278,007

For the three months ended September 30, 2021, there were 7000 stock options that were anti-dilutive and for the three months ended September 30, 2020, there were 326 thousand stock options that were anti-dilutive. For the nine months ended September 30, 2021, there were 278 thousand stock options that were anti-dilutive and for the nine months ended September 30, 2020, there were 133 thousand stock options that were anti-dilutive.

~~Table of Contents~~

NOTE 3 — SECURITIES

The following table summarizes the amortized cost and fair value of securities ~~available-for-sale~~available for sale and securities ~~held-to-maturity~~held to maturity on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss and gross unrecognized gains and losses:

September 30, 2021 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Available-for-sale - taxable
Small Business Administration loan pools $ 40,131 $ 62 $ (490) $ 39,703
Mortgage-backed securities 51,105 162 (340) 50,927
United States agency obligations 2,002 77 — 2,079
Corporate bonds 1,500 9 — 1,509
Total available-for-sale - taxable $ 94,738 $ 310 $ (830) $ 94,218
Available-for-sale - tax exempt
Community Development District bonds $ 17,800 $ 564 $ — $ 18,364
Municipals 1,054 44 — 1,098
Total available-for-sale - tax exempt $ 18,854 $ 608 $ — $ 19,462
Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair Value
Held-to-Maturity
Mortgage-backed securities $ 259 $ 10 $ — $ 269
Total Held-to-Maturity $ 259 $ 10 $ — $ 269


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022
Available for sale - taxable
Small Business Administration loan pools	$	31,902	$	32	$	(420)	$	31,514
Mortgage-backed securities (1)	135,017		—		(20,183)		114,834
United States agency obligations	2,947		—		(280)		2,667
Corporate bonds	1,500		2		—		1,502
Total available for sale - taxable	$	171,366	$	34	$	(20,883)	$	150,517
Available for sale - tax-exempt
Community Development District bonds	$	25,343	$	1	$	(1,330)	$	24,014
Municipals	3,148		—		(299)		2,849
Total available for sale - tax-exempt	$	28,491	$	1	$	(1,629)	$	26,863

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held to Maturity
Residential mortgage-backed securities	$	194	$	—	$	(16)	$	178


Total Held to Maturity	$	194	$	—	$	(16)	$	178

Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair Value
Equity
Mutual Funds $ 5,903 $ — $ — $ 5,903
Other equity securities 800 — — 800
Total Equity $ 6,703 $ — $ — $ 6,703
(1)$91.1 million is residential mortgage-backed and $23.7 million is commercial mortgage-backed.

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December 31, 2020 Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value
Available-for-sale - taxable
Small Business Administration loan pools $ 30,678 $ 77 $ (199) $ 30,556
Mortgage-backed securities 28,514 438 (30) 28,922
United States agency obligations 3,000 122 — 3,122
Corporate bonds 2,501 9 — 2,510
Total available-for-sale - taxable $ 64,693 $ 646 $ (229) $ 65,110
Available-for-sale - tax exempt
Community Development District bonds $ 20,582 $ 717 $ — $ 21,299
Municipals 1,064 35 — 1,099
Total available-for-sale - tax exempt $ 21,646 $ 752 $ — $ 22,398
Amortized
Cost Gross
Unrecognized
Gains Gross
Unrecognized
Losses Fair
Value
Held-to-Maturity
Mortgage-backed securities $ 345 $ 14 $ — $ 359
United States Treasury 202 — — 202
Foreign Bonds 1,000 — — 1,000
Total Held-to-Maturity $ 1,547 $ 14 $ — $ 1,561


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Equity
Mutual Funds	$	5,325	$	—	$	—	$	5,325
Other equity securities	857		—		—		857
Total Equity	$	6,182	$	—	$	—	$	6,182


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021
Available for sale - taxable
Small Business Administration loan pools	$	40,368	$	38	$	(472)	$	39,934
Mortgage-backed securities (1)	131,273		70		(1,240)		130,103
United States agency obligations	3,939		54		(7)		3,986
Corporate bonds	1,500		13		—		1,513
Total available for sale - taxable	$	177,080	$	175	$	(1,719)	$	175,536
Available for sale - tax-exempt
Community development district bonds	$	17,163	$	512	$	(1)	$	17,674

Municipals	1,051		40		—		1,091
Total available for sale - tax-exempt	$	18,214	$	552	$	(1)	$	18,765

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held to Maturity
Residential mortgage-backed securities	$	236	$	6	$	—	$	242


Total held to maturity	$	236	$	6	$	—	$	242

(1)$104.0 million is residential mortgage-backed and $26.1 million is commercial mortgage-backed.


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Equity
Mutual funds	$	5,838	$	—	$	—	$	5,838
Other equity securities	800		—		—		800
Total equity	$	6,638	$	—	$	—	$	6,638

As of September 30, ~~2021,~~2022, and December 31, ~~2020, Corporate~~2021, corporate bonds were comprised of investments in the financial services industry. During the nine months ended September 30, ~~2021,~~2022, the net investment portfolio ~~increased~~decreased by ~~$25.6~~$17.4 million ~~as a result of increases from purchases of $50.9~~primarily due to $25.1 million in ~~SBA~~investment calls, redemptions and ~~MBS securities combined~~paydowns, coupled with ~~decreases~~unrealized losses of ~~$24.9~~$21.5 million from paydowns, maturities and calls, as well as the unrealized holding loss on securities available for sale of $1.2 million with a related tax effect of $0.1 million. Proceeds from the maturity and redemption of securities during the three and nine months ended September 30, 2021, were $1.2 million and $4.8 million, with gross realized gains of $0 and $23 thousand, respectively. Proceeds from the sales of securities during the year, ~~ended December 31, 2020, were $1.7~~partially offset by purchases of approximately $30.7 million ~~with gross realized gains of $4 thousand. Proceeds from redemption of~~in mortgage-backed securities ~~for the year ended December 31, 2020, were $9.1 million, with gross realized gains of $33 thousand.~~ ("MBS"), community development district bonds ("CDD"), and municipal bonds.

Total securities pledged as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, were ~~$1.9~~$27.0 million and ~~$12.5~~$2.4 million, ~~respectively. Securities pledged for derivative SWAP transactions as of September 30, 2021, were $1.9 million~~respectively, which ~~were~~ included ~~in the total securities pledged, such securities were generally pledged for public funds. There were no~~ securities pledged for derivative ~~SWAP~~swap transactions ~~on December 31, 2020.~~and pledged for public funds.

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

Table of Contents

Securities not due at a single maturity date are shown separately. The scheduled maturities of securities as of September 30, ~~2021,~~2022, are as follows:


		September 30, 2021					September 30, 2022
		Amortized Cost		Fair Value
Available-for-sale
(Dollars in thousands)						(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale						Available for sale
Due in one year or less	Due in one year or less	$	1,188	$	1,202	Due in one year or less	$	5,289	$	5,269
Due after one year through five years	Due after one year through five years	20,853		21,523		Due after one year through five years	22,956		21,666
Due after five years through ten years	Due after five years through ten years	315		325		Due after five years through ten years	4,693		4,097
Due after ten years	Due after ten years	—		—		Due after ten years	—		—
Subtotal	Subtotal	$	22,356	$	23,050	Subtotal	32,938		31,032

Small Business Administration loan pools	Small Business Administration loan pools	$	40,131	$	39,703	Small Business Administration loan pools	31,902		31,514
Mortgage-backed securities	Mortgage-backed securities	51,105		50,927		Mortgage-backed securities	135,017		114,834
Total available-for-sale		$	113,592	$	113,680
Total available for sale						Total available for sale	$	199,857	$	177,380

Held to maturity						Held to maturity
Due in one year or less						Due in one year or less	$	—	$	—
Due after one year through five years						Due after one year through five years	—		—
Subtotal						Subtotal	$	—	$	—

Mortgage-backed securities	Mortgage-backed securities	$	259	$	269	Mortgage-backed securities	$	194	$	178
Total held-to-maturity		$	259	$	269
Total held to maturity						Total held to maturity	$	194	$	178

On September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

On September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the number of investment positions that are in an unrealized loss position were 51210 and ~~36,~~92, respectively.

Table of Contents

The tables below indicate the fair value of debt securities with unrealized losses and for the period of time of which these losses were outstanding on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively, aggregated by major security type and length of time in a continuous unrealized loss position:

Less Than 12 Months 12 Months or Longer Total
Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
September 30, 2021
Available-for-sale - taxable
Small Business Administration loan pools $ 14,640 $ (359) $ 16,127 $ (131) $ 30,767 $ (490)
Mortgage-backed securities 33,019 (340) — — 33,019 (340)
Total available-for-sale - taxable $ 47,659 $ (699) $ 16,127 $ (131) $ 63,786 $ (830)
December 31, 2020
Available-for-sale - taxable
Small Business Administration loan pools $ 18,849 $ (133) $ 8,945 $ (66) $ 27,794 $ (199)
Mortgage-backed securities 5,839 — 2,510 (30) 8,349 (30)
United States agency obligations 227 — — — 227 —
Total available-for-sale - taxable $ 24,915 $ (133) $ 11,455 $ (96) $ 36,370 $ (229)


	Less Than 12 Months				12 Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2022
Available for sale - taxable
Small Business Administration loan pools	$	1,613	$	(90)	$	20,468	$	(330)	$	22,081	$	(420)
Mortgage-backed securities	90,835		(15,684)		24,178		(4,499)		115,013		(20,183)
United States agency obligations	2,667		(280)		—		—		2,667		(280)

Total available for sale - taxable	$	95,115	$	(16,054)	$	44,646	$	(4,829)	$	139,761	$	(20,883)
Available for sale - tax-exempt
Community Development District bonds	$	23,020	$	(1,330)	$	—	$	—	$	23,020	$	(1,330)
Municipals	2,849		(299)		—		—		2,849		(299)
Total available for sale - tax-exempt	$	25,869	$	(1,629)	$	—	$	—	$	25,869	$	(1,629)

December 31, 2021
Available for sale - taxable
Small Business Administration loan pools	$	17,428	$	(335)	$	14,872	$	(136)	$	32,300	$	(471)
Mortgage-backed securities	109,621		(1,168)		1,710		(73)		111,331		(1,241)
United States agency obligations	1,930		(7)		—		—		1,930		(7)

Total available for sale - taxable	$	128,979	$	(1,510)	$	16,582	$	(209)	$	145,561	$	(1,719)
Available for sale - tax-exempt
Community Development District bonds	$	809	$	(1)	$	—	$	—	$	809	$	(1)

Total available for sale - tax-exempt	$	809	$	(1)	$	—	$	—	$	809	$	(1)

The unrealized holding losses within the investment portfolio are considered to be temporary and ~~are~~ mainly ~~due to~~reflect changes in the interest rate cycle. The unrealized loss positions may fluctuate positively or negatively with changes in interest rates or spreads. Since ~~SBA~~Small Business Association ("SBA") loan pools and mortgage-backed securities are government sponsored entities that are highly rated, the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not have any securities in an Other Than Temporary Impairment (“OTTI”) position. The Company does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. No credit losses were recognized ~~in operations~~ during the nine months ended September 30, ~~2021,~~2022, or during the year ended December 31, ~~2020.~~2021.

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NOTE 4 — LOANS

Loans on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, were as follows:


		September 30, 2021		December 31, 2020
(Dollars in thousands)						(Dollars in thousands)	September 30, 2022		December 31, 2021
Loans held for investment:	Loans held for investment:					Loans held for investment:
Commercial real estate	Commercial real estate	$	856,194	$	777,025	Commercial real estate	$	997,478	$	902,654
Residential real estate	Residential real estate	371,469		379,534		Residential real estate	452,521		377,511
Commercial (Non-PPP)		288,177		206,095
Commercial (non-PPP)						Commercial (non-PPP)	397,725		325,415
Commercial (PPP)	Commercial (PPP)	85,133		185,748		Commercial (PPP)	2,618		58,615
Construction and land development	Construction and land development	69,534		99,590		Construction and land development	128,570		91,520
Consumer and other	Consumer and other	16,744		9,689		Consumer and other	25,983		21,449
Total loans held for investment, gross	Total loans held for investment, gross	1,687,251		1,657,681		Total loans held for investment, gross	2,004,895		1,777,164
Allowance for loan loss		(11,478)		(16,259)
Allowance for loan losses						Allowance for loan losses	(16,485)		(12,704)
Loans held for investment, net	Loans held for investment, net	$	1,675,773	$	1,641,422	Loans held for investment, net	$	1,988,410	$	1,764,460

Loans held for sale:	Loans held for sale:					Loans held for sale:
Loans held for sale	Loans held for sale	$	284	$	1,270	Loans held for sale	$	—	$	165
Total loans held for sale	Total loans held for sale	$	284	$	1,270	Total loans held for sale	$	—	$	165

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

On September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, there were ~~$238.7~~$265.3 million and ~~$264.2~~$235.3 million, respectively in total loans pledged to the Federal Home Loan Bank (“FHLB”) ~~for liquidity.~~.

Loan premiums for loans purchased are amortized over the life of the loan with acceleration upon the increase in principal paydowns or payoffs. On September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, loan premiums for purchased loans were $0.3 million and $0.4 million, respectively. Net discounts for loans acquired through business acquisitions totaled $8.5 million and ~~$0.6~~$13.0 million, as of September 30, 2022, and December 31, 2021, respectively.

There are no loans over 90 days past due and accruing as of September 30, ~~2021,~~2022, or December 31, ~~2020.~~ 2021.

The following table presents the aging of the recorded investment in past due loans as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, by class of loans:


		30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 89 Days Past Due		Nonaccrual		Total Past Due		Loans Not Past Due		Total
September 30, 2021
(Dollars in thousands)																(Dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 90 Days Past Due		Nonaccrual		Total Past Due		Loans Not Past Due		Total
September 30, 2022																September 30, 2022
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	856,194	$	856,194	Commercial real estate	$	—	$	—	$	—	$	297	$	297	$	997,181	$	997,478
Residential real estate	Residential real estate	22		—		—		—		22		371,447		371,469		Residential real estate	—		—		—		—		—		452,521		452,521
Commercial (Non-PPP)		369		—		—		1,468		1,837		286,340		288,177
Commercial (non-PPP)																Commercial (non-PPP)	—		400		—		1,468		1,868		395,857		397,725
Commercial (PPP)	Commercial (PPP)	—		—		—		—		—		85,133		85,133		Commercial (PPP)	221		—		—		—		221		2,397		2,618
Construction and land development	Construction and land development	—		—		—		—		—		69,534		69,534		Construction and land development	—		—		—		—		—		128,570		128,570
Consumer and other	Consumer and other	88		—		—		1,307		1,395		15,349		16,744		Consumer and other	—		—		—		—		—		25,983		25,983
Total	Total	$	479	$	—	$	—	$	2,775	$	3,254	$	1,683,997	$	1,687,251	Total	$	221	$	400	$	—	$	1,765	$	2,386	$	2,002,509	$	2,004,895

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

On September 30, 2021, there were 5 impaired loans (consisting of nonaccrual loans, troubled debt restructured loans, loans past due 90 days or more and still accruing interest and other loans based on management’s judgment) with both unpaid principal balance and recorded investments totaling $3.0 million. NaN of these loans were impaired loans with a recorded investment of $2.8 million with an allowance of $1.3 million and 1 substandard accruing loan with a recorded investment of $2.3 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the three months ended September 30, 2021, were $0.9 million. Residential real estate loans had $2.2 million and $7 thousand interest income recognized for the three and nine months ended September 30, 2021, and 2020, respectively, which was equal to the cash basis interest income. On December 31, 2020, there were 6 impaired loans with recorded investments totaling $13.1 million, of which there were 3 impaired loans with a recorded investment of $10.4 million on nonaccrual with an allowance of $8.3 million and 1 substandard accruing loan with a recorded investment of $2.4 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the year ended December 31, 2020, was $2.2 million. The residential real estate loans had $13 thousand of interest income recognized during the year ended December 31, 2020, which was equal to the cash basis interest income.


(Dollars in thousands)	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 90 Days Past Due		Nonaccrual		Total Past Due		Loans Not Past Due		Total
December 31, 2021
Commercial real estate	$	292	$	—	$	—	$	—	$	292	$	902,362	$	902,654
Residential real estate	—		—		—		—		—		377,511		377,511
Commercial (non-PPP)	449		—		—		1,468		1,917		323,498		325,415
Commercial (PPP)	7		—		—		—		7		58,608		58,615
Construction and land development	—		—		—		—		—		91,520		91,520
Consumer and other	—		—		—		654		654		20,795		21,449
Total	$	748	$	—	$	—	$	2,122	$	2,870	$	1,774,294	$	1,777,164

Troubled Debt Restructurings:

The principal carrying balances of loans that met the criteria for consideration as troubled debt restructurings (“TDR”) were ~~$227~~$2 thousand and ~~$299~~$55 thousand as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively. The Company has allocated no specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of September 30, ~~2021,~~2022, and December 31, ~~2020.~~2021. The Company has not committed any additional amounts to customers whose loans are classified as a troubled debt restructuring.

Credit Quality Indicators:

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

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

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

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

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

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

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

•Moderate Risk: Loans to borrowers ~~who~~that are in non-compliance with periodic reporting requirements of the loan agreement, and any other credit file documentation deficiencies, ~~which~~that do not otherwise affect the borrower’s credit risk

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profile. This may include borrowers who fail to supply updated financial information that supports the adequacy of the primary source of repayment to service the Bank’s debt and prevents bank management ~~to evaluate~~from evaluating the borrower’s current debt service capacity. Existing loans will include those with consistent track record of timely loan payments, no material adverse changes to underlying collateral, and no material adverse change to ~~guarantor(s)~~guarantor's(s') financial capacity, evidenced by public record searches.

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

Substandard: A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

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

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

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


(Dollars in thousands)	(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total		(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2021
September 30, 2022												September 30, 2022
Commercial real estate	Commercial real estate	$	853,888	$	—	$	2,306	$	—	$	856,194	Commercial real estate	$	994,933	$	—	$	2,545	$	—	$	997,478
Residential real estate	Residential real estate	371,469		—		—		—		371,469		Residential real estate	452,521		—		—		—		452,521
Commercial (Non-PPP)		286,334		375		1,468		—		288,177
Commercial (non-PPP)												Commercial (non-PPP)	395,857		84		1,784		—		397,725
Commercial (PPP)	Commercial (PPP)	85,133		—		—		—		85,133		Commercial (PPP)	2,618		—		—		—		2,618
Construction and land development	Construction and land development	69,534		—		—		—		69,534		Construction and land development	128,570		—		—		—		128,570
Consumer	Consumer	15,349		88		1,307		—		16,744		Consumer	25,914		69		—		—		25,983
Total	Total	$	1,681,707	$	463	$	5,081	$	—	$	1,687,251	Total	$	2,000,413	$	153	$	4,329	$	—	$	2,004,895

December 31, 2020
December 31, 2021												December 31, 2021
Commercial real estate	Commercial real estate	$	774,674	$	—	$	2,351	$	—	$	777,025	Commercial real estate	$	900,364	$	—	$	2,290	$	—	$	902,654
Residential real estate	Residential real estate	379,104		430		—		—		379,534		Residential real estate	377,511		—		—		—		377,511
Commercial (Non-PPP)		196,856		112		9,127		—		206,095
Commercial (non-PPP)												Commercial (non-PPP)	323,657		290		1,468		—		325,415
Commercial (PPP)	Commercial (PPP)	185,748		—		—		—		185,748		Commercial (PPP)	58,615		—		—		—		58,615
Construction and land development	Construction and land development	99,590		—		—		—		99,590		Construction and land development	91,520		—		—		—		91,520
Consumer	Consumer	8,382		—		1,307		—		9,689		Consumer	20,712		83		—		654		21,449
Total	Total	$	1,644,354	$	542	$	12,785	$	—	$	1,657,681	Total	$	1,772,379	$	373	$	3,758	$	654	$	1,777,164

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Purchased Credit Impaired Loans:

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

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

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


(Dollars in thousands)	September 30, 2022		December 31, 2021
Commercial real estate	$	5,795	$	5,845
Residential real estate	—		89
Commercial	200		410
Construction and development	—		—
Consumer and other loans	—		—
Carrying amount	$	5,995	$	6,344

~~Changes in the carrying amount of the accretable~~Accretable yield for all purchased credit impaired loans were as follows for the nine months ended September 30, 2022 and 2021:


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

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(Dollars in thousands)	2022		2021
Balance at January 1	(573)		(630)
New loans purchased	—		—
Adjustment of income	—		—
Accretion	202		296
Reclassifications from nonaccretable difference	(407)		(136)
Disposals	374		16
Balance on September 30	$	(404)	$	(454)

For those purchased credit impaired loans disclosed above, no allowances for loan losses were recorded or reversed during the nine months ended September 30, ~~2021.~~

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

(Dollars in thousands) March 26, 2020
Contractually required principal and interest by loan type
Commercial real estate $ 427
Residential real estate 604
Commercial 2,176
Construction and development 5,614
Consumer and other loans —
Total $ 8,821
Contractual cash flows not expected to be collected (nonaccretable discount)
Commercial real estate $ 80
Residential real estate 138
Commercial 1,123
Construction and development 2,297
Consumer and other loans —
Total $ 3,638
Expected cash flows $ 5,183
Interest component of expected cash flows (accretable discount) (545)
Fair value of PCI loans accounted for under ASC 310-30 $ 4,638
2022.

Non-Performing Assets

As of September 30, ~~2021,~~2022, the Company had nonperforming assets of ~~$2.8~~$1.8 million, or ~~0.10%~~0.07% of total assets, compared to nonperforming assets of ~~$10.4~~$2.1 million, or ~~0.51%~~0.08% of total assets, on December 31, ~~2020.~~2021. The Bank’s charge-off policy for impaired loans is similar to its charge-off policy for all loans in that loans are charged-off in the month when a determination of a confirmed loss is made on a loan. ~~In March 2021, the Company charged-off $7.6~~There was one charge-off of an impaired loan of $0.7 million of the Coex Coffee International, Inc. (“Coex”) loan, which amount was previously reserved during the third quarter of 2020. Based on a review of the estimated receivables collected by the assignee in the ~~Florida case~~consumer loan category for the ~~benefit~~nine months ended September 30, 2022, compared to a partial charge-off of ~~creditors (the “Assignee”), the remaining book balance of $0.6~~$7.6 million for the ~~Coex loan appears to be collectable by the Company, subject to final accounting by the Assignee.~~

~~Paycheck Protection Program~~

~~As of~~nine months ended September 30, 2021 the Company participated in all three rounds of the Payroll Protection Program ("PPP") and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which 1,745 loans totaling $251.4 million were forgiven by the SBA and the balance was $85.1 million as of September 30, 2021.. Most of the PPP loans were initially pledged to the Federal Reserve as part of the Payroll Protection Program Liquidity Facility ("PPPLF"). The PPPLF pledged loans are non-recourse to the Company. However, the Company paid off all of the PPPLF advances during the first and second quarter of 2021.

~~Debt Service Relief Requests Related to COVID-19~~

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

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reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered TDRs. These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications have varying terms up to six months. As of September 30, 2021, all these loans had returned to normal payment schedules.

NOTE 5 — ALLOWANCE FOR LOAN LOSSES

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method for the three and nine months ended September 30, ~~2021,~~2022, and ~~the year ended December 31, 2020:~~2021.


		Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total			Three Months Ended September 30, 2022
September 30, 2021
(Dollars in thousands)														(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and land Development		Consumer and Other		Total
September 30, 2022														September 30, 2022
Allowance for loan losses:	Allowance for loan losses:													Allowance for loan losses:
Beginning balance	Beginning balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259	Beginning balance	$	5,929	$	2,966	$	5,425	$	677	$	145	$	15,142
Provision for loan losses	Provision for loan losses	920		45		1,276		(55)		674		2,860		Provision for loan losses	(40)		614		545		199		25		1,343
Loans charged-off	Loans charged-off	—		—		(7,641)		—		—		(7,641)		Loans charged-off	—		—		—		—		—		—
Recoveries	Recoveries	—		—		—		—		—		—		Recoveries	—		—		—		—		—		—
Total ending allowance balance	Total ending allowance balance	$	4,079	$	2,222	$	4,097	$	333	$	747	$	11,478	Total ending allowance balance	$	5,889	$	3,580	$	5,970	$	876	$	170	$	16,485


		Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total			Three Months Ended September 30, 2021
December 31, 2020
(Dollars in thousands)														(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and land Development		Consumer and Other		Total
September 30, 2021														September 30, 2021
Allowance for loan losses:	Allowance for loan losses:													Allowance for loan losses:
Beginning balance	Beginning balance	$	1,845	$	3,115	$	1,235	$	272	$	81	$	6,548	Beginning balance	$	4,285	$	2,269	$	3,423	$	361	$	80	$	10,418
Provision for loan losses	Provision for loan losses	1,314		(731)		9,326		116		(8)		10,017		Provision for loan losses	(206)		(47)		674		(28)		667		1,060
Loans charged-off	Loans charged-off	—		(207)		(99)		—		—		(306)		Loans charged-off	—		—		—		—		—		—
Recoveries	Recoveries	—		—		—		—		—		—		Recoveries	—		—		—		—		—		—
Total ending allowance balance	Total ending allowance balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259	Total ending allowance balance	$	4,079	$	2,222	$	4,097	$	333	$	747	$	11,478


	Nine Months Ended September 30, 2022
(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
September 30, 2022
Allowance for loan losses:
Beginning balance	$	4,471	$	2,339	$	4,637	$	471	$	786	$	12,704
Provision for loan losses	1,418		1,241		1,333		405		37		4,434
Loans charged-off	—		—		—		—		(653)		(653)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	5,889	$	3,580	$	5,970	$	876	$	170	$	16,485

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Commercial
Real Estate Residential
Real Estate Commercial Construction
and Land
Development Consumer
and Other Total
September 30, 2021
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment $ — $ — $ 669 $ — $ 653 $ 1,322
Purchased Credit Impaired (PCI) loans — — — — — —
Collectively evaluated for impairment 4,079 2,222 3,428 333 94 10,156
Total ending allowance balance $ 4,079 $ 2,222 $ 4,097 $ 333 $ 747 $ 11,478
Loans:
Loans individually evaluated for impairment $ 2,306 $ 227 $ 1,468 $ — $ 1,307 $ 5,308
Loans collectively evaluated for impairment 853,888 371,242 371,842 69,534 15,437 1,681,943
Total ending loans balance $ 856,194 $ 371,469 $ 373,310 $ 69,534 $ 16,744 $ 1,687,251
December 31, 2020
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment $ — $ — $ 8,309 $ — $ — $ 8,309
Purchased Credit Impaired (PCI) loans — — — — — 0
Collectively evaluated for impairment 3,159 2,177 2,153 388 73 7,950
Total ending allowance balance $ 3,159 $ 2,177 $ 10,462 $ 388 $ 73 $ 16,259
Loans:
Loans individually evaluated for impairment $ 2,351 $ 299 $ 9,127 $ — $ 1,307 $ 13,084
Loans collectively evaluated for impairment 774,674 379,235 382,716 99,590 8,382 1,644,597
Total ending loans balance $ 777,025 $ 379,534 $ 391,843 $ 99,590 $ 9,689 $ 1,657,681


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


(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
September 30, 2022
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	99	$	—	$	1,018	$	—	$	—	$	1,117
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		—
Collectively evaluated for impairment	5,790		3,580		4,952		876		170		15,368
Total ending allowance balance	$	5,889	$	3,580	$	5,970	$	876	$	170	$	16,485

Loans:
Loans individually evaluated for impairment	$	2,545	$	—	$	1,784	$	—	$	—	$	4,329
Loans collectively evaluated for impairment	994,933		452,521		398,559		128,570		25,983		2,000,566
Total ending loans balance	$	997,478	$	452,521	$	400,343	$	128,570	$	25,983	$	2,004,895

December 31, 2021
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	671	$	—	$	654	$	1,325
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		—
Collectively evaluated for impairment	4,471		2,339		3,966		471		132		11,379
Total ending allowance balance	$	4,471	$	2,339	$	4,637	$	471	$	786	$	12,704

Loans:
Loans individually evaluated for impairment	$	2,290	$	—	$	1,468	$	—	$	654	$	4,412
Loans collectively evaluated for impairment	900,364		377,511		382,562		91,520		20,795		1,772,752
Total ending loans balance	$	902,654	$	377,511	$	384,030	$	91,520	$	21,449	$	1,777,164

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NOTE 6 — DEPOSITS

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


		For the Nine Months Ended September 30, 2021			For the Year Ended December 31, 2020				September 30, 2022			December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Ending Balance		% of Total	Ending Balance		% of Total	(Dollars in thousands)	Ending Balance		% of Total	Ending Balance		% of Total
NOW accounts	NOW accounts	$	328,667	14.0%	$	232,367	14.0%	NOW accounts	$	308,167	14.1%	$	310,362	13.1%
Money market accounts	Money market accounts	893,441		37.9%	679,761		41.0%	Money market accounts	944,728		43.2%	1,055,033		44.5%
Brokered deposits(1)	Brokered deposits(1)	56,418		2.4%	30,137		1.8%	Brokered deposits(1)	18,407		0.8%	58,365		2.5%
Savings accounts	Savings accounts	13,833		0.6%	9,727		0.6%	Savings accounts	16,966		0.8%	12,558		0.5%
Certificates of deposit	Certificates of deposit	262,998		11.2%	231,953		14.0%	Certificates of deposit	141,981		6.5%	261,067		11.0%
Total interest-bearing deposits	Total interest-bearing deposits	1,555,357		66.1%	1,183,945		71.3%	Total interest-bearing deposits	1,430,249		65.4%	1,697,385		71.6%
Noninterest-bearing deposits	Noninterest-bearing deposits	799,389		33.9%	475,598		28.7%	Noninterest-bearing deposits	758,042		34.6%	674,003		28.4%
Total deposits	Total deposits	$	2,354,746	100.0%	$	1,659,543	100.0%	Total deposits	$	2,188,291	100.0%	$	2,371,388	100.0%

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

~~Table of Contents~~

The following table presents the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of September 30, ~~2021.~~2022.


(Dollars in thousands)	(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total		(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total
Time deposits of $250,000 or less	Time deposits of $250,000 or less	$	13,123	$	18,043	$	57,678	$	6,444	$	95,288	Time deposits of $250,000 or less	$	15,108	$	10,501	$	21,453	$	4,276	$	51,338
Time deposits of more than $250,000	Time deposits of more than $250,000	25,539		30,762		111,204		4,831		172,336		Time deposits of more than $250,000	30,676		15,605		41,366		6,331		93,978
Total	Total	$	38,662	$	48,805	$	168,882	$	11,275	$	267,624	Total	$	45,784	$	26,106	$	62,819	$	10,607	$	145,316

The following tables present the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of December 31, ~~2020.~~2021.


(Dollars in thousands)	(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total		(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total
Time deposits of $250,000 or less	Time deposits of $250,000 or less	$	20,767	$	13,258	$	24,805	$	19,240	$	78,070	Time deposits of $250,000 or less	$	17,431	$	26,721	$	44,373	$	4,631	$	93,156
Time deposits of more than $250,000	Time deposits of more than $250,000	40,189		35,314		42,845		40,157		158,505		Time deposits of more than $250,000	32,058		54,429		83,290		2,760		172,537
Total	Total	$	60,956	$	48,572	$	67,650	$	59,397	$	236,575	Total	$	49,489	$	81,150	$	127,663	$	7,391	$	265,693

As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the Company had time deposits that exceed the $250,000 FDIC insurance limit of ~~$172.3~~$94.0 million and ~~$158.5~~$172.5 million, respectively. Securities, mortgage loans or other financial instruments pledged as collateral for certain deposits were ~~$28.7~~$53.9 million, and ~~$54.7~~$28.7 million on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively. The aggregate amount of demand deposits that have been re-classified as loan balances on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, were ~~$0.4~~$1.2 million, and ~~$0.1~~$0.4 million, respectively. Deposits from principal officers, directors and their affiliates onat September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, were ~~$22.4~~$2.3 million and ~~$12.1~~$18.9 million, respectively.

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


		September 30, 2021		December 31, 2020
Less than 1 year		$	256,349	$	177,178
(Dollars in thousands)						(Dollars in thousands)	September 30, 2022		December 31, 2021
1 year or less						1 year or less	$	134,709	$	258,302
Over 1 through 2 years	Over 1 through 2 years	10,153		57,034		Over 1 through 2 years	10,457		6,669
Over 2 through 3 years	Over 2 through 3 years	1,082		1,658		Over 2 through 3 years	150		722
Over 3 through 4 years	Over 3 through 4 years	40		705		Over 3 through 4 years	—		—
Over 4 through 5 years	Over 4 through 5 years	—		—		Over 4 through 5 years	—		—
Over 5 years	Over 5 years	—		—		Over 5 years	—		—
Total	Total	$	267,624	$	236,575	Total	$	145,316	$	265,693

Banks ~~are~~may be required to maintain cash reserves in the form of vault cash or in an account with the Federal Reserve Bank or in noninterest-earning accounts with other qualified banks. This requirement is based on the Bank’s amount of transaction deposit accounts. Due to the amount of transaction deposit accounts, the Bank was not required to have cash reserve requirements on September 30, ~~2021,~~2022, and December 31, ~~2020.~~2021. Additionally, the Company had ~~$77.8~~$90.5 million and ~~$98.2~~$84.4 million, in Qualified Public Deposits ~~(“QPD”)~~ that require a portion of the deposit to be pledged as collateral as of September 30, ~~2021,~~2022, and December 31, ~~2020.~~2021.

NOTE 7 — DEBT AND BORROWINGS

Subordinated Debt.

On ~~March 26, 2020, pursuant to terms of the acquisition,~~January 13, 2022, the Company ~~assumed the~~completed a private placement of $25.0 million in fixed-to-floating rate subordinated notes payable due 2032. The Notes will bear interest at a fixed annual rate of ~~Marquis Bancorp, Inc. (“MBI”) at its fair value of $10.3 million. According~~3.38% for the first five years and will reset quarterly thereafter to the ~~terms of the subordinated note, the principal amount due is $10.0 million with a 7% fixed rate until October 30, 2021, and a variable rate thereafter at LIBOR~~then current three-month Secured Overnight Financing Rate plus ~~576~~203 basis points. The ~~note matures on October 30, 2026, and can be redeemed~~Notes are redeemable by the Company ~~anytime~~at its option, in whole or in part, on orand after

~~Table~~ the fifth anniversary of ~~Contents~~

~~October 30, 2021. Pursuant to its contractual terms,~~ the issue date. The Company ~~redeemed in full,~~used the ~~amount~~net proceeds from the sale of ~~its subordinated~~the subordinate notes ~~payable of $10.0 million on October 30, 2021. The subordinated debt was fair valued at a premium of $0.3 million and is being amortized over the expected life.~~for general corporate purposes.

Valley National Line of Credit. ~~On December 19, 2019, the~~

The Company ~~entered into~~maintains a ~~$10.0~~$25.0 million secured revolving line of credit with Valley National Bank, N.A. with a maturity date of March 1, 2023. Amounts drawn under this line of credit ~~bears~~bear interest at the Prime Rate, as announced by The Wall Street Journal from time to time as its prime rate, and its obligations under this line of credit are secured by shares of the capital stock of the Bank, which we have pledged as security. On January 7, 2021, (the “Closing Date”) the Company and Valley National Bank entered an amendment, which among other things, extended the maturity date of the note to March 19, 2021. No other material terms of the note changed. The principal balance outstanding pursuant to the note on the Closing Date was $0. On May 10, 2021, the Company and Valley National Bank entered into an extension agreement, which among other things, extended the maturity date of the note to March 1, 2022. As of September 30, ~~2021, and December 31, 2020,~~2022, there were no outstanding borrowings under this line of ~~credit.~~

~~NOTE 8 — BORROWINGS~~credit compared to $10.0 million on December 31, 2021.

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

~~FHLB Advances.~~ Federal Home Loan Bank Advances

The FHLB allows the Company to borrow up to 25% of its assets on a blanket floating lien status collateralized by certain securities and loans. As of September 30, ~~2021,~~2022, approximately ~~$238.7~~$265.3 million in total loans ~~that~~ were pledged as collateral for ~~our~~potential FHLB ~~borrowings.~~borrowings and FHLB letters of credit. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of September 30, ~~2021,~~2022, we had ~~$35.0~~no outstanding advances, $28.7 million in outstanding ~~advances~~letters of credit, and ~~$129.3~~$163.9 million in additional available borrowing capacity from the FHLB based on the collateral that we have currently pledged. ~~The following table sets forth certain information on our FHLB borrowings during the periods presented.~~

Table of Contents

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


(Dollars in thousands)	September 30, 2022		December 31, 2021
Amount outstanding at period-end	$	—	$	35,000
Weighted average interest rate at period-end	—%		2.04%
Maximum month-end balance during period	$	35,000	$	35,000
Average balance outstanding during period	$	9,121	$	36,918
Weighted average interest rate during period	1.98%		2.01%

Federal Reserve Bank of Atlanta.

The Federal Reserve Bank of Atlanta has an available borrower in custody arrangement which allows us to borrow on a collateralized basis. NoThere were no advances ~~were~~ outstanding under this facility as of September 30, 2022 and December 31, 2021.

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

NOTE 98 — COMMON STOCK AND PREFERRED STOCK

Class A Voting Common Stock

The Company has Class A voting common stock with a par value of $0.01 per share. As of September 30, ~~2021,~~2022, there are 50,000,000 shares ~~authorized as~~of Class A voting common stock authorized of which ~~13,416,667~~13,811,084 are outstanding. During the nine months ended September 30, ~~2021,~~2022, the Company issued ~~229,417~~387,082 shares of Class A voting common stock, inclusive of ~~134,856~~218,024 shares of restricted stock grants ~~92,710~~and 169,058 shares of options exercised.

During the nine months ended September 30, 2022, treasury shares increased by 10,920 in connection with the net settlement of equity awards exercised ~~and 1,851~~or vested for tax purposes. In addition, there were 11,478 shares ~~pursuant to the employee~~in restricted stock ~~purchase program.~~

cancellations. During the nine months ended September 30, 2021, the Company repurchased 341,367 shares of Class A voting common ~~stock. Further, during the same nine-month period, upon the vesting~~stock, inclusive of ~~a portion of restricted stock, employees of the Company elected to have~~ 3,210 shares in connection with the net settlement of ~~Class A common voting stock withheld~~equity awards exercised or vested for tax purposes and had 3,002 shares in restricted stock cancellations.

~~Table of Contents~~

The Company did not repurchase any shares for the nine months ended September 30, 2022.

Class B Non-voting Common Stock

The Company has authorized 10,000,000 shares of Class B non-voting common stock with a par value of $0.01 per share. As of September 30, 2022, and December 31, 2021, ~~there are 10,000,000~~no shares ~~authorized as~~of Class B non-voting common stock ~~none of which are~~were outstanding.

Preferred Stock

The Company has 10,000,000 shares of undesignated and unissued preferred ~~stock.~~stock As of September 30, 2022, and December 31, 2021, no shares of preferred stock were outstanding.

NOTE 109 — FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

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

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

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

Table of Contents

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

Securities available for sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations, corporate bonds, municipal bonds and U.S. agency notes. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Securities classified within Level 3 might include certain residual interests in securitizations and other less liquid securities. As of September 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, all securities available for sale were Level 2.

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

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

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

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

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

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

~~Table of Contents~~

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

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

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

Subordinated debt: The fair value was determined by using a discounted cash flow method using a market participant discount rate for similar instruments.

Line of credit: The carrying amounts of the line of credit approximate their fair values.

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

Interest rate swaps: The fair value of interest rate swaps is estimated using inputs that are observable or that can be corroborated by observable market data and therefore are classified as Level 2. The fair value estimations include primarily market observable inputs.

There were no securities reclassified into or out of Level 3 during the nine months ended September 30, 2022, or for the year ended December 31, 2021.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis:

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

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


			Fair Value Measurements on September 30, 2022 Using:
(Dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS:
Securities available for sale - taxable
Small Business Administration loan pools	$	31,514	$	—	$	31,514	$	—
Mortgage-backed securities	114,834		—		114,834		—
United States agency obligations	2,667		—		2,667		—
Corporate bonds	1,502		—		1,502		—
Securities available for sale - tax-exempt
Community Development District bonds	24,014		—		24,014		—
Municipals	2,849		—		2,849		—
Equity securities - mutual funds	5,325		5,325		—		—
Equity Securities - other	857		857		—		—

Customer derivatives - interest rate swaps	6,610		—		6,610		—

LIABILITIES:
Customer derivatives - interest rate swaps	$	6,610	$	—	$	6,610	$	—

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


			Fair Value Measurements on December 31, 2021 Using:
(Dollars in thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
ASSETS:
Securities available for sale - taxable
Small Business Administration loan pools	$	39,934	$	—	$	39,934	$	—
Mortgage-backed securities	130,103		—		130,103		—
United States agency obligations	3,986		—		3,986		—
Corporate bonds	1,513		—		1,513		—
Securities available for sale - tax-exempt
Community Development District bonds	17,674		—		17,674		—
Municipals	1,091		—		1,091		—
Equity securities - mutual funds	5,838		5,838		—		—
Loans held for sale	165		165		—		—
Customer derivatives - interest rate swaps	1,144		—		1,144		—

LIABILITIES:
Customer derivatives - interest rate swaps	$	1,144	$	—	$	1,144	$	—

2223

Table of Contents

Fair Value Measurements
on December 31, 2020 Using:
December 31, 2020 Fair
Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale - taxable
Small Business Administration loan pools $ 30,556 $ — $ 30,556 $ —
Mortgage-backed securities 28,922 — 28,922 —
United States agency obligations 3,122 — 3,122 —
Corporate bonds 2,510 — 2,510 —
Total $ 65,110 $ — $ 65,110 $ —
Available-for-sale - tax exempt
Community Development District bonds $ 21,299 $ — $ 21,299 $ —
Municipals 1,099 — 1,099 —
Total $ 22,398 $ — $ 22,398 $ —
Equity
Mutual funds $ 6,005 $ 6,005 $ — $ —
Total $ 6,005 $ 6,005 $ — $ —

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

~~As of December 31, 2020, the Company did not hold any interest rate SWAPs.~~Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis:

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

Specifically, regarding the Coex loan, the carrying amount of the loan for impairment purposes was determined based on the note outstanding balance on September 30, 2021, less the non-recourse amount sold to our participant, yielding a carrying value of $0.6 million. The fair value of the collateral was determined based on a review of information obtained from the Assignee related to the collectability of the collateral adjusted for legal and disposition costs. When netted in the same percentage as the non-recourse portion of the loan, the net fair value of collateral was noted as $0.6 million. The net result of these calculations provides for no specific reserve within the Allowance for Loan and Lease Losses (“ALLL”) associated with the Coex loan or approximately 0% of the carrying value of the loan.

~~Table of Contents~~

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


				Fair Value Measurements on September 30, 2021 Using:											Fair Value Measurements on September 30, 2022 Using:
(Dollars in thousands)	(Dollars in thousands)	Total at September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)		(Dollars in thousands)	Total at September 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:	Impaired Loans:											Impaired Loans:
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	—	$	—	Commercial real estate	$	2,449	$	—	$	—	$	2,449	$	(99)
Residential real estate	Residential real estate	—		—		—		—		—		Residential real estate	—		—		—		—		—
Commercial	Commercial	799		—		—		799		(669)		Commercial	766		—		—		766		(1,018)
Construction and land development	Construction and land development	—		—		—		—		—		Construction and land development	—		—		—		—		—
Consumer and other	Consumer and other	654		—		—		654		(654)		Consumer and other	—		—		—		—		—
Total	Total	$	1,453	$	—	$	—	$	1,453	$	(1,323)	Total	$	3,215	$	—	$	—	$	3,215	$	(1,117)


				Fair Value Measurements on December 31, 2020 Using:											Fair Value Measurements on December 31, 2021 Using:
(Dollars in thousands)	(Dollars in thousands)	Total at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)		(Dollars in thousands)	Total at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:	Impaired Loans:											Impaired Loans:
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	—	$	—	Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate	Residential real estate	—		—		—		—		—		Residential real estate	—		—		—		—		—
Commercial	Commercial	818		—		—		818		(8,309)		Commercial	797		—		—		797		(671)
Construction and land development	Construction and land development	—		—		—		—		—		Construction and land development	—		—		—		—		—
Consumer and other	Consumer and other	—		—		—		—		—		Consumer and other	—		—		—		—		(654)
Total	Total	$	818	$	—	$	—	$	818	$	(8,309)	Total	$	797	$	—	$	—	$	797	$	(1,325)

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

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

September 30, 2021
Carrying
Amount Fair
Value Fair Value
Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits $ 720,407 $ 720,407 Level 1
Federal Funds Sold 23,736 23,736 Level 1
Securities, Available for Sale - taxable 94,739 94,218 Level 2
Securities, Available for Sale - tax exempt 18,854 19,462 Level 2
Securities, Held to Maturity 259 269 Level 2
Securities, Equity 5,903 5,903 Level 1
Securities, Other Equity 800 800 Level 1
Loans, net 1,675,773 1,691,673 Level 3
Loans Held For Sale 284 284 Level 1
Bank Owned Life Insurance 38,204 38,204 Level 2
Accrued Interest Receivable 5,336 5,336 Level 1, 2 & 3
Customer Derivatives - Interest Rate SWAPs 1,300 1,300 Level 2
Financial Liabilities:
Deposits 2,354,746 2,325,899 Level 2
Federal Home Loan Bank Advances 35,000 33,809 Level 2
Subordinated Debt 10,016 10,016 Level 2
Customer Derivatives - Interest Rate SWAPs 1,300 1,300 Level 2
Accrued Interest Payable 266 266 Level 2


	September 30, 2022
(Dollars in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & due from banks, including interest bearing deposits	$	157,504	$	157,504	Level 1
Federal funds sold	15,762		15,762		Level 1
Securities, available for sale - taxable	171,366		150,517		Level 2
Securities, available for sale - tax-exempt	28,491		26,863		Level 2
Securities, held to maturity	194		178		Level 2
Securities, equity	5,325		5,325		Level 1
Securities, other equity	857		857		Level 1
Loans, net	1,988,410		1,975,085		Level 3

Bank owned life insurance	54,534		54,534		Level 2
Customer derivatives - interest rate swaps	6,610		6,610		Level 2
Accrued interest receivable	5,909		5,909		Level 1, 2 & 3

Financial Liabilities:
Deposits	$	2,188,291	$	2,006,303	Level 2

Subordinated debt	24,467		24,467		Level 2



Customer derivatives - interest rate swaps	6,610		6,610		Level 2
Accrued interest payable	252		252		Level 2

December 31, 2020
Carrying
Amount Fair
Value Fair Value
Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits $ 191,597 $ 191,597 Level 1
Federal Funds Sold 25,375 25,375 Level 1
Securities, Available for Sale - taxable 65,110 65,110 Level 2
Securities, Available for Sale - tax exempt 22,398 22,398 Level 2
Securities, Held to Maturity 1,547 1,561 Level 2
Securities, Equity 6,005 6,005 Level 1
Loans, net 1,641,422 1,653,401 Level 3
Loans Held For Sale 1,270 1,270 Level 1
Bank Owned Life Insurance 37,360 37,360 Level 2
Accrued Interest Receivable 6,666 6,666 Level 1, 2 & 3
Financial Liabilities:
Deposits 1,659,543 1,693,331 Level 2
Federal Home Loan Bank Advances 40,000 37,927 Level 2
Subordinated Debt 10,153 10,153 Level 2
PPPLF Advances 101,358 101,519 Level 2
Loan Participations 13,215 13,215 Level 2
Accrued Interest Payable 546 546 Level 2


	December 31, 2021
(Dollars in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & due from banks, including interest bearing deposits	$	583,990	$	583,990	Level 1
Federal funds sold	13,477		13,477		Level 1
Securities, available for sale - taxable	177,080		175,536		Level 2
Securities, available for sale - tax-exempt	18,214		18,765		Level 2
Securities, held to maturity	236		242		Level 2
Securities, equity	5,838		5,838		Level 1
Securities, other equity	800		800		Level 1
Loans, net	1,764,460		1,779,968		Level 3
Loans held for sale	165		165		Level 1
Bank owned life insurance	38,485		38,485		Level 2
Customer derivatives - interest rate swaps	1,144		1,144		Level 2
Accrued interest receivable	5,272		5,272		Level 1, 2 & 3

Financial Liabilities:
Deposits	$	2,371,388	$	2,372,372	Level 2
Federal Home Loan Bank advances	35,000		34,274		Level 2

Line of credit	10,000		10,000		Level 2


Customer derivatives - interest rate swaps	1,144		1,144		Level 2
Accrued interest payable	263		263		Level 2

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NOTE 1110 — CUSTOMER DERIVATIVES — INTEREST RATE SWAPS

During the first quarter of 2021, the Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate ~~SWAP~~swap with the customer. The Company also enters into an offsetting ~~SWAP~~swap with a ~~SWAP~~swap dealer. These back-to-back ~~SWAP~~swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The ~~SWAPs with both the customers and thirdparties~~swaps are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the ~~SWAPs~~swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC Topic 820, Fair Value Measurement and Disclosure (“ASC 820”). ~~During the nine months ended~~As of September 30, ~~2021,~~2022, the Company recorded ~~8 SWAP~~13 swap transactions with clients having a total notional amount of ~~$69.7~~$54.6 million, offset by ~~8 SWAP~~13 swap transactions with dealers having a total notional amount of ~~$69.7~~$54.6 million. Additionally, we recorded ~~$0.5~~$0.1 million in back-to-back ~~SWAP~~swap fee ~~income.~~income for the nine months ended September 30, 2022. The fair value of these derivatives is based on a market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to properly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. As of September 30, ~~2021,~~2022, the Bank’s asset fair value position in other assets was ~~$1.3~~$6.6 million and liability fair value position in other liabilities was ~~$1.3~~$6.6 million, ~~which~~and were fully collateralized with pledged securities held with the counterparty in excess of the exposure amount at quarter end.

NOTE 1211 — LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

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

On April 8, 2021, the Company formed a separately capitalized subsidiary, Pro Opp Fund LLC. As of September 30, 2022, Pro Opp Fund LLC has committed to investments of approximately $0.9 million in businesses directly, and indirectly related to the Company’s core business as permitted under the U.S. Bank Holding Company Act. Pro Opp Fund LLC has an additional $0.8 million of unfunded investments outstanding.

The contractual amounts of financial instruments with off-balance-sheet risk on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, were as follows:

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


(Dollars in thousands)	September 30, 2022		December 31, 2021
Available lines of credit	$	529,519	$	415,402
Unfunded loan commitments – fixed	70,375		62,126
Unfunded loan commitments – variable	22,903		46,698
Standby letters of credit	10,972		12,095
Commercial letters of credit	394		2,765
Total credit extension commitments	$	634,163	$	539,086

NOTE 1312 — REGULATORY CAPITAL MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. ~~The final rules implementing~~Under the Basel Committee on Banking Supervision’s capital guidelines for United States banks (Basel III rules) became effective for the Bank on January 1, 2015, with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules,, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer ~~was phased in from 0.0%~~ for ~~2015 to 2.50% by 2019. The capital conservation buffer for September 30,~~2022 and 2021 ~~is 2.50% and for December 31, 2020,~~ was 2.50%. The Company opted not to include net unrealized ~~gain~~gains or ~~loss~~losses on available for sale securities ~~is not included~~ in computing regulatory capital. ~~Management believes as~~As of September 30, ~~2021,~~2022, the Bank met all capital adequacy requirements to which it was subject.

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

~~Table of Contents~~

distributions are limited, as is asset growth and expansion, and capital restoration plans are required. On September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There ~~are~~have been no conditions or events since that notification that management believes have changed the institution’s category. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.

Actual and required capital amounts and ratios are presented below on September 30, ~~2021,~~2022 and December 31, ~~2020.~~2021. The required amounts for capital adequacy shown below do not include the capital conservation buffer previously discussed.

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


		Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio	(Dollars in thousands)	Actual				Required for Capital Adequacy Purposes				Well Capitalized Prompt Corrective Action Regulations
December 31, 2020
Total capital ratio
												Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022											September 30, 2022
Total Capital ratio											Total Capital ratio
Bank	Bank	$	176,633	12.0%	$	117,298	8.0%	$	146,623	10.0%	Bank	$	257,261	12.5	%	$	164,087	8.0	%	$	205,109	10.0	%
Company	Company	215,977		14.7%	117,298		8.0%	N/A		N/A	Company	271,324		13.2	%	164,087		8.0	%	N/A		N/A
Tier 1 capital ratio
Tier 1 Capital ratio											Tier 1 Capital ratio
Bank	Bank	159,448		10.9%	87,974		6.0%	117,298		8.0%	Bank	239,468		11.7	%	123,066		6.0	%	164,087		8.0	%
Company	Company	188,639		12.9%	87,974		6.0%	N/A		N/A	Company	229,064		11.1	%	123,066		6.0	%	N/A		N/A
Tier1 leverage ratio
Tier 1 Leverage ratio											Tier 1 Leverage ratio
Bank	Bank	159,448		8.4%	75,723		4.0%	94,654		5.0%	Bank	239,468		9.6	%	99,364		4.0	%	124,205		5.0	%
Company	Company	188,639		10.0%	75,723		4.0%	N/A		N/A	Company	229,064		9.2	%	99,364		4.0	%	N/A		N/A
Common equity tier 1 capital ratio
Common Equity Tier 1											Common Equity Tier 1
Bank	Bank	159,448		10.9%	65,980		4.5%	95,305		6.5%	Bank	239,468		11.7	%	92,299		4.5	%	133,321		6.5	%
Company	Company	188,639		12.9%	65,980		4.5%	N/A		N/A	Company	229,064		11.1	%	92,299		4.5	%	N/A		N/A

December 31, 2021											December 31, 2021
Total Capital ratio											Total Capital ratio
Bank											Bank	$	222,696	12.9	%	$	138,435	8.0	%	$	173,043	10.0	%
Company											Company	220,206		12.7	%	138,435		8.0	%	N/A		N/A
Tier 1 Capital ratio											Tier 1 Capital ratio
Bank											Bank	208,997		12.1	%	103,826		6.0	%	138,435		8.0	%
Company											Company	206,507		11.9	%	103,826		6.0	%	N/A		N/A
Tier 1 Leverage ratio											Tier 1 Leverage ratio
Bank											Bank	208,997		7.7	%	107,877		4.0	%	134,846		5.0	%
Company											Company	206,507		7.7	%	107,877		4.0	%	N/A		N/A
Common Equity Tier 1											Common Equity Tier 1
Bank											Bank	208,997		12.1	%	77,869		4.5	%	112,478		6.5	%
Company											Company	206,507		11.9	%	77,869		4.5	%	N/A		N/A

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NOTE 1413 — ~~STOCK BASED COMPENSATION~~SUBSEQUENT EVENTS

~~Restricted Stock~~Proposed Merger with Seacoast Banking Corporation of Florida

~~An award of restricted stock involves the immediate transfer by~~

As previously reported, on August 8, 2022, the Company and the Bank entered into an Agreement and Plan of Merger (the “Agreement”) providing for the merger (the “Merger”) of the Company with and into Seacoast Banking Corporation of Florida (“SBCF”), the parent company of Seacoast National Bank (“Seacoast Bank”), and the merger of Professional Bank with and into Seacoast Bank. In accordance with and subject to the ~~participant~~terms of ~~a specific number~~the Agreement, upon completion of ~~shares~~the Merger, each share of ~~our Class A voting~~the Company’s common stock ~~which are~~issued and outstanding immediately prior to the Effective Time (excluding Dissenting Shares and subject to a risk of forfeiture and a restriction on transferability. This restriction will lapse following a stated period of time. The participant does not pay for the restricted stock and has all of the rights of a holder of a share of our Class A voting common stock (except for the restriction on transferability), including the right to vote and receive dividends unless otherwise determined by the Compensation Committee andcertain adjustments set forth in the ~~award agreement.~~

~~The Company initially limited~~Agreement) will be converted into the ~~aggregate number of~~right to receive 0.8909 shares of SBCF common stock. Completion of the Merger remains subject to the approval of our ~~Class A voting~~shareholders, the registration under the Securities Act of 1933, as amended, of the SBCF shares to be issued in the Merger and the approval for listing of the SBC common stock to be ~~awarded under~~issued in the ~~2019 Equity Incentive Plan (the "2019 Plan") as restricted stock~~Merger on NASDAQ, and other customary closing conditions and is expected to ~~682,955 shares. However, the 2019 Plan provides for the automatic increase (but not decrease) on~~occur in the first ~~day~~quarter of ~~each fiscal year. Thus, for 2021~~2023. Capitalized terms used above have the ~~total share reserve is 682,955. The Company has 227,590 shares of restricted stock outstanding, at a weighted average exercise price of $16.87,~~meanings ascribed to ~~employees and directors under~~such terms in the 2019 Equity Incentive Plan as of September 30, 2021, for which the Company did not receive, nor will it receive, any monetary consideration. Therefore, there were 455,365 restricted shares available to be issued on September 30, 2021. As of September 30, 2021, there was approximately $2.7 million in unrecognized compensation expense in regard to restricted stock that will be recognized over a three-year period.

~~NOTE 15 — LEASES~~

Operating leases in which the Company is the lessee are recorded as right-of-use (“ROU”) assets and operating lease liabilities, including premises and equipment and other liabilities, respectively on the Consolidated Balance Sheets. Currently the Company does not have any lessor leases (formerly known as capital leases) to report on its financials.Agreement.

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

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

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

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

~~Table of Contents~~

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

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

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


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

~~NOTE 16 — SUBSEQUENT EVENTS~~

~~Redemption of Subordinated Debt~~

~~On October 30 2021, the Company redeemed in full, the amount of its subordinated notes payable of $10.0 million, in accordance with its contractual terms.~~

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

Introduction

The following discussion and analysis are part of Professional Holding Corp.’s (the “Company”) Quarterly Report on Form 10-Q filed with the SEC and updates the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was previously filed with the SEC. This financial information is presented to aid in understanding ~~the Company’s~~our financial position and results of operations and should be read together with the financial information contained in the Form 10-K. See Note 1 “Summary of Significant Accounting ~~Policies - Basis of Presentation”~~Policies” to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three and nine months ended September 30, ~~2021,~~2022, compared to the three and nine months ended September 30, ~~2020,~~2021, for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of September 30, ~~2021,~~2022, compared to December 31, ~~2020.~~2021. As used in this discussion and analysis the term "Company" refers to Professional Holding Corp.

Proposed Merger with Seacoast Banking Corporation of Florida

On August 8, 2022, Seacoast Banking Corporation of Florida (“Seacoast”), Seacoast National Bank (“SNB”), the Company, and Professional Bank entered into an Agreement and Plan of Merger (the “Merger Agreement”) that provides for the combination of Seacoast and Professional and their two banks. Under the Merger Agreement, the Company will merge with and into Seacoast, with Seacoast as the surviving corporation (the “Merger”). Immediately following the Merger, Professional Bank will merge with and into SNB, with SNB as the surviving bank (collectively, with the Merger, the “Mergers”). The transaction is subject to approval of the Company’s shareholders, other customary conditions set forth in the Merger Agreement, and is expected to be completed in the first quarter of 2023.

Subject to the terms of the Merger Agreement, the Company's shareholders will have the right to receive 0.8909 shares of Seacoast common stock for each outstanding share of the Company's common stock.

Cautionary Note Regarding Forward Looking Information

This ~~Quarterly Report on Form 10-Q~~communication contains ~~certain~~"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained in this communication that are not statements of historical fact may be deemed to be forward-looking statements, as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-lookingincluding, without limitation, statements ~~reflect our current opinions, expectations, beliefs, plans, objectives, assumptions~~preceded by, followed by or projections regarding, among other things, future events or future results, in contrast with statements that reflect historical facts. These statements are often, but not always, made through the use of conditionalincluding words such as “anticipate,” “intend,” “believe,” “estimate,” “plan,” “seek,” “project” or “expect,” "target," "goal," “may,” “will,” “would,” “could” or “should” and similar expressions. Forward-looking statements represent the Company’s current expectations, plans or forecasts; involve assumptions, risks and uncertainties; and are not guarantees. Several important factors could cause actual results to differ materially from those in forward-looking statements and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Those factors include, without limitation:

•general business and economic conditions, either globally, nationally, in the State of Florida, or in the specific markets in which we operate, including the negative ~~versions~~impacts and disruptions resulting from rising interest rates, political instability from acts of ~~these terms or other comparable terminology. These forward-looking statements are not historical facts,~~war, including the ongoing conflict between Russia and ~~are based~~Ukraine, supply chain challenges and inflation, which have had and may likely continue to have an adverse impact on ~~current expectations, estimates~~our business operations and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance, and ~~are subject~~could continue to ~~risks, assumptions~~have a negative impact on our credit portfolio, stock price, borrowers and ~~uncertainties that are difficult to predict. Although we believe that~~ the ~~expectations reflected in these forward-looking statements are reasonable~~economy as ~~of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.~~

~~Important factors related to forward-looking statements may include, among others, risks~~a whole both globally and ~~assumptions regarding:~~domestically;

•the ~~strength~~impact of Hurricane Ian on Florida generally, as well as certain of the ~~United States economy in general~~communities we serve, and ~~the strength of the local economies in~~ which ~~we conduct operations;~~could continue to have a negative impact on our business, credit portfolio, borrowers and our stock price;

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

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

•the frequency and magnitude of foreclosure of our loans;

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

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

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

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

•~~legislative or regulatory changes;~~

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

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

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

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

•negative publicity and the impact on our reputation;

•our ability to attract and retain highly qualified personnel;

•technological changes;

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

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

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

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

•the efficiency and effectiveness of our internal control environment;

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

•geopolitical developments;

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

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

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

•changes in consumer spending and saving habits;

•growth and profitability of our noninterest income; and

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

~~If one~~•the risk that our proposed merger with Seacoast may not be completed in a timely manner or ~~more events~~at all, which may adversely affect our business and the price of our common stock;

•the diversion of management time on issues related to ~~these~~the merger with Seacoast;

•the effect of the announcement or pendency of the merger on Seacoast’s customer, employee and business relationships, operating results, and business generally;

•changes in laws or regulations;

•changes in interest rates, deposit flows, loan demand and real estate values;

•the ongoing impacts and disruptions resulting from COVID-19 or other ~~risks or uncertainties materialize or intensify, or if~~variants on the economies and communities we serve, which has had and may likely continue to have an adverse impact on our ~~underlying~~business operations and performance, and could continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically; and

•other factors described in our Annual Report on Form 10-K for the year ended December 31, 2021, and other filings with the Securities and Exchange Commission.

Although we make such statements based on assumptions ~~prove~~that we believe to be ~~incorrect,~~reasonable, there can be no assurance that actual results ~~may~~will not differ materially from ~~what we anticipate. Accordingly, you are cautioned~~those expressed in forward-looking statements. We caution investors not to ~~place undue reliance~~rely unduly on ~~these forward-looking statements. The~~any forward-looking statements ~~included~~and urge investors to carefully consider the risks described in ~~this prospectus~~our filings with the Securities and Exchange Commission, referred to above, which are ~~made only as of~~available on www.proholdco.com and the ~~date of the Quarterly Report on Form 10-Q. New factors emerge from time to time, and it is not possible for us to predict which will arise. We do not undertake, and specifically decline,~~SEC’s website at www.sec.gov. The Company expressly disclaims any obligation to update any ~~such~~of the forward-looking statements ~~or to publicly announce the results of any revisions to any of such statements~~included herein to reflect future events or developments or changes in expectations, except as may be required by law.

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Executive Overview

Highlights of our performance and financial condition as of and for the three and nine months ended September 30, ~~2021,~~2022, and other key events that have occurred during ~~2021~~2022 are provided below.

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Results of Operations for the Three Months Ended September 30, 2022

•Net income increased by $2.2 million, or 34.7%, to $8.5 million compared to $6.3 million during the three months ended September 30, 2021, due to an increase in net interest income of $5.7 million, partially offset by an increase in provision expense of $0.3 million, a decrease in noninterest income of $0.3 million, an increase in noninterest expense of $2.2 million, and an increase in income tax provision of $0.7 million.

•Net interest income increased by $5.7 million, or 29.8%, to $24.8 million compared to $19.1 million during the three months ended September 30, 2021, due to the impact of the Federal Reserve’s target Federal Funds Rate increases during the third quarter and new loan production in a higher rate environment on the Company’s asset sensitive balance sheet.

•Provision for loan losses increased $0.3 million, or 26.7%, to $1.3 million compared to $1.1 million during the three months ended September 30, 2021, primarily due to loan growth. There were no net charge-offs for the three months ended September 30, ~~2021~~2022 and 2021.

~~��~~•Noninterest income decreased $0.3 million, or 17.1% to $1.2 million compared to the three months ended September 30, 2021. The decrease was comprised of lower swap fee income of $0.2 million, lower loans held for sale income of $0.2 million, and lower service charges of $0.1 million on deposit accounts compared to the three months ended September 30, 2021. These decreases were partially offset by an increase of $0.1 million in income from bank owned life insurance as a result of prior quarter's additional bank owned life insurance purchase of $15.0 million.

•Noninterest expense increased $2.2 million, or 19.2%, to $13.9 million compared to $11.6 million during the three months ended September 30, 2021. The increase was comprised of acquisition expenses of $1.0 million in connection with the pending merger with Seacoast, higher salaries and benefits of $0.7 million, and higher other noninterest expense of $0.5 million, partially offset by lower regulatory assessments expense of $0.2 million. The increase in salaries and benefits was due to higher sales incentives resulting from higher net income and loans as well as enhancements to our regulatory and compliance areas. The increase in noninterest expense was primarily comprised of an increase in provision for unfunded commitments and the Community Reinvestment Act (“CRA”) mutual fund investment valuation.

Results of Operations for the Nine Months Ended September 30, 2022

•Net income ~~remained steady at $6.3~~increased by $0.5 million, or 2.8%, to $17.9 million compared to $17.4 million in the prior ~~quarter. Net~~year period, due to an increase in net interest income ~~increased $1.9~~of $11.6 million, ~~which was~~partially offset by an increase in provision expense of $1.6 million, a decrease in noninterest income of ~~$0.8~~$0.6 million, an ~~increase~~increase in noninterest expense of ~~$0.7~~$8.6 million, and ~~a higher~~an increase in income tax provision ~~expense~~ of $0.3 million.

•~~During the quarter,~~Net interest income ~~derived from loans, including fees,~~ increased ~~$1.9 million. The increase was~~by $11.6 million, or 21.3%, to $65.8 million compared to $54.2 million in the prior year period, primarily due to the ~~recognition~~impact of the Federal Reserve’s target Federal Funds Rate increases in 2022 on the Company’s asset sensitive balance sheet, in addition to an increase in average loans from $1.7 billion in 2021 to $1.9 billion in 2022. Interest income also benefited from increased average balances and higher yields in the investment portfolio.

•~~$1.8~~Provision for loan losses increased by $1.6 million, ~~from the acceleration of loan fees associated with the Bank’s Payroll Protection Program (“Professional Bank PPP”) and $0.2~~or 55.0%, to $4.4 million compared to $2.9 million in ~~deposit correspondent fees from~~the prior year period primarily due to loan growth. The ratio of annualized charge-offs to average loans was 0.05% during the nine months ended September 30, 2022, compared to 0.61% in the prior year period.

•Noninterest income decreased by $0.6 million, or 12.7% to $4.3 million compared to the prior year period. The decrease primarily reflected lower service charges of $0.6 million on deposit accounts compared to prior year due to service charges of approximately $0.7 million, associated with acting as a correspondent bank for a Payroll Protection Program ("PPP") lender, ~~(the “Correspondent Banking Relationship”).~~

•~~Net interest~~and lower swap fee income ~~increased $1.9 million, or 11.1%, to $19.1 million compared to the prior quarter primarily due to~~of $0.7 million. These decreases were partially offset by an increase ~~in loan yield in our commercial real estate and commercial loan portfolios. The loan yield increase resulted from the acceleration~~ of ~~Professional Bank PPP loan fees and acceleration of purchase accounting loan marks from the Marquis Bancorp, Inc. (“MBI”) acquisition.~~

•~~Noninterest income decreased~~ $0.8 million ~~or 35.9%, to $1.5~~in other noninterest income, comprised of $0.5 million ~~compared to the prior quarter primarily due to decreases in service charges from the Correspondent Banking Relationship~~of expected insurance proceeds on a previously recognized contingency and a ~~decrease~~$0.2 million loss on fixed asset disposals recorded in ~~SWAP fee income due to a lower volume of SWAP transactions.~~2021.

•Noninterest expense increased ~~$0.7~~by $8.6 million, or ~~6.1%~~25.0%, to ~~$11.6~~$43.0 million compared to $34.4 million in the prior ~~quarter~~year period primarily due to ~~a $0.3 million charitable contribution expense for the AAA scholarship foundation and increased~~higher salaries and employee benefits ~~associated with an~~of $5.5 million and higher other noninterest expense of $2.0 million. The increase in ~~employee headcount. Employee headcount increased primarily due to our opening of loan production offices (“LPOs”) in Tampa Bay~~salaries and ~~Jacksonville.~~

~~Results of Operations for~~benefits was driven by the ~~nine months ended September 30, 2021~~

•~~The variance in the nine-month Results of Operations for 2021 compared to 2020 occurred in part due~~$2.9 million expense related to the ~~March 26, 2020, closing date~~departure of the ~~MBI acquisition as there were 187 days of MBI integration in the nine months of 2020 compared to 273 days in the nine months of 2021 (the “MBI Variance”).~~

•~~Net income increased $14.6 million, or 529.7%, to $17.4 million compared to the prior year.~~Company’s former Chief Executive Officer, and higher employee compensation costs from higher headcount and bonus and sales incentives. The increase in other noninterest expense was primarily due to the increase of interest income resulting from the MBI Variance, the acceleration of Professional Bank PPP loan fees, deposit fees associated with the Correspondent Banking Relationship, as well as lower provision for loan losses primarily due to the macro environment stabilization following the increased reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the impairmentcomprised of a ~~loan to Coex Coffee International, Inc. (“Coex”) in the third quarter of 2020.~~

•~~Net interest income increased $12.4~~$0.7 million or 29.6%, to $54.2 million compared to the prior year primarily due to loan growth and an increase in forgiveness of Professional Bank PPP loans resulting in a higher amount of loan fees recognized in addition to a reduction in interest expense on deposit accounts..

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

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

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related to a previously recognized contingency from the first quarter, a $0.3 million increase related to our CRA mutual fund investment valuation, and a $0.5 million increase in the provision for unfunded commitments.

Financial Condition

OnAt September 30, ~~2021:~~2022:

•Total assets ~~remained relatively unchanged at $2.6~~decreased $0.2 billion, or 7.1%, to $2.5 billion compared to ~~the prior quarter. Total assets increased 27.4%, or $0.6 billion, compared to September 30, 2020,~~December 31, 2021, primarily as a result of ~~increases~~decreases in cash and cash equivalents of $0.4 billion, partially offset by an increase in net loans ~~and taxable securities available-for-sale.~~of $0.2 billion.

•Total loans ~~were consistent~~increased $0.2 billion, or 12.8%, to $2.0 billion compared to ~~the prior quarter at $1.7 billion primarily due to new~~December 31, 2021. The increase was driven by loan originations of approximately $708.7 million, partially offset by ~~loan~~ paydowns and prepayments. ~~New loan originations were $198.7 million, of which $172.7 million funded.~~ The Professional Bank PPP loan balance decreased ~~$54.1~~$56.0 million, or ~~38.9%~~95.5%, to ~~$85.1~~$2.6 million from ~~the prior quarter.~~December 31, 2021.

•Total ~~Deposits increased 3.4%~~deposits decreased $0.2 billion, or 7.7%, ~~or $0.1 billion,~~ to ~~$2.4~~$2.2 billion compared to ~~the prior quarter~~December 31, 2021 primarily due ~~to increases~~a decrease in money market and savings ~~accounts~~ and ~~interest bearing demand deposit accounts,~~time deposits, partially offset by ~~a decrease~~an increase in noninterest bearing demand ~~deposit accounts. During the quarter, $57.0 million of noninterest bearing deposits were recategorized into interest bearing~~ deposits.

•~~Nonperforming assets remained unchanged at $2.8 million compared to the prior quarter.~~ As of September 30, ~~2020,~~2022, the Company had nonperforming assets of ~~$9.9 million. There were no charge-offs~~$1.8 million, or 0.07% of total assets, compared to nonperforming assets of $2.1 million at December 31, 2021. The decrease was due to the charge-off of a $0.7 million impaired loan in the consumer loan category, partially offset by the addition of a $0.3 million nonaccrual commercial real estate loan during the ~~three~~nine months ended September 30, ~~2021, compared to one loan that was net charged-off for $0.2 million for the three months ended September 30, 2020.~~2022.

Operating Results

Results of Operations for the three months ended September 30, ~~2021,~~2022, and ~~2020~~2021

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


		Three Months Ended September 30,							Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		Change		(Dollars in thousands)	2022		2021		Change
Interest income	Interest income	$	20,890	$	19,101	9.4	%	Interest income	$	27,165	$	20,890	30.0	%
Interest expense	Interest expense	1,786		1,641		8.8	%	Interest expense	2,368		1,786		32.6	%
Net Interest income		19,104		17,460		9.4	%
Net interest income								Net interest income	24,797		19,104		29.8	%
Provision for loan losses	Provision for loan losses	1,060		5,957		(82.2)	%	Provision for loan losses	1,343		1,060		26.7	%
Net interest income after provision	Net interest income after provision	18,044		11,503		56.9	%	Net interest income after provision	23,454		18,044		30.0	%
Noninterest income	Noninterest income	1,476		963		53.3	%	Noninterest income	1,223		1,476		(17.1)	%
Noninterest expense	Noninterest expense	11,624		11,713		(0.8)	%	Noninterest expense	13,853		11,624		19.2	%
Income before income taxes	Income before income taxes	7,896		753		948.6	%	Income before income taxes	10,824		7,896		37.1	%
Income tax expense (benefit)		1,608		(197)		(916.2)	%
Income tax expense								Income tax expense	2,351		1,608		46.2	%
Net income	Net income	$	6,288	$	950	561.9	%	Net income	$	8,473	$	6,288	34.7	%

Net income for the three months ended September 30, 2021, was $6.3 million, an increase of $5.3 million, or 561.9%, compared to the three months ended September 30, 2020. Net interest income increased $1.6 million for the three months ended September 30, 2021, compared to the same period in the prior year. The increase in our net interest income year-over-year was primarily due to increased loan portfolio growth. Provision for loan losses decreased by $4.9 million for the three months ended September 30, 2021, compared to the same period in the prior year. The decrease in the provision expense was attributed primarily to having addressed the impairment of a loan to Coex in the third quarter of 2020. The increase in noninterest income during the three months ended September 30, 2021, compared to the same period in the prior year was primarily due to increases in service charges on deposit accounts associated with the Correspondent Banking Relationship, and secondarily to an increase in Bank owned life insurance income. The decrease in noninterest expense for the three months ended September 30, 2021, compared to the same period in the prior year was primarily due to the lack of MBI acquisition expenses this quarter and to a lesser extent the realization of our implementation efforts regarding operational efficiencies in occupancy, equipment, and data processing expenses, partially offset by higher salaries and employee benefits as a result of our continued growth.

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Net Interest Income and Net Interest Margin Analysis

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

Changes in market interest rates and the interest rates we earn on interest earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest earning assets, interest bearing and noninterest-bearing liabilities and stockholders’ equity, are usually the largest drivers of periodic changes in net interest income, net interest margin and net interest spread. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation,

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

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

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

~~(1)Includes nonaccrual loans.~~

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

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

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

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

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

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

Net interest income increased by $1.6 million to $19.1 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. Our total net interest income was impacted by an increase in interest earning assets, which was ~~primarily due to increased balances in large low yielding cash assets, coupled with an increase in our loan portfolio. Average total interest earning assets were $2.4 billion for the three months ended September 30, 2021, compared to $2.0 billion for the three months ended September 30, 2020~~. The annualized yield on interest earning assets decreased 45 basis points for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to increased cash balances and accelerated paydowns of principal in higher yielding loans and investments. The increase in the average balance of interest earning assets was driven primarily by our growth in cash of $309.5 million, or 123.0%, and growth in our loan portfolio of $129.3 million, or 8.2%, compared to three months ended September 30, 2020. The growth in our loan portfolio was due to organic loan originations.

Average interest-bearing liabilities for the three months ended September 30, 2021, increased due to organic deposit growth and grew by $161.4 million, or 12.0%, for the three months ended September 30, 2020. The increase was primarily due to a $413.6 million, or 39.4%, increase in the average balance of interest-bearing deposits. The increase in the average balance of interest-bearing deposits was primarily due to increases in negotiable orders of withdrawal (“NOW”) and money market accounts for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, and, to a lesser extent, increases in certificates of deposit. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.47%, for the three months ended September 30, 2021, compared to 0.48% for the three months ended September 30, 2020. Annualized average interest rate paid on interest-bearing deposits decreased 4 basis points to 0.40%, and the annualized average interest rate paid on borrowed funds increased by 209 basis points to 2.73%. The average interest rate on borrowings during the quarter ended September 30, 2021, increased as we paid-off the Paycheck Protection Program Liquidity Facility (“PPPLF”) balances, leaving higher priced Federal Home Loan Bank ("FHLB") advances and subordinated debt as our borrowings. For the three months ended September 30, 2021, our average other noninterest-bearing liabilities decreased $3.2 million, or 16.1%, compared to the three months ended September 30, 2020. Average noninterest-bearing deposits also

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

~~Provision for Loan Losses~~

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

Our provision for loan losses amounted to $1.1 million for the three months ended September 30, 2021, and $6.0 million for the three months ended September 30, 2020. The decrease from 2020 to 2021 was primarily due to the need for an increased reserve at the early stages of COVID-19 in 2020 and the decreasing impact of COVID-19 on the economy in 2021 and having addressed the impairment of a loan to Coex in the third quarter of 2020. We did not record any net charge-offs for the three months ended September 30, 2021, compared to one loan that was charged-off for $0.2 million for the three months ended September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was 0.72% on ~~September 30, 2021, compared to 1.10% on~~ ~~December 31, 2020. See Reconciliation of non-GAAP Financial Measures.~~

~~Noninterest Income~~

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

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

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

Noninterest income for the three months ended September 30, 2021, was $1.5 million, a $0.5 million, or 53.3%, increase compared to the three months ended September 30, 2020. The increase was primarily due to an increase in service charges on deposit accounts associated with the Correspondent Banking Relationship, secondarily to an increase in income from Bank owned life insurance ("BOLI"), partially offset by a decrease in third party loan sales.

See Note 11 to the Consolidated Financial Statements (unaudited) dated September 30, 2021, titled "Customer Derivatives – Interest Rate SWAPs" for additional information regarding our derivative financial instruments.

~~Noninterest Expense~~

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

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

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

Noninterest expense amounted to $11.6 million for the three months ended September 30, 2021, a decrease of $0.1 million, or 0.8%, compared to the three months ended September 30, 2020. The decrease was primarily due to the lack of MBI acquisition expenses this quarter and to a lesser extent the realization of our implementation efforts regarding operational efficiencies in occupancy, equipment, and data processing expenses, partially offset by higher salaries resulting from our opening of loan production offices in Tampa Bay and Jacksonville and investment in digital infrastructure. Additionally, the decrease in occupancy and equipment was due primarily to the Company exercising an option to early terminate a lease for one of the former operational offices of Marquis Bank and a branch located in Coral Gables (the "Option"). The Option resulted in savings of over $400 thousand in lease payments plus expenses.

~~Table of Contents~~

~~Income Tax Expense~~

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

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

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

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

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

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

~~Table of Contents~~

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


		For the Nine Months Ended September 30,													For the Three Months Ended September 30,
		2021						2020							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate
Assets	Assets													Assets
Interest earning assets	Interest earning assets													Interest earning assets
Interest-bearing deposits		$	441,679	$	436	0.13	%	$	201,730	$	694	0.46	%
Interest-earning deposits														Interest-earning deposits	$	137,355	$	747	2.16	%	$	561,082	$	212	0.15	%
Federal funds sold	Federal funds sold	49,982		50		0.13	%	32,682		143		0.58	%	Federal funds sold	21,895		124		2.25	%	36,264		10		0.11	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	Federal Reserve Bank stock, FHLB stock and other corporate stock	7,624		290		5.09	%	7,372		313		5.67	%	Federal Reserve Bank stock, FHLB stock and other corporate stock	7,384		108		5.80	%	7,521		96		5.06	%
Investment securities - Taxable		81,941		526		0.86	%	71,820		663		1.23	%
Investment securities - Non-taxable		20,396		569		3.73	%	15,787		430		3.64	%
Investment securities - taxable														Investment securities - taxable	168,662		736		1.73	%	105,498		186		0.70	%
Investment securities - tax-exempt														Investment securities - tax-exempt	27,572		228		3.28	%	19,402		177		3.62	%
Loans(1)	Loans(1)	1,688,499		57,753		4.57	%	1,296,922		46,400		4.78	%	Loans (1)	1,979,132		25,222		5.06	%	1,702,137		20,209		4.71	%
Total interest earning assets	Total interest earning assets	2,290,121		59,624		3.48	%	1,626,313		48,643		4.00	%	Total interest earning assets	2,342,000		27,165		4.60	%	2,431,904		20,890		3.41	%
Loans held for sale	Loans held for sale	1,824						—						Loans held for sale	31						1,478
Noninterest earning assets	Noninterest earning assets	122,306						91,454						Noninterest earning assets	156,584						125,751
Total assets	Total assets	$	2,414,251					$	1,717,767					Total assets	$	2,498,615					$	2,559,133
Liabilities and shareholders’ equity	Liabilities and shareholders’ equity													Liabilities and shareholders’ equity
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Interest-bearing deposits	Interest-bearing deposits	1,350,795		4,223		0.42	%	936,765		5,408		0.77	%	Interest-bearing deposits	$	1,453,653	2,170		0.59	%	$	1,463,138	1,476		0.40	%
Borrowed funds	Borrowed funds	82,229		1,216		1.98	%	197,327		1,423		0.96	%	Borrowed funds	24,447		198		3.21	%	45,046		310		2.73	%
Total interest-bearing liabilities	Total interest-bearing liabilities	1,433,024		5,439		0.51	%	1,134,092		6,831		0.80	%	Total interest-bearing liabilities	1,478,100		2,368		0.64	%	1,508,184		1,786		0.47	%
Noninterest-bearing liabilities	Noninterest-bearing liabilities													Noninterest-bearing liabilities
Noninterest-bearing deposits	Noninterest-bearing deposits	742,530						386,848						Noninterest-bearing deposits	758,135						810,042
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	17,769						17,243						Other noninterest-bearing liabilities	24,492						16,746
Shareholders’ equity	Shareholders’ equity	220,928						179,584						Shareholders’ equity	237,888						224,161
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	2,414,251					$	1,717,767					Total liabilities and shareholders’ equity	$	2,498,615					$	2,559,133
Net interest income														Net interest income			$	24,797					$	19,104
Net interest spread(2)	Net interest spread(2)					2.97	%					3.20	%	Net interest spread (2)					3.96	%					2.94	%
Net interest income				$	54,185					$	41,812
Net interest margin(3)	Net interest margin(3)					3.16	%					3.43	%	Net interest margin (3)					4.20	%					3.12	%

(1)Includes nonaccrual loans.

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

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

(4)Interest income on loans includes loan fees of ~~$6.7~~$0.9 million and $2.3 million for the ~~nine~~three months ended September 30, ~~2021,~~2022 and ~~2020,~~2021, respectively.

4033

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		For the Nine Months Ended September 30, 2021 Compared to 2020							For the Three Months Ended September 30, 2022 Compared to 2021
		Change Due To							Change Due To
(Dollars in thousands)	(Dollars in thousands)	Volume		Rate		Total		(Dollars in thousands)	Volume		Rate		Total
Interest income	Interest income							Interest income
Interest-bearing deposits		$	825	$	(1,083)	$	(258)
Interest earning deposits								Interest earning deposits	$	(160)	$	695	$	535
Federal funds sold	Federal funds sold	76		(169)		(93)		Federal funds sold	(4)		118		114
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	11		(34)		(23)		Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(2)		14		12
Investment securities - taxable	Investment securities - taxable	93		(230)		(137)		Investment securities - taxable	111		439		550
Investment securities - tax exempt		126		13		139
Investment securities - tax-exempt								Investment securities - tax-exempt	75		(24)		51
Loans	Loans	14,009		(2,656)		11,353		Loans	3,289		1,724		5,013
Total	Total	$	15,140	$	(4,159)	$	10,981	Total	$	3,309	$	2,966	$	6,275
Interest expense	Interest expense							Interest expense
Interest-bearing deposits	Interest-bearing deposits	2,390		(3,575)		(1,185)		Interest-bearing deposits	(10)		704		694
Borrowed funds	Borrowed funds	(830)		623		(207)		Borrowed funds	(142)		30		(112)
Total	Total	$	1,560	$	(2,952)	$	(1,392)	Total	$	(151)	$	733	$	582

Net interest income increased by ~~$12.4~~$5.7 million to ~~$41.8~~$24.8 million for the ~~nine~~three months ended September 30, ~~2021,~~2022, compared to the ~~nine~~three months ended September 30, ~~2020.~~2021. Our total net interest income was impacted ~~primarily due to~~ by increases in ~~annualized~~the Federal Reserve’s target Federal Funds Rate and increased average ~~interest rates primarily reflected an increase in interest earning assets, primarily due to increased~~ balances ~~in our low yielding cash assets as well as increases in our loan portfolio of lower yielding~~on loans ~~offset by decreased cost of funds to the Company.~~and investments. Average total interest earning assets were $2.3 billion for the ~~nine~~three months ended September 30, 2022, compared to $2.4 billion for the three months ended September 30, 2021. The annualized yield on interest earning assets increased 119 basis points for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, compared with $1.6 billion for the nine months ended September 30, 2020. The annualized yield on those interest earning assets decreased 52 basis points to 3.48% for the nine months ended September 30, 2021,primarily due to ~~loans repricing downward, coupled with higher yielding loan payoffs.~~increases in the Federal Reserve's target Federal Fund Rate. The ~~increase~~decrease in the average balance of interest earning assets was driven primarily by ~~the MBI Variance and~~lower average balances in our interest earning deposits of $0.4 billion, or 75.5%, partially offset by growth in our average loan portfolio of ~~$391.6 million,~~$0.3 billion, or ~~30.2%~~16.3%, compared to ~~the nine~~three months ended September 30, ~~2020.~~2021. The growth in ~~the~~our loan portfolio was due to organic loan ~~originations during~~originations.

Average interest-bearing liabilities for the ~~nine~~three months ended September 30, ~~2021.~~

~~Average interest-bearing liabilities increased~~2022, decreased due to lower average interest bearing deposits and average borrowings compared to the ~~MBI Variance and organic deposit growth and grew by $298.9 million, or 26.4%, for the nine~~three months ended September 30, 2021. The ~~increase was primarily due to a $414.0 million, or 44.2%, increase in the average balance of interest-bearing deposits. The increase~~decrease in the average balance of interest-bearing deposits was primarily due to ~~increases~~a decrease of $88.4 million, or 34.3%, in ~~NOW~~our average certificates of deposit accounts, and a decrease of $28.1 million, or 57.9% in our average brokered deposit accounts, partially offset by an increase in money market accounts of $90.5 million, or 10.7% for the ~~nine~~three months ended September 30, ~~2021,~~2022, compared to the ~~nine~~three months ended September 30, ~~2020, and, to a lesser extent, increases in certificates of deposits.~~2021. The annualized average interest rate paid on average interest-bearing liabilities ~~decreased~~increased to ~~0.51%~~0.64%, for the ~~nine~~three months ended September 30, ~~2021,~~2022, compared to ~~0.80%~~0.47% for the ~~nine~~three months ended September 30, ~~2020. Annualized~~2021. The annualized average interest rate paid on interest-bearing deposits ~~decreased 35~~increased 19 basis points to ~~0.42%~~0.59%, and the annualized average interest rate paid on borrowed funds increased by ~~102~~48 basis points to ~~1.98%~~3.21%. ~~For~~The average interest rate on borrowings during the ~~nine~~three months ended September 30, ~~2021,~~2022, increased due to lower rate borrowings that were paid down and the remaining balances make up a larger weighted average rate. For the three months ended September 30, 2022, our average other noninterest-bearing liabilities increased ~~$0.5~~$7.7 million, or ~~3.1%~~46.3%, compared to the ~~nine~~three months ended September 30, ~~2020.~~2021. Average noninterest-bearing deposits ~~also increased $355.7~~decreased $51.9 million, or ~~91.9%~~6.4%, compared to the ~~nine~~three months ended September 30, ~~2020.~~2021. For the ~~nine~~three months ended September 30, 2022, our net interest margin was 4.20% and net interest spread was 3.96%. For the three months ended September 30, 2021, ~~our annual~~ net interest margin was ~~3.16%~~3.12% and net interest spread was ~~2.97%~~2.94%. ~~For the nine months ended September 30, 2020, annual net interest margin was 3.43% and net interest spread was 3.20%.~~

Table of Contents

Provision for Loan Losses

~~Table of Contents~~

Our provision for loan losses amounted to ~~$2.9~~$1.3 million for the ~~nine~~three months ended September 30, ~~2021,~~2022, and ~~$8.6~~$1.1 million for the ~~nine~~three months ended September 30, 2020. The decrease from 2020 to 2021 was attributed primarily to the lowering of COVID related risk in the portfolio taken in the prior year offset by an increase in loan originations subject to the allowance requirements and having addressed the impairment of a loan to Coex in the third quarter of 2020.2021. We recorded ano net ~~charge-off related to one loan of $7.6 million~~charge-offs for the ~~nine~~three months ended September 30, 2021, compared to a net charge-off related to one loan of $0.3 million for the nine months ended September 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was 0.72% on ~~September 30, 2021, compared to 1.10% on~~ ~~December 31, 2020. See Reconciliation of non-GAAP Financial Measures.~~2022 and 2021.

Noninterest Income

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

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


		Nine Months Ended September 30,						Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		Increase (Decrease)	(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest income	Noninterest income						Noninterest income
Service charges on deposit accounts	Service charges on deposit accounts	$	2,237	$	848	163.8%	Service charges on deposit accounts	$	542	$	643	(15.7)%
Income from Bank owned life insurance		844		378		123.3%
Income from bank owned life insurance							Income from bank owned life insurance	400		281		42.3%
SBA origination fees	SBA origination fees	166		114		45.6%	SBA origination fees	90		21		100.0%
SWAP fee income		781		622		25.6%
Third party loan sales		462		519		(11.0)%
Swap fee income							Swap fee income	—		208		(100.0)%
Loans held for sale income							Loans held for sale income	6		161		(96.3)%
Gain on sale and call of securities	Gain on sale and call of securities	23		16		43.8%	Gain on sale and call of securities	—		1		(100.0)%
Other	Other	384		290		32.4%	Other	185		161		14.9%
Total noninterest income	Total noninterest income	$	4,897	$	2,787	75.7%	Total noninterest income	$	1,223	$	1,476	(17.1)%

Noninterest income for the ~~nine~~three months ended September 30, ~~2021,~~2022, was ~~$4.9~~$1.2 million, a ~~$2.1~~$0.3 million, or ~~75.7%~~17.1%, ~~increase~~decrease compared to ~~for~~ the ~~nine~~three months ended September 30, ~~2020.~~2021. The ~~increase~~decrease was primarily ~~due to growth~~comprised of a decrease of $0.2 million in ~~deposit transaction accounts, coupled with increases~~swap fee income, a decrease of $0.2 million in loans held for sale income, and a decrease in service charges on deposit accounts ~~with~~of $0.1 million due to lower service charges from the Correspondent Banking ~~Relationship, $0.5 million increase in~~Relationship. These decreases were partially offset by higher income from ~~BOLI, and $0.2 million increase in SWAP fee income.~~bank owned life insurance as a result of as a result from of our prior quarter purchases of approximately $15.0 million.

During the first quarter of 2021, the Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate SWAP with the customer. The Company also enters into an offsetting SWAP with a SWAP dealer. These back-to-back SWAP agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. See Note 11 to the Consolidated Financial Statements (unaudited) dated September 30, 2021, entitled "Customer Derivatives – Interest Rate SWAPs" for additional information regarding our derivative financial instruments.

Noninterest Expense

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


		Nine Months Ended September 30,						Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		Increase (Decrease)	(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest expense	Noninterest expense						Noninterest expense
Salaries and employee benefits	Salaries and employee benefits	$	21,233	$	18,608	14.1%	Salaries and employee benefits	$	8,003	$	7,350	8.9%
Occupancy and equipment	Occupancy and equipment	2,942		3,051		(3.6)%	Occupancy and equipment	1,001		935		7.1%
Data processing	Data processing	869		971		(10.5)%	Data processing	257		303		(15.2)%
Marketing	Marketing	738		723		2.1%	Marketing	565		420		34.5%
Professional fees	Professional fees	2,087		1,723		21.1%	Professional fees	830		689		20.5%
Acquisition expenses	Acquisition expenses	684		3,301		(79.3)%	Acquisition expenses	957		—		—%
Regulatory assessments	Regulatory assessments	1,248		764		63.4%	Regulatory assessments	254		481		(47.2)%
Other	Other	4,565		3,606		26.6%	Other	1,986		1,446		37.3%
Total noninterest expense	Total noninterest expense	$	34,366	$	32,747	4.9%	Total noninterest expense	$	13,853	$	11,624	19.2%

Noninterest expense amounted to ~~$34.4~~$13.9 million for the ~~nine~~three months ended September 30, ~~2021,~~2022, an increase of ~~$1.6~~$2.2 million, or ~~4.9%~~19.2%, compared to ~~for~~ the ~~nine~~three months ended September 30, ~~2020.~~2021. The increase was primarily due to ~~increased~~acquisition expenses of $1.0 million in connection with the pending merger with Seacoast, higher salaries and ~~investment in digital infrastructure,~~employee benefits of $0.7 million, and higher other noninterest expense of $0.5 million, partially offset by lower regulatory assessments expense of $0.2 million. Salaries and employee benefits increased due to higher sales incentives resulting from higher net income and loans as well as enhancements to our regulatory and compliance areas. The increase in other noninterest expense was primarily comprised of a ~~reduction~~$0.3 million increase in ~~acquisition expenses. The Bank’s number of employees increased from 172 as of September 30, 2020, to 205 as of September 30, 2021.~~provision for unfunded commitments and a $0.1 million increase in our CRA mutual fund investment valuation.

Income Tax Expense

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

Income tax expense was $2.4 million for the three months ended September 30, 2022, compared to $1.6 million for the three months ended September 30, 2021. Our effective tax rates for those periods were 21.7% and 20.4%, respectively. The increase in the effective tax rate from the quarter ended September 30, 2021, to the quarter ended September 30, 2022 was primarily due to an increase in the state tax rate and an increase in non-deductible expenses.

Table of Contents

Results of Operations for the nine months ended September 30, 2022 and 2021

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


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		Change
Interest income	$	71,857	$	59,624	20.5%
Interest expense	6,104		5,439		12.2	%
Net interest income	65,753		54,185		21.3	%
Provision for loan losses	4,434		2,860		55.0	%
Net interest income after provision	61,319		51,325		19.5	%
Noninterest income	4,277		4,897		(12.7)	%
Noninterest expense	42,952		34,366		25.0	%
Income before income taxes	22,644		21,856		3.6	%
Income tax expense	4,758		4,452		6.9	%
Net income	$	17,886	$	17,404	2.8	%

Table of Contents

Net Interest Income and Net Interest Margin Analysis


	Nine Months Ended September 30
	2022						2021
(Dollars in thousands)	Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate		Average Outstanding Balance		Interest Income/ Expense(4)		Average Yield/Rate
Assets
Interest earning assets
Interest earning deposits	$	394,614	$	1,985	0.67	%	$	441,679	$	436	0.13	%
Federal funds sold	27,215		209		1.03	%	49,982		50		0.13	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,433		310		5.58	%	7,624		290		5.09	%
Investment securities - taxable	177,604		2,078		1.56	%	81,941		526		0.86	%
Investment securities - tax-exempt	27,305		673		3.30	%	20,396		569		3.73	%
Loans (1)	1,869,450		66,602		4.76	%	1,688,499		57,753		4.57	%
Total interest earning assets	2,503,621		71,857		3.84	%	2,290,121		59,624		3.48	%
Loans held for sale	452						1,824
Noninterest earning assets	148,404						122,306
Total assets	$	2,652,477					$	2,414,251
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	1,595,585		5,247		0.44	%	1,350,795		4,223		0.42	%
Borrowed funds	33,463		857		3.42	%	82,229		1,216		1.98	%
Total interest-bearing liabilities	1,629,048		6,104		0.50	%	1,433,024		5,439		0.51	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	769,026						742,530
Other noninterest-bearing liabilities	20,781						17,769
Shareholders’ equity	233,622						220,928
Total liabilities and shareholders’ equity	$	2,652,477					$	2,414,251
Net interest income			$	65,753					$	54,185
Net interest spread (2)					3.34	%					2.97	%
Net interest margin (3)					3.51	%					3.16	%

(1)Includes nonaccrual loans.

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

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

(4)Interest income on loans includes loan fees of $3.9 million and $6.7 million for the nine months ended September 30, 2022, and 2021, respectively.

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	For the Nine Months Ended September 30, 2022 Compared to 2021
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest-bearing deposits	$	(46)	$	1,595	$	1,549
Federal funds sold	(23)		182		159
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(7)		27		20
Investment securities - taxable	614		938		1,552
Investment securities - tax-exempt	193		(89)		104
Loans	6,189		2,660		8,849
Total	$	6,920	$	5,313	$	12,233
Interest expense
Interest-bearing deposits	765		259		1,024
Borrowed funds	(721)		362		(359)
Total	$	44	$	621	$	665

Net interest income increased by $11.6 million to $65.8 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Our total net interest income was impacted by increases in our average interest earning assets coupled with the increases in the Federal Reserve’s target Federal Funds Rate during the nine months ended September 30, 2022. Average total interest earning assets were $2.5 billion for the nine months ended September 30, 2022, compared to $2.3 billion for the nine months ended September 30, 2021. The annualized yield on those interest earning assets increased 36 basis points to 3.84% for the nine months ended September 30, 2022, due to the increases in the Federal Reserve's target Funds rate. The increase in the average balance of interest earning assets was driven primarily by growth in our average loan portfolio of $0.2 billion, or 10.7%, and growth in our average investment securities portfolio of $0.1 billion, or 100.2%, compared to the nine months ended September 30, 2021. The growth in the loan portfolio was due to organic loan originations during the nine months ended September 30, 2022.

Average interest-bearing liabilities increased by $0.2 billion, or 13.7%, to $1.6 billion, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was due to a $0.2 billion, or 18.1%, increase in the average balance of interest-bearing deposits, partially offset by a decrease of $48.8 million, or 59.3%, in our borrowed funds due to the paydown of our Federal Home Loan Bank advances. The increase in the average balance of interest-bearing deposits was primarily due to increases in our average money market balances for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.50% for the nine months ended September 30, 2022, compared to 0.51% for the nine months ended September 30, 2021. Annualized average interest rate paid on interest-bearing deposits increased 2 basis points to 0.44%, and the annualized average interest rate paid on borrowed funds increased by 144 basis points to 3.42%. The average interest rate on borrowings during the nine months ended September 30, 2022, increased as a result of paying off lower cost advances and replacing them with a larger balance of subordinated debt. Average noninterest-bearing deposits increased $26.5 million, or 3.6%, compared to the nine months ended September 30, 2021. Average other noninterest-bearing liabilities also increased $3.0 million, or 17.0%, compared to the nine months ended September 30, 2021. For the nine months ended September 30, 2022, our annual net interest margin was 3.51% and net interest spread was 3.34%. For the nine months ended September 30, 2021, annual net interest margin was 3.16% and net interest spread was 2.97%.

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Provision for Loan Losses

Our provision for loan losses amounted to $4.4 million for the nine months ended September 30, 2022, and $2.9 million for the nine months ended September 30, 2021. The increase from 2021 to 2022 was primarily related to loan growth. Our allowance for loan losses as a percentage of total loans was 0.82% on September 30, 2022, compared to 0.74% on December 31, 2021.

Noninterest Income

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


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	1,636	$	2,237	(26.9)%
Income from bank owned life insurance	1,049		844		24.3%
SBA origination fees	138		166		(16.9)%
Swap fee income	112		781		(85.7)%
Loans held for sale income	122		462		(73.6)%
Gain on sale and call of securities	13		23		(43.5)%
Other	1,207		384		214.3%
Total noninterest income	$	4,277	$	4,897	(12.7)%

Noninterest income for the nine months ended September 30, 2022, was $4.3 million, a $0.6 million, or 12.7%, decrease compared to for the nine months ended September 30, 2021. The decrease primarily reflected lower service charges of $0.6 million on deposit accounts compared to prior year due to service charges of approximately $0.7 million, associated with acting as a correspondent bank for a Payroll Protection Program lender, and lower swap fee income of $0.7 million. These decreases were partially offset by an increase of $0.8 million in other noninterest income, comprised of $0.5 million of expected insurance proceeds on a previously recognized contingency and a $0.2 million loss on fixed asset disposals recorded in 2021.

Noninterest Expense

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


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	26,696	$	21,233	25.7%
Occupancy and equipment	3,013		2,942		2.4%
Data processing	875		869		0.7%
Marketing	886		738		20.1%
Professional fees	2,635		2,087		26.3%
Acquisition expenses	957		684		39.9%
Regulatory assessments	1,276		1,248		2.2%
Other	6,614		4,565		44.9%
Total noninterest expense	$	42,952	$	34,366	25.0%

Noninterest expense amounted to $43.0 million for the nine months ended September 30, 2022, an increase of $8.6 million, or 25.0%, compared to the nine months ended September 30, 2021. The increase in salaries and benefits was driven by the $2.9 million expense related to the departure of the Company’s former Chief Executive Officer, and higher employee compensation costs from higher headcount and bonus and sales incentives. The increase in other noninterest expense was primarily comprised of a $0.7 million loss related to a previously recognized contingency from the first quarter, a $0.3 million

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increase related to our CRA mutual fund investment valuation, and a $0.5 million increase in the provision for unfunded commitments.

Income Tax Expense

Income tax expense was $4.8 million for the nine months ended September 30, 2022, compared to $4.5 million for the nine months ended September 30, ~~2021, compared to $0.5 million for the nine months ended September 30, 2020.~~2021. Our effective tax rates for those periods were ~~20.4%~~21.0% and ~~16.4%~~20.4%, respectively. ~~The change in the effective tax rate was due to a decrease in nondeductible expenses, an increase in tax-exempt income and state income tax credits in 2020.~~

Financial Condition

Balance Sheet Analysis

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

~~For the nine months ended~~As of September 30, ~~2021,~~2022, our total assets ~~increased 28.6%~~decreased 7.1%, or ~~$0.6~~$0.2 billion, compared to December 31, ~~2020. Total~~2021, primarily as a result of decreases in cash and cash equivalents, partially offset by an increase in net loans. Net loans increased ~~2.1%~~12.7%, or ~~$34.4 million,~~$0.2 billion, compared to December 31, ~~2020, as a result~~2021, driven by loan originations of ~~the third round of the PPP and new organic loan origination,~~approximately $0.7 billion, partially offset by paydowns and prepayments. The Professional Bank PPP loan ~~payoffs. Interest-bearing deposits at other financial institutions increased due~~balance decreased $56.0 million, or 95.5%, to ~~our desire to maintain our excess liquidity in more liquid assets due to our continued robust demand for loans and cash associated with Correspondent Banking Relationship.~~$2.6 million from December 31, 2021. Stockholders’ equity increased ~~$12.5~~$6.3 million, or ~~5.8%~~2.7%, compared to December 31, ~~2020,~~2021, primarily due to ~~net income~~an increase in retained earnings of ~~$17.4~~$17.9 million and an increase in additional paid in capital of $4.7 million for the nine months ended September 30, ~~2021,~~2022, partially offset by ~~repurchases~~a decrease of ~~the Company’s Class A voting common stock.~~$16.0 million in accumulated other comprehensive net income.

Cash and Cash Equivalents

Cash that is not immediately needed to fund loans by the Bank is invested in liquid assets that also earn interest, including deposits with other financial institutions. ~~Due to our desire to maintain excess liquidity in more liquid assets to fund our loan growth and excess due to the Correspondent Banking Relationship, cash~~Cash and cash equivalents ~~increased $527.2 million,~~decreased $0.4 billion, or ~~243.0%~~71.0%, to $0.2 billion, compared to $0.6 billion on December 31, ~~2020,~~2021, primarily due to ~~an increase~~a decrease in interest-bearing deposits. ~~As we continue to grow, so do our liquidity needs.~~

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Investment Securities

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

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

Our investment portfolio ~~increased $25.6~~decreased $17.4 million, or ~~26.9%~~8.7%, to ~~$120.6~~$183.8 million compared to December 31, ~~2020~~2021, ~~primarily~~ due to $25.1 million in investment calls, redemptions and paydowns, coupled with unrealized losses of $21.5 million during the year, partially offset by purchases of ~~$50.9~~approximately $30.7 million in ~~securities available for sale, offset by paydowns,~~MBS CDD, and ~~maturities.~~municipal bonds. To supplement interest income earned on the Company’s loan portfolio, the Company invests in mortgage-backed securities, government agency bonds, corporate bonds, community development district bonds, and equity securities (including mutual funds).

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The following tables summarize the book value, fair value, contractual maturities and weighted-average yields of investment securities as of September 30, ~~2021,~~2022, and December 31, ~~2020~~2021.


		September 30, 2021				December 31, 2020					September 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Book Value		Fair Value		Book Value		Fair Value		(Dollars in thousands)	Book Value		Fair Value		Book Value		Fair Value
Securities Available for Sale - taxable	Securities Available for Sale - taxable									Securities Available for Sale - taxable
Small Business Administration loan pools	Small Business Administration loan pools	$	40,131	$	39,703	$	30,678	$	30,556	Small Business Administration loan pools	$	31,902	$	31,514	$	40,368	$	39,934
Mortgage-backed securities(1)	Mortgage-backed securities(1)	51,105		50,927		28,514		28,922		Mortgage-backed securities(1)	135,017		114,834		131,273		130,103
United States agency obligations	United States agency obligations	2,002		2,079		3,000		3,122		United States agency obligations	2,947		2,667		3,939		3,986
Corporate bonds	Corporate bonds	1,500		1,509		2,501		2,510		Corporate bonds	1,500		1,502		1,500		1,513
Total	Total	$	94,738	$	94,218	$	64,693	$	65,110	Total	$	171,366	$	150,517	$	177,080	$	175,536
Securities Available for Sale - tax exempt
Securities Available for Sale - tax-exempt										Securities Available for Sale - tax-exempt
Community Development District bonds	Community Development District bonds	$	17,800	$	18,364	$	20,582	$	21,299	Community Development District bonds	$	25,343	$	24,014	$	17,163	$	17,674
Municipals	Municipals	1,054		1,098		1,064		1,099		Municipals	3,148		2,849		1,051		1,091
Total	Total	$	18,854	$	19,462	$	21,646	$	22,398	Total	$	28,491	$	26,863	$	18,214	$	18,765
Securities Held to Maturity	Securities Held to Maturity									Securities Held to Maturity
Mortgage-backed securities	Mortgage-backed securities	$	259	$	269	$	345	$	359	Mortgage-backed securities	$	194	$	178	$	236	$	242
United States Treasury		—		—		202		202
Foreign Bonds		—		—		1,000		1,000

Total	Total	$	259	$	269	$	1,547	$	1,561	Total	$	194	$	178	$	236	$	242
Equity Securities	Equity Securities									Equity Securities
Mutual Funds	Mutual Funds	$	5,903	$	5,903	$	6,005	$	6,005	Mutual Funds	$	5,325	$	5,325	$	5,838	$	5,838
Other equity securities	Other equity securities	800		800		—		—		Other equity securities	857		857		800		800
Total	Total	$	6,703	$	6,703	$	6,005	$	6,005	Total	$	6,182	$	6,182	$	6,638	$	6,638

(1) As of September 30, 2022 residential mortgage-backed is $91.1 million and commercial mortgage-backed is $23.7 million. As of December 31, 2021 residential mortgage-backed is$104.0 million and commercial mortgage-backed is $26.1 million.

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		One Year or Less				More than One Year Through Five Years				More than Five Years Through 10 Years				More than 10 Years				Total										One Year or Less							More than One Year Through Five Years							More than Five Years Through 10 Years							More than 10 Years							Total
On September 30, 2021 (Dollars in thousands)		Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Weighted Average Yield		Book Value		Fair Value			Weighted Average Yield
Securities Available for Sale - taxable
Small Business Administration loan pools		$	—	—	%	$	545	0.89	%	$	18,802	1.51	%	$	20,784	1.40	%	$	40,131	$	39,703		1.45	%
As of September 30, 2022 (Dollars in thousands)																						As of September 30, 2022 (Dollars in thousands)				Book Value				Weighted Average Yield (1)			Book Value				Weighted Average Yield (1)			Book Value				Weighted Average Yield (1)			Book Value				Weighted Average Yield (1)			Book Value				Fair Value				Weighted Average Yield (1)
Available for Sale - taxable																						Available for Sale - taxable
SBA loan pools																						SBA loan pools				$	—			—	%		$	333			2.09	%		$	16,111			2.52	%		$	15,458			2.74	%		$	31,902			$	31,514			2.62	%
Mortgage-backed securities	Mortgage-backed securities	—		—	%	120		0.31	%	6,376		0.78	%	44,610		1.16	%	51,106		50,927			1.11	%	Mortgage-backed securities			—				—	%		1,064				1.23	%		3,485				1.01	%		130,468				1.84	%		135,017				114,834				1.82	%
United States agency obligations	United States agency obligations	999		2.54	%	1,003		2.66	%	—		—	%	—		—	%	2,002		2,079			2.60	%	United States agency obligations			—				—	%		1,002				2.66	%		1,945				1.31	%		—				—	%		2,947				2,667				1.77	%
Corporate bonds	Corporate bonds	—		—	%	1,500		1.17	%	—		—	%	—		—	%	1,500		1,509			1.17	%	Corporate bonds			1,500				4.62	%		—				—	%		—				—	%		—				—	%		1,500				1,502				4.62	%
Total	Total	$	999	2.54	%	$	3,168	1.56	%	$	25,178	1.32	%	$	65,394	1.24	%	$	94,739	$	94,218		1.29	%	Total			$	1,500			4.62	%		$	2,399			1.95	%		$	21,541			2.17	%		$	145,926			1.93	%		$	171,366			$	150,517			1.99	%
Securities Available for Sale - tax exempt
Community Development District bonds		$	190	4.52	%	$	17,295	4.92	%	$	315	3.75	%	$	—	—	%	$	17,800	$	18,364		4.90	%
Available for Sale - tax-exempt																						Available for Sale - tax-exempt
CDD bonds																						CDD bonds				$	3,789			4.12	%		$	20,914			4.07	%		$	640			3.50	%		$	—			—	%		$	25,343			$	24,014			4.07	%
Municipals	Municipals	—		—	%	1,054		2.27	%	—		—	%	—		—	%	1,054		1,098			2.27	%	Municipals			—				—	%		1,041				2.27	%		2,107				4.20	%		—				—	%		3,148				2,849				3.56	%
Total	Total	$	190	4.52	%	$	18,349	4.77	%	$	315	3.75	%	$	—	—	%	$	18,854	$	19,462		4.75	%	Total			$	3,789			4.12	%		$	21,955			3.98	%		$	2,747			4.04	%		$	—			—	%		$	28,491			$	26,863			4.01	%
Securities Held to Maturity
Held to Maturity																						Held to Maturity
Mortgage-backed securities	Mortgage-backed securities	—		—	%	—		—	%	—		—	%	259		2.56	%	259		269			2.56	%	Mortgage-backed securities			—				—	%		—				—	%		—				—	%		194				2.91	%		194				178				2.91	%
United States Treasury		—		—	%	—		—	%	—		—	%	—		—	%	—		—			—	%
Foreign Bonds		—		—	%	—		—	%	—		—	%	—		—	%	—		—			—	%

Total	Total	$	—	—	%	$	—	—	%	$	—	—	%	$	259	2.56	%	$	259	$	269		2.56	%	Total			$	—			—	%		$	—			—	%		$	—			—	%		$	194			2.91	%		$	194			$	178			2.91	%
Equity Securities	Equity Securities																								Equity Securities
Mutual Funds	Mutual Funds	5,903		1.10	%	—		—	%	—		—	%	—		—	%	5,903		5,903			1.10	%	Mutual Funds			5,325				1.41	%		—				—	%		—				—	%		—				—	%		5,325				5,325				1.41	%
Other equity securities	Other equity securities	800		—	%	—		—	%	—		—	%	—		—	%	800		800			—	%	Other equity securities			857				—	%		—				—	%		—				—	%		—				—	%		857				857				—	%
Total	Total	$	6,703	1.10	%	$	—	—	%	$	—	—	%	$	—	—	%	$	6,703	$	6,703		0.97	%	Total			$	6,182			1.21	%		$	—			—	%		$	—			—	%		$	—			—	%		$	6,182			$	6,182			1.21	%

(1)Weighted average yield is calculated by assigning a weight amount to each investment by type and multiplying the weight amount times the outstanding yield to obtain the individual yield.

Loan Portfolio

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

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

September 30, 2021 December 31, 2020
(Dollars in thousands) Amount Percent Amount Percent
Loans held for investment:
Commercial real estate $ 856,194 50.7% $ 777,025 46.9%
Owner Occupied 315,489 —% 286,701 —%
Non-Owner Occupied 540,705 —% 490,324 —%
Residential real estate 371,469 22.0% 379,534 22.9%
Commercial (Non-PPP) 288,177 17.1% 206,095 12.4%
Commercial (PPP) 85,133 5.0% 185,748 11.2%
Construction and land development 69,534 4.1% 99,590 6.0%
Consumer and other 16,744 1.0% 9,689 0.6%
Total loans held for investment, gross 1,687,251 100.0% 1,657,681 100.0%
Allowance for loan loss (11,478) (16,259)
Loans held for investment, net $ 1,675,773 $ 1,641,422
Loans held for sale:
Loans held for sale $ 284 100.0% $ 1,270 100.0%
Total loans held for sale $ 284 $ 1,270

Commercial Real Estate Loans. We originate both owner-occupied and non-owner-occupied commercial real estate loans. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. Commercial real estate loans that are secured by owner-occupied commercial real estate and primarily supported by operating cash flows are also included in this category of loans. As of September 30, ~~2021~~2022, we had ~~$315.5~~$371.1 million of owner-occupied commercial real estate loans and ~~$540.7~~$626.4 million of investment commercial real estate loans, representing ~~36.8%~~37.2% and ~~63.2%~~62.8%, respectively, of our commercial real estate portfolio. As of September 30, ~~2021~~2022, the average loan balance of loans in our commercial real estate loan portfolio was approximately ~~$1.3~~$1.5 million for owner-occupied and ~~$1.8~~$2.7 million for non-owner occupied. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. Terms of 15 years are permitted where the loan is fully amortized over the term of the loan. The maximum loan to value is generally, 80% of the market value or purchase price, but may be as high as 90% for SBA 504 owner-occupied loans. As of September 30, ~~2021~~2022, we did not have any commercial real estate loans with a loan to value over 100%. Our credit policy also usually requires a minimum debt service coverage ratio of 1.20x. As of September 30, ~~2021~~2022, our weighted-average loan-to-value ratios for owner-occupied and non-owner-occupied commercial real estate were ~~both at 49.3%~~49.0% and 51.2%, respectively and debt service coverage ratios were ~~2.48x~~3.04x and ~~1.99x,~~2.03x, respectively. The interest rates on our commercial real estate loans have initial fixed rate terms that adjust typically at five years, and we routinely charge an origination fee for our services. We generally require personal guarantees from the principal owners of the business, supported by a review of the principal owners’ personal financial statements and global debt service obligations. All commercial real estate loans with an outstanding balance of $1.0 million or more are reviewed at least annually. The properties securing the portfolio are located primarily throughout our market and are

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generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.

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	As of September 30, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	26,415	2.6%	$	27,419	3.0%
Educational Facility	28,398		2.8%	32,281		3.6%
Gas Station	67,740		6.8%	60,854		6.7%
Hotel	98,168		9.8%	75,617		8.4%
Mixed Use	55,170		5.5%	28,762		3.2%
Multifamily	140,377		14.1%	140,496		15.6%
Office	138,199		13.9%	109,010		12.1%
Other / Special Use	63,191		6.3%	56,276		6.2%
Religious Facility	9,594		1.0%	10,679		1.2%
Retail	226,078		22.7%	209,283		23.2%
Vacant Land	5,800		0.6%	6,523		0.7%
Warehouse	138,348		13.9%	145,454		16.1%
Total	$	997,478	100.0%	$	902,654	100.0%

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


		As of September 30, 2021			As of December 31, 2020				As of September 30, 2022			As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent	Amount		Percent	(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate	Commercial Real Estate							Commercial Real Estate
Broward	Broward	$	124,367	14.5%	$	118,353	15.2%	Broward	$	151,827	15.2%	$	111,224	12.3%
Miami-Dade	Miami-Dade	535,100		62.5%	500,690		64.4%	Miami-Dade	536,932		53.9%	559,966		62.0%
Palm Beach	Palm Beach	141,270		16.5%	113,249		14.6%	Palm Beach	188,476		18.9%	139,517		15.5%
Other FL County	Other FL County	31,707		3.7%	27,124		3.5%	Other FL County	111,060		11.1%	49,892		5.5%
Out of State	Out of State	23,750		2.8%	17,609		2.3%	Out of State	9,183		0.9%	42,055		4.7%
Total	Total	$	856,194	100.0%	$	777,025	100.0%	Total	$	997,478	100%	$	902,654	100.0%

As of September 30, ~~2021~~2022, non-owner occupied commercial real estate loans of ~~$540.7~~$626.4 million represented ~~33.8%~~30.5% of total risk-weighted assets.

Construction and Development Loans. The majority of our construction loans are offered within the Miami-Dade MSA to builders primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Our construction loans typically have terms of 12 to 18 months with the goal of transitioning the borrowers to permanent financing or re-underwriting and selling into the secondary market. According to our credit policy, the loan to value ratio may not exceed the lesser of 80% of the appraised value, as established by an independent appraisal, or 85% of costs for residential construction and 90% of costs for SBA 504 loans. As of September 30, ~~2021~~2022, our weighted average loan-to-value ratio on our construction, vacant land, and land development loans were ~~51.3%~~51.8%, ~~49.7%~~48.2%, and ~~49.8%~~49.4%, respectively. We require construction and development loans to establish an interest reserve account, which is sufficient to pay the loan through completion of the project. We conduct semi-annual stress testing of our construction loan portfolio and closely monitor underlying real estate conditions as well as our borrowers’ trends of sales valuations as compared to underwriting valuations as part of our ongoing risk management efforts. We also closely monitor our borrowers’ progress in construction ~~buildout~~build out and strictly enforce our original underwriting guidelines for construction milestones and completion timelines.

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		As of September 30, 2021				As of December 31, 2020					As of September 30, 2022				As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent		Amount		Percent		(Dollars in thousands)	Amount		Percent		Amount		Percent
Construction & Development	Construction & Development									Construction & Development
1 – 4 Family Construction	1 – 4 Family Construction	$	43,046	61.9	%	$	44,971	45.1	%	1 – 4 Family Construction	$	61,946	48.1	%	$	47,164	51.5	%
Commercial Construction		669		1.0	%	34,031		34.2	%

Land Development	Land Development	5,343		7.7	%	5,783		5.8	%	Land Development	20,946		16.3	%	9,620		10.5	%
Vacant Land	Vacant Land	20,476		29.4	%	14,805		14.9	%	Vacant Land	45,848		35.7	%	34,736		38.0	%
Total	Total	$	69,534	100.0	%	$	99,590	100.0	%	Total	$	128,570	100.0	%	$	91,520	100.0	%


		As of September 30, 2021			As of December 31, 2020				As of September 30, 2022			As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent	Amount		Percent	(Dollars in thousands)	Amount		Percent	Amount		Percent
Construction & Development	Construction & Development							Construction & Development
Broward	Broward	$	2,537	3.6%	$	21,722	21.8%	Broward	$	3,887	3.0%	$	1,194	1.3%
Miami-Dade	Miami-Dade	57,274		82.4%	57,008		57.3%	Miami-Dade	89,256		69.4%	67,562		73.9%
Palm Beach	Palm Beach	9,723		14.0%	15,048		15.1%	Palm Beach	25,652		20.0%	21,080		23.0%
Other FL County	Other FL County	—		—%	5,812		5.8%	Other FL County	4,070		3.2%	1,684		1.8%
Out of State								Out of State	5,705		4.4%	—		—%
Total	Total	$	69,534	100.0%	$	99,590	100.0%	Total	$	128,570	100.0%	$	91,520	100.0%

As of September 30, ~~2021~~2022, total construction and land development loans of ~~$69.5~~$128.6 million represented ~~7.7%~~6.3% of total risk-weighted assets.

Residential Real Estate Loans. We offer one-to-four family mortgage loans primarily on owner-occupied primary residences and, to a lesser extent, investor-owned residences, which make up approximately ~~15.7%~~14.2% of our residential loan portfolio. Our residential loans also include home equity lines of credit, which totaled approximately ~~$46.0~~$44.0 million, or approximately ~~12.4%~~9.7% of our residential loan portfolio as of September 30, ~~2021~~2022. The average loan balance of closed-end residential loans in our residential portfolio was approximately ~~$0.8~~$0.9 million as of September 30, ~~2021.~~2022. As of September 30, ~~2021,~~2022, we did not have any residential real estate loans with a loan to value over 100%. Our one-to-four family residential loans have a relatively small balance spread between many individual borrowers compared to our other loan categories. Our owner-occupied residential real estate loans usually have fixed rates for five, seven or ~~seven~~ten years and adjust on an annual basis after the initial term based on a typical maturity of 30 years. Upon the implementation of rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the origination, closing and servicing of the traditional residential loan products became much more complex, which led to increased cost of compliance and training. As a result, many banks exited the business, which created an opportunity for the banks that remained in the space. While the use of technology, and other related origination strategies have allowed non-bank originators to gain significant market share over the last several years, traditional banks that made investments in personnel and technology to comply with the new requirements have typically experienced loan growth. Unlike many of our competitors, we have been able to effectively compete in the residential loan market, while simultaneously doing the same in the commercial loan market which has enabled us to establish a broader and deeper relationship with our borrowers. Additionally, by offering a full line of residential loan products, the owners of the many small to medium sized businesses that we lend to use us, instead of a competitor, for financing a personal residence. This greater bandwidth to the same market has been a significant contributor to our growth and market share in South Florida. The following table shows our residential real estate portfolio by loan type and the weighted average loan-to-value ratio for each loan type.


		As of September 30, 2021						As of December 31, 2020							As of September 30, 2022					As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent		LTV (%)		Amount		Percent		LTV (%)		(Dollars in thousands)	Amount		Percent	LTV (%)		Amount		Percent	LTV (%)
Residential Real Estate	Residential Real Estate													Residential Real Estate
Owner Occupied	Owner Occupied	$	266,966	71.8	%	57.3	%	$	270,934	71.2	%	57.8	%	Owner Occupied	$	344,292	76.1%	55.7	%	$	272,858	72.3%	57.8	%
Investor Owned Residences	Investor Owned Residences	58,475		15.7	%	51.7	%	48,087		12.6	%	50.7	%	Investor Owned Residences	64,202		14.2%	53.4	%	54,698		14.5%	50.7	%
HELOC	HELOC	46,028		12.4	%	50.9	%	60,513		15.9	%	57.1	%	HELOC	44,027		9.7%	56.6	%	49,955		13.2%	57.1	%
Loans Held for Sale		284		0.1	%	—	%	1,270		0.3	%	—	%
Total	Total	$	371,753	100.0	%			$	380,804	100.0	%			Total	$	452,521	100.0%			$	377,511	100.0%

Loans held for sale														Loans held for sale	$	—	100.0%			$	165	100.0%

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Commercial Loans (non-PPP). In addition to our other loan products, we provide general commercial loans, including commercial lines of credit, working capital loans, term loans, equipment financing, letters of credit and other loan products, primarily in our market, and underwritten based on each borrower’s ability to service debt from income. These loans are primarily made based on the identified cash flows of the borrower, as determined based on a review of the client’s financial statements, and secondarily, on the underlying collateral provided by the borrower. The average loan balance of the loans in our commercial loan portfolio, excluding Professional Bank PPP loans was ~~$0.6~~$0.9 million as of September 30, ~~2021.~~2022. As of September 30, ~~2021,~~2022, non-Professional Bank PPP commercial loans ~~was $288.2~~totaled $397.7 million, and Professional Bank PPP commercial loans ~~was $85.1~~totaled $2.6 million. For commercial loans over $0.5 million, a global cash flow analysis is generally required, when appropriate, which forms provides for a part of the basis for the credit ~~approval,~~approval. “Global cash flow” is defined as a cash flow calculation which includes all income sources of all principals in the transaction as well as all debt payments, including the debt service associated with the proposed transaction. In general, a minimum 1.20x debt service coverage is preferred, but in no event may the debt service coverage ratio be less than 1.00x. As of September 30, ~~2021,~~2022, the debt service coverage ratio for our Bank commercial loan portfolio was approximately ~~2.43x~~2.51x for non-Professional Bank PPP loans, excluding approximately ~~3.3%~~2.7% of the commercial loan portfolio that is cash secured. Most commercial business loans, which exclude Professional Bank PPP loans, are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and equipment, and we generally obtain a personal guaranty from the borrower or other principal. The following table shows our commercial loan portfolio by industry segment as of September 30, 2022 and December 31, 2021.


		As of September 30, 2021			As of December 31, 2020				As of September 30, 2022			As of December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amount		Percent	Amount		Percent	(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Loans
Commercial Loans (non-PPP)								Commercial Loans (non-PPP)
Business Products	Business Products	$	58	—%	$	1,163	0.6%	Business Products	$	4,529	1.1%	$	13	—%
Business Services	Business Services	65,441		22.7%	29,461		14.3%	Business Services	69,319		17.4%	73,868		22.7%
Communication	Communication	17,548		6.1%	17,687		8.6%	Communication	13,495		3.4%	389		0.1%
Construction	Construction	31,198		10.8%	19,241		9.3%	Construction	40,849		10.3%	31,285		9.6%
Finance	Finance	84,752		29.5%	56,506		27.3%	Finance	130,271		32.8%	100,849		31.1%
Healthcare	Healthcare	11,179		3.9%	7,369		3.6%	Healthcare	22,827		5.7%	23,564		7.2%
Services	Services	36,121		12.5%	23,252		11.3%	Services	53,156		13.4%	34,112		10.5%
Technology	Technology	760		0.3%	850		0.4%	Technology	6,990		1.8%	2,979		0.9%
Trade	Trade	32,557		11.3%	44,233		21.5%	Trade	43,800		11.0%	47,522		14.6%
Transportation	Transportation	1,217		0.4%	2,926		1.4%	Transportation	1,296		0.3%	1,593		0.5%
Other	Other	7,346		2.5%	3,407		1.7%	Other	11,193		2.8%	9,241		2.8%
Total	Total	$	288,177	100.0%	$	206,095	100.0%	Total	$	397,725	100.0%	$	325,415	100.0%

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

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

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

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The repayment of loans is a source of additional liquidity for us. The following table details maturities and sensitivity to interest rate changes for our loan portfolio on September 30, ~~2021~~2022 and .December 31, 2021.

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

~~Paycheck Protection Program~~

The Company participated in all three rounds of the PPP and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which 1,745 loans totaling $251.4 million were forgiven by the SBA. Most of the Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. However, the Company paid off all of the PPPLF advances during the first and second quarter of 2021 and the balance of PPPLF advances made by the Company was $0 on September 30, 2021.

~~Table of Contents~~


	September 30, 2022
(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due in Five to Fifteen Years		Due After Fifteen Years		Total
Commercial Real Estate	$	76,961	$	235,371	$	663,383	$	21,763	$	997,478
Residential Real Estate	21,439		16,755		18,814		395,513		452,521
Commercial*	116,176		114,114		142,215		27,838		400,343
Construction and Development	78,238		11,538		5,373		33,421		128,570
Consumer and Other	5,560		7,416		13,007		—		25,983
Total loans	$	298,374	$	385,194	$	842,792	$	478,535	$	2,004,895

Amounts with fixed rates	$	104,668	$	302,817	$	824,873	$	455,372	$	1,687,730
Amounts with floating rates	$	193,706	$	82,377	$	17,919	$	23,163	$	317,165
*Includes Paycheck Protection Program (PPP) loans.

	December 31, 2021
(Dollars in thousands)	Due in One Year or Less		Due in One to Five Years		Due in Five to Fifteen Years		Due After Fifteen Years		Total
Commercial Real Estate	$	87,405	$	233,829	$	567,349	$	14,071	$	902,654
Residential Real Estate	10,201		21,210		15,904		330,196		377,511
Commercial*	113,129		131,332		111,645		27,924		384,030
Construction and Development	40,851		17,029		3,141		30,499		91,520
Consumer and Other	4,226		7,444		9,779		—		21,449
Total loans	$	255,812	$	410,844	$	707,818	$	402,690	$	1,777,164

Amounts with fixed rates	$	98,992	$	327,126	$	673,381	$	385,663	$	1,485,162
Amounts with floating rates	$	156,820	$	83,718	$	34,437	$	17,027	$	292,002
*Includes Paycheck Protection Program (PPP) loans.

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Any loan which the Bank deems to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss. Loans that are past due for 180 days or more are charged off unless the loan is well secured and in the process of collection. We currently have no loans accruing over 90 days or greater past due as of September 30, ~~2021~~2022.

We believe our disciplined lending approach and focused management of nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have several procedures in place to assist us in maintaining the overall quality of our loan portfolio, such as annual reviews of the underlying financial performance of all commercial loans in excess of $1.0 million. We also engage in semi-annual stress testing of the loan portfolio, and proactive collection and timely disposition of past due loans. Our bankers follow established underwriting guidelines, and we also monitor our delinquency levels for any negative trends. As a result, we have, in recent years, experienced a relatively low level of nonperforming assets. We had nonperforming assets of ~~$2.8~~$1.8 million as of September 30, ~~2021~~2022, or ~~0.10%~~0.07% of total assets. We had nonperforming assets

Table of ~~$10.4~~Contents

of $2.1 million as of December 31, ~~2020,~~2021, or ~~0.51%~~0.08% of total assets. ~~The decrease in nonperforming assets was primarily driven by~~ W~~the $7.6 million charge off of the Coex Coffee International, Inc. ("Coex") loan during the first quarter of 2021.~~Occasionally, loans that we make will be impacted due to the occurrence of unforeseen events, which was a primary factor in the recent increase in our nonperforming assets relative to our historically low, near-zero levels. However, wee believe that our low loan-to-value loan portfolio is well positioned to withstand these types of discrete events as they occur from time to time. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

~~Table of Contents~~


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		December 31, 2020		(Dollars in thousands)	September 30, 2022		December 31, 2021
Nonaccrual Loans	Nonaccrual Loans					Nonaccrual Loans
Commercial real estate	Commercial real estate	$	—	$	—	Commercial real estate	$	297	$	—
Residential real estate	Residential real estate	—		—		Residential real estate	—		—
Commercial	Commercial	1,468		9,127		Commercial	1,468		1,468
Construction and development	Construction and development	—		—		Construction and development	—		—
Consumer and other loans	Consumer and other loans	1,307		1,307		Consumer and other loans	—		654
Accruing loans 90 or more days past due	Accruing loans 90 or more days past due	—		—		Accruing loans 90 or more days past due	—		—
Total nonperforming loans	Total nonperforming loans	$	2,775	$	10,434	Total nonperforming loans	$	1,765	$	2,122
Other real estate owned	Other real estate owned	—		—		Other real estate owned	—		—
Total nonperforming assets	Total nonperforming assets	$	2,775	$	10,434	Total nonperforming assets	$	1,765	$	2,122
Restructured loans-nonaccrual	Restructured loans-nonaccrual	$	—	$	—	Restructured loans-nonaccrual	$	—	$	—
Restructured loans-accruing	Restructured loans-accruing	$	227	$	298	Restructured loans-accruing	$	2	$	55
Ratio of nonperforming loans to total loans	Ratio of nonperforming loans to total loans	0.16%		0.62%		Ratio of nonperforming loans to total loans	0.09%		0.12%
Ratio of nonperforming assets to total assets	Ratio of nonperforming assets to total assets	0.10%		0.51%		Ratio of nonperforming assets to total assets	0.07%		0.08%

Credit Quality Indicators

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

~~Table of Contents~~

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Generally, all credits greater than $1.0 million, other than residential real estate loans, are reviewed no less than annually to monitor and adjust, if necessary, the credit risk profile. Loans classified as “substandard” or “special mention” are reviewed quarterly for further evaluation to determine if they are appropriately classified and whether there is any impairment. Beyond the annual review, all loans are graded at initial issuance. In addition, during the renewal process of any loan, as well as if a loan becomes past due, we will determine the appropriate loan grade. Loans excluded from the review process above are generally classified as “pass” credits until: (a) they become past due; (b) management becomes aware of deterioration in the creditworthiness of the borrower; or (c) the client contacts us for a modification. In these circumstances, the loan is specifically evaluated for potential reclassification to special mention, substandard, doubtful, or even a charged-off status. ~~Based on~~See Note 4 - Loans to the ~~most recent analysis performed, the~~Consolidated Financial Statements (unaudited) dated September 30, 2022, for additional information regarding risk category of loans by class of ~~loans is as follows:~~loans.

(Dollars in thousands) Pass Special
Mention Substandard Doubtful Total
September 30, 2021
Commercial real estate $ 853,888 $ — $ 2,306 $ — $ 856,194
Residential real estate 371,469 — — — 371,469
Commercial (Non-PPP) 286,334 375 1,468 — 288,177
Commercial (PPP) 85,133 — — — 85,133
Construction and land development 69,534 — — — 69,534
Consumer 15,349 88 1,307 — 16,744
Total $ 1,681,707 $ 463 $ 5,081 $ — $ 1,687,251
December 31, 2020
Commercial real estate $ 774,674 $ — $ 2,351 $ — $ 777,025
Residential real estate 379,104 430 — — 379,534
Commercial (Non-PPP) 196,856 112 9,127 — 206,095
Commercial (PPP) 185,748 — — — 185,748
Construction and land development 99,590 — — — 99,590
Consumer 8,382 — 1,307 — 9,689
Total $ 1,644,354 $ 542 $ 12,785 $ — $ 1,657,681

Table of Contents

Allowance for Loan Losses

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

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

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

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

The second component is a general reserve on all loans other than those identified as impaired. General reserves are assigned to various homogenous loan pools, including commercial, commercial real estate, construction and development, residential real estate, and consumer. General reserves are assigned based on historical loan loss ratios determined by loan pool and internal risk ratings that are adjusted for various internal and external risk factors unique to each loan pool.

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The following table analyzes the activity in the allowance ~~over~~for the ~~past two years~~three and ~~for the~~ nine months ended September 30, ~~2021,~~2022, and ~~2020.~~2021.


		For the Nine Months Ended September 30,						For the Year Ended December 31,							For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			2020			2019			(Dollars in thousands)	2022			2021			2022			2021
Balance at beginning of period	Balance at beginning of period	$	16,259		$	6,548		$	6,548		$	5,685		Balance at beginning of period	$	15,142		$	10,418		$	12,704		$	16,259
Charge-offs	Charge-offs													Charge-offs
Commercial real estate	Commercial real estate	—			—			—			—			Commercial real estate	—			—			—			—
Residential real estate	Residential real estate	—			(179)			(207)			—			Residential real estate	—			—			—			—
Commercial	Commercial	(7,641)			(99)			(99)			—			Commercial	—			—			—			(7,641)
Construction and development	Construction and development	—			—			—			—			Construction and development	—			—			—			—
Consumer and other	Consumer and other	—			—			—			—			Consumer and other	—			—			(653)			—
Total Charge-offs	Total Charge-offs	(7,641)			(278)			(306)			—			Total Charge-offs	—			—			(653)			(7,641)
Recoveries	Recoveries													Recoveries
Commercial real estate	Commercial real estate	—			—			—			—			Commercial real estate	—			—			—			—
Residential real estate	Residential real estate	—			—			—			—			Residential real estate	—			—			—			—
Commercial	Commercial	—			—			—			—			Commercial	—			—			—			—
Construction and development	Construction and development	—			—			—			—			Construction and development	—			—			—			—
Consumer and other	Consumer and other	—			—			—			1			Consumer and other	—			—			—			—
Total recoveries	Total recoveries	—			—			—			1			Total recoveries	—			—			—			—
Net charge-offs	Net charge-offs	(7,641)			(278)			(306)			—			Net charge-offs	—			—			(653)			(7,641)
Provision for loan losses	Provision for loan losses	2,860			8,765			10,017			862			Provision for loan losses	1,343			1,060			4,434			2,860
Balance at end of period	Balance at end of period	$	11,478		$	15,035		$	16,259		$	6,548		Balance at end of period	$	16,485		$	11,478		$	16,485		$	11,478
ALLL as a percentage of total loans at end of period		0.68		%	0.95		%	0.99		%	0.83		%
ALLL as a percentage of loans (excluding PPP loans) at end of period		0.72		%	1.09		%	1.10		%	0.83		%
ALLL as a multiple of net charge-offs		1.5			54.1			53.1			N/A
ALLL as a percentage of nonperforming loans		413.6		%	151.6		%	155.8		%	287.2		%
Ratio of net charge-offs to average loans														Ratio of net charge-offs to average loans	—		%	—		%	0.05		%	0.61		%


	September 30, 2022		December 31, 2021
ALLL as a percentage of total loans at end of period	0.82	%	0.74	%
ALLL as a percentage of loans (excluding PPP loans) at end of period	0.82	%	0.76	%
ALLL as a multiple of net charge-offs (1)	18.4		1.5
ALLL as a percentage of nonperforming loans	934.0	%	598.7	%

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Calculated for the September 30, 2022 period based on the year-to-date net charge-offs, annualized.

Our allowance for loan losses was ~~$11.5~~$16.5 million on September 30, ~~2021~~2022, compared to ~~$16.3~~$12.7 million on December 31, ~~2020~~2021, ~~a decrease~~an increase of ~~29.4%~~29.8%. The ~~decrease~~increase was primarily due to higher loan production volume during the ~~macro environment stabilization following~~nine months ended September 30, 2022. We had charge-offs of $0.7 million during the nine months ended September 30, 2022, compared to charge-offs of $7.6 million during the same period in 2021. There were minimal changes to qualitative loss factors and historical loss factors for the current period with the principal driver for the increased reserves at the early stages of COVID-19 pandemic in 2020 and having addressed the impairment of Coex in the third quarter of 2020. A reasonable balance was maintained in response to economic weakening and the onset of COVID variants.allowance being loan growth. On September 30, ~~2021~~2022, our allowance for loan losses was ~~0.72%~~0.82% of total gross loans (excluding Professional Bank PPP loans) and provided coverage of ~~413.6%~~934.0% of our nonperforming loans, compared to an allowance for loan losses to total gross loans (net of overdrafts) ratio of ~~1.10%~~0.76% as of December 31, ~~2020~~2021. See Reconciliation of non-GAAP Financial Measures. We believe our allowance on September 30, ~~2021~~2022, was adequate to absorb probable incurred losses inherent in our loan portfolio. The following table provides an allocation of the allowance for loan losses to specific loan types as of September 30, ~~2021,~~2022, and December 31, ~~2020~~2021.

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

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	September 30, 2022			December 31, 2021
(Dollars in thousands)	Allowance		Percent	Allowance		Percent
Commercial real estate	$	5,889	35.7%	$	4,471	35.2%
Residential real estate	3,580		21.7%	2,339		18.4%
Commercial	5,970		36.3%	4,637		36.5%
Construction and development	876		5.3%	471		3.7%
Consumer and other	170		1.0%	786		6.2%
Total allowance for loan losses	$	16,485	100.0%	$	12,704	100.0%

On September 30, ~~2021~~2022, the recorded investment in impaired loans (consisting of nonaccrual loans, troubled debt restructured loans, loans past due 90 days or more and still accruing interest and other loans based on management’ judgment) was ~~$3.0~~$1.8 million, of which ~~$2.8~~$1.8 million required a specific reserve of ~~$1.3~~$0.8 million, compared to a recorded investment in impaired loans of ~~$13.1~~$2.1 million, with a recorded investment of ~~which $10.4~~$2.1 million, on nonaccrual with a required a specific reserve of ~~$8.3~~$1.3 million on December 31, ~~2020.~~2021. There was also a substandard accruing loan with a recorded investment of $2.3 million, with no allowance on December 31, 2021.

~~Impaired loans also include certain loans that were modified as troubled debt restructurings (“TDR”).~~ On September 30, ~~2021~~2022, we had ~~two loans~~one loan amounting to ~~$0.2 million~~$2.0 thousand that ~~were~~was considered to be ~~TDRs,~~a troubled debt restructuring (“TDR”), compared to ~~the same two loans~~one loan amounting to ~~$0.3 million~~$55 thousand on December 31, ~~2020.~~2021. We did not allocate any specific reserves to loans that have been modified as TDRs as of September 30, ~~2021,~~2022, and December 31, ~~2020~~2021.

Deposits

Deposits are our primary source of funding. We offer a variety of deposit products including checking, NOW, savings, money market, and time deposit accounts all of which we actively market at competitive pricing. We generate deposits from our consumer and commercial clients through the efforts of our private bankers. We had public deposits of ~~$77.8~~$90.5 million and ~~$98.2~~$84.4 million,, on September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively. Additionally, we supplement our deposits with wholesale funding sources such as ~~Quickrate,~~Qwickrate and brokered deposits. However, we do not significantly rely on wholesale funding sources, which are generally viewed as less stable compared to core deposits due to the relatively higher price elasticity of demand for deposits from wholesale sources. As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, these wholesale deposits represented ~~3.8%~~0.8% and ~~4.3%~~3.9%, respectively, of our total deposits.

~~Interest-bearing~~Average interest-bearing deposits ~~increased~~ ~~$371.4~~decreased $9.5 million, or 0.6%, ~~or 36.50%, from December 31, 2020, to~~during the three months ended September 30, 2022, compared to the same time period in 2021, primarily due to a ~~$194.6~~$88.4 million decrease in certificates of deposit account balances and a $28.1 million decrease in brokered deposits, partially offset by a $90.5 million increase in money market account balances and a $13.3 million increase in NOW accounts from organic growth. In order to fund our loan growth, our bankers are actively involved with our strategic efforts and are incentivized to grow core deposits. The average rate paid on interest-bearing deposits ~~decreased 35~~increased 19 basis points to for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.


	For the Three Months Ended September 30, 2022			For the Three Months Ended September 30, 2021
(Dollars in thousands)	Average Balance		Average Rate	Average Balance		Average Rate
NOW accounts	$	309,386	0.22%	$	296,066	0.19%
Money market accounts	938,898		0.71%	848,408		0.39%
Brokered deposits	20,422		1.27%	48,517		0.48%
Savings accounts	16,040		0.10%	12,867		0.10%
Certificates of deposit	168,907		0.61%	257,280		0.68%
Total interest-bearing deposits	1,453,653		0.59%	1,463,138		0.40%
Noninterest-bearing deposits	758,135		—%	810,042		—%
Total deposits	$	2,211,788	0.39%	$	2,273,180	0.26%

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Average interest-bearing deposits increased $244.8 million, or 18.1%, during the nine months ended September 30, 2022, compared to the same time period in 2021 primarily due to $217.7 million increase in money market account balances and a $48.0 million increase in NOW accounts from organic growth, partially offset by a $29.3 million decrease in certificate of deposit account balances. The average rate paid on interest-bearing deposits increased 2 basis points to for the nine months ended September 30, ~~2021,~~2022, compared to the nine months ended September 30, ~~2020.~~ 2021.


	For the Nine Months Ended September 30, 2022			For the Nine Months Ended September 30, 2021
(Dollars in thousands)	Average Balance		Average Rate	Average Balance		Average Rate
NOW accounts	$	321,587	0.18%	$	273,590	0.20%
Money market accounts	998,530		0.48%	780,825		0.40%
Brokered deposits	42,167		0.59%	36,555		0.56%
Savings accounts	14,177		0.10%	11,358		0.10%
Certificates of deposit	219,124		0.62%	248,467		0.71%
Total interest-bearing deposits	1,595,585		0.44%	1,350,795		0.42%
Noninterest-bearing deposits	769,026		—%	742,530		—%
Total deposits	$	2,364,611	0.30%	$	2,093,325	0.27%

The ~~decrease in average rates paid on interest-bearing~~following table presents the ending balances and percentage of total deposits ~~was a result of a continued decrease in interest rates during~~for the ~~nine months ended September 30, 2021.~~periods indicated. As of September 30, ~~2021,~~2022, we had approximately ~~$56.4~~$18.4 million in brokered deposits representing ~~2.4%~~0.8% of total deposits. Brokered deposits ~~increased~~decreased approximately ~~$26.3~~$40.0 million,, or ~~87.2%~~68.5%, compared to December 31, ~~2020.~~2021. We did not obtain these brokered deposits through a deposit listing agency, but rather through an existing relationship with the Bank. However, these deposits meet the regulatory definition of brokered deposits and are reported accordingly.

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

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


		For the Nine Months Ended September 30, 2021				For the Year Ended December 31, 2020					September 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Ending Balance		% of Total		Ending Balance		% of Total		(Dollars in thousands)	Ending Balance		% of Total		Ending Balance		% of Total
NOW accounts	NOW accounts	$	328,667	14.0	%	$	232,367	14.0	%	NOW accounts	$	308,167	14.1	%	$	310,362	13.1	%
Money market accounts	Money market accounts	893,441		37.9	%	679,761		41.0	%	Money market accounts	944,728		43.2	%	1,055,033		44.5	%
Brokered deposits	Brokered deposits	56,418		2.4	%	30,137		1.8	%	Brokered deposits	18,407		0.8	%	58,365		2.5	%
Savings accounts	Savings accounts	13,833		0.6	%	9,727		0.6	%	Savings accounts	16,966		0.8	%	12,558		0.5	%
Certificates of deposit	Certificates of deposit	262,998		11.2	%	231,953		14.0	%	Certificates of deposit	141,981		6.5	%	261,067		11.0	%
Total interest-bearing deposits	Total interest-bearing deposits	1,555,357		66.1	%	1,183,945		71.3	%	Total interest-bearing deposits	1,430,249		65.4	%	1,697,385		71.6	%
Noninterest-bearing deposits	Noninterest-bearing deposits	799,389		33.9	%	475,598		28.7	%	Noninterest-bearing deposits	758,042		34.6	%	674,003		28.4	%
Total deposits(1)	Total deposits(1)	$	2,354,746	100.0	%	$	1,659,543	100.0	%	Total deposits(1)	$	2,188,291	100.0	%	$	2,371,388	100.0	%

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

For more information regarding the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, refer to Note 6 - Deposits to the Consolidated Financial Statements (unaudited) dated September 30, ~~2021, entitled "Deposits."~~2022.

Debt

See Note 7 - Debt and Borrowings to the Consolidated Financial Statements (unaudited) dated September 30, ~~2021, entitled "Debt"~~2022, for additional information regarding our Subordinated Debt and Valley National Line of Credit.

Borrowings

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

FHLB Advances. The FHLB allows us to borrow up to 25% of our assets on a blanket floating lien status collateralized by certain securities and loans. As of September 30, ~~2021,~~2022, approximately ~~$238.7~~$265.3 million in total loans that were pledged as

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collateral for ~~our~~potential FHLB ~~borrowings.~~borrowings and FHLB letters of credit. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of September 30, 2022, we had no outstanding advances, compared to $35.0 million as of December 31, 2021. As of September 30, 2022 and December 31, 2021, we had ~~$35.0~~$163.9 million ~~in outstanding advances~~ and ~~$129.3~~$113.0 million, respectively, in additional

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available borrowing capacity from the FHLB based on the collateral that we have currently pledged.

The following table sets forth certain information on our FHLB borrowings during the periods presented.


							September 30, 2022		December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30, 2021		Year Ended December 31, 2020		(Dollars in thousands)
Amount outstanding at period-end		$	35,000	$	40,000
Weighted average interest rate at period-end	Weighted average interest rate at period-end	2.04%		1.96%		Weighted average interest rate at period-end	—%		2.04%
Maximum month-end balance during period	Maximum month-end balance during period	$	40,000	$	70,000	Maximum month-end balance during period	$	35,000	$	35,000
Average balance outstanding during period	Average balance outstanding during period	$	38,867	$	58,210	Average balance outstanding during period	9,121		36,918
Weighted average interest rate during period	Weighted average interest rate during period	1.98%		1.63%		Weighted average interest rate during period	1.98%		2.01%

Federal Reserve Bank of Atlanta. The Federal Reserve Bank of Atlanta has an available borrower in custody arrangement which allows us to borrow on a collateralized basis. No advances were outstanding under this facility as of September 30, ~~2021.~~2022 and

~~PPPLF Advances~~December 31, 2021. The Company initially funded Professional Bank PPP loans with the PPPLF. Most of the Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. In addition, we paid off all PPPLF advances for a balance of $0 on September 30, 2021.

Liquidity and Capital Resources

Capital Resources

Stockholders’ equity increased ~~$12.5~~$6.3 million, or ~~5.8%~~2.7%, to ~~$228.0~~$237.9 million on September 30, ~~2021~~2022, compared to December 31, ~~2020~~2021, primarily due ~~to net income~~an increase in retained earnings of ~~$17.4~~$17.9 million and an increase in additional paid in capital of $4.7 million for the nine months ended September 30, ~~2021~~,2022, partially offset by ~~repurchases~~a decrease of ~~the Company’s Class A voting common stock.~~$16.0 million in accumulated other comprehensive net income.

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

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

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

As of September 30, ~~2021,~~2022, we were in compliance with all applicable regulatory capital requirements to which we were subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we intend to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums. During the nine months ended September 30, 2022, the Company infused $7.5 million of capital into the Bank to support asset growth and maintain well capitalized ratios at the Bank.

5853

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The following table presents our regulatory capital ratios as of September 30, ~~2021,~~2022, and December 31, ~~2020~~2021. The amounts presented exclude the capital conservation buffer.


		Actual			Minimum for capital adequacy			Minimum to be well capitalized				Actual				Minimum for capital adequacy				Minimum to be well capitalized
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio	(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2021
September 30, 2022											September 30, 2022
Total capital ratio	Total capital ratio										Total capital ratio
Bank	Bank	$	206,776	12.9%	$	127,860	8.0%	$	159,824	10.0%	Bank	$	257,261	12.5	%	$	164,087	8.0	%	$	205,109	10.0	%
Company	Company	224,537		14.0%	127,860		8.0%	N/A		N/A	Company	271,324		13.2	%	164,087		8.0	%	N/A		N/A
Tier 1 capital ratio
Tier 1 Capital ratio											Tier 1 Capital ratio
Bank	Bank	194,377		12.2%	95,895		6.0%	127,860		8.0%	Bank	239,468		11.7	%	123,066		6.0	%	164,087		8.0	%
Company	Company	202,122		12.6%	95,895		6.0%	N/A		N/A	Company	229,064		11.1	%	123,066		6.0	%	N/A		N/A
Tier1 leverage ratio
Tier 1 Leverage ratio											Tier 1 Leverage ratio
Bank	Bank	194,377		7.7%	101,353		4.0%	126,691		5.0%	Bank	239,468		9.6	%	99,364		4.0	%	124,205		5.0	%
Company	Company	202,122		8.0%	101,353		4.0%	N/A		N/A	Company	229,064		9.2	%	99,364		4.0	%	N/A		N/A
Common equity tier 1 capital ratio
Common Equity Tier 1											Common Equity Tier 1
Bank	Bank	194,377		12.2%	71,921		4.5%	103,886		6.5%	Bank	239,468		11.7	%	92,299		4.5	%	133,321		6.5	%
Company	Company	202,122		12.6%	71,921		4.5%	N/A		N/A	Company	229,064		11.1	%	92,299		4.5	%	N/A		N/A


		Actual			Minimum for capital adequacy			Minimum to be well capitalized				Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio	(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2020
December 31, 2021											December 31, 2021
Total capital ratio	Total capital ratio										Total capital ratio
Bank	Bank	$	176,633	12.0%	$	117,298	8.0%	$	146,623	10.0%	Bank	$	222,696	12.9%	$	138,435	8.0%	$	173,043	10.0%
Company	Company	215,977		14.7%	117,298		8.0%	N/A		N/A	Company	220,206		12.7%	138,435		8.0%	N/A		N/A
Tier 1 capital ratio	Tier 1 capital ratio										Tier 1 capital ratio
Bank	Bank	159,448		10.9%	87,974		6.0%	117,298		8.0%	Bank	208,997		12.1%	103,826		6.0%	138,435		8.0%
Company	Company	188,639		12.9%	87,974		6.0%	N/A		N/A	Company	206,507		11.9%	103,826		6.0%	N/A		N/A
Tier1 leverage ratio	Tier1 leverage ratio										Tier1 leverage ratio
Bank	Bank	159,448		8.4%	75,723		4.0%	94,654		5.0%	Bank	208,997		7.7%	107,877		4.0%	134,846		5.0%
Company	Company	188,639		10.0%	75,723		4.0%	N/A		N/A	Company	206,507		7.7%	107,877		4.0%	N/A		N/A
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio										Common equity tier 1 capital ratio
Bank	Bank	159,448		10.9%	65,980		4.5%	95,305		6.5%	Bank	208,997		12.1%	77,869		4.5%	112,478		6.5%
Company	Company	188,639		12.9%	65,980		4.5%	N/A		N/A	Company	206,507		11.9%	77,869		4.5%	N/A		N/A

Liquidity

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

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On September 30, ~~2021,~~2022, we had the ability to generate approximately ~~$390.0~~$459.3 million in additional liquidity through all of our available resources beyond our overnight funds sold position. During the nine months ended September 30, 2022, the Company issued $25.0 million in subordinated notes payable due 2032 and also increased the availability under its revolving line of credit at Valley National Bank, N.A. from $10.0 million to $25.0 million. In addition to the primary borrowing outlets mentioned above, we also have the ability to generate liquidity by borrowing from the Federal Reserve Discount Window and through brokered deposits. We recognize the importance of maintaining liquidity and have developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity. We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases, certain credit facilities may no longer be available. We conduct quarterly liquidity stress tests and the results are reported to our Asset-Liability Management Committee and our Board. We believe the liquidity available to us is currently sufficient to meet our ongoing needs.

We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for borrowings or deposits, and/or sell selected securities. On September 30, ~~2021,~~2022, and December 31, ~~2020~~2021, there were ~~$238.7~~$265.3 million and ~~$264.2~~$235.3 million in total loans pledged to the FHLB for liquidity. Our investment portfolio primarily consists of debt issued by the federal government and governmental agencies. The weighted-average ~~maturity~~life of our investment portfolio was ~~3.43~~5.90 years and ~~3.02~~4.41 years on September 30, ~~2021,~~2022, and December 31, ~~2020~~2021, ~~respectively,~~respectively. The duration of our investment portfolio was 4.75 years and ~~had a net unrealized pre-tax gain of $0.1 million~~4.08 years on September 30, 2022, and ~~$1.2 million, respectively, in our available for sale securities portfolio as of those dates.~~December 31, 2021, respectively.

As we deploy our capital and continue to grow our operations, we maintain cash in our holding company for added liquidity. As of September 30, ~~2021,~~2022, cash held at the holding company was approximately ~~$16.7~~$9.2 million. Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds purchased) was ~~$50.0~~$21.9 million during ~~2021~~three months ended September 30, 2022, compared to an average net overnight funds sold position of ~~$39.6~~$42.9 million for the year ended December 31, ~~2020~~2021. ~~Our liquidity is supported by our continued organic growth and our excess liquidity is comprised~~As of ~~readily available assets, such~~September 30, 2022, cash held at the Federal Reserve was approximately $111.9 million compared to $544.0 million as ~~federal funds sold and cash at other depository institutions, as opposed to less liquid, but higher yielding, assets, like investment securities.~~of December 31, 2021.

We expect our capital expenditures over the next 12 months to be approximately ~~$0.8~~$1.1 million, which will consist primarily of investments in digital capabilities, technology purchases for our new banking offices, business applications and information technology security needs. We expect that these capital expenditures will be funded with existing resources without impairing our ability to meet our ongoing obligations.

Inflation

~~The~~We are experiencing and may continue to experience labor cost inflation and constraints in hiring qualified employees. We aim to offset the potential unfavorable impact of these items with automation, productivity improvements, and other initiatives. In general, the impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment. Assets and liabilities of financial institutions are primarily all monetary in nature, and therefore are principally impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. ~~Inflation measures have increased during~~At September 30, 2022, inflation was rising at a higher and more sustained level than anticipated by the ~~third quarter~~Federal Reserve. As a result, there were five rate increases for the nine months ended September 30, 2022, totaling an upward increase of ~~2021 as bottlenecked supply chains~~300 basis points. Another increase of 75 bps occurred on November 2, 2022, and ~~other economic factors caused temporary increases~~the current market expects another interest rate increase in ~~prices~~2022 that could lead to greater market volatility.

Table of ~~commodities and consumer goods.~~Contents

Contractual Obligations

We have contractual obligations to make future payments on debt and lease agreements. While our liquidity monitoring and management consider both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of September 30, ~~2021~~2022.


(Dollars in thousands)	(Dollars in thousands)	Due in One Year or Less		Due after One Through Three Years		Due After Three Through Five Years		Due After Five Years		Total		(Dollars in thousands)	Due in One Year or Less		Due after One Through Three Years		Due After Three Through Five Years		Due After Five Years		Total
FHLB advances		$	—	$	20,000	$	10,000	$	5,000	$	35,000

Time deposits of $250,000 or less	Time deposits of $250,000 or less	88,844		6,444		—		—		95,288		Time deposits of $250,000 or less	$	47,062	$	4,276	$	—	$	—	$	51,338
Time deposits of more than $250,000	Time deposits of more than $250,000	167,505		4,831		—		—		172,336		Time deposits of more than $250,000	87,647		6,331		—		—		93,978
Operating leases	Operating leases	1,443		2,638		1,863		620		6,564		Operating leases	1,394		2,252		1,060		325		5,031
Subordinated debt	Subordinated debt	—		—		—		10,016		10,016		Subordinated debt	—		—		—		24,467		24,467
Total	Total	$	257,792	$	33,913	$	11,863	$	15,636	$	319,204	Total	$	136,103	$	12,859	$	1,060	$	24,792	$	174,814

~~Table of Contents~~

Off-Balance Sheet Items

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

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


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		December 31, 2020		(Dollars in thousands)	September 30, 2022		December 31, 2021
Unfunded lines of credit	Unfunded lines of credit	$	368,117	$	356,955	Unfunded lines of credit	529,519		415,402
Commitments to extend credit	Commitments to extend credit	97,251		40,629		Commitments to extend credit	93,278		108,824
Letters of credit		11,308		13,036
Standby letters of credit						Standby letters of credit	10,972		12,095
Commercial letters of credit						Commercial letters of credit	394		2,765
Total credit extension commitments	Total credit extension commitments	$	476,676	$	410,620	Total credit extension commitments	$	634,163	$	539,086

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

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

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

Table of Contents

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

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

~~Table of Contents~~

Certain Performance Metrics

The following table shows the return on average assets (computed as annualized net income divided by average total assets), return on average equity (computed as annualized net income divided by average equity) and average equity to average assets ratios for the three months ended September 30, 2022, and 2021 and nine months ended September 30, ~~2021,~~2022, and ~~for the year ended December 31, 2020.~~2021.

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


(Dollars in thousands)	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
Return on average assets	1.35	%	0.97	%	0.90	%	0.96	%
Return on average equity	14.13	%	11.13	%	10.24	%	10.53	%
Average equity to average assets	9.52	%	8.76	%	8.81	%	9.15	%

Market Risk and Interest Rate Sensitivity

Overview

Market risk arises from changes in interest rates, exchange rates, commodity prices, and equity prices. We have risk management policies designed to monitor and limit exposure to market risk and we do not participate in activities that give rise to significant market risk involving exchange rates, commodity prices, or equity prices. In asset and liability management activities, our policies are designed to minimize structural interest rate risk.

Interest Rate Risk Management

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

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

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

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

~~Table of Contents~~

Analysis

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

REPRICING GAP


September 30, 2021 (Dollars in thousands)		Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Assets
Interest earning assets
September 30, 2022 (Dollars in thousands)																			September 30, 2022 (Dollars in thousands)	Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Interest Earning Assets																			Interest Earning Assets
Loans	Loans	$	417,201		$	70,690		$	258,411		$	746,302		$	929,471		$	1,675,773	Loans	$	457,601		$	61,612		$	262,215		$	781,428		$	1,206,982		$	1,988,410
Loans held for sale	Loans held for sale	284			—			—			284			—			$	284	Loans held for sale	—			—			—			—			—			—
Securities	Securities	49,733			3,229			7,889			60,851			59,791			120,642		Securities	42,934			6,052			10,422			59,408			124,348			183,756
Interest-bearing deposits at other financial institutions		680,333			—			—			680,333			40,074			720,407
Interest earning deposits at other financial institutions																			Interest earning deposits at other financial institutions	112,571			—			—			112,571			44,933			157,504
Federal funds sold	Federal funds sold	23,736			—			—			23,736			—			23,736		Federal funds sold	15,762			—			—			15,762			—			15,762
FHLB & FRB stock	FHLB & FRB stock	7,757			—			—			7,757			—			7,757		FHLB & FRB stock	7,390			—			—			7,390			—			7,390
Total interest earning assets	Total interest earning assets	$	1,179,044		$	73,919		$	266,300		$	1,519,263		$	1,029,336		$	2,548,599	Total interest earning assets	$	636,258		$	67,664		$	272,637		$	976,559		$	1,376,263		$	2,352,822
Liabilities
Interest-bearing liabilities
Interest-Bearing Liabilities																			Interest-Bearing Liabilities
Interest-bearing deposits	Interest-bearing deposits	$	727,470		$	20,900		$	94,052		$	842,422		$	445,311		$	1,287,733	Interest-bearing deposits	$	612,935		$	22,740		$	102,333		$	738,008		$	546,925		$	1,284,933
Time deposits	Time deposits	13,104			25,557			217,688			256,349			11,275			267,624		Time deposits	16,548			29,235			88,926			134,709			10,607			145,316
Total interest-bearing deposits	Total interest-bearing deposits	740,574			46,457			311,740			1,098,771			456,586			1,555,357		Total interest-bearing deposits	$	629,483		$	51,975		$	191,259		$	872,717		$	557,532		$	1,430,249
Securities sold under agreements to repurchase		—			—			—			—			—			—

FHLB advances	FHLB advances	—			—			—			—			35,000			35,000		FHLB advances	—			—			—			—			—			—

Subordinated debt	Subordinated debt	—			—			—			—			10,016			10,016		Subordinated debt	—			—			—			—			24,467			24,467
Total interest-bearing liabilities	Total interest-bearing liabilities	$	740,574		$	46,457		$	311,740		$	1,098,771		$	501,602		$	1,600,373	Total interest-bearing liabilities	$	629,483		$	51,975		$	191,259		$	872,717		$	581,999		$	1,454,716
Period gap	Period gap	$	438,470		$	27,462		$	(45,440)		$	420,492		$	527,734				Period gap	$	6,775		$	15,689		$	81,378		$	103,842		$	794,264
Cumulative gap	Cumulative gap	$	438,470		$	465,932		$	420,492		$	420,492		$	948,226				Cumulative gap	$	6,775		$	22,464		$	103,842		$	103,842		$	898,106
Ratio of cumulative gap to total earning assets	Ratio of cumulative gap to total earning assets	37.19		%	630.33		%	157.90		%	27.68		%	92.12		%			Ratio of cumulative gap to total earning assets	1.06		%	33.20		%	38.09		%	10.63		%	65.26		%
Ratio of cumulative gap to cumulative total earning assets	Ratio of cumulative gap to cumulative total earning assets	17.20		%	18.28		%	16.50		%	16.50		%	37.21		%			Ratio of cumulative gap to cumulative total earning assets	0.29		%	0.95		%	4.41		%	4.41		%	38.17		%

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CASH FLOW GAP


September 30, 2021 (Dollars in thousands)		Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Assets
Interest earning assets
September 30, 2022 (Dollars in thousands)																			September 30, 2022 (Dollars in thousands)	Within One Month			After One Month Through Three Months			After Three Months Through 12 Months			Within One Year			Greater than One Year or Nonsensitive			Total
Interest Earning Assets																			Interest Earning Assets
Loans	Loans	$	103,535		$	85,298		$	277,619		$	466,452		$	1,209,321		$	1,675,773	Loans	$	118,656		$	111,893		$	288,441		$	518,990		$	1,469,420		$	1,988,410
Loans held for sale	Loans held for sale	284			—			—			284			—			284		Loans held for sale	—			—			—			—			—			—
Securities	Securities	7,249			2,181			9,988			19,418			101,224			120,642		Securities	9,001			3,075			14,674			26,750			157,006			183,756
Interest-bearing deposits at other financial institutions		680,333			—			—			680,333			40,074			720,407
Interest earning deposits at other financial institutions																			Interest earning deposits at other financial institutions	112,570			—			—			112,570			44,934			157,504
Federal funds sold	Federal funds sold	23,736			—			—			23,736			—			23,736		Federal funds sold	15,762			—			—			15,762			—			15,762
FHLB & FRB stock		—			—			—			—			7,757			7,757
FHLB & FRB stock (1)																			FHLB & FRB stock (1)	—			—			—			—			7,390			7,390
Total interest earning assets	Total interest earning assets	$	815,137		$	87,479		$	287,607		$	1,190,223		$	1,358,376		$	2,548,599	Total interest earning assets	$	255,989		$	114,968		$	303,115		$	674,072		$	1,678,750		$	2,352,822
Liabilities
Interest-bearing liabilities
Interest-Bearing Liabilities																			Interest-Bearing Liabilities
Interest-bearing deposits	Interest-bearing deposits	$	24,931		$	49,862		$	224,379		$	299,172		$	988,561		$	1,287,733	Interest-bearing deposits	$	24,485		$	48,976		$	220,398		$	293,859		$	991,074		$	1,284,933
Time deposits	Time deposits	13,104			25,557			217,688			256,349			11,275			267,624		Time deposits	16,548			29,235			88,926			134,709			10,607			145,316
Total interest-bearing deposits	Total interest-bearing deposits	38,035			75,419			442,067			555,521			999,836			1,555,357		Total interest-bearing deposits	41,033			78,211			309,324			428,568			1,001,681			1,430,249
Securities sold under agreements to repurchase		—			—			—			—			—			—

FHLB advances	FHLB advances	—			—			—			—			35,000			35,000		FHLB advances	—			—			—			—			—			—

Subordinated debt	Subordinated debt	—			—			—			—			10,016			10,016		Subordinated debt	—			—			—			—			24,467			24,467
Total interest-bearing liabilities	Total interest-bearing liabilities	$	38,035		$	75,419		$	442,067		$	555,521		$	1,044,852		$	1,600,373	Total interest-bearing liabilities	$	41,033		$	78,211		$	309,324		$	428,568		$	1,026,148		$	1,454,716
Period gap	Period gap	$	777,102		$	12,060		$	(154,460)		$	634,702		$	313,524				Period gap	$	214,956		$	36,757		$	(6,209)		$	245,504		$	652,602
Cumulative gap	Cumulative gap	$	777,102		$	789,162		$	634,702		$	634,702		$	948,226				Cumulative gap	$	214,956		$	251,713		$	245,504		$	245,504		$	898,106
Ratio of cumulative gap to total earning assets	Ratio of cumulative gap to total earning assets	95.33		%	902.12		%	220.68		%	53.33		%	69.81		%			Ratio of cumulative gap to total earning assets	83.97		%	218.94		%	80.99		%	36.42		%	53.50		%
Ratio of cumulative gap to cumulative total earning assets																			Ratio of cumulative gap to cumulative total earning assets	9.14		%	10.70		%	10.43		%	10.43		%	38.17		%

(1)Includes FRB and FHLB stock, which has been historically redeemable at par.

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

~~Table of Contents~~

The following table summarizes the results of our net interest income at risk analysis in simulating the change in net interest income and fair value of equity over a 12-month and 24-month horizon as of September 30, ~~2021~~2022, and December 31, ~~2020,~~2021 ~~and 2019.~~.

Net Interest Income at Risk – 12 months -400bps -300bps -200bps -100bps Flat +100bps +200bps +300bps +400bps
Policy Limit (20.0) % (15.0) % (10.0) % (5.0) % N/A N/A N/A N/A N/A
September 30, 2021 (7.5) % (5.5) % (2.9) % 0.4 % N/A 7.8 % 15.6 % 23.4 % 31.1 %
December 31, 2020 (3.1) % (2.4) % (1.2) % (0.2) % N/A 1.5 % 3.5 % 5.5 % 7.3 %
December 31, 2019 (9.9) % (6.6) % (4.7) % (1.6) % N/A 0.6 % 0.8 % 1.0 % 1.2 %
Net Interest Income at Risk – 24 months -400bps -300bps -200bps -100bps Flat +100bps +200bps +300bps +400bps
Policy Limit (20.0) % (15.0) % (10.0) % (5.0) % N/A N/A N/A N/A N/A
September 30, 2021 (14.3) % (11.7) % (8.3) % (5.0) % N/A 10.0 % 20.1 % 30.0 % 39.8 %
December 31, 2020 (4.3) % (3.6) % (2.6) % (1.8) % N/A 5.8 % 12.0 % 17.9 % 23.6 %
December 31, 2019 (16.1) % (12.0) % (7.7) % (2.7) % N/A 1.3 % 2.3 % 3.1 % 3.7 %


Net Interest Income at Risk – 12 months	-400bps		-300bps		-200bps		-100bps		Flat		+100bps		+200bps		+300bps		+400bps
Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	—	%	(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%
September 30, 2022	(15.1)	%	(11.7)	%	(5.6)	%	(1.9)	%	—	%	1.7	%	3.3	%	5.0	%	6.6	%
December 31, 2021	(6.0)	%	(4.0)	%	(1.5)	%	1.3	%	—	%	4.2	%	8.4	%	12.4	%	16.2	%

Net Interest Income at Risk – 24 months	-400bps		-300bps		-200bps		-100bps		Flat		+100bps		+200bps		+300bps		+400bps
Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	—	%	(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%
September 30, 2022	(24.4)	%	(19.6)	%	(11.2)	%	(4.8)	%	—	%	4.3	%	8.3	%	12.4	%	16.6	%
December 31, 2021	(15.6)	%	(12.5)	%	(9.1)	%	(4.7)	%	—	%	6.5	%	12.7	%	18.6	%	24.4	%

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

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The following table illustrates the results of our EVE analysis as of September 30, ~~2021~~2022, and December 31, ~~2020,~~ ~~and 2019.~~2021.

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


Economic Value of Equity	-400bps		-300bps		-200bps		-100bps		Flat		+100bps		+200bps		+300bps		+400bps
Policy Limit	(30.0)	%	(20.0)	%	(15.0)	%	(10.0)	%	—	%	(10.0)	%	(15.0)	%	(20.0)	%	(30.0)	%
September 30, 2022	(1.9)	%	(0.4)	%	2.3	%	2.6	%	—	%	(3.1)	%	(6.3)	%	(9.6)	%	(13.3)	%
December 31, 2021	6.7	%	6.2	%	5.9	%	4.8	%	—	%	(3.7)	%	(7.3)	%	(11.1)	%	(15.4)	%

Critical Accounting Policies and Estimates

Our ~~consolidated financial statements~~accounting and reporting policies are ~~prepared~~ in accordance with GAAP and ~~with~~conform to general practices within the banking industry. Our financial ~~services industry. Application~~position and results of ~~these principles requires management~~operations are affected by management's application of accounting policies, including judgments made to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments aboutarrive at the carrying ~~values~~value of assets and liabilities ~~that are not readily available from independent, objective sources. We evaluate~~and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our ~~estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.~~

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

~~Allowance~~reporting policies include our accounting for ~~Loan Losses~~

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

~~Table of Contents~~

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

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

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

~~Fair Value Measurements~~

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value ~~of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that~~measurements. Significant accounting policies are ~~traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved~~discussed in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs.

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

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

~~Recent Accounting Pronouncements~~

~~The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on our financial statements. Please also refer to~~ the Notes to Consolidated Financial Statements within our ~~consolidated financial statements included~~Annual Report. There have been no changes in ~~this quarterly report for a full description~~such policies or the application of ~~recent accounting pronouncements, including~~such policies during the ~~respective expected dates of adoption and anticipated effects on our results of operations and financial condition.~~

~~ASU 2016-13, Financial Instruments — Credit Loses (Topic 326)~~nine months ended September 30, 2022.

In June 2016, FASB issued ~~guidance~~ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) to replace the incurred loss model with an expected loss model, which is referred to as the current expected ~~credit loss, or~~ CECL model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to

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off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments). ~~We anticipated~~For Public Business Entities that ~~this ASU would be effective~~are non-SEC filers and for ~~us on January 1, 2021, but the FASB announced on October 16, 2019, a delay of the effective date of ASU 2016-13 for smaller~~SEC filers that are considered small reporting companies, ~~until~~it is effective for January 1, 2023. ~~We are in the process of evaluating and implementing changes to~~The Company's management has selected a credit loss estimation ~~models and related processes. Updates to business processes~~model. Initial data integration with the model is complete, and the ~~documentation of accounting policy decisions are ongoing. We~~Credit Department has performed several test runs with no material differences. The Company established a CECL committee that reviewed a parallel run using June 30, 2022 data during the third quarter. The committee is refining the qualitative factors under CECL and finalizing the structural overview document. The Company may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on ~~our~~the Company's consolidated financial statements has not yet been determined.

~~Pro Opp Fund LLC~~

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

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

The Company ~~continues to work within the COVID-19 pandemic response plans which were originally established in the spring of 2020. In the summer of 2021, we returned to a normalized office schedule.~~However, there are no comparable events that provide guidance as to the effect of the spread of COVID-19 and the situation remains volatile. Thus we are required to monitor differing levels of infection across the globe; various, and often conflicting, governmental strategies to address COVID-19 , including for the variants of COVID; and vaccination programs and requirements. We sill adjust our response plans where necessary.will adopt this accounting standard effective January 1, 2023.

Explanation of Certain unaudited non-GAAP Financial Measures

This Quarterly Report on Form 10-Q contains financial information determined by methods other than U.S. GAAP, which we refer to “non-GAAP financial measures.” The table below provides a reconciliation between these non-GAAP measures and net interest income and ~~net income per share,~~total loans held for investment, which are the most comparable GAAP measures.

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

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Reconciliation of non-GAAP Financial Measures

Three Months Ended September 30, Three Months Ended
June 30, Nine Months Ended September 30,
(Dollar amounts in thousands, except per share data) 2021 2020 2021 2021 2020
Net interest income (GAAP) $ 19,104 $ 17,460 $ 17,202 $ 54,185 $ 41,812
Total non-interest income 1,476 963 2,302 4,897 2,787
Total non-interest expense 11,624 11,713 10,954 34,366 32,747
Pre-tax pre-provision earnings (non-GAAP) $ 8,956 $ 6,710 $ 8,550 $ 24,716 $ 11,852
Total adjustments to non-interest expense — (1,078) — (684) (3,301)
Adjusted pre-tax pre-provision earnings (non-GAAP) $ 8,956 $ 7,788 $ 8,550 $ 25,400 $ 15,153
Return on average assets (GAAP) 0.97 % 0.18 % 0.99 % 0.96 % 0.21 %
Adjusted return on average assets (non-GAAP)
Annualized pre-tax pre-provision ROAA (non-GAAP) 1.39 % 1.30 % 1.33 % 1.37 % 0.92 %
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP) 1.39 % 1.51 % 1.33 % 1.41 % 1.18 %


	Three Months Ended						Nine Months Ended
(Dollar amounts in thousands, except per share data)	September 30, 2022			September 30, 2021				September 30, 2022			September 30, 2021
Net interest income (GAAP)	$	24,797		$	19,104			$	65,753		$	54,185
Total noninterest income	1,223			1,476				4,277			4,897
Total noninterest expense	13,853			11,624				42,952			34,366
Pre-tax pre-provision earnings (non-GAAP)	$	12,167		$	8,956			$	27,078		$	24,716
Total adjustments to noninterest expense (1)	$	(957)		$	—			$	(3,872)		$	(684)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	13,124		$	8,956			$	30,950		$	25,400









Return on average assets (GAAP)	1.35		%	0.97		%		0.90		%	0.96		%
Annualized pre-tax pre-provision ROAA (non-GAAP)	1.93		%	1.39		%		1.36		%	1.37		%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)	2.08		%	1.39		%		1.56		%	1.41		%

September 30, 2021 December 31, 2020
Total loans (GAAP) $ 1,675,773 $ 1,641,422
Add allowance for loan loss 11,478 16,259
Add loans held for sale 284 1,270
Total gross loans $ 1,687,535 $ 1,658,951
Less PPP loans 85,133 185,748
Total gross loans excluding Professional Bank PPP loans (non-GAAP) $ 1,602,402 $ 1,473,203
Add purchase accounting loan marks 14,317 18,835
Total gross loans excluding PPP loans (non-GAAP) $ 1,616,719 $ 1,492,038
Allowance for loan loss as a % of total loans (GAAP) 0.68 % 0.99 %
Allowance for loan loss as a % of total gross loans excluding Professional Bank PPP loans (non-GAAP) 0.72 % 1.10 %
Loan marks + allowance for loan loss / total gross loans excluding PPP loans (non-GAAP) 1.60 % 2.35 %
(1)Adjustments to noninterest expense for the three months ended September 30, 2022 were related to acquisition expenses. Adjustments for the nine months ended September 30, 2022, were related to acquisition expenses and severance and accelerated vesting expense related to the departure of the former Chief Executive Officer. Adjustments to noninterest expense for the nine months ended September 30, 2021 were related to change in control payments to two former Marquis employees.


(Dollar amounts in thousands, except per share data)	September 30, 2022			December 31, 2021
Total loans held for investment, net (GAAP)	$	1,988,410		$	1,764,460
Add allowance for loan loss	16,485			12,704
Total gross loans held for investment	2,004,895			1,777,164
Less Professional Bank net PPP loans	$	2,618		$	58,615
Total gross LHFI excluding net PPP loans (non-GAAP)	2,002,277			1,718,549
Add purchase accounting loan marks	8,480			13,003
	$	2,010,757		$	1,731,552
Total gross LHFI excluding net PPP loans (non-GAAP) + PA marks
ALLL as a % of LHFI (GAAP)	0.82		%	0.71		%
ALLL as a % of total LHFI excluding net PPP loans (non-GAAP)	0.82		%	0.74		%
PA marks + ALLL / LHFI excluding net PPP loans (non-GAAP)	1.24		%	1.48		%

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(Dollar amounts in thousands, except per share data)	Three Months Ended			Nine Months Ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021

Net interest income (GAAP)	$	24,797		$	19,104		$	65,753		$	54,185
Less: PPP net interest income recognized	(200)			(2,151)			(2,077)			(7,048)
Net interest income excluding PPP (non-GAAP)	24,597			16,953			63,676			47,137
Less: PA premium/discounts	(1,504)			(1,969)			(4,813)			(1,969)
Net interest income excluding PPP and PA (non-GAAP)	$	23,093		$	14,984		$	58,863		$	45,168
Average interest earning assets (GAAP)	2,342,000			2,431,904			2,503,621			2,290,121
Less: average PPP loans	(4,796)			(117,256)			(22,890)			(164,691)
Average interest earning assets, excluding PPP (non-GAAP)	2,337,204			2,314,648			2,480,731			2,125,430
Add: average PA marks	9,178			14,317			10,631			16,823
Average interest earning assets, excluding PPP and PA (non-GAAP)	$	2,346,382		$	2,328,965		$	2,491,362		$	2,142,253
Net interest margin (GAAP)	4.20		%	3.12		%	3.51		%	3.16		%
Net interest margin excluding PPP (non-GAAP)	4.18		%	2.91		%	3.43		%	2.97		%
Net interest margin excluding PPP and PA (non-GAAP)	3.90		%	2.55		%	3.16		%	2.82		%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Control Procedures

As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief ~~Accounting~~Financial Officer, of the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, ~~2021.~~

As disclosed in Part II, Item 9A. Controls and Procedures in our Annual Report on Form 10-K dated December 31, 2020, management observed deficiencies associated with controls that address infrequent significant transactions in the2022. The Company’s control environment, that, in the aggregate, resulted in a material weakness. Individually, each of the observations were determined to be immaterial. The observations included Accounting for Participation Loan Sales, Recording of Inter-Company

~~Table of Contents~~

~~Capital Transactions, and Business Combination Accounting. The Company has developed and is in the process of implementing~~disclosure controls and procedures ~~as part of~~are designed to ensure that information required to be disclosed by the ~~remediation efforts~~Company in ~~connection~~the reports that it files or submits under 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 the ~~identified deficiencies described above. Therefore,~~Company’s management, including the Chief Executive Officer and Chief ~~Accounting~~Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of September 30, ~~2021, our disclosure controls and procedures were not effective as of such date.~~

Despite the foregoing, our management has concluded that, the financial statements fairly present in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods presented, in conformity GAAP.2022.

Changes in Internal Control over Financial Reporting

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

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is periodically party to or otherwise involved in legal proceedings arising in the normal course of business. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and related contingencies. In management’s opinion, there are no known pending legal proceedings, the outcome of which would, individually or in the aggregate, have a material adverse effect on our consolidated results of operations or consolidated financial position.

Item 1A. Risk Factors.

The section titled Risk Factors in Part I, Item 1A of our ~~2020~~2021 Form 10-K included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. ~~Other than as noted below, there have been no material changes~~Additionally, risks and uncertainties not currently known to ~~our risk factors as previously described under Item 1A of our 2020 Form 10-K.~~

~~Presidential Directive to the Occupational Safety and Health Administration (“OSHA”) to Mandate Vaccinations.~~

~~On September 9, 2021, the President of the United States of America announced~~us, or that he has directed OSHA to develop an emergency temporary standard (“ETS”) mandating either the full vaccination or weekly testing of employees of employers with 100 or more employees. On November 4, 2021, OSHA issued the ETS requiring workerswe presently deem to be fully vaccinated by January 4, 2022, or undergo weekly testing. The certainty of the January 4, 2022, implementation of the ETS has been made uncertain by a subsequent stay ordered by the Fifth Circuit Court of appeals. It is currently not possible to predict the administrative costs of a compliant program or other impacts that the ETS will have on our workforce. Additional vaccine mandates (or prohibitions of mandates in States such as Florida)immaterial, also may be announced in areas in which we operate. Our implementation of these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect onmaterially adversely affect our business, financial ~~conditions,~~condition, and ~~result~~results of operations. Our proposed merger with Seacoast poses further risks that are described in detail in the Registration Statement on Form S-4 filed by Seacoast on October 4, 2022, which can be found on the SEC's website, www.sec.gov.

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

(a)Not applicable.

(b)~~Use of Proceeds.~~

On February 7, 2020, the Company completed its initial public offering of 3,565,000 shares of its Class A Common Stock at a public offering price of $18.50 per share, or an aggregate offering price of $57,350,000. The offering, for which the managing underwriters were Stephens Inc. and Keefe, Bruyette & Woods, was registered under the Securities Act (Registration No. 333-235822) and resulted in total net proceeds to the Company of approximately $61.3 million, after deducting an underwriting discount of 7%, before expenses (approximately $1.6 million).

As of September 30, 2021, we used approximately $4.0 million for expenses associated with the MBI acquisition, and $10.0 million to paydown our line of credit with Valley National Bank, fund $800 thousand with the remaining proceeds pushed down to the Bank for general corporate purposes, including working capital and capital expenditures. None of the proceeds were used as payments to our directors or officers (or their associates), or to our affiliates or 10% stockholders. In addition, on October 30, 2021, ~~we redeemed in full, the amount of our subordinated notes payable of $10.0 million, in accordance with its contractual terms.~~Not applicable.

(c)~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers.~~Not applicable.

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

~~Table of Contents~~

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

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

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

EXHIBIT INDEX


Exhibit No.						Description of Exhibit
31.1						Certification of the CEO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.
31.2						Certification of the ~~CAO~~CFO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.

32.1						Certification of the CEO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of the ~~CAO~~CFO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104						Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of ~~1943,~~1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, ~~thereunto duly authorized on November 12, 2021.~~


			~~PROFESSIONAL HOLDING CORP.~~

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

~~Pursuant to the requirements of the Securities Exchange Act of 1943, this Report has been signed by the following persons~~ in the capacities set forth opposite their names ~~and~~ on ~~the dates indicated.~~November 9, 2022.

Signature

Title

Date

/s/ ~~Daniel R. Sheehan~~Abel L. Iglesias

~~Chairman and~~ Chief Executive Officer

November ~~12, 2021~~09, 2022

~~Daniel R. Sheehan~~Abel L. Iglesias

(Principal Executive Officer)

/s/ Mary Usategui

Chief ~~Accounting~~Financial Officer

November ~~12, 2021~~09, 2022

Mary Usategui

(Principal Financial ~~Officer~~ and ~~Principal~~ Accounting Officer)

~~/s/ Margaret Blakey~~

~~Director~~

~~November 12, 2021~~

~~Margaret Blakey~~

~~/s/ Rolando DiGasbarro~~

~~Director~~

~~November 12, 2021~~

~~Rolando DiGasbarro~~

~~/s/ Norman Edelcup~~

~~Director~~

~~November 12, 2021~~

~~Norman Edelcup~~

~~/s/ Carlos M. Garcia~~

~~Director~~

~~November 12, 2021~~

~~Carlos M. Garcia~~

~~/s/ Jon L. Gorney~~

~~Director~~

~~November 12, 2021~~

~~Jon L. Gorney~~

~~/s/ Abel L. Iglesias~~

~~Director~~

~~November 12, 2021~~

~~Abel L. Iglesias~~

~~/s/ Herbert Martens, Jr~~

~~Director~~

~~November 12, 2021~~

~~Herbert Martens, Jr.~~

~~/s/ Ava L. Parker~~

~~Director~~

~~November 12, 2021~~

~~Ava L. Parker~~

~~/s/ Lawrence Schimmel~~

~~Director~~

~~November 12, 2021~~

~~Dr. Lawrence Schimmel, M.D.~~

7365


Part I	Financial Information	3

Item 1	Consolidated Financial Statements (unaudited)	3

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3029

Item 3	Quantitative and Qualitative Disclosures About Market Risk	6862

Item 4	Controls and Procedures	6862

Part II	Other Information	7063

Item 1	Legal Proceedings	7063

Item 1A	Risk Factors	7063

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	7063

Item 3	Defaults Upon Senior Securities	7163

Item 4	Mine Safety Disclosures	7163

Item 5	Other Information	7163

Item 6	Exhibits	7264


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

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


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


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


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


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


	Three Months Ended September 30,						Three Months Ended June 30,			Nine Months Ended September 30,
(Dollar amounts in thousands, except per share data)	2021			2020			2021			2021			2020
Net interest income (GAAP)	$	19,104		$	17,460		$	17,202		$	54,185		$	41,812
Total non-interest income	1,476			963			2,302			4,897			2,787
Total non-interest expense	11,624			11,713			10,954			34,366			32,747
Pre-tax pre-provision earnings (non-GAAP)	$	8,956		$	6,710		$	8,550		$	24,716		$	11,852
Total adjustments to non-interest expense	—			(1,078)			—			(684)			(3,301)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	8,956		$	7,788		$	8,550		$	25,400		$	15,153

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


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

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


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