UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934

(Mark One)

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

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

2022

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

For the transition period from ___________ to ___________


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

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


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

396 Alhambra Circle, Suite 255,

Coral Gables,, FL33134 (786) 483-1757

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

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

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Class A Common Stock

PFHD

NASDAQ Global Select Market

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

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

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


Large accelerated filer	☐ o	Accelerated filer	☐ o

Non-accelerated filer	☒ x	Smaller reporting company	☒ x

		Emerging growth company	☒
	x

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

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

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

10, 2022: 13,773,115

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited).

PROFESSIONAL HOLDING CORP.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)

June 30,

December 31,

2021

2020
ASSETS




Cash and due from banks

$
29,803

$
62,305
Interest-bearing deposits

586,377

129,291
Federal funds sold

36,156

25,376
Cash and cash equivalents

652,336

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

100,735

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

19,761

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

1,285

1,547
Equity securities

5,942

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

1,680,168

1,643,373
Loans held for sale

2,039

1,270
Federal Home Loan Bank stock, at cost

2,341

3,229
Federal Reserve Bank stock, at cost

4,954

4,762
Accrued interest receivable

5,449

6,666
Premises and equipment, net

4,000

4,370
Bank owned life insurance

37,923

37,360
Deferred tax asset

9,446

10,525
Goodwill

24,621

24,621
Core deposit intangibles

1,280

1,422
Other assets

8,738

7,640
Total assets

$
2,561,018

$
2,057,270
LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits

Demand – non-interest bearing

$
854,673

$
475,598
Demand – interest bearing

286,173

232,367
Money market and savings

874,637

715,003
Time deposits

261,680

236,575
Total deposits

2,277,163

1,659,543
Official checks

3,289

4,447
Federal Home Loan Bank advances

35,000

40,000
Other borrowings

—

114,573
Subordinated debt

10,062

10,153
Accrued interest and other liabilities

12,476

12,989
Total liabilities

2,337,990

1,841,705
Stockholders’ equity

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

—

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

143

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

—

—
Treasury stock, at cost

(13,544)

(9,209)
Additional paid-in capital

210,274

208,995
Retained earnings

25,872

14,756
Accumulated other comprehensive income (loss)

283

882
Total stockholders’ equity

223,028

215,565
Total liabilities and stockholders' equity

$
2,561,018

$
2,057,270

June 30,
2022 December 31,
2021
ASSETS
Cash and due from banks $ 41,202 $ 38,469
Interest earning deposits 299,834 545,521
Federal funds sold 27,043 13,477
Cash and cash equivalents 368,079 597,467
Securities available for sale, at fair value - taxable 164,354 175,536
Securities available for sale, at fair value - tax-exempt 27,453 18,765
Securities held to maturity (fair value June 30, 2022 – $197, December 31, 2021 – $242) 204 236
Equity securities 6,359 6,638
Loans, net of allowance of $15,142 and $12,704 as of June 30, 2022 and December 31, 2021, respectively 1,972,091 1,764,460
Loans held for sale — 165
Premises and equipment, net 8,570 9,020
Bank owned life insurance 54,134 38,485
Goodwill and intangibles 25,639 25,766
Other assets 34,631 27,573
Total assets $ 2,661,514 $ 2,664,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – noninterest bearing $ 777,501 $ 674,003
Demand – interest bearing 339,942 310,362
Money market and savings 1,055,813 1,121,330
Time deposits 208,479 265,693
Total deposits 2,381,735 2,371,388
Federal Home Loan Bank advances — 35,000
Official checks 5,815 4,125
Other borrowings — 10,000
Subordinated debt 24,436 —
Accrued interest and other liabilities 15,930 12,074
Total liabilities 2,427,916 2,432,587
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued — —
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,699,975 and outstanding 13,742,381 shares as of June 30, 2022, and authorized 50,000,000 shares, issued 14,393,750 and outstanding 13,446,400 shares at December 31, 2021 147 144
Class B Non-Voting Common stock, $0.01par value; 10,000,000 shares authorized, none issued and outstanding on June 30, 2022 and December 31, 2021 — —
Treasury stock, at cost (16,201) (16,003)
Additional paid-in capital 215,541 212,012
Retained earnings 45,533 36,120
Accumulated other comprehensive income (loss) (11,422) (749)
Total stockholders’ equity 233,598 231,524
Total liabilities and stockholders' equity $ 2,661,514 $ 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 June 30,

Six Months Ended June 30,

2021

2020


2021

2020
Interest income

Loans, including fees

$
18,311

$
17,897

$
37,544

$
27,912
Investment securities - taxable

161

232

340

434
Investment securities - tax exempt

189

206

392

226
Dividend income on restricted stock

99

131

194

210
Other

202

56

264

760
Total interest income

18,962

18,522

38,734

29,542

Interest expense




Deposits

1,430

1,617

2,747

4,243
Federal Home Loan Bank advances

190

287

386

565
Subordinated debt

77

59

207

189
Other borrowings

63

268

313

193
Total interest expense

1,760

2,231

3,653

5,190

Net interest income

17,202

16,291

35,081

24,352
Provision for loan losses

762

1,750

1,800

2,595
Net interest income after provision for loan losses

16,440

14,541

33,281

21,757

Non-interest income




Service charges on deposit accounts

1,199

307

1,594

529
Income from Bank owned life insurance

281

126

563

255
SBA origination fees

—

84

145

114
SWAP fees

364

210

573

473
Third party loan sales

226

157

301

267
Gain on sale and call of securities

21

11

22

15
Other

211

73

223

171
Total non-interest income

2,302

968

3,421

1,824

Non-interest expense



Salaries and employee benefits

7,099

6,912

13,883

12,175
Occupancy and equipment

905

1,081

2,007

1,855
Data processing

276

421

566

597
Marketing

165

151

318

288
Professional fees

770

806

1,398

1,161
Acquisition expenses

—

560

684

2,223
Regulatory assessments

418

300

767

514
Other

1,321

1,317

3,119

2,221
Total non-interest expense

10,954

11,548

22,742

21,034

Income before income taxes

7,788

3,961

13,960

2,547
Income tax provision

1,457

830

2,844

733
Net income

6,331

3,131

11,116

1,814

Earnings per share:




Basic

$
0.47

$
0.23

$
0.83

$
0.16
Diluted

$
0.45

$
0.22

$
0.80

$
0.15

Other comprehensive income:




Unrealized holding gain (loss) on securities available for sale

(505)

743

(794)

1,068
Tax effect

124

(188)

195

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

(381)

555

(599)

797
Comprehensive income

$
5,950

$
3,686

$
10,517

$
2,611

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Interest income
Loans, including fees $ 21,600 $ 18,311 $ 41,380 $ 37,544
Investment securities - taxable 704 161 1,342 340
Investment securities - tax-exempt 232 189 445 392
Dividend income on restricted stock 105 99 202 194
Other 1,029 202 1,323 264
Total interest income 23,670 18,962 44,692 38,734
Interest expense
Deposits 1,491 1,430 3,077 2,747
Federal Home Loan Bank advances 3 190 137 386
Subordinated debt 266 77 498 207
Other borrowings 1 63 24 313
Total interest expense 1,761 1,760 3,736 3,653
Net interest income 21,909 17,202 40,956 35,081
Provision for loan losses 2,240 762 3,091 1,800
Net interest income after provision for loan losses 19,669 16,440 37,865 33,281
Noninterest income
Service charges on deposit accounts 577 1,199 1,094 1,594
Income from bank owned life insurance 376 281 649 563
SBA origination fees 48 — 48 145
Swap fee income — 364 112 573
Loans held for sale income 45 226 116 301
Gain on sale and call of securities 13 21 13 22
Other 722 211 1,022 223
Total noninterest income 1,781 2,302 3,054 3,421
Noninterest expense
Salaries and employee benefits 7,473 7,099 18,693 13,883
Occupancy and equipment 1,010 905 2,012 2,007
Data processing 304 276 618 566
Marketing 125 165 321 318
Professional fees 886 770 1,805 1,398
Acquisition expenses — — — 684
Regulatory assessments 473 418 1,022 767
Other 2,333 1,321 4,628 3,119
Total noninterest expense 12,604 10,954 29,099 22,742
Income before income taxes 8,846 7,788 11,820 13,960
Income tax provision 1,852 1,457 2,407 2,844
Net income $ 6,994 $ 6,331 $ 9,413 $ 11,116
Earnings per share:
Basic $ 0.52 $ 0.47 $ 0.70 $ 0.83
Diluted $ 0.50 $ 0.45 $ 0.67 $ 0.80
Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale (5,841) (505) (14,308) (794)
Tax effect 1,481 124 3,635 195
Other comprehensive gain (loss), net of tax (4,360) (381) (10,673) (599)
Comprehensive income (loss) $ 2,634 $ 5,950 $ (1,260) $ 10,517
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)

Accumulated

Additional

Other

Common Stock

Treasury

Paid-in

Retained

Comprehensive

Shares

Amount

Stock

Capital

Earnings

Income (Loss)

Total
Balance at April 1, 2020

13,537,565

$
138

$
(6,257)

$
201,670

$
5,134

$
169

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

89,167

1

—

450

—

—

451
Employee stock purchase plan

—

—

—

27

—

—

27
Stock based compensation

—

—

—

296

—

—

296
Treasury stock

(182,097)

—

(2,875)

(5)

—

—

(2,880)
Net loss

—

—

—

—

3,131

—

3,131
Other comprehensive income

—

—

—

—

—

555

555
Balance at June 30, 2020

13,444,635

$
139

$
(9,132)

$
202,438

$
8,265

$
724

$
202,434

Balance at April 1, 2021

13,661,567

$
143

$
(10,087)

$
209,770

$
19,541

$
664

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

8,359

—

—

107

—

—

107
Employee stock purchase plan

978

—

—

18

—

—

18
Stock based compensation

(1,834)

—

—

385

—

—

385
Treasury stock

(193,289)

—

(3,457)

(6)

—

—

(3,463)
Net income

—

—

—

—

6,331

—

6,331
Other comprehensive income

—

—

—

—

—

(381)

(381)
Balance at June 30, 2021

13,475,781

$
143

$
(13,544)

$
210,274

$
25,872

$
283

$
223,028

Balance at January 1, 2020

5,867,446

$
60

$
(4,155)

$
77,019

$
6,451

$
(73)

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

3,664,667

37

—

60,221

—

—

60,258
Marquis Bancorp (MBI) acquisition

4,227,816

42

—

64,657

—

—

64,699
Employee stock purchase plan

—

—

—

58

—

—

58
Stock based compensation

—

—

—

492

—

—

492
Treasury stock

(315,294)

—

(4,977)

(9)

—

—

(4,986)
Net loss

—

—

—

—

1,814

—

1,814
Other comprehensive income

—

—

—

—

—

797

797
Balance at June 30, 2020

13,444,635

$
139

$
(9,132)

$
202,438

$
8,265

$
724

$
202,434

Balance at January 1, 2021

13,534,829

$
141

$
(9,209)

$
208,995

$
14,756

$
882

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

61,204

1

—

543

—

—

544
Employee stock purchase plan

1,851

—

—

34

—

—

34
Stock based compensation

125,665

1

—

709

—

—

710
Treasury stock

(247,768)

—

(4,335)

(7)

—

—

(4,342)
Net income

—

—

—

—

11,116

—

11,116
Other comprehensive income

—

—

—

—

—

(599)

(599)
Balance at June 30, 2021

13,475,781

$
143

$
(13,544)

$
210,274

$
25,872

$
283

$
223,028

Common Stock Treasury
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Shares Amount
Balance on December 31, 2020 13,534,829 $ 141 $ (9,209) $ 208,995 $ 14,756 $ 882 $ 215,565
Employee stock purchase plan 1,851 — — 34 — — 34
Stock based compensation — 1 — 709 — — 710
Exercise of stock options 64,414 — — — — — —
Restricted stock issued 122,455 1 — 543 — — 544
Treasury stock (247,768) — (4,335) (7) — — (4,342)
Net income — — — — 11,116 — 11,116
Other comprehensive income (loss) — — — — — (599) (599)
Balance on June 30, 2021 13,475,781 $ 143 $ (13,544) $ 210,274 $ 25,872 $ 283 $ 223,028
Balance on December 31, 2021 13,446,400 $ 144 $ (16,003) $ 212,012 $ 36,120 $ (749) $ 231,524
Stock based compensation — — — 2,230 — — 2,230
Exercise of stock options 115,472 1 — 1,301 — — 1,302
Restricted stock issued 190,753 2 — (2) — — —
Treasury stock (10,244) — (198) — — — (198)
Net income — — — — 9,413 — 9,413
Other comprehensive income (loss) — — — — — (10,673) (10,673)
June 30, 2022 13,742,381 $ 147 $ (16,201) $ 215,541 $ 45,533 $ (11,422) $ 233,598
Balance on March 31, 2021 13,661,567 $ 143 $ (10,087) $ 209,770 $ 19,541 $ 664 $ 220,031
Employee stock purchase plan 978 — — 18 — — 18
Stock based compensation expense — — — 385 — — 385
Exercise of stock options 8,359 — — — — — —
Restricted stock issued (1,834) — — 107 — — 107
Treasury stock (193,289) — (3,457) (6) — — (3,463)
Net income — — — — 6,331 — 6,331
Other comprehensive income (loss) — — — — — (381) (381)
Balance on June 30, 2021 13,475,781 $ 143 $ (13,544) $ 210,274 $ 25,872 $ 283 $ 223,028
Balance on March 31, 2022 13,665,801 $ 146 $ (16,201) $ 214,351 $ 38,539 $ (7,062) $ 229,773
Stock based compensation expense — — — 505 — — 505
Exercise of stock options 55,807 1 — 685 — — 686
Restricted stock issued 20,773 — — — — — —
Net income — — — — 6,994 — 6,994
Other comprehensive income (loss) — — — — — (4,360) (4,360)
Balance on June 30, 2022 13,742,381 $ 147 $ (16,201) $ 215,541 $ 45,533 $ (11,422) $ 233,598

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)

Six Months Ended June 30,


2021

2020
Cash flows from operating activities




Net income (loss)

$
11,116

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




Provision for loan losses

1,800

2,595
Deferred income tax benefit (expense)

988

(499)
Depreciation and amortization

739

739
Gain on sale of securities

—

(4)
Gain on call of securities

(22)

(11)
Equity unrealized change in market value

63

(24)
Net amortization of securities

1,396

(906)
Net amortization of deferred loan fees

(4,400)

1,118
Loans held for sale

(769)

(1,070)
Proceeds from sale of loans

—

110
Income from bank owned life insurance

(563)

(255)
Loss on disposal of premises and equipment

137

—
Employee stock purchase plan

34

58
Stock compensation

710

492
Changes in operating assets and liabilities:




Accrued interest receivable

1,217

(1,472)
Other assets

(1,098)

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

(1,385)

(3,395)
Net cash provided by operating activities

9,963

1,177

Cash flows from investing activities




Proceeds from maturities and paydowns of securities available for sale

11,123

6,256
Proceeds from calls of securities available for sale

4,648

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

257

44
Purchase of securities available for sale

(50,922)

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

—

1,739
Loans originations, net of principal repayments

(47,410)

(256,731)
Purchase of Federal Reserve Bank stock

(192)

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

888

—
Purchase of Federal Home Loan Bank Stock

—

(1,297)
Purchases of premises and equipment

(455)

(741)
Proceeds from acquisition

—

26,860
Net cash used in investing activities

(82,063)

(282,399)

Cash flows from financing activities




Net increase (decrease) in deposits

617,620

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

544

60,258
Purchase of treasury stock

(4,342)

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

—

10,000
Repayments of Federal Home Loan advances

(5,000)

(25,000)
Repayment of line of credit

—

(9,999)
Proceeds from PPPLF advances

—

218,080
Repayments of PPPLF advances

(101,358)

—
Net cash provided by financing activities

507,464

374,757

Increase in cash and cash equivalents

435,364

93,535

Cash and cash equivalents at beginning of period

216,972

198,950

Cash and cash equivalents at end of period

$
652,336

$
292,485

Supplemental cash flow information:




Cash paid during the period for interest

$
4,425

$
4,907
Cash paid during the period for taxes

3,000

20

Supplemental noncash disclosures:




Lease liabilities arising from obtaining right of use assets

$
—

$
1,620
Total assets acquired

—

589,374
Total liabilities assumed

—

539,403


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities
Net income	$	9,413	$	11,116
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	3,091		1,800
Amortization of purchase accounting adjustments	(3,262)		(2,581)

Depreciation and amortization	89		702

Gain on call of securities	(13)		(22)
Gain on loans held for sale	(116)		(301)
Equity unrealized change in market value	336		63
Net amortization of securities	726		1,396
Net amortization of deferred loan fees	(2,865)		(4,400)
Originations of loans held for sale	(7,713)		(15,728)
Proceeds from sales of loans held for sale	7,994		15,260
Income from bank-owned life insurance	(649)		(563)
Loss (gain) on disposal of premises and equipment	(1)		137
Employee stock purchase plan	—		34
Stock compensation	2,230		710
Changes in operating assets and liabilities:
Accrued interest receivable	8		1,217
Other assets	(3,823)		811
Official checks, accrued interest, interest payable and other liabilities	5,630		(1,227)
Net cash provided by (used in) operating activities	11,075		8,424

Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale	14,036		11,123
Proceeds from calls of securities available for sale	4,175		4,648
Proceeds from paydowns of securities held to maturity	31		257
Purchase of securities available for sale	(30,737)		(50,922)

Purchase of equity securities	(57)		—
Loans originations, net of principal repayments	(204,791)		(45,437)

Redemption of Federal Reserve Bank stock	(589)		—
Purchase of Federal Home Loan Bank Stock	—		(192)
Net redemption of Federal Home Loan Bank Stock	981		888
Purchase of bank-owned life insurance	(15,000)		—
Purchases of premises and equipment, net	(206)		(1,376)

Net cash used in investing activities	(232,157)		(81,011)

Cash flows from financing activities
Net increase in deposits	10,590		618,107
Proceeds from issuance of stock, net of issuance costs	1,302		544

Purchase of treasury stock	(198)		(4,342)

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


Repayment of line of credit	(10,000)		—

Repayments of PPPLF advances	—		(101,358)
Net cash provided by (used in) financing activities	(8,306)		507,951

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Increase (decrease) in cash and cash equivalents	(229,388)		435,364
Cash and cash equivalents at beginning of period	597,467		216,972
Cash and cash equivalents at end of period	$	368,079	$	652,336

Supplemental cash flow information:
Cash paid during the period for interest	$	3,872	$	4,425
Cash paid during the period for taxes	3,956		3,000

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 six months ended June 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 Company is evaluating existing platforms and systems and preparing to offer new rates. The new guidance did not materially impact the Company’s Consolidated Financial Statements or disclosures.

~~Table of Contents~~

New accounting standards that have not yet been adopted:

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


ASU ~~2016-13,~~ 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, however it is not believed to be material.

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

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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 June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Basic earnings per share:








Net income

$
6,331

$
3,131

$
11,116

$
1,814
Total weighted average common stock outstanding

13,397,747

13,415,525

13,419,929

11,516,756
Net income per share

$
0.47

$
0.23

$
0.83

$
0.16
Diluted earnings per share:

Net income

$
6,331

$
3,131

$
11,116

$
1,814
Total weighted average common stock outstanding

13,397,747

13,415,525

13,419,929

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

564,822

518,435

521,900

526,503
Total weighted average diluted stock outstanding

13,962,569

13,933,960

13,941,829

12,043,259
Net income per share

$
0.45

$
0.22

$
0.80

$
0.15

For the three months ended June 30, 2021, there were 270,850 thousand stock options that were anti-dilutive and for the three months ended June 30, 2020, there were 29,350 thousand stock options that were anti-dilutive. For the six months ended June 30, 2021, there were 270,850 thousand stock options that were anti-dilutive and for the six months ended June 30, 2020, there were 29,350 thousand stock options that were anti-dilutive.


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollar amounts in thousands, except per share data)	2022		2021		2022		2021
Basic earnings per share:
Net income	$	6,994	$	6,331	$	9,413	$	11,116
Total weighted average common stock outstanding	13,446,335		13,397,747		13,396,240		13,419,929
Net income per share	$	0.52	$	0.47	$	0.70	$	0.83
Diluted earnings per share:
Net income	$	6,994	$	6,331	$	9,413	$	11,116
Total weighted average common stock outstanding	13,446,335		13,397,747		13,396,240		13,419,929
Add: dilutive effect of employee restricted stock and options	628,550		564,822		614,006		521,900
Total weighted average diluted stock outstanding	14,074,885		13,962,569		14,010,246		13,941,829
Net income per share	$	0.50	$	0.45	$	0.67	$	0.80

Anti-dilutive restricted stock and options	29,250		270,850		65,672		270,850

~~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 at~~held to maturity on June 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:


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2022
Available for sale - taxable
Small Business Administration loan pools	$	35,355	$	33	$	(442)	$	34,946
Mortgage-backed securities (1)	138,666		—		(13,529)		125,137
United States agency obligations	2,945		—		(178)		2,767
Corporate bonds	1,500		4		—		1,504
Total available for sale - taxable	$	178,466	$	37	$	(14,149)	$	164,354
Available for sale - tax-exempt
Community Development District bonds	$	25,488	$	13	$	(1,069)	$	24,432
Municipals	3,155		—		(134)		3,021
Total available for sale - tax-exempt	$	28,643	$	13	$	(1,203)	$	27,453

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held to Maturity
Residential mortgage-backed securities	$	204	$	—	$	(7)	$	197


Total Held to Maturity	$	204	$	—	$	(7)	$	197

(1)

Gross

Gross


Amortized

Unrealized

Unrealized

June 30, 2021

Cost

Gains

Losses

Fair Value
Available-for-sale - taxable

Small Business Administration loan pools

$
43,091

$
78

$
(573)

$
42,596
Mortgage-backed securities

54,517

205

(182)

54,540
United States agency obligations

2,001

88

-

2,089
Corporate bonds

1,500

10

-

1,510
Total available-for-sale - taxable

$
101,109

$
381

$
(755)

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

Community Development District bonds

$
17,954

$
704

$
-

$
18,658
Municipals

1,057

46

-

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

$
19,011

$
750

$
-

$
19,761




Gross

Gross


Amortized

Unrecognized

Unrecognized

Cost

Gains

Losses

Fair Value
Held-to-Maturity








Mortgage-backed securities

$
285

$
11

$
—

$
296
Foreign Bonds

1,000

—

—

1,000
Total Held-to-Maturity

$
1,285

$
11

$
—

$
1,296

$100.0 million is residential mortgage-backed and $25.2 million is commercial mortgage-backed.

Gross

Gross


Amortized

Unrealized

Unrealized

Fair
December 31, 2020

Cost

Gains

Losses

Value
Available-for-sale - taxable








Small Business Administration loan pools

$
30,678

$
77

$
(199)

$
30,556
Mortgage-backed securities

28,514

438

(30)

28,922
United States agency obligations

3,000

122

-

3,122
Corporate bonds

2,501

9

-

2,510
Total available-for-sale - taxable

$
64,693

$
646

$
(229)

$
65,110
Available-for-sale - tax exempt

Community Development District bonds

$
20,582

$
717

$
-

$
21,299
Municipals

1,064

35

-

1,099
Total available-for-sale - tax exempt

$
21,646

$
752

$
-

$
22,398




Gross

Gross

Amortized

Unrecognized

Unrecognized

Fair

Cost

Gains

Losses

Value
Held-to-Maturity








Mortgage-backed securities

$
345

$
14

$
—

$
359
United States Treasury

202

—

—

202
Foreign Bonds

1,000

—

—

1,000
Total Held-to-Maturity

$
1,547

$
14

$
—

$
1,561

Table of Contents


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Equity
Mutual Funds	$	5,502	$	—	$	—	$	5,502
Other equity securities	857		—		—		857
Total Equity	$	6,359	$	—	$	—	$	6,359


(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 June 30, ~~2021~~2022, and December 31, ~~2020, Corporate~~2021, corporate bonds were comprised of investments in the financial services industry. During the six months ended June 30, ~~2021,~~2022, the net investment portfolio ~~increased~~decreased by ~~$32.6~~$2.8 million ~~as a result of increases from purchases of $50.9~~primarily due to $18.2 million in ~~SBA~~investment calls, redemptions and ~~MBS securities combined~~paydowns, coupled with ~~decreases~~unrealized losses of ~~$17.4~~$14.3 million ~~from paydowns, maturities and calls, as well as~~during the ~~unrealized holding loss on securities available for sale of $0.7 million~~year with a related tax effect of ~~$0.2 million. Proceeds from the maturity~~$3.6 million, partially offset by purchases of approximately $30.7 million in mortgage-backed securities ("MBS") community development district bonds ("CDD"), and redemption of securities during the three and six months ended June 30, 2021, were $3.2 million and $4.7 million, with gross realized gains of $21 thousand and $22 thousand, respectively. Proceeds from the sales of securities during the year ended December 31, 2020,

municipal bonds.

~~Table of Contents~~

were $1.7 million, with gross realized gains of $4 thousand. Proceeds from redemption of securities for the year ended December 31, 2020, were $9.1 million, with gross realized gains of $33 thousand. Total securities pledged as of June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, were ~~$13.3~~$1.9 million and ~~$12.5~~$2.4 million, ~~respectively. Securities~~respectively, which included securities pledged for derivative ~~SWAP~~swap transactions ~~as of June 30, 2021, were $1.1 million which were included in the total securities pledged, such securities were generally~~and pledged for public funds. ~~There were no securities pledged for derivate SWAP transactions at December 31, 2020.~~

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

Table of Contents

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

June 30, 2021

Amortized

Fair

Cost

Value
Available-for-sale

Due in one year or less

$
1,038

$
1,056
Due after one year through five years

21,159

21,975
Due after five years through ten years

315

329
Due after ten years

—

—
Subtotal

$
22,512

$
23,360

Small Business Administration loan pools

$
43,091

$
42,596
Mortgage-backed securities

54,517

54,540
Total available-for-sale

$
120,120

$
120,496

Held-to-maturity

Due in one year or less

$
1,000

$
1,000
Due after one year through five years

—

—
Subtotal

$
1,000

$
1,000

Mortgage-backed securities

$
285

$
296
Total held-to-maturity

$
1,285

$
1,296


	June 30, 2022
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale
Due in one year or less	$	5,440	$	5,426
Due after one year through five years	22,955		21,971
Due after five years through ten years	4,693		4,327
Due after ten years	—		—
Subtotal	33,088		31,724

Small Business Administration loan pools	35,355		34,946
Mortgage-backed securities	138,666		125,137
Total available for sale	$	207,109	$	191,807

Held to maturity




Mortgage-backed securities	$	204	$	197
Total held to maturity	$	204	$	197

On June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, there were 0no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

At On June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, the number of investment positions that are in an unrealized loss position were 48198 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

~~Table of Contents~~

losses were outstanding aton June 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

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses
June 30, 2021

Available-for-sale - taxable

Small Business Administration loan pools

$
15,273

$
(427)

$
17,777

$
(146)

$
33,050

$
(573)
Mortgage-backed securities

14,648

(181)

1,286

(1)

15,934

(182)
United States agency obligations

—

—

—

—

—

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale - taxable

$
29,921

$
(608)

$
19,063

$
(147)

$
48,984

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

Community Development District bonds

$
—

$
—

$
—

$
—

$
—

$
—
Municipals

—

—

—

—

—

—
Total available-for-sale - tax exempt

$
—

$
—

$
—

$
—

$
—

$
—

December 31, 2020












Available-for-sale - taxable












Small Business Administration loan pools

$
18,849

$
(133)

$
8,945

$
(66)

$
27,794

$
(199)
Mortgage-backed securities

5,839

—

2,510

(30)

8,349

(30)
United States agency obligations

227

—

—

—

227

—
Corporate bonds

—

—

—

—

—

—
Total available-for-sale - taxable

$
24,915

$
(133)

$
11,455

$
(96)

$
36,370

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

Community Development District bonds

$
—

$
—

$
—

$
—

$
—

$
—
Municipals

—

—

—

—

—

—
Total available-for-sale - tax exempt

$
—

$
—

$
—

$
—

$
—

$
—


	Less Than 12 Months				12 Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2022
Available for sale - taxable
Small Business Administration loan pools	$	4,145	$	(79)	$	24,445	$	(363)	$	28,590	$	(442)
Mortgage-backed securities	114,856		(12,206)		10,375		(1,323)		125,231		(13,529)
United States agency obligations	2,767		(178)		—		—		2,767		(178)

Total available for sale - taxable	$	121,768	$	(12,463)	$	34,820	$	(1,686)	$	156,588	$	(14,149)
Available for sale - tax-exempt
Community Development District bonds	$	20,627	$	(1,069)	$	—	$	—	$	20,627	$	(1,069)
Municipals	3,020		(134)		—		—		3,020		(134)
Total available for sale - tax-exempt	$	23,647	$	(1,203)	$	—	$	—	$	23,647	$	(1,203)

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 changes in the interest rate cycle. The unrealized loss positions may fluctuate positively or negatively with changes in interest rates or spreads. Since SBA loan pools and mortgage-backed securities are government sponsored entities that are highly rated, the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not have any securities in an Other Than Temporary Impairment (“OTTI”) position. The Company does not intend to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery. ~~The Company does not consider these securities to be other-than-temporarily impaired at June 30, 2021. NaN~~No credit losses were recognized ~~in operations~~ during the six months ended June 30, ~~2021,~~2022, or during the year ended December 31, ~~2020.~~

2021.

Table of Contents

NOTE 4 — LOANS

Loans aton June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, were as follows:

June 30, 2021

December 31, 2020
Commercial real estate

$
875,453

$
777,776
Residential real estate

361,946

380,491
Commercial

373,333

396,642
Construction and land development

74,175

99,883
Consumer and other

14,575

11,688
Total loans

1,699,482

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

(1,984)

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

(4,855)

(4,255)
Allowance for loan loss

(10,418)

(16,259)
Loans held for sale

(2,039)

(1,270)
Other

(18)

—
Loans, net

$
1,680,168

$
1,643,373


(Dollars in thousands)	June 30, 2022		December 31, 2021
Loans held for investment:
Commercial real estate	$	1,034,487	$	902,654
Residential real estate	422,239		377,511
Commercial (non-PPP)	387,317		325,415
Commercial (PPP)	8,176		58,615
Construction and land development	114,938		91,520
Consumer and other	20,076		21,449
Total loans held for investment, gross	1,987,233		1,777,164
Allowance for loan losses	(15,142)		(12,704)
Loans held for investment, net	$	1,972,091	$	1,764,460

Loans held for sale:
Loans held for sale	$	—	$	165
Total loans held for sale	$	—	$	165

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

On June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, there were ~~$209.9~~$245.4 million and ~~$227.8~~$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. AtOn June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, loan premiums for purchased loans were ~~$0.5~~$0.3 million and ~~$0.6~~$0.4 million, respectively.

Net discounts for loans acquired through business acquisitions totaled $9.9 million and $13.0 million, as of June 30, 2022, and December 31, 2021, respectively.

There are 0no loans over 90 days past due and accruing as of June 30, ~~2021,~~2022, or December 31, ~~2020.~~ 2021.

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

30 – 59

60 – 89

Greater than

Days

Days

89 Days

Total

Loans Not


Past Due

Past Due

Past Due

Nonaccrual

Past Due

Past Due

Total
June 30, 2021














Commercial real estate

$
—

$
—

$
—

$
—

$
—

$
875,453

$
875,453
Residential real estate

—

—

—

—

—

361,946

361,946
Commercial

—

—

—

1,468

1,468

371,865

373,333
Construction and land development

—

—

—

—

—

74,175

74,175
Consumer and other

—

94

—

1,307

1,401

13,174

14,575
Total

$
—

$
94

$
—

$
2,775

$
2,869

$
1,696,613

$
1,699,482

30 – 59

60 – 89

Greater than

Days

Days

89 Days

Total

Loans Not


Past Due

Past Due

Past Due

Nonaccrual

Past Due

Past Due

Total
December 31, 2020

Commercial real estate

$
—

$
—

$
—

$
—

$
—

$
777,776

$
777,776
Residential real estate

1,303

—

—

—

1,303

379,188

380,491
Commercial

278

—

—

9,127

9,405

387,237

396,642
Construction and land development

—

—

—

—

—

99,883

99,883
Consumer and other

—

—

—

1,307

1,307

10,381

11,688
Total

$
1,581

$
—

$
—

$
10,434

$
12,015

$
1,654,465

$
1,666,480


(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
June 30, 2022
Commercial real estate	$	—	$	284	$	—	$	—	$	284	$	1,034,203	$	1,034,487
Residential real estate	—		—		—		—		—		422,239		422,239
Commercial (non-PPP)	326		88		—		1,468		1,882		385,435		387,317
Commercial (PPP)	178		7		—		—		185		7,991		8,176
Construction and land development	—		—		—		—		—		114,938		114,938
Consumer and other	—		—		—		—		—		20,076		20,076
Total	$	504	$	379	$	—	$	1,468	$	2,351	$	1,984,882	$	1,987,233

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At June 30, 2021, there were 6 impaired loans (consisting of nonaccrual loans, troubled debt restructured loans, loans past due 90 days or more and still accruing interest and other loans based on management’s judgment) with both unpaid principal balance and recorded investments totaling $5.4 million. NaN of these loans were impaired loans with a recorded investment of $2.8 million with an allowance of $0.7 million and 1 substandard accruing loan with a recorded investment of $2.3 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the three months ended June 30, 2021, were $0.9 million. Residential real estate loans had $2.4 thousand and $5.0 thousand interest income recognized for the three and six months ended June 30, 2021 and 2020, respectively, which was equal to the cash basis interest income. At December 31, 2020, there were 6 impaired loans with recorded investments totaling $13.1 million, of which there were 3 impaired loans with a recorded investment of $10.4 million on nonaccrual with an allowance of $8.3 million and 1 substandard accruing loan with a recorded investment of $2.4 million with no allowance. The average net investment on the impaired residential real estate and commercial loans during the year ended December 31, 2020, was $2.2 million. The residential real estate loans had $12.7 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 ~~$252 thousand~~$1.0 million and ~~$298~~$55 thousand as of June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, respectively. The Company has allocated 0no specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 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 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 thereof which are guaranteed by the U.S. Government or agencies backed by the “full faith and credit” thereof; loans secured by properly executed letters of credit from prime financial institutions).

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

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

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

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risk profile. This may include borrowers who fail to supply updated financial information that supports the adequacy of the primary source of repayment to service the Bank’s debt and prevents bank management to evaluate the borrower’s current debt service capacity. Existing loans will include those with consistent

~~Table of Contents~~

track record of timely loan payments, no material adverse changes to underlying collateral, and no material adverse change to guarantor(s) financial capacity, evidenced by public record searches.

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

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

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

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

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

Special

(Dollars in thousands)

Pass

Mention

Substandard

Doubtful

Total
June 30, 2021

Commercial real estate

$
873,127

$
—

$
2,326

$
—

$
875,453
Residential real estate

361,946

—

—

—

361,946
Commercial

371,400

465

1,468

—

373,333
Construction and land development

74,175

—

—

—

74,175
Consumer

13,174

94

1,307

—

14,575
Total

$
1,693,822

$
559

$
5,101

$
—

$
1,699,482

December 31, 2020

Commercial real estate

$
775,420

$
—

$
2,356

$
—

$
777,776
Residential real estate

380,062

429

—

—

380,491
Commercial

387,403

112

9,127

—

396,642
Construction and land development

99,883

—

—

—

99,883
Consumer

10,381

—

1,307

—

11,688
Total

$
1,653,149

$
541

$
12,790

$
—

$
1,666,480


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2022
Commercial real estate	$	1,031,944	$	285	$	2,258	$	—	$	1,034,487
Residential real estate	421,199		1,040		—		—		422,239
Commercial (non-PPP)	385,435		414		1,468		—		387,317
Commercial (PPP)	8,176		—		—		—		8,176
Construction and land development	114,938		—		—		—		114,938
Consumer	20,004		72		—		—		20,076
Total	$	1,981,696	$	1,811	$	3,726	$	—	$	1,987,233

December 31, 2021
Commercial real estate	$	900,364	$	—	$	2,290	$	—	$	902,654
Residential real estate	377,511		—		—		—		377,511
Commercial (non-PPP)	323,657		290		1,468		—		325,415
Commercial (PPP)	58,615		—		—		—		58,615
Construction and land development	91,520		—		—		—		91,520
Consumer	20,712		83		—		654		21,449
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)

June 30, 2021

December 31, 2020
Commercial real estate⁽¹⁾

$
5,892

$
—
Residential real estate

452

405
Commercial

616

746
Construction and development⁽¹⁾

—

3,732
Carrying amount, net of total discounts

$
6,960

$
4,883

~~(1)~~

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


(Dollars in thousands)	June 30, 2022		December 31, 2021
Commercial real estate	$	5,804	$	5,845
Residential real estate	—		89
Commercial	202		410
Construction and development	—		—
Consumer and other loans	—		—
Carrying amount	$	6,006	$	6,344

~~Table of Contents~~

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

2022 and 2021 :


(Dollars in thousands)	2022		2021
Balance at January 1	(573)		(630)
New loans purchased	—		—
Adjustment of income	—		—
Accretion	135		195
Reclassifications from nonaccretable difference	(397)		(136)
Disposals	373		—
Balance on June 30	$	(462)	$	(571)

~~(Dollars in thousands)~~

~~2021~~

~~Balance at beginning of period~~

~~(630)~~

~~Adjustment of income~~

—

~~Accretion~~

~~195~~

~~Reclassifications from nonaccretable difference~~

~~(136)~~

~~Disposals~~

—

~~Balance at end of period~~

~~(571)~~

For those purchased credit impaired loans disclosed above, 0no allowances for loan losses were recorded or reversed during the six months ended June 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 June 30, ~~2021,~~2022, the Company had nonperforming assets of ~~$2.8~~$1.5 million, or ~~0.11%~~0.06% of total assets, compared to nonperforming assets of ~~$10.4~~$2.1 million, or ~~0.51%~~0.08% of total assets, aton 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 1 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~~six months ended June 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~~

~~During the three~~six months ended June 30, 2021 ~~the Company funded 172 loans representing $17.6~~ ~~million under Round 3 of the Paycheck Protection Program (“PPP.”). As of June 30, 2021, the Company participated in all three rounds of the PPP and funded~~ 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which 1,362 loans totaling $196.9 million were forgiven by the SBA. Most of the PPP loans were initially pledged to the Federal Reserve as part of the Payroll Protection Program

on a commercial loan.

Table of Contents

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

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

As a result of the COVID-19 pandemic the Company has reviewed and processed numerous debt service relief requests in accordance with Section 4013 of the CARES Act and interagency guidelines published by federal banking regulators on March 13, 2020. As currently interpreted by the agencies, the guidelines assert that short-term modifications made on good faith for reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered TDRs. These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications have varying terms up to six months. As of June 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 six months ended June 30, ~~2021,~~2022, and ~~the year ended December 31, 2020:~~

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
June 30, 2021












Allowance for loan losses:












Beginning balance

$
3,159

$
2,177

$
10,462

$
388

$
73

$
16,259
Provision for loan losses

1,126

92

602

(27)

7

1,800
Loans charged-off

-

-

(7,641)

-

-

(7,641)
Recoveries

-

-

-

-

-

-
Total ending allowance balance

$
4,285

$
2,269

$
3,423

$
361

$
80

$
10,418

Construction

Commercial

Residential

and land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
December 31, 2020












Allowance for loan losses:












Beginning balance

$
1,845

$
3,115

$
1,235

$
272

$
81

$
6,548
Provision for loan losses

1,314

(731)

9,326

116

(8)

10,017
Loans charged-off

—

(207)

(99)

—

—

(306)
Recoveries

—

—

—

—

—

—
Total ending allowance balance

$
3,159

$
2,177

$
10,462

$
388

$
73

$
16,259

2021.


	Three Months Ended June 30, 2022
(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and land Development		Consumer and Other		Total
June 30, 2022
Allowance for loan losses:
Beginning balance	$	4,735	$	2,382	$	5,133	$	511	$	794	$	13,555
Provision for loan losses	1,194		584		292		166		4		2,240
Loans charged-off	—		—		—		—		(653)		(653)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	5,929	$	2,966	$	5,425	$	677	$	145	$	15,142


	Three Months Ended June 30, 2021
(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and land Development		Consumer and Other		Total
June 30, 2021
Allowance for loan losses:
Beginning balance	$	3,482	$	2,188	$	3,521	$	404	$	61	$	9,656
Provision for loan losses	803		81		(98)		(43)		19		762
Loans charged-off	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	4,285	$	2,269	$	3,423	$	361	$	80	$	10,418


	Six Months Ended June 30, 2022
(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
June 30, 2022
Allowance for loan losses:
Beginning balance	$	4,471	$	2,339	$	4,637	$	471	$	786	$	12,704
Provision for loan losses	1,458		627		788		206		12		3,091
Loans charged-off	—		—		—		—		(653)		(653)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	5,929	$	2,966	$	5,425	$	677	$	145	$	15,142

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	Six Months Ended June 30, 2021
(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
June 30, 2021
Allowance for loan losses:
Beginning balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259
Provision for loan losses	1,126		92		602		(27)		7		1,800
Loans charged-off	—		—		(7,641)		—		—		(7,641)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	4,285	$	2,269	$	3,423	$	361	$	80	$	10,418


(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
June 30, 2022
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	702	$	—	$	—	$	702
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		—
Collectively evaluated for impairment	5,929		2,966		4,723		677		145		14,440
Total ending allowance balance	$	5,929	$	2,966	$	5,425	$	677	$	145	$	15,142

Loans:
Loans individually evaluated for impairment	$	2,258	$	—	$	1,468	$	—	$	—	$	3,726
Loans collectively evaluated for impairment	1,032,229		422,239		394,025		114,938		20,076		1,983,507
Total ending loans balance	$	1,034,487	$	422,239	$	395,493	$	114,938	$	20,076	$	1,987,233

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

Table of Contents

Construction

Commercial

Residential

and Land

Consumer


Real Estate

Real Estate

Commercial

Development

and Other

Total
June 30, 2021












Allowance for loan losses:

Ending allowance balance attributable to loans

Individually evaluated for impairment

$
—

$
—

$
658

$
—

$
—

$
658
Purchased Credit Impaired (PCI) loans

—

—

—

—

—

—
Collectively evaluated for impairment

4,285

2,269

2,765

361

80

9,760
Total ending allowance balance

$
4,285

$
2,269

$
3,423

$
361

$
80

$
10,418

Loans:

Loans individually evaluated for impairment

$
2,326

$
252

$
1,468

$
—

$
1,307

$
5,353
Loans collectively evaluated for impairment

873,127

361,694

371,865

74,175

13,268

1,694,129
Total ending loans balance

$
875,453

$
361,946

$
373,333

$
74,175

$
14,575

$
1,699,482

December 31, 2020

Allowance for loan losses:

Ending allowance balance attributable to loans

Individually evaluated for impairment

$
—

$
—

$
8,309

$
—

$
—

$
8,309
Purchased Credit Impaired (PCI) loans

—

—

—

—

—

Collectively evaluated for impairment

3,159

2,177

2,153

388

73

7,950
Total ending allowance balance

$
3,159

$
2,177

$
10,462

$
388

$
73

$
16,259

Loans:

Loans individually evaluated for impairment

$
2,356

$
298

$
9,127

$
—

$
1,307

$
13,088
Loans collectively evaluated for impairment

775,420

380,193

387,515

99,883

10,381

1,653,392
Total ending loans balance

$
777,776

$
380,491

$
396,642

$
99,883

$
11,688

$
1,666,480

NOTE 6 — DEPOSITS

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

For the Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

Ending

Ending

(Dollars in thousands)

Balance

% of Total

Balance

% of Total

NOW accounts

$
286,173

12.6
%
$
232,367

14.0
%
Money market accounts

810,913

35.6
%

679,761

41.0
%
Brokered deposits

56,534

2.5
%

30,137

1.8
%
Savings accounts

11,814

0.5
%

9,727

0.6
%
Certificates of deposit

257,056

11.3
%

231,953

14.0
%
Total interest-bearing deposits

1,422,490

62.5
%

1,183,945

71.3
%
Noninterest-bearing deposits

854,673

37.5
%

475,598

28.7
%
Total deposits

$
2,277,163

100.0
%
$
1,659,543

100.0
%

~~(1)~~

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


	June 30, 2022			December 31, 2021
(Dollars in thousands)	Ending Balance		% of Total	Ending Balance		% of Total
NOW accounts	$	339,942	14.3%	$	310,362	13.1%
Money market accounts	1,026,457		43.1%	1,055,033		44.5%
Brokered deposits	15,032		0.6%	58,365		2.5%
Savings accounts	14,324		0.6%	12,558		0.5%
Certificates of deposit	208,479		8.8%	261,067		11.0%
Total interest-bearing deposits	1,604,234		67.4%	1,697,385		71.6%
Noninterest-bearing deposits	777,501		32.6%	674,003		28.4%
Total deposits	$	2,381,735	100.0%	$	2,371,388	100.0%

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

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

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits of $250,000 or less

$
15,852

$
12,749

$
43,020

$
22,047

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

23,302

24,537

85,376

34,797

168,012
Total

$
39,154

$
37,286

$
128,396

$
56,844

$
261,680
2022.


(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	$	35,131	$	15,319	$	17,928	$	3,512	$	71,890
Time deposits of more than $250,000	65,749		27,793		38,858		4,189		136,589
Total	$	100,880	$	43,112	$	56,786	$	7,701	$	208,479

~~Table of Contents~~

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

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits of $250,000 or less

$
20,767

$
13,258

$
24,805

$
19,240

$
78,070
Time deposits of more than $250,000

40,189

35,314

42,844

40,158

158,505
Total

$
60,956

$
48,572

$
67,649

$
59,398

$
236,575

2021.


(Dollars in thousands)	Three Months or Less		Over Three Through Six Months		Over Six Months Through 12 Months		Over 12 Months		Total
Time deposits of $250,000 or less	$	17,431	$	26,721	$	44,373	$	4,631	$	93,156
Time deposits of more than $250,000	32,058		54,429		83,290		2,760		172,537
Total	$	49,489	$	81,150	$	127,663	$	7,391	$	265,693

As of June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, the Company had time deposits that ~~meet or~~ exceed the $250,000 FDIC insurance limit of ~~$168.0~~$136.6 million and ~~$158.5~~$172.5 million, respectively. Securities, mortgage loans or other financial instruments pledged as collateral for certain deposits were ~~$52.4~~$28.7 million, and ~~$54.7~~$28.7 million aton June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, respectively. The aggregate amount of demand deposits that have been re-classified as loan balances aton June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, were ~~$0.3~~$0.6 million, and ~~$0.1~~$0.4 million, respectively. Deposits from principal officers, directors and their affiliates at June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, were ~~$17.9~~$2.4 million and ~~$12.1~~$18.9 million, respectively.

Table of Contents

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

June 30, 2021

December 31, 2020
Less than 1 year

$
204,836

$
177,178
Over 1 through 2 years

55,625

57,034
Over 2 through 3 years

1,179

1,658
Over 3 through 4 years

40

705
Over 4 through 5 years

-

-
Over 5 years

-

-
Total

$
261,680

$
236,575


(Dollars in thousands)	June 30, 2022		December 31, 2021
1 year or less	$	200,778	$	258,302
Over 1 through 2 years	7,461		6,669
Over 2 through 3 years	240		722
Over 3 through 4 years	—		—
Over 4 through 5 years	—		—
Over 5 years	—		—
Total	$	208,479	$	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 aton June 30, ~~2021~~2022, and December 31, ~~2020.~~2021. Additionally, the Company had ~~$93.6~~$92.5 million and ~~$98.2~~$84.4 million, in Qualified Public Deposits (“QPD”) that require a portion of the deposit to be pledged as collateral ~~pledged~~ as of June 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 (SOFR) 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 or after ~~October 30, 2021.~~the fifth anniversary of the issue date. The ~~subordinated debt was fair valued at a premium~~Company used the net proceeds from the sale of ~~$0.3 million and is being amortized over~~ the ~~expected life.~~

subordinate notes 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.~~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~~June 30, 2022, there were no outstanding borrowings under this line of ~~the note~~credit compared to ~~March 19,~~$10.0 million on December 31, 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.

~~Table of Contents~~

~~NOTE 8 — BORROWINGS~~

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

Federal Home Loan Bank Advances

FHLB Advances. The FHLB allows the Company to borrow up to 25% of its assets on a blanket floating lien status collateralized by certain securities and loans. As of June 30, ~~2021,~~2022, approximately ~~$209.9~~$245.4 million in total loans 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 June 30, ~~2021,~~2022, we had ~~$35.0~~no outstanding advances, $28.7 million in outstanding ~~advances~~letters of credit, and ~~$134.7~~$153.3 million in additional available borrowing capacity from the FHLB based on the collateral that we have currently pledged. ~~The following table sets forth certain information on our FHLB borrowings during the periods presented.~~

Six Months Ended

Year Ended

(Dollars in thousands)

June 30, 2021

December 31, 2020

Amount outstanding at period-end

$
35,000

$
40,000

Weighted average interest rate at period-end

2.04
%

1.96
%
Maximum month-end balance during period

$
40,000

$
70,000

Average balance outstanding during period

38,867

58,210

Weighted average interest rate during period

1.98
%

1.63
%


(Dollars in thousands)	June 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	$	13,757	$	36,918
Weighted average interest rate during period	1.98%		2.01%

Table of Contents

Federal Reserve Bank of Atlanta.

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

~~PPPLF Advances~~. The Company initially funded PPP loans with the PPPLF. Most of the PPP loans were initially pledged to the Federal Reserve as part of the PPPLF. The PPPLF pledged loans are non-recourse to the Company. In addition, we paid off approximately $101.4 million in PPPLF advances for a balance of $0 at June 30,2022 and December 31, 2021.

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 June 30, ~~2021,~~2022, there are 50,000,000 shares authorized as Class A voting common stock of which ~~13,475,781~~13,742,381 are outstanding. During the six months ended June 30, ~~2021,~~2022, the Company issued ~~193,764~~315,369 shares of Class A voting common stock, inclusive of ~~127,499~~199,897 shares of restricted stock grants ~~64,414~~and 115,472 shares of options exercised.

During the six months ended June 30, 2022, treasury shares increased 10,244 in connection with the net settlement of equity awards exercised or vested for tax purposes and ~~1,851 shares pursuant to the employee~~had 9,144 in restricted stock ~~purchase program.~~

cancellations. During the six months ended June 30, 2021, the Company repurchased 247,768 shares of Class A voting common ~~stock. Further, during the same six 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 1,834 in restricted stock cancellations.~~

purposes. The Company did not repurchase any shares for the six months ended June 30, 2022.

~~Table of Contents~~

Class B Non-voting Common Stock

The Company has authorized Class B non-voting common stock with a par value of $0.01 per share. As of June 30, 2022, and December 31, 2021, there are 10,000,000 shares authorized as Class B non-voting common stock, ~~NaN~~none of which ~~are~~were outstanding.

Preferred Stock

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

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:

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

Table of Contents

might include certain residual interests in securitizations and other less liquid securities. As of June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, all securities available for sale were Level 2.

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

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

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

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

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

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

~~Table of Contents~~

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

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

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

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.

~~Assets and Liabilities Measured on a Recurring Basis~~Interest rate swaps:

~~Assets and liabilities measured at~~ The fair value ~~on a recurring basis,~~of interest rate swaps is estimated using inputs that are ~~summarized below:~~

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 0no securities reclassified into or out of Level 3 during the six months ended June 30, ~~2021,~~2022, or for the year ended December 31, ~~2020.~~

Fair Value Measurements

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
June 30, 2021

Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale - taxable








Small Business Administration loan pools

$
42,596

$
—

$
42,596

$
—
Mortgage-backed securities

54,540

—

54,540

—
United States agency obligations

2,089

—

2,089

—
Corporate bonds

1,510

—

1,510

—
Total

$
100,735

$
—

$
100,735

$
—
Available-for-sale - tax exempt

Community Development District bonds

$
18,658

$
—

$
18,658

$
—
Municipals

1,103

—

1,103

—
Total

$
19,761

$
—

$
19,761

$
—
Equity








Mutual funds

$
5,942

$
5,942

$
—

$
—
Total

$
5,942

$
5,942

$
—

$
—

2021.

Table of Contents

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:


			Fair Value Measurements on June 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	$	34,946	$	—	$	34,946	$	—
Mortgage-backed securities	125,137		—		125,137		—
United States agency obligations	2,767		—		2,767		—
Corporate bonds	1,504		—		1,504		—
Securities available for sale - tax-exempt
Community Development District bonds	24,432		—		24,432		—
Municipals	3,021		—		3,021		—
Equity securities - mutual funds	$	5,502	$	5,502	$	—	$	—

Customer derivatives - interest rate swaps	$	3,926	$	—	$	3,926	$	—

LIABILITIES:
Customer derivatives - interest rate swaps	$	3,926	$	—	$	3,926	$	—


			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	$	—

Fair Value Measurements

at December 31, 2020 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
December 31, 2020

Value

(Level 1)

(Level 2)

(Level 3)
Available-for-sale - taxable








Small Business Administration loan pools

$
30,556

$
—

$
30,556

$
—
Mortgage-backed securities

28,922

—

28,922

—
United States agency obligations

3,122

—

3,122

—
Corporate bonds

2,510

—

2,510

—
Total

$
65,110

$
—

$
65,110

$
—
Available-for-sale - tax exempt

Community Development District bonds

$
21,299

$
—

$
21,299

$
—
Municipals

1,099

—

1,099

—
Total

$
22,398

$
—

$
22,398

$
—
Equity








Mutual funds

$
6,005

$
6,005

$
—

$
—
Total

$
6,005

$
6,005

$
—

$
—

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Active Markets for

Observable

Unobservable

Fair

Identical Assets

Inputs

Inputs
June 30, 2021

Value

(Level 1)

(Level 2)

(Level 3)
Customer Derivatives: Interest Rate SWAPs








Customer Derivatives - Interest Rate SWAPs Asset

$
863

$
—

$
863

$
—
Customer Derivatives - Interest Rate SWAPs Liability

(863)

—

(863)

—
Total

$
—

$
—

$
—

$
—

AsTable of ~~December 31, 2020, the Company did not hold any interest rate SWAPs.~~

Contents

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

~~Table of Contents~~

value of collateral was noted as $0.6 million. The net result of these calculations provides for 0 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.

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

Fair Value Measurements

at June 30, 2021 Using:

Significant

Quoted Prices in

Other

Significant

Total at

Active Markets for

Observable

Unobservable

June 30,

Identical Assets

Inputs

Inputs

Total Gains
(Dollars in thousands)

2021

(Level 1)

(Level 2)

(Level 3)

(Losses)
Impaired Loans:










Commercial real estate

$
—

$
—

$
—

$
—

$
—
Residential real estate

—

—

—

—

—
Commercial

810

—

—

810

(658)
Construction and land development

—

—

—

—

—
Consumer and other

—

—

—

—

—
Total

$
810

$
—

$
—

$
810

$
(658)

Fair Value Measurements

at December 31, 2020 Using:

Significant

Quoted Prices in

Other

Significant

Total at

Active Markets for

Observable

Unobservable

December 31,

Identical Assets

Inputs

Inputs

Total Gains
(Dollars in thousands)

2020

(Level 1)

(Level 2)

(Level 3)

(Losses)
Impaired Loans:










Commercial real estate

$
—

$
—

$
—

$
—

$
—
Residential real estate

—

—

—

—

—
Commercial

818

—

—

818

(8,309)
Construction and land development

—

—

—

—

—
Consumer and other

—

—

—

—

—
Total

$
818

$
—

$
—

$
818

$
(8,309)


			Fair Value Measurements on June 30, 2022 Using:
(Dollars in thousands)	Total at June 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:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate	—		—		—		—		—
Commercial	766		—		—		766		(702)
Construction and land development	—		—		—		—		—
Consumer and other	—		—		—		—		—
Total	$	766	$	—	$	—	$	766	$	(702)


			Fair Value Measurements on December 31, 2021 Using:
(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:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Residential real estate	—		—		—		—		—
Commercial	797		—		—		797		(671)
Construction and land development	—		—		—		—		—
Consumer and other	—		—		—		—		(654)
Total	$	797	$	—	$	—	$	797	$	(1,325)

~~Table of Contents~~

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

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


	June 30, 2022
(Dollars in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & due from banks, including interest bearing deposits	$	341,036	$	341,036	Level 1
Federal funds sold	27,043		27,043		Level 1
Securities, available for sale - taxable	178,465		164,354		Level 2
Securities, available for sale - tax-exempt	28,642		27,453		Level 2
Securities, held to maturity	204		197		Level 2
Securities, equity	5,502		5,502		Level 1
Securities, other equity	857		857		Level 1
Loans, net	1,972,091		1,969,111		Level 3

Bank owned life insurance	54,134		54,134		Level 2
Customer derivatives - interest rate swaps	3,926		3,926		Level 2
Accrued interest receivable	5,264		5,264		Level 1, 2 & 3

Financial Liabilities:
Deposits	$	2,381,735	$	2,231,981	Level 2

Subordinated debt	24,436		24,436		Level 2



Customer derivatives - interest rate swaps	3,926		3,926		Level 2
Accrued interest payable	564		564		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

Table of Contents

June 30, 2021

Carrying

Fair

Fair Value


Amount

Value

Hierarchy
Financial Assets:






Cash & Due from Banks, including interest bearing deposits

$
616,180

$
616,180

Level 1
Federal Funds Sold

36,156

36,156

Level 1
Securities, Available for Sale - taxable

101,109

100,735

Level 2
Securities, Available for Sale - tax exempt

19,011

19,761

Level 2
Securities, Held to Maturity

1,285

1,296

Level 2
Securities, Equity

5,942

5,942

Level 1
Loans, net

1,680,168

1,702,726

Level 3
Loans Held For Sale

2,039

2,039

Level 1
Bank Owned Life Insurance

37,923

37,923

Level 2
Accrued Interest Receivable

5,449

5,449

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

863

863

Level 2

Financial Liabilities:






Deposits

2,277,163

2,246,864

Level 2
Federal Home Loan Bank Advances

35,000

33,671

Level 2
Subordinated Debt

10,062

10,062

Level 2
PPPLF Advances

—

—

Level 2
Loan Participations

—

—

Level 2
Customer Derivatives - Interest Rate SWAPs

863

863

Level 2
Accrued Interest Payable

267

267

Level 2

December 31, 2020

Carrying

Fair

Fair Value


Amount

Value

Hierarchy
Financial Assets:






Cash & Due from Banks, including interest bearing deposits

$
191,597

$
191,597

Level 1
Federal Funds Sold

25,375

25,375

Level 1
Securities, Available for Sale - taxable

65,110

65,110

Level 2
Securities, Available for Sale - tax exempt

22,398

22,398

Level 2
Securities, Held to Maturity

1,547

1,561

Level 2
Securities, Equity

6,005

6,005

Level 1
Loans, net

1,643,373

1,653,401

Level 3
Loans Held For Sale

1,270

1,270

Level 1
Bank Owned Life Insurance

37,360

37,360

Level 2
Accrued Interest Receivable

6,666

6,666

Level 1, 2 & 3

Financial Liabilities:






Deposits

1,659,543

1,693,331

Level 2
Federal Home Loan Bank Advances

40,000

37,927

Level 2
Subordinated Debt

10,153

10,153

Level 2
PPPLF Advances

101,358

101,519

Level 2
Loan Participations

13,215

13,215

Level 2
Accrued Interest Payable

546

546

Level 2

NOTE 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 notdesignated 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

~~Table of Contents~~

earnings; however, there maybe fair value adjustments related to credit quality variations between counterparties, which mayimpact earnings as required by FASB ASC Topic 820,Fair Value Measurement and Disclosure (“ASC 820”). ~~During the six months ended~~As of June 30, ~~2021,~~2022, the Company recorded ~~5 SWAP~~13 swap transactions with clients having a total notional amount of ~~$22.3~~$54.8 million, offset by ~~five SWAP~~13 swap transactions with dealers having a total notional amount of ~~$22.3~~$54.8 million. Additionally, we recorded ~~$0.5~~$0.1 million in ~~SWAP fees.~~back-to-back swap fee income for the six months ended June 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 June 30, ~~2021,~~2022, the Bank’s asset fair value position in other assets was ~~$0.9~~$3.9 million and liability fair value position in other liabilities was ~~$0.9~~$3.9 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. Subsequent to June 30, 2022, Pro Opp Fund LLC 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 aton June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, were as follows:

(Dollars in thousands)

June 30, 2021

December 31, 2020
Unfunded lines of credit

$
366,015

$
356,955
Commitments to extend credit

83,857

40,629
Letters of credit

11,226

13,036
Total credit extension commitments

$
461,098

$
410,620

(Dollars in thousands) June 30,
2022 December 31,
2021
Available lines of credit $ 471,356 $ 415,402
Unfunded loan commitments – fixed 34,058 62,126
Unfunded loan commitments – variable 73,081 46,698
Standby letters of credit 11,974 12,095
Commercial letters of credit 3,664 2,765
Total credit extension commitments $ 594,133 $ 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 June 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 June 30, ~~2021,~~2022, the Bank met all capital adequacy requirements to which it was subject.

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Prompt corrective action regulations provide 5 classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. AtOn June 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 no conditions or events since that notification that management believes have changed the institution’s category. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.

~~Table of Contents~~

Actual and required capital amounts and ratios are presented below aton June 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.


(Dollars in thousands)	Actual				Required for Capital Adequacy Purposes				Well Capitalized Prompt Corrective Action Regulations
	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2022
Total Capital ratio
Bank	$	245,543	12.1	%	$	162,036	8.0	%	$	202,545	10.0	%
Company	260,097		12.8	%	162,036		8.0	%	N/A		N/A
Tier 1 Capital ratio
Bank	229,263		11.3	%	121,527		6.0	%	162,036		8.0	%
Company	219,381		10.8	%	121,527		6.0	%	N/A		N/A
Tier 1 Leverage ratio
Bank	229,263		8.5	%	108,401		4.0	%	135,501		5.0	%
Company	219,381		8.1	%	108,401		4.0	%	N/A		N/A
Common Equity Tier 1
Bank	229,263		11.3	%	91,145		4.5	%	131,654		6.5	%
Company	219,381		10.8	%	91,145		4.5	%	N/A		N/A

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

Minimum to be well

Actual

Minimum for capital adequacy

capitalized

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

June 30, 2021













Total capital ratio











Bank

$
198,836

12.8
%
$
124,003

8.0
%
$
155,004

10.0
%
Company

218,325

14.1
%

124,003

8.0
%

N/A

N/A

Tier 1 capital ratio











Bank

187,416

12.1
%

93,002

6.0
%

124,003

8.0
%
Company

196,844

12.7
%

93,002

6.0
%

N/A

N/A

Tier1 leverage ratio











Bank

187,416

7.4
%

101,368

4.0
%

126,710

5.0
%
Company

196,844

7.8
%

101,368

4.0
%

N/A

N/A

Common equity tier 1 capital ratio









Bank

187,416

12.1
%

69,752

4.5
%

100,753

6.5
%
Company

196,844

12.7
%

69,752

4.5
%

N/A

N/A

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Minimum to be well

Actual

Minimum for capital adequacy

capitalized

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2020













Total capital ratio













Bank

$
176,633

12.0
%
$
117,298

8.0
%
$
146,623

10.0
%
Company

215,977

14.7
%

117,298

8.0
%

N/A

N/A

Tier 1 capital ratio











Bank

159,448

10.9
%

87,974

6.0
%

117,298

8.0
%
Company

188,639

12.9
%

87,974

6.0
%

N/A

N/A

Tier1 leverage ratio











Bank

159,448

8.4
%

75,723

4.0
%

94,654

5.0
%
Company

188,639

10.0
%

75,723

4.0
%

N/A

N/A

Common equity tier 1 capital ratio









Bank

159,448

10.9
%

65,980

4.5
%

95,305

6.5
%
Company

188,639

12.9
%

65,980

4.5
%

N/A

N/A

NOTE 1413 — ~~STOCK BASED COMPENSATION~~

~~Restricted Stock~~

~~An award~~SUBSEQUENT EVENTS

Proposed Merger with Seacoast Banking Corporation of ~~restricted stock involves~~Florida

On August 8, 2022, Professional Holding Corp. and Seacoast Banking Corporation of Florida (“Seacoast”) entered into an Agreement and Plan of Merger pursuant to which Professional will merge with and into Seacoast, with Seacoast as the ~~immediate transfer~~surviving corporation, in an all-stock transaction. The merger was approved by the ~~Company~~board of directors of each of Professional and Seacoast. Completion of the merger is subject to customary closing conditions, including receipt of regulatory approvals and the approval by the shareholders of Professional. The transaction is expected to close in the first quarter of 2023.

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

~~The Company has limited the aggregate number of~~0.8909 shares of ~~our Class A voting~~Seacoast common stock ~~to be awarded under the 2019 Equity Incentive Plan as restricted stock to 300,000 shares. The Company has 222,009 shares~~for each outstanding share of restricted stock outstanding, at a weighted average exercise price of $16.82, to employees and directors under the 2019 Equity Incentive Plan as of June 30, 2021, for which the Company did not receive, nor will it receive, any monetary consideration. Therefore, there were 77,991 restricted shares available to be issued at June 30, 2021. As of June 30, 2021, there was approximately $2.9 million in unrecognized compensation expense in regard to restricted stock that will be recognized over a three-year period.

Professional common stock.

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~~NOTE 15 — LEASES~~

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

The Company’s ROU assets are classified under premises and equipment on the Balance Sheet. The ROU liabilities are classified under other liabilities. The Company did 0t record new ROU during the six months ended June 30, 2021, and recorded $2.0 million during the year ended December 31, 2020. The total amount of ROU was $5.6 and $6.5 million at June 30, 2021 and December 31, 2020, respectively.

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

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

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

Three Months Ended

Three Months Ended

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Operating Lease - Operating Cash Flows (Fixed Payments)

$
326

$
445

$
793

$
756

Operating Lease - Operating Cash Flows (Liability Reduction)

$
296

$
416

$
921

$
669

New ROU Assets - Operating Leases

$
—

$
—

$
—

$
1,620

Weighted Average Lease Term (Years) - Operating Leases

5.25

6.02

Weighted Average Discount Rate - Operating Leases

%

%

3.13
%

3.02
%

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

June 30, 2021
Operating lease payments due:

Within one year

$
1,400
After one but within two years

1,421
After two but within three years

1,296
After three but within four years

1,093
After four years but within five years

955
After five years

706
Total undiscounted cash flows

6,871
Discount on cash flows

(1,291)
Total operating lease liabilities

$
5,580

~~Table of Contents~~

~~NOTE 16 — SUBSEQUENT EVENTS~~

~~Loan Production Offices~~

~~On July 12, 2021, the Company expanded its Florida footprint by opening up 2 new loan production offices in Tampa/St. Petersburg and Jacksonville.~~

~~Table of Contents~~

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,~~2021, which was previously filed with the SEC. This financial information is presented to aid in understanding the Company’s financial position and results of operations and should be read together with the financial information contained in the Form 10-K. See Note 1 “Summary of Significant Accounting ~~Policies - Basis of Presentation”~~Policies” to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three and six months ended June 30, ~~2021,~~2022, compared to the three and six months ended June 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 June 30, ~~2021,~~2022, compared to December 31, ~~2020.~~

2021.

Proposed Merger with Seacoast Banking Corporation of Florida

On August 8, 2022, Professional Holding Corp. and Seacoast Banking Corporation of Florida (“Seacoast”) entered into an Agreement and Plan of Merger as detailed in Note 13 to the Financial Statements..

Subject to the terms of the merger agreement, Professional shareholders will have the right to receive 0.8909 shares of Seacoast common stock for each outstanding share of Professional common stock.

Cautionary Note Regarding Forward Looking Information

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

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

●

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

•general economic, industry, and market conditions, including the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war, including the ongoing conflict between Russia and Ukraine and related increasing oil prices and supply chain interruptions;

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

•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;

•potential disruptions from viruses and pandemics, including the duration and severity of the on-going COVID-19 pandemic, including global supply chain disruptions and the related inflationary environment, both in our principal area of operations and nationally, including the ultimate impact of the pandemic on the economy in general and on our operations;

●

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

●

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

●

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

●

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

●

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

●

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

●

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

●

~~legislative or regulatory changes;~~

●

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

Table of Contents

●

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

●

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

●

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

●

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

●

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

●

~~technological changes;~~

●

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

●

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

●

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

●

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

●

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

●

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

●

~~geopolitical developments;~~

●

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

●

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

●

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

●

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

●

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

●

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

•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);

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

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

•legislative or regulatory changes;

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

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

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

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

•negative publicity and the impact on our reputation;

•our ability to attract and retain highly qualified personnel;

•technological changes;

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

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

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

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

•the efficiency and effectiveness of our internal control environment;

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

•geopolitical developments;

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

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

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

•changes in consumer spending and saving habits;

•growth and profitability of our noninterest income; and

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

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

Executive Overview

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

Results of Operations for the Three Months Ended June 30,

2022

•Net income increased $0.7 million, or 10.5%, to $7.0 million compared to $6.3 million during the three months ended June 30, 2021, due to higher net interest income, partially offset by increased provision expense, lower noninterest income, and higher noninterest expense.

•Net interest income increased $4.7 million, or 27.4%, to $21.9 million compared to $17.2 million during the three months ended June 30, 2021, primarily as a result of the Federal Reserve’s target Federal Funds Rate increases during the three months ended June 30, 2022, as the Company maintains an asset sensitive balance sheet, in addition to an increase in average loans of $153.7 million to $1.9 billion compared to $1.7 billion in the prior year quarter

•Provision for loan losses increased $1.5 million, or 194.0%, to $2.2 million compared to $0.8 million during the three months ended June 30, 2021, primarily due to loan growth. The ratio of annualized charge-offs to average loans was 0.14% during the three months ended June 30, 2022, compared to 0% during the three months ended June 30, 2021.

•Noninterest income decreased $0.5 million, or 22.6% to $1.8 million compared to the three months ended June 30, 2021. The decrease was comprised of lower service charges of $0.6 million on deposit accounts compared to prior year quarter due to service charges of approximately $0.7 million, associated with acting as a correspondent bank for a Payroll Protection Program lender (the "Correspondent Banking Relationship"). Swap fee income and loans held for sale income both decreased $0.4 million and $0.2 million, respectively compared to prior year quarter. These decreases were offset by an increase of $0.5 million in other noninterest income that was primarily due to expected insurance proceeds from a previously recognized contingency.

•Noninterest expense increased $1.7 million, or 15.1%, to $12.6 million compared to $11.0 million during the three months ended June 30, 2021, primarily due to increased other noninterest expense of $1.0 million related to a previously recognized contingency, an increase in provision for off balance sheet items and an increase related to the Community Reinvestment Act (“CRA”) mutual fund investment valuation. Salaries and benefits also increased $0.4 million due to higher headcount.

Results of Operations for the Six Months Ended June 30, 2022

•Net income decreased $1.7 million, or 15.3%, to $9.4 million compared to $11.1 million in the prior year, due to increased noninterest expense driven by the expenses associated with the departure of the Company’s former Chief Executive Officer and higher provision expense, partially offset by higher net interest income.

•Net interest income increased $5.9 million, or 16.7%, to $41.0 million compared to $35.1 million in the prior year, primarily as a result of the Federal Reserve’s target Federal Funds Rate increases in 2022 as the Company maintains an asset sensitive balance sheet, in addition to an increase in average loans from $1.7 billion in 2021 to $1.8 billion in 2022. Interest income also benefited from increased average balances and higher yields in the investment portfolio.

•Provision for loan losses increased $1.3 million, or 71.7%, to $3.1 million compared to $1.8 million in the prior year primarily due to loan growth. The ratio of annualized charge-offs to average loans was 0.07% during the six months ended June 30, 2022, compared to 1.80% in the prior year.

•Noninterest income decreased $0.4 million, or 10.7% to $3.1 million compared to the prior year. The decrease primarily reflected lower service charges of $0.5 million on deposit accounts compared to prior year due to service

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charges of approximately $0.7 million, associated with acting as a correspondent bank for a Payroll Protection Program lender. Swap fee income and loans held for sale income also decreased $0.5 million and $0.2 million, respectively in 2022 compared to 2021 due to lower volume in both noninterest income categories. 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 increased $6.4 million, or 28.0%, to $29.1 million compared to $22.7 million in the prior year primarily due to higher salaries and employee benefits of $4.8 million and higher other noninterest expense of $1.5 million, partially offset by prior year acquisition costs of $0.7 million. 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 paid out during the 2022 period. 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, and a $0.3 million increase related to our Community Reinvestment Act (“CRA”) mutual fund investment valuation.

Financial Condition

At June 30, 2022:

•Total assets decreased $2.6 million, or 0.1%, to $2.7 billion compared to December 31, 2021, primarily as a result of decreases in cash and cash equivalents of $229.4 million, partially offset by an increase in net loans of $207.6 million, an increase in bank owned life insurance of $15.6 million, and an increase in other assets of $7.1 million.

•Total loans increased $0.2 billion, or 11.8%, to $2.0 billion compared to December 31, 2021. The increase was driven by loan originations of approximately $515.2 million, partially offset by paydowns and prepayments of $181.5 million. The Professional Bank PPP loan balance decreased $50.4 million, or 86.1%, to $8.2 million from December 31, 2021.

•Total deposits increased $10.3 million, or 0.4%, to $2.4 billion compared to December 31, 2021 primarily due to an increase in noninterest bearing demand deposit accounts, partially offset by a decrease in money market and savings and time deposits.

•As of June 30, 2022, the Company had nonperforming assets of $1.5 million, or 0.06% 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 during the three months ended June 30, 2022.

Operating Results

Results of Operations for the three months ended June 30, 2022, and 2021

●

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

●

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

●

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

●

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

●

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

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

●

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

●

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

●

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

●

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

●

Noninterest expense increased $1.7 million, or 8.1%, to $22.7 million compared to the prior year. The year over year increase was due to increased salaries and investment in digital infrastructure. The Bank’s number of employees increased from 137 as of December 31, 2019, to 179 as of June 30, 2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 30, 2021.

~~Financial Condition~~

~~At June 30, 2021:~~

●

Total assets increased 14.7%, or $0.4 billion, to $2.6 billion compared to the prior quarter primarily due to increases in customer deposit accounts associated with the Correspondent Banking Relationship and investments in taxable securities available-for-sale. Additionally, total assets increased 26.0%, or $0.5 billion, compared to June 30, 2020.

●

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

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●

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

●

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

~~Operating~~ ~~Results~~

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

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

Three Months Ended June 30,

(Dollars in thousands)

2021

2020

Change

Interest income

$
18,962

$
18,522

2.4
%
Interest expense

1,760

2,231

(21.1)
%
Net Interest income

17,202

16,291

5.6
%
Provision for loan losses

762

1,750

(56.5)
%
Net interest income after provision

16,440

14,541

13.1
%
Noninterest income

2,302

968

137.8
%
Noninterest expense

10,954

11,548

(5.1)
%
Income before income taxes

7,788

3,961

96.6
%
Income tax expense

1,457

830

75.5
%
Net income

$
6,331

$
3,131

102.2
%


	Three Months Ended June 30,
(Dollars in thousands)	2022		2021		Change
Interest income	$	23,670	$	18,962	24.8	%
Interest expense	1,761		1,760		0.1	%
Net interest income	21,909		17,202		27.4	%
Provision for loan losses	2,240		762		194.0	%
Net interest income after provision	19,669		16,440		19.6	%
Noninterest income	1,781		2,302		(22.6)	%
Noninterest expense	12,604		10,954		15.1	%
Income before income taxes	8,846		7,788		13.6	%
Income tax expense	1,852		1,457		27.1	%
Net income	$	6,994	$	6,331	10.5	%

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Net income for the three months ended June 30, ~~2021,~~2022, was ~~$6.3~~$7.0 million, an increase of ~~$3.2~~$0.7 million, or ~~102.2%~~10.5%, compared to the three months ended June 30, ~~2020. Interest~~2021. Net interest income increased ~~$0.4 million while interest expense decreased $0.5 million, resulting in a net interest income increase of $0.9~~$4.7 million for the three months ended June 30, ~~2021,~~2022, compared to the same period in the prior year. ~~The increase in our interest income year-over-year was primarily due to increased loan portfolio growth and decreased cost of funds to the Company.~~ Provision for loan losses ~~decreased~~increased by ~~$1.0~~$1.5 million for the three months ended June 30, ~~2021,~~2022, compared to the same period in the prior year. ~~The decrease in the provision expense was primarily due to loan payoffs in higher risk categories offset by an increase in loan originations. The increase in noninterest~~Noninterest income ~~during~~decreased $0.5 million for the three months ended June 30, ~~2021,~~2022, compared to the same period in the prior year was primarily due to increases in service charges on deposit accounts associated with the Correspondent Banking Relationship, and secondarily to an increase in SWAP fees, as well as a one-time credit due to the unwinding fee of a FHLB advance. The decrease in noninterestyear. Noninterest expense increased $1.7 million for the three months ended June 30, ~~2021,~~2022, 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.

year.

Net Interest Income and Net Interest Margin Analysis

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

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

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using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.

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


	For the Three Months Ended June 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	$	474,835	$	963	0.81	%	$	580,632	$	178	0.12	%
Federal funds sold	31,584		66		0.84	%	69,506		24		0.14	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,318		105		5.76	%	7,391		99		5.37	%
Investment securities - taxable	177,082		704		1.59	%	70,137		161		0.92	%
Investment securities - tax-exempt	28,422		232		3.27	%	20,172		189		3.76	%
Loans (1)	1,853,077		21,600		4.68	%	1,699,403		18,311		4.32	%
Total interest earning assets	2,572,318		23,670		3.69	%	2,447,241		18,962		3.11	%
Loans held for sale	639						2,638
Noninterest earning assets	152,134						115,358
Total assets	$	2,725,091					$	2,565,237
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	$	1,663,120	1,491		0.36	%	$	1,377,712	1,430		0.42	%
Borrowed funds	25,735		270		4.21	%	56,347		330		2.35	%
Total interest-bearing liabilities	1,688,855		1,761		0.42	%	1,434,059		1,760		0.49	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	784,252						890,292
Other noninterest-bearing liabilities	21,098						17,690
Shareholders’ equity	230,886						223,196
Total liabilities and shareholders’ equity	$	2,725,091					$	2,565,237
Net interest income			$	21,909					$	17,202
Net interest spread (2)					3.27	%					2.62	%
Net interest margin (3)					3.42	%					2.82	%

(1)Includes nonaccrual loans.

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

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

(4)Interest income on loans includes loan fees of $1.4 million and $1.6 million for the three months ended June 30, 2022 and 2021, respectively.

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For the Three Months Ended June 30,

2021

2020


Average

Interest



Average

Interest




Outstanding

Income/

Average

Outstanding

Income/

Average

(Dollars in thousands)

Balance

Expense⁽⁴⁾

Yield/Rate

Balance

Expense⁽⁴⁾

Yield/Rate

Assets













Interest earning assets













Interest-bearing deposits

$
580,632

$
178

0.12
%
$
170,658

$
44

0.10
%
Federal funds sold

69,506

24

0.14
%

32,965

12

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

7,391

99

5.37
%

7,598

131

6.93
%
Investment securities - taxable

70,137

161

0.92
%

88,365

241

1.10
%
Investment securities - tax exempt

20,172

189

3.76
%

20,973

197

3.78
%
Loans⁽¹⁾

1,699,403

18,311

4.32
%

1,501,590

17,897

4.79
%
Total interest earning assets

2,447,241

18,962

3.11
%

1,822,149

18,522

4.09
%
Loans held for sale

2,638

—

Noninterest earning assets

115,358



102,663





Total assets

$
2,565,237



$
1,924,812





Liabilities and stockholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

1,377,712

1,430

0.42
%

994,972

1,617

0.65
%
Borrowed funds

56,347

330

2.35
%

230,516

614

1.07
%
Total interest-bearing liabilities

1,434,059

1,760

0.49
%

1,225,488

2,231

0.73
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

890,292



475,613





Other noninterest-bearing liabilities

17,690



19,540





Stockholders’ equity

223,196



204,171





Total liabilities and stockholders’ equity

$
2,565,237



$
1,924,812





Net interest spread⁽²⁾





2.62
%





3.36
%
Net interest income



$
17,202



$
16,291



Net interest margin⁽³⁾





2.82
%





3.60
%

~~(1)~~

~~Includes nonaccrual loans.~~

~~(2)~~

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

~~(3)~~

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

~~(4)~~

~~Interest income on loans includes loan fees of $1.8 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively.~~

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

For the Three Months Ended June 30, 2021

Compared to 2020

Change Due To

(Dollars in thousands)

Volume

Rate

Total
Interest income






Interest-bearing deposits

$
106

$
28

$
134
Federal funds sold

13

(1)

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

(4)

(28)

(32)
Investment securities - taxable

(50)

(30)

(80)
Investment securities - tax exempt

(8)

—

(8)
Loans

2,358

(1,944)

414
Total

$
2,415

$
(1,975)

$
440
Interest expense






Interest-bearing deposits

622

(809)

(187)
Borrowed funds

(464)

180

(284)
Total

$
158

$
(629)

$
(471)


	For the Three Months Ended June 30, 2022 Compared to 2021
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest earning deposits	$	(32)	$	817	$	785
Federal funds sold	(13)		55		42
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(1)		7		6
Investment securities - taxable	245		298		543
Investment securities - tax-exempt	77		(34)		43
Loans	1,656		1,633		3,289
Total	$	1,932	$	2,776	$	4,708
Interest expense
Interest-bearing deposits	296		(235)		61
Borrowed funds	(179)		119		(60)
Total	$	117	$	(116)	$	1

Net interest income ~~totaled $17.2~~increased by $4.7 million to $21.9 million for the three months ended June 30, ~~2021, down $0.7 million, or 3.8% compared to the three months ended March 31, 2021, primarily due to higher yielding loan payoffs and a decrease in loan fees associated with PPP loan~~

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

~~Net interest income increased by $0.9 million to $17.2 million for the three months ended June 30, 2021,~~2022, compared to the three months ended June 30, ~~2020.~~2021. Our total net interest income was impacted by an increase in interest earning assets ~~primarily due to increased balances in large low yielding cash assets, coupled with~~and increases in ~~our portfolio of lower yielding loans, offset by decreased cost of funds to~~ the ~~Company~~.Federal Reserve’s target Federal Funds Rate. Average total interest earning assets were $2.6 billion for the three months ended June 30, 2022, compared to $2.4 billion for the three months ended June 30, ~~2021, compared with $1.8 billion for the three months ended June 30, 2020.~~2021. The annualized yield on ~~those~~ interest earning assets ~~decreased 98~~increased 58 basis points for the three months ended June 30, 2022, compared to the three months ended June 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 in the average balance of interest earning assets was driven primarily by ~~our~~ growth in ~~cash of $359.9, or 123.0% and~~ our loan portfolio of ~~$120.3~~$153.7 million, or ~~7.7%~~9.0%, compared to three months ended June 30, ~~2020.~~2021. The growth in ~~the~~our loan portfolio was due to organic loan ~~originations and the Professional Bank PPP.~~

originations.

Average interest-bearing liabilities for the three months ended June 30, ~~2021,~~2022, increased due to organic deposit growth and grew by ~~$208.6~~$254.8 million, or ~~17.0%~~17.8%, ~~for~~from the three months ended June 30, ~~2020. The increase was primarily due to a $382.7 million, a 38.5%, increase in the average balance of interest-bearing deposits.~~2021. The increase in the average balance of interest-bearing deposits was primarily due to ~~increases~~an increase in ~~negotiable orders of withdrawal (“NOW”) and~~ money market accounts for the three months ended June 30, ~~2021,~~2022, compared to the three months ended June 30, ~~2020,~~2021, and, to a lesser extent, increases in negotiable orders of withdrawal (“NOW”) certificates of deposit. The annualized average interest rate paid on average interest-bearing liabilities decreased to ~~0.49%~~0.42%, for the three months ended June 30, ~~2021,~~2022, compared to ~~0.73%~~0.49% for the three months ended June 30, ~~2020.~~2021. Annualized average interest rate paid on interest-bearing deposits decreased 236 basis points to ~~0.42%~~0.36%, and the annualized average interest rate paid on borrowed funds increased by ~~128~~186 basis points to ~~2.35%~~4.21%. The increases in annualized average interest rates primarily reflected an increase in interest earning assets, primarily due to increased balances in our low yielding cash assets as well as increases in our loan portfolio of lower yielding loans, offset by decreased cost of funds to the Company during the three months ended June 30, ~~2021.~~ The average interest rate on borrowings during the ~~quarter~~three months ended June 30, ~~2021,~~2022, increased ~~as we paid-off~~due to lower rate borrowings that were paid down and the ~~Paycheck Protection Program Liquidity Facility (“PPPLF”)~~remaining balances ~~leaving higher priced FHLB advances and subordinated debt as our borrowings.~~make up a larger weighted average rate. For the three months ended June 30, ~~2021,~~2022, our average other noninterest-bearing liabilities ~~decreased $1.9~~increased $3.4 million, or ~~9.5%, compared to the three months ended June 30, 2020. Average noninterest-bearing deposits also increased $414.7 million, or 87.2%~~19.3%, compared to the three months ended June 30, ~~2020.~~2021. Average noninterest-bearing deposits decreased $106.0 million, or 11.9%, compared to the three months ended June 30, 2021. For the three months ended June 30, ~~2021,~~2022, our ~~annual~~net interest margin was 3.42% and net interest spread was 3.27%. For the three months ended June 30, 2021, net interest margin was 2.82% and net interest spread was 2.62%. ~~For the three months ended June 30, 2020, annual net interest margin was 3.60% and net interest spread was 3.36%.~~

~~Table of Contents~~

Provision for Loan Losses

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

Table of Contents

Our provision for loan losses amounted to $2.2 million for the three months ended June 30, 2022, and $0.8 million for the three months ended June 30, ~~2021, and $1.8~~2021. We recorded net charge-offs of $0.7 million for the three months ended June 30, ~~2020. The decrease from 2020~~2022, compared 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. We did not record any~~no net charge-offs for the three months ended June 30, ~~2021, and 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was 0.67% at~~ ~~June 30, 2021, compared to 1.10% at~~ ~~December 31, 2020. See Reconciliation of non-GAAP Financial Measures.~~

2021.

Noninterest Income

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

~~Table of Contents~~

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

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

Three Months Ended June 30,

(Dollars in thousands)

2021

2020

Increase (Decrease)

Noninterest income







Service charges on deposit accounts

$
1,199

$
307

290.6
%
Income from Bank owned life insurance

281

126

123.0
%
Gain on sale and call of securities

21

11

90.9
%
SBA origination fees

—

84

(100.0)
%
SWAP fees

364

210

73.3
%
Third party loan sales

226

157

43.9
%
Other

211

73

189.0
%
Total noninterest income

$
2,302

$
968

137.8
%


	Three Months Ended June 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	577	$	1,199	(51.9)%
Income from bank owned life insurance	376		281		33.8%
SBA origination fees	48		—		100.0%
Swap fee income	—		364		(100.0)%
Loans held for sale income	45		226		(80.1)%
Gain on sale and call of securities	13		21		(38.1)%
Other	722		211		242.2%
Total noninterest income	$	1,781	$	2,302	(22.6)%

Noninterest income for the three months ended June 30, ~~2021,~~2022, was ~~$2.3~~$1.8 million, a ~~$1.3~~$0.5 million, or ~~137.8%~~22.6%, ~~increase~~decrease compared to the three months ended June 30, ~~2020.~~2021. The ~~increase~~decrease was primarily ~~due to increases~~comprised of a decrease in service charges on deposit accounts ~~associated with~~of $0.6 million due to lower service charges from the Correspondent Banking Relationship, ~~secondarily to~~a decrease of $0.4 million in swap fee income, and a decrease of $0.2 million in loans held for sale income. The decreases in noninterest income were partially offset by an increase in ~~SWAP fees, as well as a one-time credit~~other noninterest income of $0.5 million, that was primarily due to ~~the unwinding fee of~~expected insurance proceeds from a ~~FHLB advance.~~

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

previously recognized contingency.

Noninterest Expense

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

Table of Contents

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

Three Months Ended June 30,

Increase

(Dollars in thousands)

2021

2020

(Decrease)

Noninterest expense







Salaries and employee benefits

$
7,099

$
6,912

2.7
%
Occupancy and equipment

905

1,081

(16.3)
%
Data processing

276

421

(34.4)
%
Marketing

165

151

9.3
%
Professional fees

770

806

(4.5)
%
Acquisition expenses

—

560

(100.0)
%
Regulatory assessments

418

300

39.3
%
Other

1,321

1,317

0.3
%
Total noninterest expense

$
10,954

$
11,548

(5.1)
%


	Three Months Ended June 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	7,473	$	7,099	5.3%
Occupancy and equipment	1,010		905		11.6%
Data processing	304		276		10.1%
Marketing	125		165		(24.2)%
Professional fees	886		770		15.1%

Regulatory assessments	473		418		13.2%
Other	2,333		1,321		76.6%
Total noninterest expense	$	12,604	$	10,954	15.1%

Noninterest expense amounted to ~~$11.0~~$12.6 million for the three months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$0.6~~$1.7 million, or ~~5.1%~~15.1%, compared to the three months ended June 30, ~~2020.~~2021. The ~~decrease~~increase was primarily due to other noninterest expense of $1.0 million which included a previously recognized contingency loss of approximately $0.5 million, an increase in provision for off balance sheet items of approximately $0.2 million and an increase related to the ~~lack~~Community Reinvestment Act (“CRA”) mutual fund investment valuation of ~~MBI acquisition expenses this~~approximately $0.2 million. During the second quarter of 2022, we reclassified $0.5 million in expected insurance proceeds related to the contingency from other noninterest expense to other noninterest income. Salaries and benefits also increased $0.4 million due to ~~a lesser extent the realization~~higher headcount of ~~our implementation efforts regarding operational efficiencies in occupancy, equipment, and data processing expenses.~~

212 at June 30, 2022, compared to 194 at June 30, 2021.

Income Tax Expense

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

~~Table of Contents~~

~~liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.~~

Income tax expense was $1.5 million for the three months ended June 30, 2021, compared to $0.8 million for the three months ended June 30, 2020. Our effective tax rates for those periods were 18.7% and 21.0%, respectively. The change in the effective tax rate was due to the decrease in nondeductible expenses, an increase in tax-exempt ~~income, and an increase in excess tax benefits from stock-based compensation.~~

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

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

Six Months Ended June 30,

(Dollars in thousands)

2021

2020

Change

Interest income

$
38,734

$
29,542

31.1
%
Interest expense

3,653

5,190

(29.6)
%
Net Interest income

35,081

24,352

44.1
%
Provision for loan losses

1,800

2,595

(30.6)
%
Net interest income after provision

33,281

21,757

53.0
%
Noninterest income

3,421

1,824

87.6
%
Noninterest expense

22,742

21,034

8.1
%
Income before income taxes

13,960

2,547

448.1
%
Income tax expense

2,844

733

288.0
%
Net income

$
11,116

$
1,814

512.8
%

Net income for the six months ended June 30, 2021, was $11.1 million, an increase of $9.3 million, or 512.8%, compared to the six months ended June 30, 2020. Interest income increased $9.2 million while interest expense decreased $1.5 million, resulting in a net interest income increase of $10.7 million for the six months ended June 30, 2021, compared to the same period in the prior year. The increase in our interest income was primarily due to the MBI Variance, increased loan portfolio growth, and decreased cost of funds to the Company. Provision for loan losses decreased by $0.8 million for the six months ended June 30, 2021, compared to the same period in the prior year. The decrease in the provision expense was due primarily to 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. The increase in noninterest expense for the six months ended June 30, 2021, compared to the same period in the prior year was primarily due to increased salaries and investment in digital infrastructure. The Bank’s number of employees increased from 137 as of December 31, 2019, to 179 as of June 30, 2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 30, 2021.

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

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

~~Table of Contents~~

For the Six Months Ended June 30,

2021

2020


Average

Interest



Average

Interest




Outstanding

Income/

Average

Outstanding

Income/

Average

(Dollars in thousands)

Balance

Expense⁽⁴⁾

Yield/Rate

Balance

Expense⁽⁴⁾

Yield/Rate

Assets













Interest earning assets













Interest-bearing deposits

$
380,989

$
224

0.12
%
$
173,907

$
629

0.73
%
Federal funds sold

56,955

40

0.14
%

33,954

131

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

7,676

194

5.11
%

6,550

210

6.45
%
Investment securities - Taxable

69,968

340

0.98
%

68,085

454

1.34
%
Investment securities - Non-taxable

20,902

392

3.79
%

11,122

206

3.72
%
Loans⁽¹⁾

1,681,566

37,544

4.51
%

1,156,151

27,912

4.85
%
Total interest earning assets

2,218,056

38,734

3.53
%

1,449,769

29,542

4.10
%
Loans held for sale

1,999

1,186

Noninterest earning assets

122,420



80,730





Total assets

$
2,342,475



$
1,531,685





Liabilities and shareholders’ equity











Interest-bearing liabilities











Interest-bearing deposits

1,293,693

2,747

0.43
%

879,749

4,243

0.97
%
Borrowed funds

101,129

906

1.81
%

146,828

947

1.30
%
Total interest-bearing liabilities

1,394,822

3,653

0.53
%

1,026,577

5,190

1.02
%
Noninterest-bearing liabilities











Noninterest-bearing deposits

708,215



332,474





Other noninterest-bearing liabilities

18,288



15,801





Shareholders’ equity

221,150



156,833





Total liabilities and shareholders’ equity

$
2,342,475



$
1,531,685





Net interest spread⁽²⁾





3.00
%





3.08
%
Net interest income



$
35,081



$
24,352



Net interest margin⁽³⁾





3.20
%





3.38
%

~~(1)~~

~~Includes nonaccrual loans.~~

~~(2)~~

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

~~(3)~~

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

~~(4)~~

~~Interest income on loans includes loan fees of $4.4 million and $1.1 million for the six months ended June 30, 2021, and 2020, respectively.~~

~~Table of Contents~~

For the Six Months Ended June 30, 2021

Compared to 2020

Change Due To

(Dollars in thousands)

Volume

Rate

Total
Interest income






Interest-bearing deposits

$
749

$
(1,154)

$
(405)
Federal funds sold

89

(180)

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

36

(52)

(16)
Investment securities - taxable

13

(127)

(114)
Investment securities - tax exempt

181

5

186
Loans

12,685

(3,053)

9,632
Total

$
13,753

$
(4,561)

$
9,192
Interest expense






Interest-bearing deposits

1,996

(3,492)

(1,496)
Borrowed funds

(295)

254

(41)
Total

$
1,701

$
(3,238)

$
(1,537)

Net interest income increased by $10.7 million to $35.1 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. Our total interest income was impacted by an increase in interest earning assets, ~~primarily due to~~ increases in annualized average interest rates primarily reflected an increase in interest earning assets, primarily due to increased balances in our low yielding cash assets as well as increases in our loan portfolio of lower yielding loans, offset by decreased cost of funds to the Company. Average total interest earning assets were $2.2 billion for the six months ended June 30, 2021, compared with $1.4 billion for the six months ended June 30, 2020. The annualized yield on those interest earning assets decreased 57 basis points to for the six months ended June 30, 2021, due to loans repricing downward, coupled with higher yielding loan payoffs. The increase in the average balance of interest earning assets was driven primarily by the MBI Variance and growth in our loan portfolio of $525.4 million, or 45.4%, compared to the six months ended June 30, 2020. The growth in the loan portfolio was due to organic loan originations and the Professional Bank PPP during the six months ended June 30, 2021.

Average interest-bearing liabilities increased due to the MBI Variance and organic deposit growth and grew by $368.2 million, or 35.9%, for the six months ended June 30, 2021. The increase was primarily due to a $413.9 million, or 47.1%, increase in the average balance of interest-bearing deposits. The increase in the average balance of interest-bearing deposits was primarily due to increases in NOW and money market accounts for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, and, to a lesser extent, increases in certificates of deposits. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.53% for the six months ended June 30, 2021, compared to 1.02% for the six months ended June 30, 2020. Annualized average interest rate paid on interest-bearing deposits decreased 54 basis points to 0.43% and the annualized average interest rate paid on borrowed funds increased by 51 basis points to 1.81%. Compared to the six months ended June 30, 2020, the Company participated in the PPPLF which had a downward effect on our loan portfolio yields. For the six months ended June 30, 2021, our average other noninterest-bearing liabilities increased $2.5 million, or 15.7%, compared to the six months ended June 30, 2020. Average noninterest-bearing deposits also increased $375.7 million, or 113.0%, compared to the six months ended June 30, 2020. For the six months ended June 30, 2021, our annual net interest margin was 3.20% and net interest spread was 3.00%. For the six months ended June 30, 2020, annual net interest margin was 3.38% and net interest spread was 3.08%.

~~Provision for Loan Losses~~

Our provision for loan losses amounted to $1.8 million for the six months ended June 30, 2021, and $2.6 million for the six months ended June 30, 2020. The decrease from 2020 to 2021 was made primarily due loan payoffs in higher risk categories offset by an increase in loan originations. We recorded one net charge-off of $7.6 million for the six months ended June 30, 2021. We did not record any net charge-offs for the six months ended June 30, 2020. Our allowance for loan losses as a percentage of total loans (excluding Professional PPP loans) was 0.67% at ~~June 30, 2021, compared to 1.10% at~~ ~~December 31, 2020. See Reconciliation of non-GAAP Financial Measures.~~

~~Table of Contents~~

~~Noninterest Income~~

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

Six Months Ended June 30,

(Dollars in thousands)

2021

2020

Increase (Decrease)

Noninterest income







Service charges on deposit accounts

$
1,594

$
529

201.3
%
Income from Bank owned life insurance

563

255

120.8
%
Gain on sale and call of securities

22

15

46.7
%
SBA origination fees

145

114

27.2
%
SWAP fees

573

473

21.1
%
Third party loan sales

301

267

12.7
%
Other

223

171

30.4
%
Total noninterest income

$
3,421

$
1,824

87.6
%

Noninterest income for the six months ended June 30, 2021, was $3.4 million, a $1.6 million, or 87.6%, increase compared to for the six months ended June 30, 2020. The increase was primarily due to growth in deposit transaction accounts, coupled with increases in service charges on deposit accounts with the Correspondent Banking Relationship, $0.3 million increase in income from BOLI, and $0.1 million increase in SWAP fees.

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

~~Noninterest Expense~~

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

Six Months Ended June 30,

Increase

(Dollars in thousands)

2021

2020

(Decrease)

Noninterest expense







Salaries and employee benefits

$
13,883

$
12,175

14.0
%
Occupancy and equipment

2,007

1,855

8.2
%
Data processing

566

597

(5.2)
%
Marketing

318

288

10.4
%
Professional fees

1,398

1,161

20.4
%
Acquisition expenses

684

2,223

(69.2)
%
Regulatory assessments

767

514

49.2
%
Other

3,119

2,221

40.4
%
Total noninterest expense

$
22,742

$
21,034

8.1
%

Noninterest expense amounted to $22.7 million for the six months ended June 30, 2021, an increase of $1.7 million, or 8.1%, compared to for the six months ended June 30, 2020. The increase was primarily due to increased salaries and investment in digital

~~Table of Contents~~

infrastructure, offset by a reduction in acquisition expenses. The Bank’s number of employees increased from 137 as of December 31, 2019, to 179 as of June 30, 2020, which increase was due to the MBI acquisition, and further increased to 194 as of June 30, 2021.

~~Income Tax Expense~~

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

Income tax expense was $1.9 million for the three months ended June 30, 2022, compared to $1.5 million for the three months ended June 30, 2021. Our effective tax rates for those periods were 20.9% and 18.7%, respectively. The increase in the effective tax rate from the quarter ended June 30, 2021, to the quarter ended June 30, 2022 was primarily due to an increase in the state tax rate and an increase in non-deductible expenses.

Results of Operations for the six months ended June 30, 2022 and 2021

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


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021		Change
Interest income	$	44,692	$	38,734	15.4%
Interest expense	3,736		3,653		2.3	%
Net interest income	40,956		35,081		16.7	%
Provision for loan losses	3,091		1,800		71.7	%
Net interest income after provision	37,865		33,281		13.8	%
Noninterest income	3,054		3,421		(10.7)	%
Noninterest expense	29,099		22,742		28.0	%
Income before income taxes	11,820		13,960		(15.3)	%
Income tax expense	2,407		2,844		(15.4)	%
Net income	$	9,413	$	11,116	(15.3)	%

Table of Contents

Net income for the six months ended June 30, 2022, was $9.4 million, a decrease of $1.7 million, or 15.3%, compared to the six months ended June 30, 2021. Interest income increased $6.0 million while interest expense increased $0.1 million, resulting in a net interest income increase of $5.9 million for the six months ended June 30, 2022, compared to the same period in the prior year. The increase in our net interest income was primarily due to the impact of the Federal Reserve’s target Federal Funds Rate increases and an increase in our average interest earning assets during the six months ended June 30, 2022. Provision for loan losses increased by $1.3 million for the six months ended June 30, 2022, compared to the same period in the prior year primarily due to loan growth. The increase in noninterest expense for the six months ended June 30, 2022, compared to the same period in the prior year was primarily driven by the expenses associated with the departure of the Company’s former Chief Executive Officer, as well as higher headcount and incentives. The Bank’s number of employees increased from 194 as of June 30, 2021, to 212 as of June 30, 2022.

Table of Contents

Net Interest Income and Net Interest Margin Analysis


	Six Months Ended June 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	$	525,376	$	1,238	0.48	%	$	380,989	$	224	0.12	%
Federal funds sold	29,918		85		0.57	%	56,955		40		0.14	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,457		202		5.46	%	7,676		194		5.10	%
Investment securities - taxable	182,150		1,342		1.49	%	69,968		340		0.98	%
Investment securities - tax-exempt	27,169		445		3.30	%	20,902		392		3.78	%
Loans (1)	1,813,701		41,380		4.60	%	1,681,566		37,544		4.50	%
Total interest earning assets	2,585,771		44,692		3.49	%	2,218,056		38,734		3.52	%
Loans held for sale	666						1,999
Noninterest earning assets	144,246						122,420
Total assets	$	2,730,683					$	2,342,475
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	1,667,728		3,077		0.37	%	1,293,693		2,747		0.43	%
Borrowed funds	38,046		659		3.49	%	101,129		906		1.81	%
Total interest-bearing liabilities	1,705,774		3,736		0.44	%	1,394,822		3,653		0.53	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	774,562						708,215
Other noninterest-bearing liabilities	18,894						18,288
Shareholders’ equity	231,453						221,150
Total liabilities and shareholders’ equity	$	2,730,683					$	2,342,475
Net interest income			$	40,956					$	35,081
Net interest spread (2)					3.05	%					2.99	%
Net interest margin (3)					3.19	%					3.19	%

(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 $3.0 million and $4.4 million for the six months ended June 30, 2022, and 2021, respectively.

Table of Contents


	For the Six Months Ended June 30, 2022 Compared to 2021
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest-bearing deposits	$	85	$	929	$	1,014
Federal funds sold	(19)		64		45
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(6)		14		8
Investment securities - taxable	545		457		1,002
Investment securities - tax-exempt	118		(65)		53
Loans	2,950		886		3,836
Total	$	3,673	$	2,285	$	5,958
Interest expense
Interest-bearing deposits	794		(464)		330
Borrowed funds	(565)		318		(247)
Total	$	229	$	(146)	$	83

Net interest income increased by $5.9 million to $41.0 million for the six months ended June 30, 2022, compared to the six months ended June 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 six months ended June 30, 2022. Average total interest earning assets were $2.6 billion for the six months ended June 30, 2022, compared to $2.2 billion for the six months ended June 30, 2021. The annualized yield on those interest earning assets decreased 3 basis points to 3.49% for the six months ended June 30, 2022, due to higher yielding loan payoffs. The increase in the average balance of interest earning assets was driven primarily by growth in our average loan portfolio of $0.1 billion, or 7.9%, compared to the six months ended June 30, 2021. The growth in the loan portfolio was due to organic loan originations during the six months ended June 30, 2022.

Average interest-bearing liabilities increased by $0.3 billion, or 22.3% to $1.7 billion, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was due to a $0.4 billion, or 28.9%, increase in the average balance of interest-bearing deposits, partially offset by a decrease of $63.1 million, or 62.4% 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 money market and NOW accounts for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.44% for the six months ended June 30, 2022, compared to 0.53% for the six months ended June 30, 2021. Annualized average interest rate paid on interest-bearing deposits decreased 6 basis points to 0.37%, and the annualized average interest rate paid on borrowed funds increased by 168 basis points to 3.49%. The average interest rate on borrowings during the six months ended June 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 $66.3 million, or 9.4%, compared to the six months ended June 30, 2021. Average other noninterest-bearing liabilities also increased $0.6 million, or 3.3%, compared to the six months ended June 30, 2021. For the six months ended June 30, 2022, our annual net interest margin was 3.19% and net interest spread was 3.05%. For the six months ended June 30, 2021, annual net interest margin was 3.19% and net interest spread was 2.99%.

Provision for Loan Losses

Our provision for loan losses amounted to $3.1 million for the six months ended June 30, 2022, and $1.8 million for the six months ended June 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 0.76% on June 30, 2022, compared to 0.71% on December 31, 2021.

Table of Contents

Noninterest Income

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


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	1,094	$	1,594	(31.4)%
Income from bank owned life insurance	649		563		15.3%
SBA origination fees	48		145		(66.9)%
Swap fee income	112		573		(80.5)%
Loans held for sale income	116		301		(61.5)%
Gain on sale and call of securities	13		22		(40.9)%
Other	1,022		223		358.3%
Total noninterest income	$	3,054	$	3,421	(10.7)%

Noninterest income for the six months ended June 30, 2022, was $3.1 million, a $0.4 million, or 10.7%, decrease compared to for the six months ended June 30, 2021. The decrease reflected lower service charges of $0.5 million on deposit accounts compared to prior year due to service charges of approximately $0.7 million, associated with the Correspondent Banking Relationship. Swap fee income and loans held for sale income also decreased $0.5 million and $0.2 million, respectively in 2022 compared to 2021 due to lower volume. 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 from a previously recognized contingency for the six months ended June 30, 2022, 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.


	Six Months Ended June 30,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	18,693	$	13,883	34.6%
Occupancy and equipment	2,012		2,007		0.2%
Data processing	618		566		9.2%
Marketing	321		318		0.9%
Professional fees	1,805		1,398		29.1%
Acquisition expenses	—		684		(100.0)%
Regulatory assessments	1,022		767		33.2%
Other	4,628		3,119		48.4%
Total noninterest expense	$	29,099	$	22,742	28.0%

Noninterest expense amounted to $29.1 million for the six months ended June 30, 2022, an increase of $6.4 million, or 28.0%, compared to the six months ended June 30, 2021. The increase was primarily due to higher salaries and employee benefits of $4.8 million and higher other noninterest expense of $1.5 million, partially offset by prior year acquisition costs of $0.7 million. 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 paid out during the 2022 period. 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, and a $0.3 million increase related to the CRA mutual fund investment valuation. During the second quarter of 2022, we reclassified $0.5 million in expected insurance proceeds related to the contingency from other noninterest expense to other noninterest income.

Table of Contents

Income Tax Expense

Income tax expense was $2.4 million for the six months ended June 30, 2022, compared to $2.8 million for the six months ended June 30, ~~2021, compared to $0.7 million for the six months ended June 30, 2020.~~2021. Our effective tax rates for those periods were 20.4% and ~~28.8%~~20.4%, respectively. The change in the effective tax rate was due to the decrease in nondeductible expenses, primarily acquisition related costs, an increase in tax-exempt income, and an increase in excess tax benefits from stock-based compensation.

Financial Condition

Balance Sheet Analysis

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

~~For the six months ended~~

As of June 30, ~~2021,~~2022, our total assets ~~increased 24.5%~~decreased 0.1%, or ~~$0.5 billion, compared to December 31, 2020. Total loans increased 2.2%, or $36.8~~$2.6 million, compared to December 31, ~~2020,~~2021, primarily as a result of ~~the third round of the PPP and new organic loan origination. Interest-bearing deposits at other financial institutions increased due to our desire to maintain our excess liquidity~~decreases in ~~more liquid assets due to our continued robust demand for loans~~cash and cash ~~associated with Correspondent Banking Relationship.~~equivalents, partially offset by an increase in net loans. Net loans increased 11.8%, or $207.6 million, compared to December 31, 2021, driven by loan originations of approximately $515.2 million, partially offset by paydowns and prepayments of $181.5 million. The Professional Bank PPP loan balance decreased $50.4 million, or 86.1%, to $8.2 million from December 31, 2021. Stockholders’ equity increased ~~$7.5~~$2.1 million, or ~~3.5%~~0.9%, compared to December 31, ~~2020,~~2021, primarily due to ~~net income~~an increase in retained earnings of ~~$11.1~~$9.4 million and an increase in additional paid in capital of $3.5 million for the six months ended June 30, ~~2021,~~2022, partially offset by ~~repurchases~~a decrease of ~~the Company’s Class A voting common stock.~~

$10.7 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 $435.4~~decreased $229.4 million, or ~~200.7%~~38.4%, to $0.4 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.~~

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

~~Table of Contents~~

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 $32.6~~decreased $2.8 million, or ~~34.4%~~1.4%, to ~~$127.7~~$198.4 million compared to December 31, ~~2020~~2021, ~~primarily~~ due to $18.2 million in investment calls, redemptions and paydowns, coupled with unrealized losses of $14.3 million during the year with a related tax effect of $3.6 million, partially offset by purchases of ~~$33.0~~approximately $30.7 million in mortgage-backed securities ~~available for sale, offset by paydowns,~~("MBS") community development district bonds ("CDD"), and ~~maturities.~~municipal bonds. To supplement interest income earned on the Company’s loan portfolio, the Company invests in ~~high quality~~ mortgage-backed securities, government agency bonds, corporate bonds, community development district bonds, and equity securities (including mutual funds).

Table of Contents

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

June 30, 2021

December 31, 2020
(Dollars in thousands)

Book Value

Fair Value

Book Value

Fair Value
Securities Available for Sale - taxable








Small Business Administration loan pools

$
43,091

$
42,596

$
30,678

$
30,556
Mortgage-backed securities

54,517

54,540

28,514

28,922
United States agency obligations

2,001

2,089

3,000

3,122
Corporate bonds

1,500

1,510

2,501

2,510
Total

$
101,109

$
100,735

$
64,693

$
65,110
Securities Available for Sale - tax exempt

Community Development District bonds

$
17,954

$
18,658

$
20,582

$
21,299
Municipals

1,057

1,103

1,064

1,099
Total

$
19,011

$
19,761

$
21,646

$
22,398
Securities Held to Maturity








Mortgage-backed securities

285

296

345

359
United States Treasury

—

—

202

202
Foreign Bonds

1,000

1,000

1,000

1,000
Total

$
1,285

$
1,296

$
1,547

$
1,561
Equity Securities








Mutual Funds

5,942

5,942

6,005

6,005
Total

$
5,942

$
5,942

$
6,005

$
6,005

More than One Year

More than Five Years

One Year or Less

Through Five Years

Through 10 Years

More than 10 Years

Total

Weighted

Weighted

Weighted

Weighted

Weighted

At June 30, 2021

Average

Average

Average

Average

Average

(Dollars in thousands)

Book Value

Yield

Book Value

Yield

Book Value

Yield

Book Value

Yield

Book Value

Fair Value

Yield

Securities Available for Sale - taxable



















Small Business Administration loan pools

$
—

—
%
$
609

0.96
%
$
19,879

1.51
%
$
22,603

1.38
%
$
43,091

$
42,596

1.43
%
Mortgage-backed securities

—

—
%

—

—
%

6,361

0.74
%

48,156

1.27
%

54,517

54,540

1.21
%
United States agency obligations

998

2.54
%

1,003

2.66
%

—

—
%

—

—
%

2,001

2,089

2.60
%
Corporate bonds

—

—
%

1,500

1.18
%

—

—
%

—

—
%

1,500

1,510

1.18
%
Total

$
998

2.54
%
$
3,112

1.61
%
$
26,240

1.32
%
$
70,759

1.31
%
$
101,109

$
100,735

1.33
%
Securities Available for Sale - tax exempt

Community Development District bonds

$
40

4.00
%
$
17,599

3.87
%
$
315

3.00
%
$
—

—
%
$
17,954

$
18,658

3.86
%
Municipals

—

—
%

1,057

1.75
%

—

—
%

—

—
%

1,057

1,103

1.75
%
Total

$
40

4.00
%
$
18,656

3.75
%
$
315

3.00
%
$
—

—
%
$
19,011

$
19,761

3.74
%
Securities Held to Maturity

Mortgage-backed securities

—

—
%

—

—
%

—

—
%

285

2.57
%

285

296

2.57
%
United States Treasury

—

—
%

—

—
%

—

—
%

—

—
%

—

—

—
%
Foreign Bonds

1,000

0.47
%

—

—
%

—

—
%

—

—
%

1,000

1,000

0.47
%
Total

$
1,000

0.47
%
$
—

—
%
$
—

—
%
$
285

2.57
%
$
1,285

$
1,296

0.93
%
Equity Securities





















Mutual Funds

5,942

1.13
%

—

—
%

—

—
%

—

—
%

5,942

5,942

1.13
%
Total

$
5,942

1.13
%
$
—

—
%
$
—

—
%
$
—

—
%
$
5,942

$
5,942

1.13
%


	June 30, 2022				December 31, 2021
(Dollars in thousands)	Book Value		Fair Value		Book Value		Fair Value
Securities Available for Sale - taxable
Small Business Administration loan pools	$	35,355	$	34,946	$	40,368	$	39,934
Mortgage-backed securities(1)	138,666		125,137		131,273		130,103
United States agency obligations	2,945		2,767		3,939		3,986
Corporate bonds	1,500		1,504		1,500		1,513
Total	$	178,466	$	164,354	$	177,080	$	175,536
Securities Available for Sale - tax-exempt
Community Development District bonds	$	25,488	$	24,432	$	17,163	$	17,674
Municipals	3,155		3,021		1,051		1,091
Total	$	28,643	$	27,453	$	18,214	$	18,765
Securities Held to Maturity
Mortgage-backed securities	$	204	$	197	$	236	$	242


Total	$	204	$	197	$	236	$	242
Equity Securities
Mutual Funds	$	5,502	$	5,502	$	5,838	$	5,838
Other equity securities	857		857		800		800
Total	$	6,359	$	6,359	$	6,638	$	6,638

(1) As of June 30, 2022 residential mortgage-backed is $100.0 million and commercial mortgage-backed is $25.2 million. As of December 31, 2021 residential mortgage-backed is $104.0 million and commercial mortgage-backed is $26.1 million.

Table of Contents

One Year or Less More than One Year
Through Five Years More than Five Years
Through 10 Years More than 10 Years Total
On June 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
SBA loan pools $ — — % $ 373 1.02 % $ 17,932 1.59 % $ 17,050 1.73 % $ 35,355 $ 34,946 1.65 %
Mortgage-backed securities — — % 570 1.10 % 4,360 1.04 % 133,736 1.76 % 138,666 125,137 1.74 %
United States agency obligations — — % 1,002 2.66 % 1,943 1.31 % — — % 2,945 2,767 1.77 %
Corporate bonds 1,500 3.15 % — — % — — % — — % 1,500 1,504 3.15 %
Total $ 1,500 3.15 % $ 1,945 1.89 % $ 24,235 1.47 % $ 150,786 1.76 % $ 178,466 $ 164,354 1.73 %
Available for Sale - tax-exempt
CDD bonds $ 3,940 4.13 % $ 20,909 4.07 % $ 640 3.50 % $ — — % $ 25,489 $ 24,432 4.07 %
Municipals — — % 1,044 2.27 % 2,110 4.20 % — — % 3,154 3,021 3.56 %
Total $ 3,940 4.13 % $ 21,953 3.98 % $ 2,750 4.04 % $ — — % $ 28,643 $ 27,453 4.01 %
Held to Maturity
Mortgage-backed securities — — % — — % — — % 204 2.89 % 204 197 2.89 %
Total $ — — % $ — — % $ — — % $ 204 2.89 % $ 204 $ 197 2.89 %
Equity Securities
Mutual Funds 5,502 1.35 % — — % — — % — — % 5,502 5,502 1.35 %
Other equity securities 857 — % — — % — — % — — % 857 857 — %
Total $ 6,359 1.17 % $ — — % $ — — % $ — — % $ 6,359 $ 6,359 1.17 %

(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 following table summarizes and provides additional information about certain segments of our loan portfolio as of

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

June 30, 2021

December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial real estate

$
875,453

51.4
%
$
777,776

46.7
%
Owner Occupied

305,854

—

286,992

—

Non-Owner Occupied

569,599

—

490,784

—

Residential real estate

361,946

21.3
%

380,491

22.8
%
Commercial (Non-PPP)

229,215

13.5
%

206,665

12.4
%
Commercial (PPP)

144,118

8.5
%

189,977

11.4
%
Construction and development

74,175

4.4
%

99,883

6.0
%
Consumer and other loans

14,575

0.9
%

11,688

0.7
%
Total loans

$
1,699,482

100.0
%
$
1,666,480

100.0
%
Unearned loan origination (fees) costs, net

(1,984)



(1,323)



Unearned PPP loan origination (fees) costs, net

(4,855)

(4,255)

Allowance for loan loss

(10,418)



(16,259)



Loans held for sale

(2,039)

(1,270)

Other

(18)

—

Loans, net

$
1,680,168



$
1,643,373

Commercial Real Estate Loans. We originate both owner-occupied and non-owner-occupied commercial real estate loans. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. Commercial real estate loans that are secured by owner-occupied commercial real estate and primarily ~~collateralized~~supported by operating cash flows are also included in this category of loans. As of June 30, ~~2021~~2022, we had ~~$305.9~~$380.9 million of owner-occupied commercial real estate loans and ~~$569.6~~$653.6 million of investment commercial real estate loans, representing ~~34.9%~~36.8% and ~~65.1%~~63.2%, respectively, of our commercial real estate portfolio. As of June 30, ~~2021~~2022, the average loan balance of loans in our commercial real estate loan portfolio was approximately ~~$1.2~~$1.5 million for owner-occupied and ~~$1.8~~$2.8 million for non-owner occupied. Commercial real estate loan terms are generally extended for 10 years or less and amortize generally over 25 years or less. Terms of 15 years are permitted where the loan is fully amortized over the term of the loan. The maximum loan to value is generally, 80% of the market value or purchase price, but may be as high as 90% for SBA 504 owner-occupied loans. As of June 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 June 30, ~~2021~~2022, our weighted-average loan-to-value ratios for owner-occupied and non-owner-occupied commercial real estate were ~~48.5%~~49.4% and ~~50.0%~~51.2%, respectively and debt service coverage ratios were ~~2.37x~~3.11x and ~~1.78x,~~1.94x, 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

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annually. The properties securing the portfolio are located primarily throughout our market and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.


	As of June 30, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	26,356	2.5%	$	27,419	3.0%
Educational Facility	28,726		2.8%	32,281		3.6%
Gas Station	68,991		6.7%	60,854		6.7%
Hotel	107,430		10.4%	75,617		8.4%
Mixed Use	59,226		5.7%	28,762		3.2%
Multifamily	134,614		13.0%	140,496		15.6%
Office	139,604		13.5%	109,010		12.1%
Other / Special Use	69,861		6.8%	56,276		6.2%
Religious Facility	9,699		0.9%	10,679		1.2%
Retail	236,490		22.9%	209,283		23.2%
Vacant Land	8,521		0.8%	6,523		0.7%
Warehouse	144,969		14.0%	145,454		16.1%
Total	$	1,034,487	100.0%	$	902,654	100.0%


	As of June 30, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Broward	$	156,448	15.1%	$	111,224	12.3%
Miami-Dade	551,186		53.3%	559,966		62.0%
Palm Beach	205,813		19.9%	139,517		15.5%
Other FL County	111,812		10.8%	49,892		5.5%
Out of State	9,228		0.9%	42,055		4.7%
Total	$	1,034,487	100%	$	902,654	100.0%

~~Table of Contents~~

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial Real Estate










Auto (Car Lot/Auto Repair)

$
28,055

3.2
%

$
22,483

2.9
%
Educational Facility

32,979

3.8
%

14,328

1.8
%
Gas Station

70,053

8.0
%

64,162

8.2
%
Hotel

61,887

7.1
%

54,324

7.0
%
Mixed Use

36,756

4.2
%

29,987

3.9
%
Multifamily

118,978

13.6
%

98,837

12.7
%
Office

106,333

12.1
%

111,850

14.4
%
Other / Special Use

43,467

5.0
%

41,739

5.4
%
Religious Facility

8,175

0.9
%

8,450

1.1
%
Retail

215,402

24.6
%

192,105

24.7
%
Vacant Land

7,491

0.9
%

7,847

1.0
%
Warehouse

145,877

16.7
%

131,664

16.9
%
Total

$
875,453

100.0
%

$
777,776

100.0
%

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial Real Estate









Broward

$
130,231

14.9
%

$
118,408

15.2
%
Miami-Dade

538,691

61.5
%

501,168

64.4
%
Palm Beach

144,719

16.5
%

113,405

14.6
%
Other FL County

37,491

4.3
%

27,154

3.5
%
Out of State

24,321

2.8
%

17,641

2.3
%
Total

$
875,453

100.0
%

$
777,776

100.0
%

As of June 30, ~~2021~~2022, non-owner occupied commercial real estate loans of ~~$569.6~~$653.6 million represented ~~36.7%~~32.2% of total risk-weighted assets.

Construction and Development Loans. The majority of our construction loans are offered within the Miami-Dade MSA to builders primarily for the construction of single-family homes and condominium and townhouse conversions or renovations and, to a lesser extent, to individuals. Our construction loans typically have terms of 12 to 18 months with the goal of transitioning the borrowers to permanent financing or re-underwriting and selling into the secondary market. According to our credit policy, the loan to value ratio may not exceed the lesser of 80% of the appraised value, as established by an independent appraisal, or 85% of costs for residential construction and 90% of costs for SBA 504 loans. As of June 30, ~~2021~~2022, our weighted average loan-to-value ratio on our construction, vacant land, and land development loans were ~~55.9%~~50.1%, ~~48.7%~~48.1% and ~~51.0%~~50.1%, 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.

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Construction & Development










1 – 4 Family Construction

$
39,783

53.6
%

$
45,209

45.3
%
Commercial Construction

11,985

16.2
%

34,082

34.1
%
Land Development

5,241

7.1
%

5,789

5.8
%
Vacant Land

17,166

23.1
%

14,803

14.8
%
Total

$
74,175

100.0
%

$
99,883

100.0
%

Table of Contents

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Construction & Development









Broward

$
2,799

3.8
%

$
21,737

21.8
%
Miami-Dade

49,586

66.9
%

57,192

57.3
%
Palm Beach

16,268

21.9
%

15,137

15.2
%
Other FL County

5,522

7.4
%

5,817

5.8
%
Total

$
74,175

100.0
%

$
99,883

100.0
%

As of June 30, 2022 As of December 31, 2021
(Dollars in thousands) Amount Percent Amount Percent
Construction & Development
1 – 4 Family Construction $ 52,063 45.3 % $ 47,164 51.5 %
Land Development 22,426 19.5 % 9,620 10.5 %
Vacant Land 40,449 35.2 % 34,736 38.0 %
Total $ 114,938 100.0 % $ 91,520 100.0 %


	As of June 30, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Construction & Development
Broward	$	2,924	2.5%	$	1,194	1.3%
Miami-Dade	86,672		75.4%	67,562		73.9%
Palm Beach	15,730		13.7%	21,080		23.0%
Other FL County	3,901		3.4%	1,684		1.8%
Out of State	5,711		5.0%	—		—%
Total	$	114,938	100.0%	$	91,520	100.0%

As of June 30, ~~2021~~2022, total construction and land development loans of ~~$74.2~~$114.9 million represented ~~4.8%~~5.7% of total risk-weighted assets.

Residential Real Estate Loans. We offer one-to-four family mortgage loans primarily on owner-occupied primary residences and, to a lesser extent, investor-owned residences, which make up approximately ~~20%~~17.0% of our residential loan portfolio. Our residential loans also include home equity lines of credit, which totaled approximately ~~$52.8~~$50.0 million, or approximately ~~14.6%~~11.8% of our residential loan portfolio as of June 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 June 30, ~~2021~~.2022. As of June 30, ~~2021,~~2022, we did not have any residential real estate loans with a loan to value over 100%. Given the tragedy at the Champlain Towers Condominium in Surfside, Florida, there is increased interest in condominium development and lending. While the Company does not target high-rise, beachfront, condominium lending, we do, from time-to-time, grant loans secured by individual condominium units. At June 30, 2021, we had 11 loans, with outstanding balances of $4.0 million, secured by individual condominium units located in Florida buildings, over ten stories, which were originally constructed 40 or more years ago. Our one-to-four family residential loans have a relatively small balance spread between many individual borrowers compared to our other loan categories. Our owner-occupied residential real estate loans usually have fixed rates for five, 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 June 30, 2022					As of December 31, 2021
(Dollars in thousands)	Amount		Percent	LTV (%)		Amount		Percent	LTV (%)
Residential Real Estate
Owner Occupied	$	300,524	71.2%	56.1	%	$	272,858	72.3%	57.8	%
Investor Owned Residences	71,694		17.0%	53.4	%	54,698		14.5%	50.7	%
HELOC	50,021		11.8%	57.2	%	49,955		13.2%	57.1	%
Total	$	422,239	100.0%			$	377,511	100.0%

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

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

LTV (%)

Amount

Percent

LTV (%)

Residential Real Estate













Owner Occupied

$
247,239

68.3
%
57.1
%

$
270,960

71.2
%
57.8
%
Investor Owned Residences

59,830

16.5
%
52.8
%

48,026

12.6
%
50.7
%
HELOC

52,838

14.6
%
56.6
%

60,235

15.8
%
57.1
%
Loans Held for Sale

2,039

0.6
%
0.0
%

1,270

0.3
%
0.0
%
Total

$
361,946

100.0
%

$
380,491

100.0
%

Table of Contents

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 ~~non-Professional Bank PPP~~ loans in our commercial loan portfolio, excluding Professional Bank PPP loans was ~~$0.5~~$0.9 million as of June 30, ~~2021~~.2022. As of June 30, ~~2021,~~2022, non-Professional Bank PPP commercial loans ~~was $229.2~~totaled $387.3 million, and Professional Bank PPP commercial loans ~~was $144.1~~totaled $8.2 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 June 30, ~~2021~~,2022, the debt service coverage ratio for our Bank commercial loan portfolio was approximately ~~2.50x~~2.49x for non-Professional Bank PPP loans, excluding approximately ~~3.8%~~2.6% of the commercial loan portfolio that is cash secured. Most commercial business loans, which ~~include~~exclude Professional Bank PPP loans, are secured by a lien on general business assets including, among other things, available real estate,

~~Table of Contents~~

accounts receivable, promissory notes, inventory and equipment, and we generally obtain a personal guaranty from the borrower or other principal. The following table shows our commercial loan portfolio by industry segment as of June 30, ~~2021~~2022..

As of June 30, 2021

As of December 31, 2020

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial Loans










Business Products

$
1,152

0.5
%

$
1,163

0.6
%
Business Services

57,052

24.9
%

29,584

14.3
%
Communication

17,733

7.7
%

17,740

8.6
%
Construction

20,490

8.9
%

19,269

9.3
%
Finance

48,677

21.2
%

56,652

27.4
%
Healthcare

6,699

2.9
%

7,379

3.6
%
Services

36,868

16.1
%

23,319

11.3
%
Technology

802

0.3
%

853

0.4
%
Trade

32,298

14.1
%

44,359

21.5
%
Transportation

2,010

0.9
%

2,928

1.4
%
Other

5,434

2.4
%

3,419

1.7
%
Total

$
229,215

100.0
%

$
206,665

100.0
%


	As of June 30, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Loans (non-PPP)
Business Products	$	4,462	1.2%	$	13	—%
Business Services	74,382		19.2%	73,868		22.7%
Communication	13,869		3.6%	389		0.1%
Construction	36,947		9.5%	31,285		9.6%
Finance	119,816		30.9%	100,849		31.1%
Healthcare	23,950		6.2%	23,564		7.2%
Services	52,539		13.6%	34,112		10.5%
Technology	7,140		1.8%	2,979		0.9%
Trade	42,080		10.9%	47,522		14.6%
Transportation	1,230		0.3%	1,593		0.5%
Other	10,902		2.8%	9,241		2.8%
Total	$	387,317	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.

Table of Contents

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

Second quarter loans totaled $1.7 billion, a decrease of $39.1 million, or 2.2% from the prior quarter due to a reduction in PPP loans. Loan growth, net of PPP loans, was up $27.6 million, or 1.8% quarter-over-quarter. We experienced strong originations across all loan types due to new loan originations of $186.8 million ($169.2 million of conventional loans, of which $118.0 million funded, coupled with

~~Table of Contents~~

~~$17.6 million of PPP loans) partially offset by payoffs of $162.2 million ($77.9 million of conventional loans and $84.3 million of PPP loans forgiven).~~

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

June 30, 2021


Due in One

Due in One to

Due After


(Dollars in thousands)

Year or Less

Five Years

Five Years

Total
Commercial Real Estate

$
98,118

$
230,947

$
546,388

$
875,453
Residential Real Estate

14,141

19,401

328,404

361,946
Commercial*

108,402

166,295

98,636

373,333
Construction and Development

29,355

20,219

24,601

74,175
Consumer and Other

4,141

7,330

3,104

14,575
Total loans

$
254,157

$
444,192

$
1,001,133

$
1,699,482
Amounts with fixed rates

$
149,697

$
398,716

$
965,071

$
1,513,484
Amounts with floating rates

$
104,460

$
45,476

$
36,062

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

December 31, 2020


Due in One

Due in One to

Due After


(Dollars in thousands)

Year or Less

Five Years

Five Years

Total
Commercial Real Estate

$
63,277

$
221,328

$
493,171

$
777,776
Residential Real Estate

16,386

23,832

340,273

380,491
Commercial*

93,338

232,428

70,876

396,642
Construction and Development

37,205

30,165

32,513

99,883
Consumer and Other

5,619

3,855

2,214

11,688
Total loans

$
215,825

$
511,608

$
939,047

$
1,666,480
Amounts with fixed rates

$
110,152

$
473,839

$
910,452

$
1,494,443
Amounts with floating rates

$
105,673

$
37,769

$
28,595

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


	June 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	$	97,603	$	241,751	$	682,106	$	13,027	$	1,034,487
Residential Real Estate	24,306		17,203		19,578		361,152		422,239
Commercial*	105,347		112,801		149,618		27,727		395,493
Construction and Development	67,710		10,408		4,647		32,173		114,938
Consumer and Other	2,094		6,005		11,977		—		20,076
Total loans	$	297,060	$	388,168	$	867,926	$	434,079	$	1,987,233

Amounts with fixed rates	$	116,339	$	303,630	$	850,006	$	410,149	$	1,680,124
Amounts with floating rates	$	180,721	$	84,538	$	17,920	$	23,930	$	307,109
*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

~~Table of Contents~~

~~Paycheck Protection Program~~

During the three months ended June 30, 2021, we funded 172 loans representing $17.6 million under Round 3 of the PPP. As of June 30, 2021, we participated in all three rounds of the PPP and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which 1,362 loans totaling $196.9 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, we paid off all of the PPPLF advances during the first and second quarter of 2021 and the balance was $0 as of June 30, 2021.

~~Nonperforming Assets~~

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Any loan which the Bank deems to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss. Loans that are past due for 180 days or more are charged off unless the loan is well secured and in the process of collection. We currently have no loans accruing over 90 days or greater past due as of June 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~~$1.5 million as of June 30, ~~2021~~2022, or ~~0.11%~~0.06% of total assets. We had nonperforming assets of ~~$10.4~~

Table of Contents

$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. 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~~

~~Table of Contents~~

~~factor in the recent increase in our nonperforming assets relative to our historically low, near-zero levels. However, we~~e 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.

(Dollars in thousands)

June 30, 2021

December 31, 2020

Nonaccrual Loans

Commercial real estate

$
—

$
—

Residential real estate

—

—

Commercial

1,468

9,127

Construction and development

—

—

Consumer and other loans

1,307

1,307

Accruing loans 90 or more days past due

—

—

Total nonperforming loans

$
2,775

$
10,434

Other real estate owned

—

—

Total nonperforming assets

$
2,775

$
10,434

Restructured loans-nonaccrual

$
—

$
—

Restructured loans-accruing

$
252

$
298

Ratio of nonperforming loans to total loans

0.16
%

0.63
%
Ratio of nonperforming assets to total assets

0.11
%

0.51
%


(Dollars in thousands)	June 30, 2022		December 31, 2021
Nonaccrual Loans
Commercial real estate	$	—	$	—
Residential real estate	—		—
Commercial	1,468		1,468
Construction and development	—		—
Consumer and other loans	—		654
Accruing loans 90 or more days past due	—		—
Total nonperforming loans	$	1,468	$	2,122
Other real estate owned	—		—
Total nonperforming assets	$	1,468	$	2,122
Restructured loans-nonaccrual	$	—	$	—
Restructured loans-accruing	$	1,042	$	55
Ratio of nonperforming loans to total loans	0.07%		0.12%
Ratio of nonperforming assets to total assets	0.06%		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.

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

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substandard, doubtful, or even a charged-off status. ~~Based on~~See Note 4 - Loans to the ~~most recent analysis performed, the~~Consolidated Financial Statements (unaudited) dated June 30, 2022, for additional information regarding risk category of loans by class of ~~loans is as follows:~~

loans.

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

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

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adjusted for various internal and external risk factors unique to each loan pool.

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


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in thousands)	2022			2021			2022			2021
Balance at beginning of period	$	13,555		$	9,656		$	12,704		$	16,259
Charge-offs
Commercial real estate	—			—			—			—
Residential real estate	—			—			—			—
Commercial	—			—			—			(7,641)
Construction and development	—			—			—			—
Consumer and other	(653)			—			(653)			—
Total Charge-offs	(653)			—			(653)			(7,641)
Recoveries
Commercial real estate	—			—			—			—
Residential real estate	—			—			—			—
Commercial	—			—			—			—
Construction and development	—			—			—			—
Consumer and other	—			—			—			—
Total recoveries	—			—			—			—
Net charge-offs	(653)			—			(653)			(7,641)
Provision for loan losses	2,240			762			3,091			1,800
Balance at end of period	$	15,142		$	10,418		$	15,142		$	10,418
Ratio of net charge-offs to average loans	0.14		%	—		%	0.07		%	1.80		%


	June 30, 2022		December 31, 2021
ALLL as a percentage of total loans at end of period	0.76	%	0.71	%
ALLL as a percentage of loans (excluding PPP loans) at end of period	0.77	%	0.74	%
ALLL as a multiple of net charge-offs	23.2		1.5
ALLL as a percentage of nonperforming loans	1031.5	%	598.7	%

Our allowance for loan losses was $15.1 million on June 30, 2022, compared to $12.7 million on December 31, 2021, an increase of 19.2%. The increase was primarily due to higher loan production volume during the six months ended June 30, ~~2021~~2022, as well as a $0.7 million charge-off of a previously disclosed impaired loan. There were minimal changes to qualitative loss factors to address rising inflation and ~~2020.~~

For the Six Months Ended June 30,

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

2021

2020

2020

2019

Balance at beginning of period

$
16,259

$
6,548

$
6,548

$
5,685

Charge-offs









Commercial real estate

—

—

—

—

Residential real estate

—

—

(207)

—

Commercial

(7,641)

(98)

(99)

—

Construction and development

—

—

—

—

Consumer and other

—

—

—

—

Total Charge-offs

(7,641)

(98)

(306)

—

Recoveries









Commercial real estate

—

—

—

—

Residential real estate

—

—

—

—

Commercial

—

—

—

—

Construction and development

—

—

—

—

Consumer and other

—

—

—

1

Total recoveries

—

—

—

1

Net charge-offs (recoveries)

(7,641)

(98)

(306)

—

Provision for loan losses

1,800

2,595

10,017

862

Balance at end of period

$
10,418

$
9,045

$
16,259

$
6,548

ALLL as a percentage of total loans at end of period

0.62
%

0.58
%

0.99
%

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

0.67
%

0.67
%

1.10
%

0.83
%
ALLL as a multiple of net charge-offs

N/A

N/A

53.1

N/A

ALLL as a percentage of nonperforming loans

375.4
%

224.4
%

155.8
%

287.2
%

~~Our~~threats of a recessionary environment and minimal change in the historical loss factors for the current period with the principal driver for the increased allowance ~~for~~being loan ~~losses was $10.4 million at~~ growth. On June 30, ~~2021~~2022~~, compared to $16.3 million at~~ ~~December 31, 2020, a decrease of 35.9%. A reasonable balance was maintained in response to economic weakening and the onset of COVID variants. At~~ ~~June 30, 2021~~, our allowance for loan losses was ~~0.67%~~0.77% of total gross loans (excluding Professional Bank PPP loans) and provided coverage of ~~375.4%~~1031.5% of our nonperforming loans, compared to an allowance for loan losses to total gross loans (net of overdrafts) ratio of ~~1.10%~~0.74% as of December 31, ~~2020~~2021. See Reconciliation of non-GAAP Financial Measures. We believe our allowance at on June 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 June 30, ~~2021~~2022, and December 31, ~~2020~~2021.

June 30, 2021

December 31, 2020

(Dollars in thousands)

Allowance

Percent

Allowance

Percent

Commercial real estate

$
4,285

41.1
%
$
3,159

19.4
%
Residential real estate

2,269

21.8
%

2,177

13.4
%
Commercial

3,423

32.9
%

10,462

64.3
%
Construction and development

361

3.5
%

388

2.4
%
Consumer and other

80

0.8
%

73

0.4
%
Total allowance for loan losses

$
10,418

100.0
%
$
16,259

100.0
%


	June 30, 2022			December 31, 2021
(Dollars in thousands)	Allowance		Percent	Allowance		Percent
Commercial real estate	$	5,929	39.2%	$	4,471	35.2%
Residential real estate	2,966		19.6%	2,339		18.4%
Commercial	5,425		35.7%	4,637		36.5%
Construction and development	677		4.5%	471		3.7%
Consumer and other	145		1.0%	786		6.2%
Total allowance for loan losses	$	15,142	100.0%	$	12,704	100.0%

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On June 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 ~~$5.4~~$1.5 million, of which ~~$2.8~~$1.5 million required a specific reserve of $0.7 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 aton 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”) At . On June 30, ~~2021~~2022, we had ~~two~~three loans amounting to ~~$0.3~~$1.0 million that were considered to be TDRs, compared ~~to the same two loans~~one loan amounting to ~~$0.3 million at~~$55 thousand on December 31, ~~2020.~~2021. We did not allocate any specific reserves to loans that have been modified as TDRs as of June 30, ~~2021~~2022, and December 31, ~~2020~~2021.

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Deposits

~~Deposits~~

Deposits are our primary source of funding. We offer a variety of deposit products including checking, NOW, savings, money market, and time accounts all of which we actively market at competitive pricing. We generate deposits from our consumer and commercial clients through the efforts of our private bankers. We had public deposits of ~~$93.6~~$92.5 million and ~~$98.2~~$84.4 million, aton June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, respectively. Additionally, we supplement our deposits with wholesale funding sources such as ~~Quickrate,~~Qwickrate brokered deposits. However, we do not significantly rely on wholesale funding sources, which are generally viewed as less stable compared to core deposits due to the relatively higher price elasticity of demand for deposits from wholesale sources. As of June 30, ~~2021~~2022, and December 31, ~~2020~~,2021, these wholesale deposits represented ~~2.5%~~0.8% and ~~4.3%~~3.9%, respectively, of our total deposits.

~~Interest-bearing~~

Average interest-bearing deposits increased ~~$238.5~~$285.4 million, or ~~20.1%~~20.7%, ~~from December 31, 2020, to~~during the three months ended June 30, 2022, compared to the same time period in 2021, primarily due to a ~~$131.2~~$231.2 million increase in money market account balances and a $55.6 million increase in NOW accounts from organic growth. In order to fund our loan growth, ~~all of~~ our bankers are actively involved with our strategic efforts and are incentivized to grow core deposits. The average rate paid on interest-bearing deposits decreased 546 basis points to for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.


	For the Three Months Ended June 30, 2022			For the Three Months Ended June 30, 2021
(Dollars in thousands)	Average Balance		Average Rate	Average Balance		Average Rate
NOW accounts	$	335,718	0.15%	$	280,077	0.20%
Money market accounts	1,035,048		0.37%	803,873		0.40%
Brokered deposits	47,949		0.46%	30,471		0.53%
Savings accounts	13,271		0.10%	11,818		0.10%
Certificates of deposit	231,134		0.61%	251,473		0.71%
Total interest-bearing deposits	1,663,120		0.36%	1,377,712		0.42%
Noninterest-bearing deposits	784,252		—%	890,292		—%
Total deposits	$	2,447,372	0.24%	$	2,268,004	0.25%

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Average interest-bearing deposits increased $374.0 million, or 28.9%, during the six months ended June 30, 2022, compared to the same time period in 2021 prior year primarily due to $282.4 million increase in money market account balances and a $65.6 million increase in NOW accounts from organic growth. The average rate paid on interest-bearing deposits decreased 6 basis points to for the six months ended June 30, ~~2021. The decrease in average rates paid on interest-bearing deposits was a result of a continued decrease in market rates of interest during~~2022, compared to the six months ended June 30, 2021.


	For the Six Months Ended June 30, 2022			For the Six Months Ended June 30, 2021
(Dollars in thousands)	Average Balance		Average Rate	Average Balance		Average Rate
NOW accounts	$	327,789	0.16%	$	262,165	0.21%
Money market accounts	1,028,841		0.38%	746,474		0.40%
Brokered deposits	53,220		0.46%	30,475		0.63%
Savings accounts	13,230		0.10%	10,590		0.10%
Certificates of deposit	244,648		0.63%	243,989		0.73%
Total interest-bearing deposits	1,667,728		0.37%	1,293,693		0.43%
Noninterest-bearing deposits	774,562		—%	708,215		—%
Total deposits	$	2,442,290	0.25%	$	2,001,908	0.28%

The following table presents the ending balances and percentage of total deposits for the periods indicated. As of June 30, ~~2021~~,2022, we had approximately ~~$56.5~~$18.4 million in brokered deposits representing ~~2.5%~~0.8% of total deposits. Brokered deposits ~~increased~~decreased approximately ~~$26.4~~$40.0 million, or ~~87.6%~~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.


	June 30, 2022				December 31, 2021
(Dollars in thousands)	Ending Balance		% of Total		Ending Balance		% of Total
NOW accounts	$	339,942	14.3	%	$	310,362	13.1	%
Money market accounts	1,026,457		43.1	%	1,055,033		44.5	%
Brokered deposits	18,366		0.8	%	58,365		2.5	%
Savings accounts	14,324		0.6	%	12,558		0.5	%
Certificates of deposit	205,145		8.6	%	261,067		11.0	%
Total interest-bearing deposits	1,604,234		67.4	%	1,697,385		71.6	%
Noninterest-bearing deposits	777,501		32.6	%	674,003		28.4	%
Total deposits(1)	$	2,381,735	100.0	%	$	2,371,388	100.0	%

For the Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

Average

Average

(Dollars in thousands)

Balance

Average Rate

Balance

Average Rate

NOW accounts

$
262,165

0.21
%
$
167,991

0.26
%
Money market accounts

746,474

0.40
%

586,240

0.65
%
Brokered deposits

30,475

0.63
%

11,339

0.90
%
Savings accounts

10,590

0.10
%

7,564

0.13
%
Certificates of deposit

243,989

0.73
%

216,467

1.13
%
Total interest-bearing deposits

1,293,693

0.43
%

989,601

0.97
%
Noninterest-bearing deposits

708,215

—
%

410,357

—
%
Total deposits

$
2,001,908

0.28
%
$
1,399,958

0.48
%

(1)

~~The following table presents the ending balances and percentage of total~~Balance Sheet does not illustrate brokered deposits ~~for the periods indicated.~~

~~(1)~~

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

~~Table of Contents~~

~~The following table presents~~For more information regarding the maturities of our ~~certificates of deposit~~time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of June 30, ~~2021~~.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits less than $100,000

$
4,145

$
3,059

$
9,717

$
3,445

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

35,008

34,227

118,680

53,399

241,314
Total

$
39,153

$
37,286

$
128,397

$
56,844

$
261,680

~~The following table presents the maturities of our certificates of deposit as of~~ 2022, and December 31, ~~2020~~.

Over

Over Six




Three

Three

Months

Months or

Through

Through

Over

(Dollars in thousands)

Less

Six Months

12 Months

12 Months

Total
Time deposits less than $100,000

$
5,429

$
3,392

$
6,691

$
4,602

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

55,527

45,180

60,959

54,795

216,461
Total

$
60,956

$
48,572

$
67,650

$
59,397

$
236,575

~~Debt~~

~~See~~2021, refer to Note 76 - Deposits to the Consolidated Financial Statements (unaudited) dated June 30, ~~2021, entitled "Debt"~~2022.

Debt

See Note 7 - Debt and Borrowings to the Consolidated Financial Statements (unaudited) dated June 30, 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 June 30, ~~2021~~,2022, approximately ~~$209.9~~$245.4 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

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fixed rate loans in our portfolio. As of June 30, ~~2021~~,2022, we had no outstanding advances, compared to $35.0 million ~~in outstanding advances~~as of December 31, 2021. As of June 30, 2022 and ~~$134.7~~December 31, 2021, we had $153.3 million and $113.0 million, respectively, 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.


	June 30, 2022		December 31, 2021
(Dollars in thousands)
Weighted average interest rate at period-end	—%		2.04%
Maximum month-end balance during period	$	35,000	$	35,000
Average balance outstanding during period	13,757		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. No advances were outstanding under this facility as of June 30, 2022 and December 31, 2021.

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

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Liquidity and Capital Resources

Capital Resources

Stockholders’ equity increased ~~$7.5~~$2.1 million, or ~~3.5%~~0.9%, to ~~$223.0~~$233.6 million aton June 30, ~~2021,~~2022, compared to December 31, ~~2020~~2021, primarily due ~~to net income~~an increase in retained earnings of ~~$11.1~~$9.4 million and an increase in additional paid in capital of $3.5 million for the six months ended June 30, ~~2021~~,2022, partially offset by ~~repurchases~~a decrease of ~~the Company’s Class A voting common stock.~~$10.7 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 ~~150%~~1,250%. We are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

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

As of June 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 ~~quarter,~~six months ended June 30, 2022, the Company infused ~~$15.0~~$7.5 million of capital into the Bank ~~in order~~ to support asset growth and maintain well capitalized ratios at the Bank.

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

Minimum to be well

Actual

Minimum for capital adequacy

capitalized

(Dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio

December 31, 2020













Total capital ratio













Bank

$
176,633

12.0
%
$
117,298

8.0
%
$
146,623

10.0
%
Company

215,977

14.7
%

117,298

8.0
%

N/A

N/A

Tier 1 capital ratio











Bank

159,448

10.9
%

87,974

6.0
%

117,298

8.0
%
Company

188,639

12.9
%

87,974

6.0
%

N/A

N/A

Tier1 leverage ratio











Bank

159,448

8.4
%

75,723

4.0
%

94,654

5.0
%
Company

188,639

10.0
%

75,723

4.0
%

N/A

N/A

Common equity tier 1 capital ratio









Bank

159,448

10.9
%

65,980

4.5
%

95,305

6.5
%
Company

188,639

12.9
%

65,980

4.5
%

N/A

N/A


	Actual				Minimum for capital adequacy				Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2022
Total capital ratio
Bank	$	245,543	12.1	%	$	162,036	8.0	%	$	202,545	10.0	%
Company	260,097		12.8	%	162,036		8.0	%	N/A		N/A
Tier 1 Capital ratio
Bank	229,263		11.3	%	121,527		6.0	%	162,036		8.0	%
Company	219,381		10.8	%	121,527		6.0	%	N/A		N/A
Tier 1 Leverage ratio
Bank	229,263		8.5	%	108,401		4.0	%	135,501		5.0	%
Company	219,381		8.1	%	108,401		4.0	%	N/A		N/A
Common Equity Tier 1
Bank	229,263		11.3	%	91,145		4.5	%	131,654		6.5	%
Company	219,381		10.8	%	91,145		4.5	%	N/A		N/A


	Actual			Minimum for capital adequacy			Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
December 31, 2021
Total capital ratio
Bank	$	222,696	12.9%	$	138,435	8.0%	$	173,043	10.0%
Company	220,206		12.7%	138,435		8.0%	N/A		N/A
Tier 1 capital ratio
Bank	208,997		12.1%	103,826		6.0%	138,435		8.0%
Company	206,507		11.9%	103,826		6.0%	N/A		N/A
Tier1 leverage ratio
Bank	208,997		7.7%	107,877		4.0%	134,846		5.0%
Company	206,507		7.7%	107,877		4.0%	N/A		N/A
Common equity tier 1 capital ratio
Bank	208,997		12.1%	77,869		4.5%	112,478		6.5%
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.

Table of Contents

On June 30, ~~2021~~,2022, we had the ability to generate approximately ~~$370.9~~$488.1 million in additional liquidity through all of our available resources beyond our overnight funds sold position. During the six months ended June 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.

~~Table of Contents~~

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. AtOn June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, there were ~~$209.9~~$245.4 million and ~~$227.8~~$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 of our investment portfolio was ~~3.70~~5.74 years and ~~3.02~~4.41 years at on June 30, ~~2021~~2022, and December 31, ~~2020~~2021, ~~respectively,~~respectively. The duration of our investment portfolio was 4.86 years and ~~had a net unrealized pre-tax gain of $0.4 million~~4.08 years on June 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 June 30, ~~2021,~~2022, cash held at the holding company was approximately ~~$20.2~~$10.5 million. Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds purchased) was ~~$56.9~~$31.6 million during ~~2021~~three months ended June 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. ~~This quarter our continued organic growth coupled with~~As of June 30, 2022, cash held at the ~~Correspondent Banking Relationship buttressed our preference for excess liquidity in readily available assets, such~~Federal Reserve was approximately $297.4 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 June 30, 2022, inflation was rising at a higher and more sustained level than anticipated by the ~~second quarter~~Federal Reserve. As a result, there were three rate increases for the six months ended June 30, 2022 totaling an upward increase of ~~2021 as bottlenecked supply chains~~150 basis points and ~~other economic factors caused temporary~~the current market expects another change in monetary policy, which would include further interest rate increases in ~~prices~~2022 and 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 June 30, ~~2021~~2022.

Due After

Due after One

Three

Due in One

Through Three

Through

Due After

(Dollars in thousands)

Year or Less

Years

Five Years

Five Years

Total
FHLB advances

$
—

$
—

$
30,000

$
5,000

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

16,921

3,405

40

—

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

187,915

53,399

—

—

241,314
Operating leases

1,400

2,717

2,048

706

6,871
Subordinated debt

—

—

—

10,062

10,062
Total

$
206,236

$
59,521

$
32,088

$
15,768

$
313,613


(Dollars in thousands)	Due in One Year or Less		Due after One Through Three Years		Due After Three Through Five Years		Due After Five Years		Total

Time deposits of $250,000 or less	$	68,378	$	3,512	$	—	$	—	$	71,890
Time deposits of more than $250,000	132,400		4,189		—		—		136,589
Operating leases	1,343		2,310		1,276		385		5,314
Subordinated debt	—		—		—		24,436		24,436
Total	$	202,121	$	10,011	$	1,276	$	24,821	$	238,229

Off-Balance Sheet Items

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

~~Table of Contents~~

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


(Dollars in thousands)	June 30, 2022		December 31, 2021
Unfunded lines of credit	471,356		415,402
Commitments to extend credit	107,139		108,824
Standby letters of credit	11,974		12,095
Commercial letters of credit	3,664		2,765
Total credit extension commitments	$	594,133	$	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.

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 June 30, 2022, and 2021 and six months ended June 30, ~~2021,~~2022, and ~~for the year ended December 31, 2020.~~

Six Months Ended

Year Ended


June 30, 2021

December 31, 2020

Return on Average Assets

0.95
%
0.46
%
Return on Average Equity

10.05
%
4.30
%
Average Equity to Average Assets

9.44
%
10.64
%

2021.


(Dollars in thousands)	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Return on average assets	1.03	%	0.99	%	0.70	%	0.96	%
Return on average equity	12.15	%	11.38	%	8.20	%	10.14	%
Average equity to average assets	8.47	%	8.70	%	8.48	%	9.44	%

Market Risk and Interest Rate Sensitivity

Overview

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

~~Table of Contents~~

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

Interest Rate Risk Management

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

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

Table of Contents

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

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

Analysis

~~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

After One

After Three

Month

Months

Greater than

June 30, 2021

Within One

Through Three

Through

Within One

One Year

(Dollars in thousands)

Month

Months

12 Months

Year

or Nonsensitive

Total
Assets












Interest earning assets












Loans

$
414,242

$
112,022

$
345,668

$
871,932

$
808,236

$
1,680,168
Loans held for sale

2,039

—

—

2,039

—

2,039
Securities

11,617

7,010

46,396

65,023

62,700

127,723
Interest-bearing deposits at other financial institutions

616,180

—

—

616,180

—

616,180
Federal funds sold

36,156

—

—

36,156

—

36,156
FHLB & FRB stock

7,295

—

—

7,295

—

7,295
Total interest earning assets

$
1,087,529

$
119,032

$
392,064

$
1,598,625

$
870,936

$
2,469,561
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
652,409

$
18,476

$
83,136

$
754,021

$
406,789

$
1,160,810
Time deposits

15,533

23,620

165,683

204,836

56,844

261,680
Total interest-bearing deposits

667,942

42,096

248,819

958,857

463,633

1,422,490
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB advances

—

—

—

—

35,000

35,000
Subordinated debt

—

—

—

—

10,062

10,062
Total interest-bearing liabilities

$
667,942

$
42,096

$
248,819

$
958,857

$
508,695

$
1,467,552
Period gap

$
419,587

$
76,936

$
143,245

$
639,768

$
362,241


Cumulative gap

$
419,587

$
496,523

$
639,768

$
639,768

$
1,002,009


Ratio of cumulative gap to total earning assets

38.58
%

417.13
%

163.18
%

40.02
%

115.05
%


Ratio of cumulative gap to cumulative total earning assets

16.99
%

20.11
%

25.91
%

25.91
%

40.57
%


June 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
Loans	$	440,573		$	70,581		$	288,875		$	800,029		$	1,172,062		$	1,972,091
Loans held for sale	—			—			—			—			—			—
Securities	46,431			5,855			11,224			63,510			134,860			198,370
Interest earning deposits at other financial institutions	298,764			—			—			298,764			42,272			341,036
Federal funds sold	27,043			—			—			27,043			—			27,043
FHLB & FRB stock	7,375			—			—			7,375			—			7,375
Total interest earning assets	$	820,186		$	76,436		$	300,099		$	1,196,721		$	1,349,194		$	2,545,915
Interest-Bearing Liabilities
Interest-bearing deposits	$	679,503		$	23,908		$	107,580		$	810,991		$	584,764		$	1,395,755
Time deposits	44,005			56,875			99,899			200,779			7,700			208,479
Total interest-bearing deposits	723,508			80,783			207,479			1,011,770			592,464			1,604,234

FHLB advances	—			—			—			—			—			—


Subordinated debt	—			—			—			—			24,436			24,436
Total interest-bearing liabilities	$	723,508		$	80,783		$	207,479		$	1,011,770		$	616,900		$	1,628,670
Period gap	$	96,678		$	(4,347)		$	92,620		$	184,951		$	732,294
Cumulative gap	$	96,678		$	92,331		$	184,951		$	184,951		$	917,245
Ratio of cumulative gap to total earning assets	11.79		%	120.80		%	61.63		%	15.45		%	67.98		%
Ratio of cumulative gap to cumulative total earning assets	3.80		%	3.63		%	7.26		%	7.26		%	36.03		%

Table of Contents

CASH FLOW GAP

After One

After Three






Month

Months

Greater than

June 30, 2021

Within One

Through Three

Through

Within One

One Year

(Dollars in thousands)

Month

Months

12 Months

Year

or Nonsensitive

Total
Assets












Interest earning assets












Loans

$
127,533

$
129,493

$
342,715

$
599,741

$
1,080,427

$
1,680,168
Loans held for sale

2,039

—

—

2,039

—

2,039
Securities

7,384

2,498

10,898

20,780

106,943

127,723
Interest-bearing deposits at other financial institutions

616,180

—

—

616,180

—

616,180
Federal funds sold

36,156

—

—

36,156

—

36,156
FHLB & FRB stock

—

—

—

—

7,295

7,295
Total interest earning assets

$
789,292

$
131,991

$
353,613

$
1,274,896

$
1,194,665

$
2,469,561
Liabilities












Interest-bearing liabilities












Interest-bearing deposits

$
22,144

$
44,288

$
199,303

$
265,735

$
895,075

$
1,160,810
Time deposits

15,533

23,620

165,683

204,836

56,844

261,680
Total interest-bearing deposits

37,677

67,908

364,986

470,571

951,919

1,422,490
Securities sold under agreements to repurchase

—

—

—

—

—

—
FHLB advances

—

—

—

—

35,000

35,000
Subordinated debt

—

—

—

—

10,062

10,062
Total interest-bearing liabilities

$
37,677

$
67,908

$
364,986

$
470,571

$
996,981

$
1,467,552
Period gap

$
751,615

$
64,083

$
(11,373)

$
804,325

$
197,684

Cumulative gap

$
751,615

$
815,698

$
804,325

$
804,325

$
1,002,009

Ratio of cumulative gap to total earning assets

95.23
%

618.00
%

227.46
%

63.09
%

83.87
%


June 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
Loans	$	107,083		$	84,630		$	344,769		$	536,482		$	1,435,609		$	1,972,091
Loans held for sale	—			—			—			—			—			—
Securities	9,283			2,945			15,787			28,015			170,355			198,370
Interest earning deposits at other financial institutions	298,764			—			—			298,764			42,272			341,036
Federal funds sold	27,043			—			—			27,043			—			27,043
FHLB & FRB stock (1)	—			—			—			—			7,375			7,375
Total interest earning assets	$	442,173		$	87,575		$	360,556		$	890,304		$	1,655,611		$	2,545,915
Interest-Bearing Liabilities
Interest-bearing deposits	$	26,610		$	53,220		$	239,496		$	319,326		$	1,076,429		$	1,395,755
Time deposits	44,005			56,875			99,899			200,779			7,700			208,479
Total interest-bearing deposits	70,615			110,095			339,395			520,105			1,084,129			1,604,234

FHLB advances	—			—			—			—			—			—


Subordinated debt	—			—			—			—			24,436			24,436
Total interest-bearing liabilities	$	70,615		$	110,095		$	339,395		$	520,105		$	1,108,565		$	1,628,670
Period gap	$	371,558		$	(22,520)		$	21,161		$	370,199		$	547,046
Cumulative gap	$	371,558		$	349,038		$	370,199		$	370,199		$	917,245
Ratio of cumulative gap to total earning assets	84.03		%	398.56		%	102.67		%	41.58		%	55.40		%
Ratio of cumulative gap to cumulative total earning assets	14.59		%	13.71		%	14.54		%	14.54		%	36.03		%

(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.

The following table summarizes the results of our net interest income at risk analysis in simulating the change in net interest income and fair value of equity over a 12-month and 24-month horizon as of June 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

10.0
%
15.0
%
20.0
%
25.0
%
June 30, 2021

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

9.2
%
18.4
%
27.5
%
36.5
%
December 31, 2020

(3.1)
%
(2.4)
%
(1.2)
%
(0.2)
%
N/A

1.5
%
3.5
%
5.5
%
7.3
%
December 31, 2019

(9.9)
%
(6.6)
%
(4.7)
%
(1.6)
%
N/A

0.6
%
0.8
%
1.0
%
1.2
%

Net Interest Income at Risk – 24 months

-400bps

-300bps

-200bps

-100bps

Flat

+100bps

+200bps

+300bps

+400bps

Policy Limit

(20.0)
%
(15.0)
%
(10.0)
%
(5.0)
%
N/A

10.0
%
15.0
%
20.0
%
25.0
%
June 30, 2021

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

11.4
%
22.4
%
33.5
%
44.4
%
December 31, 2020

(4.3)
%
(3.6)
%
(2.6)
%
(1.8)
%
N/A

5.8
%
12.0
%
17.9
%
23.6
%
December 31, 2019

(16.1)
%
(12.0)
%
(7.7)
%
(2.7)
%
N/A

1.3
%
2.3
%
3.1
%
3.7
%


Net Interest Income at Risk – 12 months	-400bps		-300bps		-200bps		-100bps		Flat		+100bps		+200bps		+300bps		+400bps
Policy Limit	(20.0)	%	(15.0)	%	(10.0)	%	(5.0)	%	—	%	(5.0)	%	(10.0)	%	(15.0)	%	(20.0)	%
June 30, 2022	(15.1)	%	(18.1)	%	(14.1)	%	(5.4)	%	—	%	2.4	%	4.7	%	7.0	%	9.3	%
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)	%
June 30, 2022	(22.9)	%	(26.9)	%	(20.6)	%	(8.2)	%	—	%	5.1	%	10.1	%	15.0	%	19.9	%
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.

Table of Contents

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

Economic Value of Equity as of

-400bps

-300bps

-200bps

-100bps

Flat

+100bps

+200bps

+300bps

+400bps

Policy Limit

(30.0)
%
(20.0)
%
(15.0)
%
(10.0)
%
N/A

17.5
%
22.5
%
27.5
%
37.5
%
June 30, 2021

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

1.8
%
3.2
%
4.0
%
4.2
%
December 31, 2020

0.8
%
1.5
%
2.6
%
2.5
%
N/A

(2.5)
%
(5.1)
%
(8.1)
%
(11.3)
%
December 31, 2019

(5.3)
%
(0.4)
%
0.7
%
0.6
%
N/A

(3.7)
%
(8.2)
%
(13.2)
%
(19.0)
%


Economic Value of Equity	-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)	%
June 30, 2022	(6.2)	%	(9.1)	%	(5.5)	%	(0.1)	%	—	%	(3.0)	%	(5.9)	%	(9.0)	%	(12.6)	%
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.

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

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

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

~~Fair Value Measurements~~

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

~~Table of Contents~~

~~observable market inputs. For financial instruments that~~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 June 30, 2021, purchase accounting loan marks were $16.1 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)~~

six months ended June 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,~~("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments). ~~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~~Early adoption is still permitted. 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. A parallel run using March 31, 2022 data was performed during the second quarter. Next steps include fine tuning the inputs based on the bank’s specific risk profile (ex: geography, portfolio composition, credit standards, etc.) and performing additional parallel runs with the bank’s existing ALLL calculation. Additionally, the Credit Team has started work on the Structural Overview Document and developing key controls and procedures.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 June 30, 2021, Pro Opp Fund LLC committed to investments of approximately $1.7 million in businesses indirectly, directly, and tangentially related to the Company’s core business as permitted under the U.S. Bank Holding Company Act.

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

The Company continues to work within the COVID-19 pandemic response plans which were originally established in the spring of 2020. In the summer of 2021, we returned to a normalized office schedule. The Company continues to monitor the situation closely, updating plans where necessary, including for the variants of COVID, to ensure that they comply with the latest governmental guidelines and health conditions.

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, ~~including adjusted net income and adjusted net income per share,~~ which we refer to “non-GAAP financial measures.” The table below provides a reconciliation between these non-GAAP measures and net income and net income per share, which are the most comparable GAAP measures.

~~Table of Contents~~

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

Table of Contents

Reconciliation of non-GAAP Financial Measures

Three Months Ended

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

(Dollar amounts in thousands, except per share data)

2021

2020

2021

2021

2020

Net interest income (GAAP)

$
17,202

$
16,291

$
17,879

$
35,081

$
24,352

Total non-interest income

2,302

968

1,119

3,421

1,824

Total non-interest expense

10,954

11,548

11,788

22,742

21,034

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

$
8,550

$
5,711

$
7,210

$
15,760

$
5,142

Total adjustments to non-interest expense

—

(560)

(684)

(684)

(2,223)

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

$
8,550

$
6,271

$
7,894

$
16,444

$
7,365

Return on average assets (GAAP)

0.99
%

0.38
%

0.90
%

0.95
%

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

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

1.33
%

1.19
%

1.36
%

1.35
%

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

1.33
%

1.30
%

1.45
%

1.40
%

0.96
%


	Three Months Ended									Six Months Ended
(Dollar amounts in thousands, except per share data)	June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Net interest income (GAAP)	$	21,909		$	19,047		$	17,202		$	40,956		$	35,081
Total noninterest income	1,781			1,273			2,302			3,054			3,421
Total noninterest expense	12,604			16,495			10,954			29,099			22,742
Pre-tax pre-provision earnings (non-GAAP)	$	11,086		$	3,825		$	8,550		$	14,911		$	15,760
Total adjustments to noninterest expense (1)	—			(2,915)			—			(2,915)			(684)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	11,086		$	6,740		$	8,550		$	17,826		$	16,444









Return on average assets (GAAP)	1.03		%	0.36		%	0.99		%	0.70		%	0.96		%
Annualized pre-tax pre-provision ROAA (non-GAAP)	1.63		%	0.57		%	1.33		%	1.10		%	1.36		%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)	1.63		%	1.00		%	1.33		%	1.32		%	1.42		%

(1)

June 30, 2021

December 31, 2020

Total loans (GAAP)

$
1,680,186

$
1,643,373

Add allowance for loan loss

10,418

16,259

Add unearned loan origination fees (costs), net

6,839

5,578

Add loans held for sale

2,039

1,270

Total gross loans

$
1,699,482

$
1,666,480

Less PPP loans

144,118

189,977

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

$
1,555,364

$
1,476,503

Add purchase accounting loan marks

16,133

18,835

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

$
1,571,497

$
1,495,338

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

0.62
%

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

0.67
%

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

1.69
%

2.35
%

Adjustments to noninterest expense for the six months ended June 30, 2022 were related to severance and accelerated vesting expense related to the departure of the former Chief Executive Officer. Adjustments to noninterest expense for the six months ended June 30, 2021 were related to change in control payments to two former Marquis employees.


(Dollar amounts in thousands, except per share data)	June 30, 2022			December 31, 2021
Total loans held for investment, net (GAAP)	$	1,972,091		$	1,764,460
Add allowance for loan loss ("ALLL")	15,142			12,704
Total gross loans held for investment ("LHFI")	1,987,233			1,777,164
Less Professional Bank net PPP loans ("PPP")	$	8,176		$	58,615
Total gross LHFI excluding net PPP loans (non-GAAP)	$	1,979,057		$	1,718,549
Add purchase accounting loan marks ("PA")	9,937			13,003
Total gross LHFI excluding net PPP loans (non-GAAP) + PA marks	$	1,988,994		$	1,731,552

ALLL as a % of LHFI (GAAP)	0.76		%	0.71		%
ALLL as a % of total LHFI excluding net PPP loans (non-GAAP)	0.77		%	0.74		%
PA marks + ALLL / LHFI excluding net PPP loans (non-GAAP)	1.26		%	1.48		%

Table of Contents


(Dollar amounts in thousands, except per share data)	Three Months Ended									Six Months Ended
	June 30, 2022			March 31, 2022			June 30, 2021			June 30, 2022			June 30, 2021

Net interest income (GAAP)	$	21,909		$	19,047		$	17,202		$	40,956		$	35,081
Less: PPP net interest income recognized	(818)			(1,059)			(1,844)			(1,877)			(4,897)
Net interest income excluding PPP (non-GAAP)	21,091			17,988			15,358			39,079			30,184
Less: PA premium/discounts	(1,648)			(1,661)			(1,192)			(3,309)			(2,460)
Net interest income excluding PPP and PA (non-GAAP)	$	19,443		$	16,327		$	14,166		$	35,770		$	27,724
Average interest earning assets (GAAP)	2,572,318			2,599,372			2,447,242			2,585,771			2,218,056
Less: average PPP loans	(19,727)			(44,585)			(186,912)			(32,088)			(188,802)
Average interest earning assets, excluding PPP (non-GAAP)	2,552,591			2,554,787			2,260,330			2,553,683			2,029,254
Add: average PA marks	10,436			12,314			16,649			11,370			18,459
Average interest earning assets, excluding PPP and PA (non-GAAP)	$	2,563,027		$	2,567,101		$	2,276,979		$	2,565,053		$	2,047,713
Net interest margin (GAAP)	3.42		%	2.97		%	2.82		%	3.19		%	3.19		%
Net interest margin excluding PPP (non-GAAP)	3.31		%	2.86		%	2.73		%	3.09		%	3.00		%
Net interest margin excluding PPP and PA (non-GAAP)	3.04		%	2.58		%	2.50		%	2.81		%	2.73		%

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 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 Capital Transactions, and Business Combination Accounting. The Company has developed and is in the process of implementingdisclosure 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 June 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.

~~Table of Contents~~

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.

Table of Contents

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. ~~There are~~Other than as noted below, there have been no material changes to our risk factors as previously described under Item 1A of our ~~2020~~2021 Form 10-K.

Factors related to Merger and Acquisition Activity

On August 8, 2022, Professional Holding Corp. and Seacoast Banking Corporation of Florida (“Seacoast”) entered into an Agreement and Plan of Merger pursuant to which Professional will merge with and into Seacoast, with Seacoast as the surviving corporation, in an all-stock transaction. Risks associated with this transaction may include but not be limited to: (i) the risk that regulatory approval of the transaction will not be obtained or is obtained subject to conditions that are not anticipated or that cannot be satisfied, (ii) the possibility that our shareholders will not approve the transaction, (iii) the risk that a condition of closing may not be satisfied, and (iv) uncertainty as to whether and when the transaction is completed..

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 June 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, 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.

~~(c)~~

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

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

(a)Not applicable.

(b)Not applicable.

(c)Not applicable.

~~Table of Contents~~

program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. The purchases made during the three months ended June 30, 2021, are shown below:

Approximate Dollar

Value of Shares that

Total Number of

Average Price

May yet be Purchased
Periods

Shares Purchased

Paid per Share

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

443

16.99

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

55,229

17.95

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

137,617

17.86

6,537,348
Total - 2nd Quarter

193,289

$
17.88

$
6,537,348

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Table of Contents

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 CFO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.
31.3		Certification of the CAO pursuant to Sec. 301 of the Sarbanes Oxley Act of 2002.
32.1		Certification of the CEO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the CFO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3		Certification of the CAO pursuant to 18 USC Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Table of Contents

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 August 16, 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.~~

August 12, 2022.

Signature

Title

Date

~~/s/ Daniel R. Sheehan~~

~~Chairman and Chief Executive Officer~~

~~August 16, 2021~~

~~Daniel R. Sheehan~~

~~(Principal Executive Officer)~~

~~/s/ Mary Usategui~~

~~Chief Accounting Officer~~

~~August 16, 2021~~

~~Mary Usategui~~

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

~~/s/ Margaret Blakey~~

~~Director~~

~~August 16, 2021~~

~~Margaret Blakey~~

~~/s/ Rolando DiGasbarro~~

~~Director~~

~~August 16, 2021~~

~~Rolando DiGasbarro~~

~~/s/ Norman Edelcup~~

~~Director~~

~~August 16, 2021~~

~~Norman Edelcup~~

~~/s/ Carlos M. Garcia~~

~~Director~~

~~August 16, 2021~~

~~Carlos M. Garcia~~

~~/s/ Jon L. Gorney~~

~~Director~~

~~August 16, 2021~~

~~Jon L. Gorney~~

/s/ Abel L. Iglesias

~~Director~~

Chief Executive Officer

August ~~16, 2021~~

12, 2022

Abel L. Iglesias

(Principal Executive Officer)

/s/ ~~Herbert Martens, Jr~~

Mary Usategui

~~Director~~

Chief Financial Officer

August ~~16, 2021~~

12, 2022

~~Herbert Martens, Jr.~~

Mary Usategui

(Principal Financial Officer)

/s/ ~~Ava L. Parker~~

Jennifer Boyd

~~Director~~

Chief Accounting Officer

August ~~16, 2021~~

12, 2022

~~Ava L. Parker~~

Jennifer Boyd

(Principal Accounting Officer)

~~/s/ Lawrence Schimmel~~

~~Director~~

~~August 16, 2021~~

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


Part I	Financial Information			3
~~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	29

Item 3				Quantitative and Qualitative Disclosures About Market Risk	65 63

Item 4				Controls and Procedures	65 63

Part II				Other Information	66 64

Item 1				Legal Proceedings	66 64

Item 1A				Risk Factors	66 64

Item 2				Unregistered Sales of Equity Securities and Use of Proceeds	66 64

Item 3				Defaults Upon Senior Securities	67 64

Item 4				Mine Safety Disclosures	67 64

Item 5				Other Information	67 64

Item 6	Exhibits			~~Exhibits~~65		67


	June 30,		December 31,
	2021		2020
ASSETS
Cash and due from banks	$	29,803	$	62,305
Interest-bearing deposits		586,377		129,291
Federal funds sold		36,156		25,376
Cash and cash equivalents		652,336		216,972
Securities available for sale, at fair value - taxable		100,735		65,110
Securities available for sale, at fair value - tax exempt		19,761		22,398
Securities held to maturity (fair value June 30, 2021 – $1,296, December 31, 2020 – $1,561)		1,285		1,547
Equity securities		5,942		6,005
Loans, net of allowance of $10,418 and $16,259 as of June 30, 2021 and December 31, 2020, respectively		1,680,168		1,643,373
Loans held for sale		2,039		1,270
Federal Home Loan Bank stock, at cost		2,341		3,229
Federal Reserve Bank stock, at cost		4,954		4,762
Accrued interest receivable		5,449		6,666
Premises and equipment, net		4,000		4,370
Bank owned life insurance		37,923		37,360
Deferred tax asset		9,446		10,525
Goodwill		24,621		24,621
Core deposit intangibles		1,280		1,422
Other assets		8,738		7,640
Total assets	$	2,561,018	$	2,057,270
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – non-interest bearing	$	854,673	$	475,598
Demand – interest bearing		286,173		232,367
Money market and savings		874,637		715,003
Time deposits		261,680		236,575
Total deposits		2,277,163		1,659,543
Official checks		3,289		4,447
Federal Home Loan Bank advances		35,000		40,000
Other borrowings		—		114,573
Subordinated debt		10,062		10,153
Accrued interest and other liabilities		12,476		12,989
Total liabilities		2,337,990		1,841,705
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, NaN issued		—		—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,289,480 and outstanding 13,475,781 shares as of June 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares at December 31, 2020		143		141
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, NaN issued and outstanding at June 30, 2021 and December 31, 2020		—		—
Treasury stock, at cost		(13,544)		(9,209)
Additional paid-in capital		210,274		208,995
Retained earnings		25,872		14,756
Accumulated other comprehensive income (loss)		283		882
Total stockholders’ equity		223,028		215,565
Total liabilities and stockholders' equity	$	2,561,018	$	2,057,270


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest income
Loans, including fees	$	18,311	$	17,897	$	37,544	$	27,912
Investment securities - taxable		161		232		340		434
Investment securities - tax exempt		189		206		392		226
Dividend income on restricted stock		99		131		194		210
Other		202		56		264		760
Total interest income		18,962		18,522		38,734		29,542

Interest expense
Deposits		1,430		1,617		2,747		4,243
Federal Home Loan Bank advances		190		287		386		565
Subordinated debt		77		59		207		189
Other borrowings		63		268		313		193
Total interest expense		1,760		2,231		3,653		5,190

Net interest income		17,202		16,291		35,081		24,352
Provision for loan losses		762		1,750		1,800		2,595
Net interest income after provision for loan losses		16,440		14,541		33,281		21,757

Non-interest income
Service charges on deposit accounts		1,199		307		1,594		529
Income from Bank owned life insurance		281		126		563		255
SBA origination fees		—		84		145		114
SWAP fees		364		210		573		473
Third party loan sales		226		157		301		267
Gain on sale and call of securities		21		11		22		15
Other		211		73		223		171
Total non-interest income		2,302		968		3,421		1,824

Non-interest expense
Salaries and employee benefits		7,099		6,912		13,883		12,175
Occupancy and equipment		905		1,081		2,007		1,855
Data processing		276		421		566		597
Marketing		165		151		318		288
Professional fees		770		806		1,398		1,161
Acquisition expenses		—		560		684		2,223
Regulatory assessments		418		300		767		514
Other		1,321		1,317		3,119		2,221
Total non-interest expense		10,954		11,548		22,742		21,034

Income before income taxes		7,788		3,961		13,960		2,547
Income tax provision		1,457		830		2,844		733
Net income		6,331		3,131		11,116		1,814

Earnings per share:
Basic	$	0.47	$	0.23	$	0.83	$	0.16
Diluted	$	0.45	$	0.22	$	0.80	$	0.15

Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale		(505)		743		(794)		1,068
Tax effect		124		(188)		195		(271)
Other comprehensive gain (loss), net of tax		(381)		555		(599)		797
Comprehensive income	$	5,950	$	3,686	$	10,517	$	2,611


										Accumulated
						Additional				Other
	Common Stock			Treasury		Paid-in		Retained		Comprehensive
	Shares	Amount		Stock		Capital		Earnings		Income (Loss)		Total
Balance at April 1, 2020	13,537,565	$	138	$	(6,257)	$	201,670	$	5,134	$	169	$	200,854
Issuance of common stock, net of issuance cost	89,167		1		—		450		—		—		451
Employee stock purchase plan	—		—		—		27		—		—		27
Stock based compensation	—		—		—		296		—		—		296
Treasury stock	(182,097)		—		(2,875)		(5)		—		—		(2,880)
Net loss	—		—		—		—		3,131		—		3,131
Other comprehensive income	—		—		—		—		—		555		555
Balance at June 30, 2020	13,444,635	$	139	$	(9,132)	$	202,438	$	8,265	$	724	$	202,434

Balance at April 1, 2021	13,661,567	$	143	$	(10,087)	$	209,770	$	19,541	$	664	$	220,031
Issuance of common stock, net of issuance cost	8,359		—		—		107		—		—		107
Employee stock purchase plan	978		—		—		18		—		—		18
Stock based compensation	(1,834)		—		—		385		—		—		385
Treasury stock	(193,289)		—		(3,457)		(6)		—		—		(3,463)
Net income	—		—		—		—		6,331		—		6,331
Other comprehensive income	—		—		—		—		—		(381)		(381)
Balance at June 30, 2021	13,475,781	$	143	$	(13,544)	$	210,274	$	25,872	$	283	$	223,028

Balance at January 1, 2020	5,867,446	$	60	$	(4,155)	$	77,019	$	6,451	$	(73)	$	79,302
Issuance of common stock, net of issuance cost	3,664,667		37		—		60,221		—		—		60,258
Marquis Bancorp (MBI) acquisition	4,227,816		42		—		64,657		—		—		64,699
Employee stock purchase plan	—		—		—		58		—		—		58
Stock based compensation	—		—		—		492		—		—		492
Treasury stock	(315,294)		—		(4,977)		(9)		—		—		(4,986)
Net loss	—		—		—		—		1,814		—		1,814
Other comprehensive income	—		—		—		—		—		797		797
Balance at June 30, 2020	13,444,635	$	139	$	(9,132)	$	202,438	$	8,265	$	724	$	202,434

Balance at January 1, 2021	13,534,829	$	141	$	(9,209)	$	208,995	$	14,756	$	882	$	215,565
Issuance of common stock, net of issuance cost	61,204		1		—		543		—		—		544
Employee stock purchase plan	1,851		—		—		34		—		—		34
Stock based compensation	125,665		1		—		709		—		—		710
Treasury stock	(247,768)		—		(4,335)		(7)		—		—		(4,342)
Net income	—		—		—		—		11,116		—		11,116
Other comprehensive income	—		—		—		—		—		(599)		(599)
Balance at June 30, 2021	13,475,781	$	143	$	(13,544)	$	210,274	$	25,872	$	283	$	223,028


	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance on December 31, 2020	13,534,829	$	141	$	(9,209)	$	208,995	$	14,756	$	882	$	215,565

Employee stock purchase plan	1,851	—		—		34		—		—		34
Stock based compensation	—	1		—		709		—		—		710
Exercise of stock options	64,414	—		—		—		—		—		—
Restricted stock issued	122,455	1		—		543		—		—		544
Treasury stock	(247,768)	—		(4,335)		(7)		—		—		(4,342)
Net income	—	—		—		—		11,116		—		11,116
Other comprehensive income (loss)	—	—		—		—		—		(599)		(599)
Balance on June 30, 2021	13,475,781	$	143	$	(13,544)	$	210,274	$	25,872	$	283	$	223,028

Balance on December 31, 2021	13,446,400	$	144	$	(16,003)	$	212,012	$	36,120	$	(749)	$	231,524


Stock based compensation	—	—		—		2,230		—		—		2,230
Exercise of stock options	115,472	1		—		1,301		—		—		1,302
Restricted stock issued	190,753	2		—		(2)		—		—		—
Treasury stock	(10,244)	—		(198)		—		—		—		(198)
Net income	—	—		—		—		9,413		—		9,413
Other comprehensive income (loss)	—	—		—		—		—		(10,673)		(10,673)
June 30, 2022	13,742,381	$	147	$	(16,201)	$	215,541	$	45,533	$	(11,422)	$	233,598

Balance on March 31, 2021	13,661,567	$	143	$	(10,087)	$	209,770	$	19,541	$	664	$	220,031

Employee stock purchase plan	978	—		—		18		—		—		18
Stock based compensation expense	—	—		—		385		—		—		385
Exercise of stock options	8,359	—		—		—		—		—		—
Restricted stock issued	(1,834)	—		—		107		—		—		107
Treasury stock	(193,289)	—		(3,457)		(6)		—		—		(3,463)
Net income	—	—		—		—		6,331		—		6,331
Other comprehensive income (loss)	—	—		—		—		—		(381)		(381)
Balance on June 30, 2021	13,475,781	$	143	$	(13,544)	$	210,274	$	25,872	$	283	$	223,028

Balance on March 31, 2022	13,665,801	$	146	$	(16,201)	$	214,351	$	38,539	$	(7,062)	$	229,773


Stock based compensation expense	—	—		—		505		—		—		505
Exercise of stock options	55,807	1		—		685		—		—		686
Restricted stock issued	20,773	—		—		—		—		—		—

Net income	—	—		—		—		6,994		—		6,994
Other comprehensive income (loss)	—	—		—		—		—		(4,360)		(4,360)
Balance on June 30, 2022	13,742,381	$	147	$	(16,201)	$	215,541	$	45,533	$	(11,422)	$	233,598


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2021	Cost		Gains		Losses		Fair Value
Available-for-sale - taxable
Small Business Administration loan pools	$	43,091	$	78	$	(573)	$	42,596
Mortgage-backed securities		54,517		205		(182)		54,540
United States agency obligations		2,001		88		-		2,089
Corporate bonds		1,500		10		-		1,510
Total available-for-sale - taxable	$	101,109	$	381	$	(755)	$	100,735
Available-for-sale - tax exempt
Community Development District bonds	$	17,954	$	704	$	-	$	18,658
Municipals		1,057		46		-		1,103
Total available-for-sale - tax exempt	$	19,011	$	750	$	-	$	19,761

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Held-to-Maturity
Mortgage-backed securities	$	285	$	11	$	—	$	296
Foreign Bonds		1,000		—		—		1,000
Total Held-to-Maturity	$	1,285	$	11	$	—	$	1,296


	June 30, 2021
	Amortized		Fair
	Cost		Value
Available-for-sale
Due in one year or less	$	1,038	$	1,056
Due after one year through five years		21,159		21,975
Due after five years through ten years		315		329
Due after ten years		—		—
Subtotal	$	22,512	$	23,360

Small Business Administration loan pools	$	43,091	$	42,596
Mortgage-backed securities		54,517		54,540
Total available-for-sale	$	120,120	$	120,496

Held-to-maturity
Due in one year or less	$	1,000	$	1,000
Due after one year through five years		—		—
Subtotal	$	1,000	$	1,000

Mortgage-backed securities	$	285	$	296
Total held-to-maturity	$	1,285	$	1,296


	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
June 30, 2021
Available-for-sale - taxable
Small Business Administration loan pools	$	15,273	$	(427)	$	17,777	$	(146)	$	33,050	$	(573)
Mortgage-backed securities		14,648		(181)		1,286		(1)		15,934		(182)
United States agency obligations		—		—		—		—		—		—
Corporate bonds		—		—		—		—		—		—
Total available-for-sale - taxable	$	29,921	$	(608)	$	19,063	$	(147)	$	48,984	$	(755)
Available-for-sale - tax exempt
Community Development District bonds	$	—	$	—	$	—	$	—	$	—	$	—
Municipals		—		—		—		—		—		—
Total available-for-sale - tax exempt	$	—	$	—	$	—	$	—	$	—	$	—

December 31, 2020
Available-for-sale - taxable
Small Business Administration loan pools	$	18,849	$	(133)	$	8,945	$	(66)	$	27,794	$	(199)
Mortgage-backed securities		5,839		—		2,510		(30)		8,349		(30)
United States agency obligations		227		—		—		—		227		—
Corporate bonds		—		—		—		—		—		—
Total available-for-sale - taxable	$	24,915	$	(133)	$	11,455	$	(96)	$	36,370	$	(229)
Available-for-sale - tax exempt
Community Development District bonds	$	—	$	—	$	—	$	—	$	—	$	—
Municipals		—		—		—		—		—		—
Total available-for-sale - tax exempt	$	—	$	—	$	—	$	—	$	—	$	—


	June 30, 2021		December 31, 2020
Commercial real estate	$	875,453	$	777,776
Residential real estate		361,946		380,491
Commercial		373,333		396,642
Construction and land development		74,175		99,883
Consumer and other		14,575		11,688
Total loans		1,699,482		1,666,480
Unearned loan origination (fees) costs, net		(1,984)		(1,323)
Unearned PPP loan origination (fees) costs, net		(4,855)		(4,255)
Allowance for loan loss		(10,418)		(16,259)
Loans held for sale		(2,039)		(1,270)
Other		(18)		—
Loans, net	$	1,680,168	$	1,643,373


	30 – 59		60 – 89		Greater than
	Days		Days		89 Days				Total		Loans Not
	Past Due		Past Due		Past Due		Nonaccrual		Past Due		Past Due		Total
June 30, 2021
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	875,453	$	875,453
Residential real estate		—		—		—		—		—		361,946		361,946
Commercial		—		—		—		1,468		1,468		371,865		373,333
Construction and land development		—		—		—		—		—		74,175		74,175
Consumer and other		—		94		—		1,307		1,401		13,174		14,575
Total	$	—	$	94	$	—	$	2,775	$	2,869	$	1,696,613	$	1,699,482


			Special
(Dollars in thousands)	Pass		Mention		Substandard		Doubtful		Total
June 30, 2021
Commercial real estate	$	873,127	$	—	$	2,326	$	—	$	875,453
Residential real estate		361,946		—		—		—		361,946
Commercial		371,400		465		1,468		—		373,333
Construction and land development		74,175		—		—		—		74,175
Consumer		13,174		94		1,307		—		14,575
Total	$	1,693,822	$	559	$	5,101	$	—	$	1,699,482

December 31, 2020
Commercial real estate	$	775,420	$	—	$	2,356	$	—	$	777,776
Residential real estate		380,062		429		—		—		380,491
Commercial		387,403		112		9,127		—		396,642
Construction and land development		99,883		—		—		—		99,883
Consumer		10,381		—		1,307		—		11,688
Total	$	1,653,149	$	541	$	12,790	$	—	$	1,666,480


(Dollars in thousands)	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


							Construction
	Commercial		Residential				and land		Consumer
	Real Estate		Real Estate		Commercial		Development		and Other		Total
June 30, 2021
Allowance for loan losses:
Beginning balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259
Provision for loan losses		1,126		92		602		(27)		7		1,800
Loans charged-off		-		-		(7,641)		-		-		(7,641)
Recoveries		-		-		-		-		-		-
Total ending allowance balance	$	4,285	$	2,269	$	3,423	$	361	$	80	$	10,418


	For the Six Months Ended				For the Year Ended
	June 30, 2021				December 31, 2020
	Ending				Ending
(Dollars in thousands)	Balance		% of Total		Balance		% of Total
NOW accounts	$	286,173	12.6	%	$	232,367	14.0	%
Money market accounts		810,913	35.6	%		679,761	41.0	%
Brokered deposits		56,534	2.5	%		30,137	1.8	%
Savings accounts		11,814	0.5	%		9,727	0.6	%
Certificates of deposit		257,056	11.3	%		231,953	14.0	%
Total interest-bearing deposits		1,422,490	62.5	%		1,183,945	71.3	%
Noninterest-bearing deposits		854,673	37.5	%		475,598	28.7	%
Total deposits	$	2,277,163	100.0	%	$	1,659,543	100.0	%


			Over		Over Six
	Three		Three		Months
	Months or		Through		Through		Over
(Dollars in thousands)	Less		Six Months		12 Months		12 Months		Total
Time deposits of $250,000 or less	$	15,852	$	12,749	$	43,020	$	22,047	$	93,668
Time deposits of more than $250,000		23,302		24,537		85,376		34,797		168,012
Total	$	39,154	$	37,286	$	128,396	$	56,844	$	261,680


	June 30, 2021		December 31, 2020
Less than 1 year	$	204,836	$	177,178
Over 1 through 2 years		55,625		57,034
Over 2 through 3 years		1,179		1,658
Over 3 through 4 years		40		705
Over 4 through 5 years		-		-
Over 5 years		-		-
Total	$	261,680	$	236,575


	Six Months Ended			Year Ended
(Dollars in thousands)	June 30, 2021			December 31, 2020
Amount outstanding at period-end	$	35,000		$	40,000
Weighted average interest rate at period-end		2.04	%		1.96	%
Maximum month-end balance during period	$	40,000		$	70,000
Average balance outstanding during period		38,867			58,210
Weighted average interest rate during period		1.98	%		1.63	%


			Fair Value Measurements
			at June 30, 2021 Using:
					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
	Fair		Identical Assets		Inputs		Inputs
June 30, 2021	Value		(Level 1)		(Level 2)		(Level 3)
Available-for-sale - taxable
Small Business Administration loan pools	$	42,596	$	—	$	42,596	$	—
Mortgage-backed securities		54,540		—		54,540		—
United States agency obligations		2,089		—		2,089		—
Corporate bonds		1,510		—		1,510		—
Total	$	100,735	$	—	$	100,735	$	—
Available-for-sale - tax exempt
Community Development District bonds	$	18,658	$	—	$	18,658	$	—
Municipals		1,103		—		1,103		—
Total	$	19,761	$	—	$	19,761	$	—
Equity
Mutual funds	$	5,942	$	5,942	$	—	$	—
Total	$	5,942	$	5,942	$	—	$	—


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


	June 30, 2021
	Carrying		Fair		Fair Value
	Amount		Value		Hierarchy
Financial Assets:
Cash & Due from Banks, including interest bearing deposits	$	616,180	$	616,180	Level 1
Federal Funds Sold		36,156		36,156	Level 1
Securities, Available for Sale - taxable		101,109		100,735	Level 2
Securities, Available for Sale - tax exempt		19,011		19,761	Level 2
Securities, Held to Maturity		1,285		1,296	Level 2
Securities, Equity		5,942		5,942	Level 1
Loans, net		1,680,168		1,702,726	Level 3
Loans Held For Sale		2,039		2,039	Level 1
Bank Owned Life Insurance		37,923		37,923	Level 2
Accrued Interest Receivable		5,449		5,449	Level 1, 2 & 3
Customer Derivatives - Interest Rate SWAPs		863		863	Level 2

Financial Liabilities:
Deposits		2,277,163		2,246,864	Level 2
Federal Home Loan Bank Advances		35,000		33,671	Level 2
Subordinated Debt		10,062		10,062	Level 2
PPPLF Advances		—		—	Level 2
Loan Participations		—		—	Level 2
Customer Derivatives - Interest Rate SWAPs		863		863	Level 2
Accrued Interest Payable		267		267	Level 2


									Minimum to be well
	Actual				Minimum for capital adequacy				capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2021
Total capital ratio
Bank	$	198,836	12.8	%	$	124,003	8.0	%	$	155,004	10.0	%
Company		218,325	14.1	%		124,003	8.0	%		N/A	N/A
Tier 1 capital ratio
Bank		187,416	12.1	%		93,002	6.0	%		124,003	8.0	%
Company		196,844	12.7	%		93,002	6.0	%		N/A	N/A
Tier1 leverage ratio
Bank		187,416	7.4	%		101,368	4.0	%		126,710	5.0	%
Company		196,844	7.8	%		101,368	4.0	%		N/A	N/A
Common equity tier 1 capital ratio
Bank		187,416	12.1	%		69,752	4.5	%		100,753	6.5	%
Company		196,844	12.7	%		69,752	4.5	%		N/A	N/A


	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Operating Lease and Interest Cost	$	326	$	445	$	794	$	756
Variable Lease Cost		82		142		199		249
Total Lease Cost	$	408	$	587	$	993	$	1,005


	June 30, 2021
Operating lease payments due:
Within one year	$	1,400
After one but within two years		1,421
After two but within three years		1,296
After three but within four years		1,093
After four years but within five years		955
After five years		706
Total undiscounted cash flows		6,871
Discount on cash flows		(1,291)
Total operating lease liabilities	$	5,580


	For the Three Months Ended June 30,
	2021						2020
	Average		Interest				Average		Interest
	Outstanding		Income/		Average		Outstanding		Income/		Average
(Dollars in thousands)	Balance		Expense⁽⁴⁾		Yield/Rate		Balance		Expense⁽⁴⁾		Yield/Rate
Assets
Interest earning assets
Interest-bearing deposits	$	580,632	$	178	0.12	%	$	170,658	$	44	0.10	%
Federal funds sold		69,506		24	0.14	%		32,965		12	0.15	%
Federal Reserve Bank stock, FHLB stock and other corporate stock		7,391		99	5.37	%		7,598		131	6.93	%
Investment securities - taxable		70,137		161	0.92	%		88,365		241	1.10	%
Investment securities - tax exempt		20,172		189	3.76	%		20,973		197	3.78	%
Loans⁽¹⁾		1,699,403		18,311	4.32	%		1,501,590		17,897	4.79	%
Total interest earning assets		2,447,241		18,962	3.11	%		1,822,149		18,522	4.09	%
Loans held for sale		2,638						—
Noninterest earning assets		115,358						102,663
Total assets	$	2,565,237					$	1,924,812
Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits		1,377,712		1,430	0.42	%		994,972		1,617	0.65	%
Borrowed funds		56,347		330	2.35	%		230,516		614	1.07	%
Total interest-bearing liabilities		1,434,059		1,760	0.49	%		1,225,488		2,231	0.73	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		890,292						475,613
Other noninterest-bearing liabilities		17,690						19,540
Stockholders’ equity		223,196						204,171
Total liabilities and stockholders’ equity	$	2,565,237					$	1,924,812
Net interest spread⁽²⁾					2.62	%					3.36	%
Net interest income			$	17,202					$	16,291
Net interest margin⁽³⁾					2.82	%					3.60	%


	For the Three Months Ended June 30, 2021
	Compared to 2020
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest-bearing deposits	$	106	$	28	$	134
Federal funds sold		13		(1)		12
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock		(4)		(28)		(32)
Investment securities - taxable		(50)		(30)		(80)
Investment securities - tax exempt		(8)		—		(8)
Loans		2,358		(1,944)		414
Total	$	2,415	$	(1,975)	$	440
Interest expense
Interest-bearing deposits		622		(809)		(187)
Borrowed funds		(464)		180		(284)
Total	$	158	$	(629)	$	(471)


	Three Months Ended June 30,
					Increase
(Dollars in thousands)	2021		2020		(Decrease)
Noninterest expense
Salaries and employee benefits	$	7,099	$	6,912	2.7	%
Occupancy and equipment		905		1,081	(16.3)	%
Data processing		276		421	(34.4)	%
Marketing		165		151	9.3	%
Professional fees		770		806	(4.5)	%
Acquisition expenses		—		560	(100.0)	%
Regulatory assessments		418		300	39.3	%
Other		1,321		1,317	0.3	%
Total noninterest expense	$	10,954	$	11,548	(5.1)	%


	For the Six Months Ended June 30,
	2021						2020
	Average		Interest				Average		Interest
	Outstanding		Income/		Average		Outstanding		Income/		Average
(Dollars in thousands)	Balance		Expense⁽⁴⁾		Yield/Rate		Balance		Expense⁽⁴⁾		Yield/Rate
Assets
Interest earning assets
Interest-bearing deposits	$	380,989	$	224	0.12	%	$	173,907	$	629	0.73	%
Federal funds sold		56,955		40	0.14	%		33,954		131	0.78	%
Federal Reserve Bank stock, FHLB stock and other corporate stock		7,676		194	5.11	%		6,550		210	6.45	%
Investment securities - Taxable		69,968		340	0.98	%		68,085		454	1.34	%
Investment securities - Non-taxable		20,902		392	3.79	%		11,122		206	3.72	%
Loans⁽¹⁾		1,681,566		37,544	4.51	%		1,156,151		27,912	4.85	%
Total interest earning assets		2,218,056		38,734	3.53	%		1,449,769		29,542	4.10	%
Loans held for sale		1,999						1,186
Noninterest earning assets		122,420						80,730
Total assets	$	2,342,475					$	1,531,685
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits		1,293,693		2,747	0.43	%		879,749		4,243	0.97	%
Borrowed funds		101,129		906	1.81	%		146,828		947	1.30	%
Total interest-bearing liabilities		1,394,822		3,653	0.53	%		1,026,577		5,190	1.02	%
Noninterest-bearing liabilities
Noninterest-bearing deposits		708,215						332,474
Other noninterest-bearing liabilities		18,288						15,801
Shareholders’ equity		221,150						156,833
Total liabilities and shareholders’ equity	$	2,342,475					$	1,531,685
Net interest spread⁽²⁾					3.00	%					3.08	%
Net interest income			$	35,081					$	24,352
Net interest margin⁽³⁾					3.20	%					3.38	%


					More than One Year				More than Five Years
	One Year or Less				Through Five Years				Through 10 Years				More than 10 Years				Total
			Weighted				Weighted				Weighted				Weighted						Weighted
At June 30, 2021			Average				Average				Average				Average						Average
(Dollars in thousands)	Book Value		Yield		Book Value		Yield		Book Value		Yield		Book Value		Yield		Book Value		Fair Value		Yield
Securities Available for Sale - taxable
Small Business Administration loan pools	$	—	—	%	$	609	0.96	%	$	19,879	1.51	%	$	22,603	1.38	%	$	43,091	$	42,596	1.43	%
Mortgage-backed securities		—	—	%		—	—	%		6,361	0.74	%		48,156	1.27	%		54,517		54,540	1.21	%
United States agency obligations		998	2.54	%		1,003	2.66	%		—	—	%		—	—	%		2,001		2,089	2.60	%
Corporate bonds		—	—	%		1,500	1.18	%		—	—	%		—	—	%		1,500		1,510	1.18	%
Total	$	998	2.54	%	$	3,112	1.61	%	$	26,240	1.32	%	$	70,759	1.31	%	$	101,109	$	100,735	1.33	%
Securities Available for Sale - tax exempt
Community Development District bonds	$	40	4.00	%	$	17,599	3.87	%	$	315	3.00	%	$	—	—	%	$	17,954	$	18,658	3.86	%
Municipals		—	—	%		1,057	1.75	%		—	—	%		—	—	%		1,057		1,103	1.75	%
Total	$	40	4.00	%	$	18,656	3.75	%	$	315	3.00	%	$	—	—	%	$	19,011	$	19,761	3.74	%
Securities Held to Maturity
Mortgage-backed securities		—	—	%		—	—	%		—	—	%		285	2.57	%		285		296	2.57	%
United States Treasury		—	—	%		—	—	%		—	—	%		—	—	%		—		—	—	%
Foreign Bonds		1,000	0.47	%		—	—	%		—	—	%		—	—	%		1,000		1,000	0.47	%
Total	$	1,000	0.47	%	$	—	—	%	$	—	—	%	$	285	2.57	%	$	1,285	$	1,296	0.93	%
Equity Securities
Mutual Funds		5,942	1.13	%		—	—	%		—	—	%		—	—	%		5,942		5,942	1.13	%
Total	$	5,942	1.13	%	$	—	—	%	$	—	—	%	$	—	—	%	$	5,942	$	5,942	1.13	%


	One Year or Less				More than One Year Through Five Years				More than Five Years Through 10 Years				More than 10 Years				Total
On June 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
SBA loan pools	$	—	—	%	$	373	1.02	%	$	17,932	1.59	%	$	17,050	1.73	%	$	35,355	$	34,946	1.65	%
Mortgage-backed securities	—		—	%	570		1.10	%	4,360		1.04	%	133,736		1.76	%	138,666		125,137		1.74	%
United States agency obligations	—		—	%	1,002		2.66	%	1,943		1.31	%	—		—	%	2,945		2,767		1.77	%
Corporate bonds	1,500		3.15	%	—		—	%	—		—	%	—		—	%	1,500		1,504		3.15	%
Total	$	1,500	3.15	%	$	1,945	1.89	%	$	24,235	1.47	%	$	150,786	1.76	%	$	178,466	$	164,354	1.73	%
Available for Sale - tax-exempt
CDD bonds	$	3,940	4.13	%	$	20,909	4.07	%	$	640	3.50	%	$	—	—	%	$	25,489	$	24,432	4.07	%
Municipals	—		—	%	1,044		2.27	%	2,110		4.20	%	—		—	%	3,154		3,021		3.56	%
Total	$	3,940	4.13	%	$	21,953	3.98	%	$	2,750	4.04	%	$	—	—	%	$	28,643	$	27,453	4.01	%
Held to Maturity
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	204		2.89	%	204		197		2.89	%


Total	$	—	—	%	$	—	—	%	$	—	—	%	$	204	2.89	%	$	204	$	197	2.89	%
Equity Securities
Mutual Funds	5,502		1.35	%	—		—	%	—		—	%	—		—	%	5,502		5,502		1.35	%
Other equity securities	857		—	%	—		—	%	—		—	%	—		—	%	857		857		—	%
Total	$	6,359	1.17	%	$	—	—	%	$	—	—	%	$	—	—	%	$	6,359	$	6,359	1.17	%


	As of June 30, 2021				As of December 31, 2020
(Dollars in thousands)	Amount		Percent		Amount		Percent
Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	28,055	3.2	%	$	22,483	2.9	%
Educational Facility		32,979	3.8	%		14,328	1.8	%
Gas Station		70,053	8.0	%		64,162	8.2	%
Hotel		61,887	7.1	%		54,324	7.0	%
Mixed Use		36,756	4.2	%		29,987	3.9	%
Multifamily		118,978	13.6	%		98,837	12.7	%
Office		106,333	12.1	%		111,850	14.4	%
Other / Special Use		43,467	5.0	%		41,739	5.4	%
Religious Facility		8,175	0.9	%		8,450	1.1	%
Retail		215,402	24.6	%		192,105	24.7	%
Vacant Land		7,491	0.9	%		7,847	1.0	%
Warehouse		145,877	16.7	%		131,664	16.9	%
Total	$	875,453	100.0	%	$	777,776	100.0	%