Professional Holding Corp. - Quarter Report: 2022 March (Form 10-Q)

Ta b le of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

the Securities Exchange Act of 1934

(Mark One)

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

For the quarterly period ended March 31, 2022

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

For the transition period from ___________ to ___________


For the quarterly period ended						Commission file
March 31, 2022						number 001-39215

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


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

396 Alhambra Circle, Suite 255,

Coral Gables, FL 33134 786 483-1757

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

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

Title of each class:

Trading Symbol

Name of each exchange on which registered:

Class A Common Stock

PFHD

NASDAQ Global Select Market

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

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

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


Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	x	Smaller reporting company	x

		Emerging growth company	x

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

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

Number of shares of common stock outstanding as of May 6, 2022: 13,746,458

Ta b le of Contents

TABLE OF CONTENTS


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	28

Item 3	Quantitative and Qualitative Disclosures About Market Risk	56

Item 4	Controls and Procedures	56

Part II	Other Information	57

Item 1	Legal Proceedings	57

Item 1A	Risk Factors	57

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3	Defaults Upon Senior Securities	58

Item 4	Mine Safety Disclosures	58

Item 5	Other Information	58

Item 6	Exhibits	59

Ta b le 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)


	March 31, 2022		December 31, 2021
ASSETS
Cash and due from banks	$	45,792	$	38,469
Interest earning deposits	671,845		545,521
Federal funds sold	24,089		13,477
Cash and cash equivalents	741,726		597,467
Securities available for sale, at fair value - taxable	175,758		175,536
Securities available for sale, at fair value - tax-exempt	30,446		18,765
Securities held to maturity (fair value March 31, 2022 – $214, December 31, 2021 – $242)	218		236
Equity securities	6,439		6,638
Loans, net of allowance of $13,555 and $12,704 as of March 31, 2022 and December 31, 2021, respectively	1,809,161		1,764,460
Loans held for sale	988		165
Premises and equipment, net	8,499		9,020
Bank owned life insurance	38,758		38,485
Goodwill and intangibles	25,698		25,766
Other assets	29,534		27,573
Total assets	$	2,867,225	$	2,664,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – non-interest bearing	$	871,357	$	674,003
Demand – interest bearing	356,600		310,362
Money market and savings	1,103,472		1,121,330
Time deposits	255,848		265,693
Total deposits	2,587,277		2,371,388
Federal Home Loan Bank advances	5,000		35,000
Official checks	6,144		4,125
Other borrowings	—		10,000
Subordinated debt	24,409		—
Accrued interest and other liabilities	14,622		12,074
Total liabilities	2,637,452		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 14,623,395 and outstanding 13,665,801 shares as of March 31, 2022, and authorized 50,000,000 shares, issued 14,393,750 and outstanding 13,446,400 shares at December 31, 2021	146		144
Class B Non-Voting Common stock, $0.01par value; 10,000,000 shares authorized, none issued and outstanding on March 31, 2022 and December 31, 2021	—		—
Treasury stock, at cost	(16,201)		(16,003)
Additional paid-in capital	214,351		212,012
Retained earnings	38,539		36,120
Accumulated other comprehensive income (loss)	(7,062)		(749)
Total stockholders’ equity	229,773		231,524
Total liabilities and stockholders' equity	$	2,867,225	$	2,664,111

See accompanying notes to consolidated financial statements.

Ta b le of Contents

PROFESSIONAL HOLDING CORP.

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

(Dollar amounts in thousands, except share data)


	Three Months Ended
		2022		2021
Interest income
Loans, including fees		$	19,780	$	19,233
Investment securities - taxable		638		179
Investment securities - tax-exempt		213		203
Dividend income on restricted stock		97		95
Other		294		62
Total interest income		21,022		19,772

Interest expense
Deposits		1,586		1,317
Federal Home Loan Bank advances		134		196
Subordinated debt		232		130
Other borrowings		23		250
Total interest expense		1,975		1,893

Net interest income		19,047		17,879
Provision for loan losses		851		1,038
Net interest income after provision for loan losses		18,196		16,841

Non-interest income
Service charges on deposit accounts		517		395
Income from bank owned life insurance		273		282
SBA origination fees		—		145
Swap fee income		112		209
Loans held for sale income		71		75
Gain on sale and call of securities		—		1
Other		300		12
Total non-interest income		1,273		1,119

Non-interest expense
Salaries and employee benefits		11,220		6,784
Occupancy and equipment		1,002		1,102
Data processing		314		290
Marketing		196		153
Professional fees		919		628
Acquisition expenses		—		684
Regulatory assessments		549		349
Other		2,295		1,798
Total non-interest expense		16,495		11,788

Income before income taxes		2,974		6,172
Income tax provision		555		1,387
Net income		$	2,419	$	4,785

Earnings per share:
Basic		$	0.18	$	0.36
Diluted		$	0.17	$	0.34

Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale		$	(8,468)	$	(289)
Tax effect		2,155		71
Other comprehensive gain (loss), net of tax		(6,313)		(218)
Comprehensive income (loss)		$	(3,894)	$	4,567

See accompanying notes to consolidated financial statements.

Ta b le of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Dollar amounts in thousands, except share data)


	Common Stock			Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount


















Balance on December 31, 2020	13,534,829	$	141	$	(9,209)	$	208,995	$	14,756	$	882	$	215,565

Employee stock purchase plan	873	—		—		16		—		—		16
Stock based compensation expense	—	—		—		324		—		—		324
Exercise of stock options	52,845	1		—		436		—		—		437
Restricted stock issued	127,499	1		—		—		—		—		1
Treasury stock, net of reissuance	(54,479)	—		(878)		(1)		—		—		(879)
Net income	—	—		—		—		4,785		—		4,785
Other comprehensive income (loss)	—	—		—		—		—		(218)		(218)
Balance on March 31, 2021	13,661,567	$	143	$	(10,087)	$	209,770	$	19,541	$	664	$	220,031

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


Stock based compensation expense	—	—		—		1,724		—		—		1,724
Exercise of stock options	58,998	1		—		616		—		—		617
Restricted stock issued	170,647	1		—		(1)		—		—		—
Treasury stock, net of reissuance	(10,244)	—		(198)		—		—		—		(198)
Net income	—	—		—		—		2,419		—		2,419
Other comprehensive income (loss)	—	—		—		—		—		(6,313)		(6,313)
Balance on March 31, 2022	13,665,801	$	146	$	(16,201)	$	214,351	$	38,539	$	(7,062)	$	229,773

See accompanying notes to consolidated financial statements

Ta b le of Contents

PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollar amounts in thousands, except share data)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net income	$	2,419	$	4,785
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	851		1,038
Amortization of purchase accounting adjustments	(1,629)		(1,255)

Depreciation and amortization	616		995

Gain on call of securities	—		(1)
Equity unrealized change in market value	199		91
Net amortization of securities	386		568
Net amortization of deferred loan fees	(1,534)		(2,802)
Originations of loans held for sale	(5,226)		(2,338)
Proceeds from sales of loans held for sale	4,403		—
Income from bank-owned life insurance	(273)		(282)
Loss on disposal of premises and equipment	—		137
Employee stock purchase plan	—		16
Stock compensation	2,339		325
Changes in operating assets and liabilities:
Accrued interest payable (receivable)	(253)		155
Other assets	(34)		(2,136)
Official checks, accrued interest, interest payable and other liabilities	4,605		(113)
Net cash provided by (used in) operating activities	6,869		(817)

Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale	7,870		5,733
Proceeds from calls of securities available for sale	—		1,514
Proceeds from paydowns of securities held to maturity	17		29
Purchase of securities available for sale	(28,626)		—


Loans originations, net of principal repayments	(42,480)		(70,834)

Redemption of Federal Reserve Bank stock	(312)		—
Purchase of Federal Home Loan Bank Stock	—		(182)
Net redemption of Federal Home Loan Bank Stock	793		700

Purchases of premises and equipment, net	(128)		(779)

Net cash used in investing activities	(62,866)		(63,819)

Cash flows from financing activities
Net increase in deposits	216,012		246,462
Proceeds from issuance of stock, net of issuance costs	2		437

Purchase of treasury stock	(198)		(879)

Repayments of Federal Home Loan advances	(30,000)		—
Net proceeds from issuance of subordinated notes payable	24,440		—


Repayment of line of credit	(10,000)		—

Repayments of PPPLF advances	—		(74,627)
Net cash provided by financing activities	200,256		171,393

Ta b le of Contents


Increase in cash and cash equivalents	144,259		106,757
Cash and cash equivalents at beginning of period	597,467		216,972
Cash and cash equivalents at end of period	$	741,726	$	323,729

Supplemental cash flow information:
Cash paid during the period for interest	$	2,135	$	2,203
Cash paid during the period for taxes	7,491		—

Supplemental noncash disclosures:
Recognition of participation loans as secured borrowings	$	—	$	732

See accompanying notes to consolidated financial statements

Ta b le of Contents

PROFESSIONAL HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tables in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying unaudited consolidated financial statements of Professional Holding Corp. and its subsidiary, Professional Bank (the “Bank” and collectively with Professional Holding Corp., the “Company”), have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, 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 three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 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.

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 2022-02, Financial Instruments – Credit Losses (Topic 326)
Description			In March 2022, FASB issued ASU 2022-02 which eliminates the guidance on troubled debt restructurings and requires entities to evaluate all loan modifications to determine if they result in a new loan or a continuation of the existing loan. ASU 2022-02 also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases.
Date of Adoption			ASU 2022-02 is effective January 1, 2023.
Effect on the Consolidated Financial Statements			This ASU will have an impact on our financial statement disclosures.

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

Ta b le of Contents

dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding plus the effect of employee stock options during the year.


	Three Months Ended
(Dollar amounts in thousands, except per share data)		March 31, 2022		March 31, 2021
Basic earnings per share:
Net income		$	2,419	$	4,785
Total weighted average common stock outstanding		13,345,565		13,442,359
Net income per share		$	0.18	$	0.36
Diluted earnings per share:
Net income		$	2,419	$	4,785
Total weighted average common stock outstanding		13,345,565		13,442,359
Add: dilutive effect of employee restricted stock and options		613,807		478,915
Total weighted average diluted stock outstanding		13,959,372		13,921,274
Net income per share		$	0.17	$	0.34

Anti-dilutive restricted stock and options		36,422		403,000

NOTE 3 — SECURITIES

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity on March 31, 2022, and December 31, 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
March 31, 2022
Available for sale - taxable
Small Business Administration loan pools	$	37,713	$	15	$	(529)	$	37,199
Mortgage-backed securities	142,815		1		(8,601)		134,215
United States agency obligations	2,943		6		(116)		2,833
Corporate bonds	1,500		11		—		1,511
Total available for sale - taxable	$	184,971	$	33	$	(9,246)	$	175,758
Available for sale - tax-exempt
Community Development District bonds	$	29,645	$	194	$	(428)	$	29,411
Municipals	1,047		—		(12)		1,035
Total available for sale - tax-exempt	$	30,692	$	194	$	(440)	$	30,446

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Held to Maturity
Mortgage-backed securities	$	218	$	1	$	(5)	$	214


Total Held to Maturity	$	218	$	1	$	(5)	$	214

Ta b le of Contents


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
Equity
Mutual Funds	$	5,639	$	—	$	—	$	5,639
Other equity securities	800		—		—		800
Total Equity	$	6,439	$	—	$	—	$	6,439


(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	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
Mortgage backed securities	$	236	$	6	$	—	$	242


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


	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 March 31, 2022, and December 31, 2021, corporate bonds were comprised of investments in the financial services industry. During the three months ended March 31, 2022, the net investment portfolio increased by $11.7 million primarily due to purchases of approximately $28.6 million in mortgage-backed securities ("MBS") and community development district bonds ("CDD"), partially offset by $8.2 million in investment calls, redemptions and paydowns, coupled with unrealized losses of $8.5 million during the quarter with a related tax effect of $2.2 million. Proceeds from the maturity and redemption of securities during the three months ended March 31, 2022, were $8.2 million, with no gross realized gains or losses. Proceeds from the maturity and redemption of securities during the three months ended March 31, 2021, were $1.5 million, with gross realized gains of $1 thousand. Total securities pledged as of March 31, 2022, and December 31, 2021, were $2.1 million and $2.4 million, respectively, which included securities pledged for derivative swap transactions and pledged for public funds.

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

Ta b le of Contents

Securities not due at a single maturity date are shown separately. The scheduled maturities of securities as of March 31, 2022, are as follows:


	March 31, 2022
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale
Due in one year or less	$	5,734	$	5,716
Due after one year through five years	22,236		22,208
Due after five years through ten years	7,165		6,866
Due after ten years	—		—
Subtotal	$	35,135	$	34,790

Small Business Administration loan pools	$	37,713	$	37,199
Mortgage-backed securities	142,815		134,215
Total available for sale	$	215,663	$	206,204

Held to maturity




Mortgage-backed securities	$	218	$	214
Total held to maturity	$	218	$	214

Ta b le of Contents

On March 31, 2022, and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity. On March 31, 2022, and December 31, 2021, the number of investment positions that are in an unrealized loss position were 155 and 92, respectively.

The tables below indicate the fair value of debt securities with unrealized losses and for the period of time of which these losses were outstanding on March 31, 2022, and December 31, 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
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2022
Available for sale - taxable
Small Business Administration loan pools	$	19,363	$	(371)	$	13,711	$	(158)	$	33,074	$	(529)
Mortgage-backed securities	132,409		(8,412)		1,637		(189)		134,046		(8,601)
United States agency obligations	1,824		(116)		—		—		1,824		(116)

Total available for sale - taxable	$	153,596	$	(8,899)	$	15,348	$	(347)	$	168,944	$	(9,246)
Available for sale - tax-exempt
Community Development District bonds	$	14,788	$	(428)	$	—	$	—	$	14,788	$	(428)
Municipals	1,036		(12)		—		—		1,036		(12)
Total available for sale - tax-exempt	$	15,824	$	(440)	$	—	$	—	$	15,824	$	(440)

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. No credit losses were recognized during the three months ended March 31, 2022, or 2021.

Ta b le of Contents

NOTE 4 — LOANS

Loans on March 31, 2022, and December 31, 2021, were as follows:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Loans held for investment:
Commercial real estate	$	931,904	$	902,654
Residential real estate	381,182		377,511
Commercial (non-PPP)	357,124		325,415
Commercial (PPP)	31,097		58,615
Construction and land development	98,984		91,520
Consumer and other	22,425		21,449
Total loans held for investment, gross	1,822,716		1,777,164
Allowance for loan losses	(13,555)		(12,704)
Loans held for investment, net	$	1,809,161	$	1,764,460

Loans held for sale:
Loans held for sale	$	988	$	165
Total loans held for sale	$	988	$	165

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

On March 31, 2022, and December 31, 2021, there were $236.6 million and $235.3 million, respectively in total loans pledged to the Federal Home Loan Bank (“FHLB”).

Loan premiums for loans purchased are amortized over the life of the loan with acceleration upon the increase in principal paydowns or payoffs. On March 31, 2022, and December 31, 2021, loan premiums for purchased loans were $0.3 million and $0.4 million, respectively.

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

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


(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
March 31, 2022
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	931,904	$	931,904
Residential real estate	—		—		—		—		—		381,182		381,182
Commercial (non-PPP)	430		—		—		1,468		1,898		355,227		357,124
Commercial (PPP)	—		163		—		—		163		30,934		31,097
Construction and land development	—		—		—		—		—		98,984		98,984
Consumer and other	—		—		—		654		654		21,771		22,425
Total	$	430	$	163	$	—	$	2,122	$	2,715	$	1,820,002	$	1,822,716

Ta b le of Contents


(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 $14 thousand and $55 thousand as of March 31, 2022, and December 31, 2021, respectively. The Company has allocated no specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2022, and December 31, 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: 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

Ta b le of Contents

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

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:


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2022
Commercial real estate	$	929,624	$	—	$	2,280	$	—	$	931,904
Residential real estate	381,182		—		—		—		381,182
Commercial (non-PPP)	355,565		91		1,468		—		357,124
Commercial (PPP)	31,097		—		—		—		31,097
Construction and land development	98,984		—		—		—		98,984
Consumer	21,693		78		—		654		22,425
Total	$	1,818,145	$	169	$	3,748	$	654	$	1,822,716

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

Ta b le of Contents

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)	March 31, 2022		December 31, 2021
Commercial real estate	$	5,822	$	5,845
Residential real estate	—		89
Commercial	205		410
Construction and development	—		—
Consumer and other loans	—		—
Carrying amount	$	6,027	$	6,344

Accretable yield for all purchased credit impaired loans were as follows for the three months ended March 31, 2022:


(Dollars in thousands)	2022		2021
Balance at January 1	(573)		(630)
New loans purchased	—		—
Adjustment of income	—		—
Accretion	77		89
Reclassifications from nonaccretable difference	(303)		—
Disposals	373		—
Balance on March 31	$	(426)	$	(541)

For those purchased credit impaired loans disclosed above, no allowances for loan losses were recorded or reversed during the three months ended March 31, 2022.

Non-Performing Assets

As of March 31, 2022, the Company had nonperforming assets of $2.1 million, or 0.07% of total assets, compared to nonperforming assets of $2.1 million, or 0.08% of total assets, on December 31, 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. There were no charge-offs for the three months ended March 31, 2022, compared to a partial charge-off of $7.6 million for the three months ended March 31, 2021 on a commercial loan that was previously reserved during the three months ended September 2020.

Ta b le of Contents

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 months ended March 31, 2022, and 2021.


(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
March 31, 2022
Allowance for loan losses:
Beginning balance	$	4,471	$	2,339	$	4,637	$	471	$	786	$	12,704
Provision for loan losses	264		43		496		40		8		851
Loans charged-off	—		—		—		—		—		—
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	4,735	$	2,382	$	5,133	$	511	$	794	$	13,555


(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
March 31, 2021
Allowance for loan losses:
Beginning balance	$	3,159	$	2,177	$	10,462	$	388	$	73	$	16,259
Provision for loan losses	323		11		700		16		(12)		1,038
Loans charged-off	—		—		(7,641)		—		—		(7,641)
Recoveries	—		—		—		—		—		—
Total ending allowance balance	$	3,482	$	2,188	$	3,521	$	404	$	61	$	9,656

Ta b le of Contents


(Dollars in thousands)	Commercial Real Estate		Residential Real Estate		Commercial		Construction and Land Development		Consumer and Other		Total
March 31, 2022
Allowance for loan losses:
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	—	$	—	$	689	$	—	$	654	$	1,343
Purchased Credit Impaired (PCI) loans	—		—		—		—		—		—
Collectively evaluated for impairment	4,735		2,382		4,444		511		140		12,212
Total ending allowance balance	$	4,735	$	2,382	$	5,133	$	511	$	794	$	13,555

Loans:
Loans individually evaluated for impairment	$	2,280	$	—	$	1,468	$	—	$	654	$	4,402
Loans collectively evaluated for impairment	929,624		381,182		386,753		98,984		21,771		1,818,314
Total ending loans balance	$	931,904	$	381,182	$	388,221	$	98,984	$	22,425	$	1,822,716

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

NOTE 6 — DEPOSITS

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


	March 31, 2022			December 31, 2021
(Dollars in thousands)	Ending Balance		% of Total	Ending Balance		% of Total
NOW accounts	$	356,600	13.8%	$	310,362	13.1%
Money market accounts	1,037,795		40.1%	1,055,033		44.5%
Brokered deposits	57,908		2.2%	58,365		2.5%
Savings accounts	12,397		0.5%	12,558		0.5%
Certificates of deposit	251,220		9.7%	261,067		11.0%
Total interest-bearing deposits	1,715,920		66.3%	1,697,385		71.6%
Noninterest-bearing deposits	871,357		33.7%	674,003		28.4%
Total deposits	$	2,587,277	100.0%	$	2,371,388	100.0%

_______________________________________________

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

Ta b le of Contents

The following table presents the maturities of our time deposits including time deposits that meet or exceed the $250,000 FDIC insurance limit as of March 31, 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	$	26,833	$	35,643	$	21,692	$	4,452	$	88,620
Time deposits of more than $250,000	55,027		64,859		44,322		3,020		167,228
Total	$	81,860	$	100,502	$	66,014	$	7,472	$	255,848

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, 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 March 31, 2022, and December 31, 2021, the Company had time deposits that exceed the $250,000 FDIC insurance limit of $167.2 million and $172.5 million, respectively. Securities, mortgage loans or other financial instruments pledged as collateral for certain deposits were $28.7 million, and $28.7 million on March 31, 2022, and December 31, 2021, respectively. The aggregate amount of demand deposits that have been re-classified as loan balances on March 31, 2022, and December 31, 2021, were $0.8 million, and $0.4 million, respectively. Deposits from principal officers, directors and their affiliates at March 31, 2022, and December 31, 2021, were $16.1 million and $18.9 million, respectively.

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


(Dollars in thousands)	March 31, 2022		December 31, 2021
1 year or less	$	248,376	$	258,302
Over 1 through 2 years	7,345		6,669
Over 2 through 3 years	127		722
Over 3 through 4 years	—		—
Over 4 through 5 years	—		—
Over 5 years	—		—
Total	$	255,848	$	265,693

Banks may be required to maintain cash reserves in the form of vault cash or in an account with the Federal Reserve Bank or in noninterest-earning accounts with other qualified banks. This requirement is based on the Bank’s amount of transaction deposit accounts. Due to the amount of transaction deposit accounts, the Bank was not required to have cash reserve requirements on March 31, 2022, and December 31, 2021. Additionally, the Company had $89.3 million and $84.4 million, in Qualified Public Deposits (“QPD”) that require a portion of the deposit to be pledged as collateral as of March 31, 2022, and December 31, 2021.

NOTE 7 — DEBT AND BORROWINGS

Subordinated Debt.

On January 13, 2022, the Company 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 3.38% for the first five years and will reset quarterly thereafter to the then current three-month Secured Overnight Financing Rate (SOFR) plus 203 basis points. The Notes are

Ta b le of Contents

redeemable by the Company at its option, in whole or in part, on or after the fifth anniversary of the issue date. The Company used the net proceeds from the sale of the subordinate notes for general corporate purposes.

Valley National Line of Credit.

The Company maintains a $25.0 million secured revolving line of credit with Valley National Bank, N.A with a maturity date of March 1, 2023. Amounts drawn under this line of credit bears 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 March 31, 2022, and December 31, 2021, there were $0 and $10.0 million outstanding borrowings under this line of credit.

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 March 31, 2022, approximately $236.6 million in total loans were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of March 31, 2022, we had $5.0 million in outstanding advances, $28.7 million in outstanding letters of credit, and $145.2 million in additional available borrowing capacity from the FHLB based on the collateral that we have currently pledged.


(Dollars in thousands)	March 31, 2022		December 31, 2021
Amount outstanding at period-end	$	5,000	$	35,000
Weighted average interest rate at period-end	0.81%		2.04%
Maximum month-end balance during period	$	35,000	$	35,000
Average balance outstanding during period	$	26,333	$	36,918
Weighted average interest rate during period	2.04%		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. There were no advances outstanding under this facility as of March 31, 2022 and December 31, 2021.

NOTE 8 — 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 March 31, 2022, there are 50,000,000 shares authorized as Class A voting common stock of which 13,665,801 are outstanding. During the three months ended March 31, 2022, the Company issued 230,312 shares of Class A voting common stock, inclusive of 170,647 shares of restricted stock grants and 59,665 shares of options exercised.

During the three months ended March 31, 2022, treasury shares increased 10,244 in connection with the net settlement of equity awards exercised or vested for tax purposes and had 667 in restricted stock cancellations. During the three months ended March 31, 2021, the Company repurchased 54,479 shares of Class A voting common stock, inclusive of 3,210 shares in connection with the net settlement of equity awards exercised or vested for tax purposes. The Company did not repurchase any shares for the three months ended March 31, 2022.

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 March 31, 2022, and December 31, 2021, there are 10,000,000 shares authorized as Class B non-voting common stock, none of which were outstanding.

Ta b le of Contents

Preferred Stock

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

NOTE 9 — FAIR VALUE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ta b le of Contents

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

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

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

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

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

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

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

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 March 31, 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	$	37,199	$	—	$	37,199	$	—
Mortgage-backed securities	134,215		—		134,215		—
United States agency obligations	2,833		—		2,833		—
Corporate bonds	1,511		—		1,511		—
Securities available for sale - tax-exempt
Community Development District bonds	29,411		—		29,411		—
Municipals	1,035		—		1,035		—
Equity securities
Mutual funds	$	5,639	$	5,639	$	—	$	—
Other equity securities	800		800		—		—
Loans held for sale	$	988	$	988	$	—	$	—
Customer derivatives - interest rate swaps	$	1,912	$	—	$	1,912	$	—

LIABILITIES:
Customer derivatives - interest rate swaps	$	1,912	$	—	$	1,912	$	—

Ta b le of Contents


			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	$	—	$	—
Other Equity Securities	800		800		—		—
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	$	—

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.

Ta b le of Contents

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


			Fair Value Measurements on March 31, 2022 Using:
(Dollars in thousands)	Total at March 31, 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	779		—		—		779		(689)
Construction and land development	—		—		—		—		—
Consumer and other	—		—		—		—		(654)
Total	$	779	$	—	$	—	$	779	$	(1,343)


			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)

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.

Ta b le of Contents

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


	March 31, 2022
(Dollars in thousands)	Carrying Amount		Fair Value		Fair Value Hierarchy
Financial Assets:
Cash & due from banks, including interest bearing deposits	$	717,637	$	717,637	Level 1
Federal funds sold	24,089		24,089		Level 1
Securities, available for sale - taxable	184,971		175,758		Level 2
Securities, available for sale - tax-exempt	30,692		30,446		Level 2
Securities, held to maturity	218		214		Level 2
Securities, equity	5,639		5,639		Level 1
Securities, other equity	800		800		Level 1
Loans, net	1,809,161		1,816,008		Level 3
Loans held for sale	988		988		Level 1
Bank owned life insurance	38,758		38,758		Level 2
Customer derivatives - interest rate swaps	1,912		1,912		Level 2
Accrued interest receivable	5,525		5,525		Level 1, 2 & 3

Financial Liabilities:
Deposits	$	2,587,277	$	2,475,854	Level 2
Federal Home Loan Bank advances	5,000		4,989		Level 2
Subordinated debt	24,409		24,409		Level 2



Customer derivatives - interest rate swaps	1,912		1,912		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

Ta b le of Contents

NOTE 10 — CUSTOMER DERIVATIVES — INTEREST RATE SWAPS

During the first quarter of 2021, the Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a swap dealer. These back-to-back swap agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. The swaps are not designated as hedges under FASB ASC Topic 815, Derivatives and Hedging, and are marked to market through earnings. As the swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC Topic 820, Fair Value Measurement and Disclosure (“ASC 820”). As of March 31, 2022, the Company recorded 14 swap transactions with clients having a total notional amount of $58.6 million, offset by 14 swap transactions with dealers having a total notional amount of $58.6 million. Additionally, we recorded $0.1 million in back-to-back swap fee income. The fair value of these derivatives is based on a market standard discounted cash flow approach. The Company incorporates credit value adjustments on derivatives to properly reflect the respective counterparty’s nonperformance risk in the fair value measurements of its derivatives. As of March 31, 2022, the Bank’s asset fair value position in other assets was $1.9 million and liability fair value position in other liabilities was $1.9 million, and were fully collateralized with pledged securities held with the counterparty in excess of the exposure amount at quarter end.

NOTE 11 — 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 March 31, 2022, Pro Opp Fund LLC committed to investments of approximately $0.8 million in businesses directly, and indirectly related to the Company’s core business as permitted under the U.S. Bank Holding Company Act. Additionally, Pro Opp Fund LLC has an additional $0.9 million of unfunded investments outstanding.

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


(Dollars in thousands)	March 31, 2022		December 31, 2021
Available lines of credit	$	457,260	$	415,402
Unfunded loan commitments – fixed	75,345		62,126
Unfunded loan commitments – variable	26,848		46,698
Standby letters of credit	11,842		12,095
Commercial letters of credit	3,483		2,765
Total credit extension commitments	$	574,778	$	539,086

NOTE 12 — 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. Under the Basel Committee on Banking Supervision’s capital guidelines for United States banks (Basel III rules), the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer for 2022 and 2021 was 2.50%. The Company opted not to include net unrealized gains or losses on available for sale securities in computing regulatory capital. As of March 31, 2022, the Bank met all capital adequacy requirements to which it was subject.

Ta b le of Contents

Prompt corrective action regulations provide five 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. On March 31, 2022, and December 31, 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.

Actual and required capital amounts and ratios are presented below on March 31, 2022, and December 31, 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
March 31, 2022
Total Capital ratio
Bank	$	235,860	12.8	%	$	147,313	8.0	%	$	184,141	10.0	%
Company	250,202		13.6	%	147,313		8.0	%	N/A		N/A
Tier 1 Capital ratio
Bank	221,203		12.0	%	110,484		6.0	%	147,313		8.0	%
Company	211,136		11.5	%	110,484		6.0	%	N/A		N/A
Tier 1 Leverage ratio
Bank	221,203		8.1	%	108,580		4.0	%	135,725		5.0	%
Company	211,136		7.8	%	108,580		4.0	%	N/A		N/A
Common Equity Tier 1
Bank	221,203		12.0	%	82,863		4.5	%	119,692		6.5	%
Company	211,136		11.5	%	82,863		4.5	%	N/A		N/A

December 31, 2021
Total Capital ratio
Bank	$	222,696	12.1	%	$	147,313	8.0	%	$	184,141	10.0	%
Company	220,206		12.0	%	147,313		8.0	%	N/A		N/A
Tier 1 Capital ratio
Bank	208,997		11.3	%	110,484		6.0	%	147,313		8.0	%
Company	206,507		11.9	%	110,484		6.0	%	N/A		N/A
Tier 1 Leverage ratio
Bank	208,997		7.7	%	108,580		4.0	%	135,725		5.0	%
Company	206,507		7.7	%	108,580		4.0	%	N/A		N/A
Common Equity Tier 1
Bank	208,997		12.1	%	82,863		4.5	%	119,692		6.5	%
Company	206,507		11.9	%	82,863		4.5	%	N/A		N/A

Ta b le 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, 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” to the consolidated financial statements for further detail. The emphasis of this discussion will be on the three months ended March 31, 2022, compared to the three months ended March 31, 2021, for the consolidated statements of income. For the consolidated balance sheets, the emphasis of this discussion will be the balances as of March 31, 2022, compared to December 31, 2021.

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 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;

Ta b le of Contents

•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.

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

Ta b le of Contents

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 months ended March 31, 2022, and other key events that have occurred during 2022 are provided below.

Results of Operations for the Three Months Ended March 31, 2022

•Net income decreased $2.4 million, or 49.4%, to $2.4 million compared to $4.8 million in the prior year quarter, due to severance and accelerated vesting expense on share based compensation associated with the departure of the Company’s former Chief Executive Officer and increased employee costs due to higher headcount. Noninterest expense increased $4.7 million, and was partially offset by higher net interest income of $1.2 million and lower provision expense of $0.2 million. Adjusted pre-tax pre-provision earnings (non-GAAP), which excludes the severance and accelerated vesting expense, decreased $1.2 million, or 14.6%, to $6.7 million from the prior year quarter. In addition, adjusted net income (non-GAAP) decreased $0.3 million, or 6.2%, from the prior quarter to $5.0 million (non-GAAP).

•Net interest income increased $1.2 million, or 6.5%, to $19.0 million compared to $17.9 million in the prior year quarter, primarily due to an increase in interest income in the commercial and commercial real estate loan portfolios from an increase in average loans of $110.4 million to $1.8 billion compared to $1.7 billion in the prior year quarter. Interest income also increased in the investment portfolio due to increased average balances and higher yields from the recent purchases of mortgage backed and small business administration securities.

•Provision for loan losses decreased $0.2 million, or 18.0%, to $0.9 million compared to $1.0 million in the prior year quarter primarily due to the charge-off of a previously disclosed impaired commercial loan that was recorded in the prior year quarter.

•Noninterest income increased $0.2 million, or 13.8% to $1.3 million compared to the prior year quarter. An increase of $0.3 million in other noninterest income and an increase of $0.1 million in deposit service charges was partially offset by a decrease of $0.1 million in small business administration (“SBA”) fees and a decrease of $0.1 million in swap fee income.

•Noninterest expense increased $4.7 million, or 39.9%, to $16.5 million compared to $11.8 million in the prior year quarter primarily due to a $2.9 million expense related to severance and accelerated vesting expense on share based compensation associated with the departure of the Company’s former Chief Executive Officer. The increase in noninterest expense also included approximately $1.3 million in employee compensation costs from higher headcount and bonus and sales incentives paid out during the period.

Financial Condition

At March 31, 2022:

•Total assets increased $0.2 billion, or 7.6%, to $2.9 billion compared to December 31, 2021, primarily as a result of increases in cash and cash equivalents, net loans, and non-taxable securities available for sale. Total assets increased $0.6 billion, or 28.4% compared to March 31, 2021, primarily as a result of increases in cash and cash equivalents, net loans, and taxable securities available-for-sale.

•Total loans increased $45.6 million, or 2.6%, to $1.8 billion compared to December 31, 2021. The increase was driven by loan originations of approximately $199.4 million, partially offset by paydowns and prepayments of $95.8 million. The Professional Bank PPP loan balance decreased $27.5 million, or 46.9%, to $31.1 million from December 31, 2021.

•Total deposits increased 9.1%, or $0.2 billion, to $2.6 billion compared to December 31, 2021 primarily due to an increase in non-interest bearing demand deposit accounts and to a lessor extent, an increase in interest bearing demand deposit accounts.

Ta b le of Contents

•As of March 31, 2022, nonperforming assets remained unchanged at $2.1 million compared to December 31, 2021. As of March 31, 2021, the Company had nonperforming assets of $2.8 million. There were no charge-offs in the loan portfolio during the three months ended March 31, 2022, compared to a partial charge-off on one consumer loan in the prior quarter. For the three months ended March 31, 2021, the Company recorded a partial charged-off of a commercial loan totaling $7.6 million.

Operating Results

Results of Operations for the three months ended March 31, 2022, and 2021

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


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021		Change
Interest income	$	21,022	$	19,772	6.3	%
Interest expense	1,975		1,893		4.3	%
Net interest income	19,047		17,879		6.5	%
Provision for loan losses	851		1,038		(18.0)	%
Net interest income after provision	18,196		16,841		8.0	%
Noninterest income	1,273		1,119		13.8	%
Noninterest expense	16,495		11,788		39.9	%
Income before income taxes	2,974		6,172		(51.8)	%
Income tax expense	555		1,387		(60.0)	%
Net income	$	2,419	$	4,785	(49.4)	%

Net income for the three months ended March 31, 2022, was $2.4 million, a decrease of $2.4 million, or 49.4%, compared to the three months ended March 31, 2021. Net interest income increased $1.2 million for the three months ended March 31, 2022, compared to the same period in the prior year. The increase in our net interest income year-over-year was primarily due to loan portfolio growth and securities purchases in our taxable investment portfolio with higher yields. Provision for loan losses decreased by $0.2 million for the three months ended March 31, 2022, compared to the same period in the prior year. Noninterest income increased $0.2 million for the three months ended March 31, 2022, compared to the same period in the prior year. Noninterest expense increased $4.7 million for the three months ended March 31, 2022, compared to the same period in the prior year. The increase in noninterest expense was primarily due to expenses related to severance and accelerated vesting expense on share based compensation associated with the departure of the Company’s former Chief Executive Officer, in addition to higher salaries and employee benefits as a result of increased headcount of 208 at March 31, 2022, compared to 190 at March 31, 2021.

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

Ta b le of Contents

within the Miami-Dade MSA. Our ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of our net interest income and net interest margin as our primary sources of earnings.

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


	For the Three Months Ended March 31,
	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	$	576,478	$	276	0.19	%	$	179,127	$	46	0.10	%
Federal funds sold	28,234		18		0.26	%	44,264		16		0.15	%
Federal Reserve Bank stock, FHLB stock and other corporate stock	7,598		97		5.18	%	7,965		95		4.84	%
Investment securities - taxable	187,273		638		1.38	%	69,797		179		1.04	%
Investment securities - tax-exempt	25,902		213		3.34	%	21,639		203		3.80	%
Loans (1)	1,773,887		19,780		4.52	%	1,663,532		19,233		4.69	%
Total interest earning assets	2,599,372		21,022		3.28	%	1,986,324		19,772		4.04	%
Loans held for sale	693						1,354
Noninterest earning assets	136,270						129,296
Total assets	$	2,736,335					$	2,116,974
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits	$	1,672,387	1,586		0.38	%	$	1,208,741	1,317		0.44	%
Borrowed funds	50,493		389		3.12	%	146,408		576		1.60	%
Total interest-bearing liabilities	1,722,880		1,975		0.46	%	1,355,149		1,893		0.57	%
Noninterest-bearing liabilities
Noninterest-bearing deposits	764,763						524,114
Other noninterest-bearing liabilities	16,666						18,629
Shareholders’ equity	232,026						219,082
Total liabilities and shareholders’ equity	$	2,736,335					$	2,116,974
Net interest spread (2)					2.82	%					3.47	%
Net interest income			$	19,047					$	17,879
Net interest margin (3)					2.97	%					3.65	%

__________________________________

(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 $1.6 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively.

Ta b le of Contents

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


	For the Three Months Ended March 31, 2022 Compared to 2021
	Change Due To
(Dollars in thousands)	Volume		Rate		Total
Interest income
Interest earning deposits	$	102	$	128	$	230
Federal funds sold	(6)		8		2
Federal Reserve Bank stock, Federal Home Loan Bank stock and other corporate stock	(4)		6		2
Investment securities - taxable	301		158		459
Investment securities - tax-exempt	40		(30)		10
Loans	1,276		(729)		547
Total	$	1,709	$	(459)	$	1,250
Interest expense
Interest-bearing deposits	505		(236)		269
Borrowed funds	(377)		190		(187)
Total	$	128	$	(46)	$	82

Net interest income increased by $1.2 million to $19.0 million for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. Our total net interest income was impacted by an increase in interest earning assets, which was primarily due to increased balances in our loan portfolio. Average total interest earning assets were $2.6 billion for the three months ended March 31, 2022, compared to $2.0 billion for the three months ended March 31, 2021. The annualized yield on interest earning assets decreased 76 basis points for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, primarily due to increased cash balances and accelerated paydowns of principal in higher yielding loans. The increase in the average balance of interest earning assets was driven primarily by our growth in cash of $397.4 million, or 221.8%, growth in our loan portfolio of $110.4 million, or 6.6%, and growth in our investment portfolio of $121.7 million, or 133.1%, compared to three months ended March 31, 2021. The growth in our loan portfolio was due to organic loan originations.

Average interest-bearing liabilities for the three months ended March 31, 2022, increased due to organic deposit growth and grew by $367.7 million, or 27.1%, from the three months ended March 31, 2021. The increase in the average balance of interest-bearing deposits was primarily due to increases in negotiable orders of withdrawal (“NOW”) and money market accounts for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, and, to a lesser extent, increases in certificates of deposit. The annualized average interest rate paid on average interest-bearing liabilities decreased to 0.46%, for the three months ended March 31, 2022, compared to 0.57% for the three months ended March 31, 2021. Annualized average interest rate paid on interest-bearing deposits decreased 6 basis points to 0.38%, and the annualized average interest rate paid on borrowed funds increased by 152 basis points to 3.12%. The average interest rate on borrowings during the three months ended March 31, 2022, increased due to lower rate borrowings that were paid down and the remaining balances made up a larger weighted average rate. For the three months ended March 31, 2022, our average other noninterest-bearing liabilities decreased $2.0 million, or 10.5%, compared to the three months ended March 31, 2021. Average noninterest-bearing deposits increased $240.6 million, or 45.9%, compared to the three months ended March 31, 2021. For the three months ended March 31, 2022, our net interest margin was 2.97% and net interest spread was 2.82%. For the three months ended March 31, 2021, net interest margin was 3.65% and net interest spread was 3.47%.

Ta b le of Contents

Provision for Loan Losses

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

Our provision for loan losses amounted to $0.9 million for the three months ended March 31, 2022, and $1.0 million for the three months ended March 31, 2021. We did not record any net charge-offs for the three months ended March 31, 2022, compared to a partial charge-off of $7.6 million on a commercial loan for the three months ended March 31, 2021. Our allowance for loan losses as a percentage of total loans (excluding Professional Bank PPP loans) was 0.76% on March 31, 2022, compared to 0.74% on December 31, 2021. See Reconciliation of non-GAAP Financial Measures.

Noninterest Income

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

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


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest income
Service charges on deposit accounts	$	517	$	395	30.9%
Income from bank owned life insurance	273		282		(3.2)%
SBA origination fees	—		145		100.0%
Swap fee income	112		209		(46.4)%
Loans held for sale income	71		75		(5.3)%
Gain on sale and call of securities	—		1		(100.0)%
Other	300		12		—
Total noninterest income	$	1,273	$	1,119	13.8%

Noninterest income for the three months ended March 31, 2022, was $1.3 million, a $0.2 million, or 13.8%, increase compared to the three months ended March 31, 2021. The increase was comprised of an increase in service charges on deposit accounts of $122 thousand, and an increase in other noninterest income of $288 thousand, partially offset by a decrease of $145 thousand in SBA origination fees and a decrease of $97 thousand in swap fee income. The increase in other noninterest income was primarily comprised of an $84 thousand gain from the early payoff of Federal Home Loan Bank advances and a $137 thousand loss on fixed asset disposals recorded in the prior year.

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.

Ta b le of Contents

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


	Three Months Ended March 31,
(Dollars in thousands)	2022		2021		Increase (Decrease)
Noninterest expense
Salaries and employee benefits	$	11,220	$	6,784	65.4%
Occupancy and equipment	1,002		1,102		(9.1)%
Data processing	314		290		8.3%
Marketing	196		153		28.1%
Professional fees	919		628		46.3%
Acquisition expenses	—		684		(100.0)%
Regulatory assessments	549		349		57.3%
Other	2,295		1,798		27.6%
Total noninterest expense	$	16,495	$	11,788	39.9%

Noninterest expense amounted to $16.5 million for the three months ended March 31, 2022, an increase of $4.7 million, or 39.9%, compared to the three months ended March 31, 2021. The increase was primarily due to a $2.9 million expense related to severance and accelerated vesting expense on share based compensation associated with the departure of the Company’s former Chief Executive Officer. The increase also reflected higher salaries and employee benefits from increased headcount of 208 at March 31, 2022, compared to 190 at March 31, 2021.

Income Tax Expense

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

Income tax expense was $0.6 million for the three months ended March 31, 2022, compared to $1.4 million for the three months ended March 31, 2021. Our effective tax rates for those periods were 18.7% and 22.5%, respectively. The reduction in the effective tax rate from the quarter ended March 31, 2021, to the quarter ended March 31, 2022 was primarily due to excess tax benefits related to share-based compensation which are recorded entirely in the period identified as a discrete item of tax.

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.

As of March 31, 2022, our total assets increased 7.6%, or $0.2 billion, compared to December 31, 2021, primarily as a result of increases in cash and cash equivalents, net loans, and non-taxable securities available for sale. Total loans increased 2.5%, or $44.7 million, compared to December 31, 2021, driven by loan originations of approximately $199.4 million, partially offset by paydowns and prepayments of $95.8 million. The Professional Bank PPP loan balance decreased $27.5 million, or 46.9%, to $31.1 million from December 31, 2021. Interest-bearing deposits at other financial institutions increased due to our desire to maintain our excess liquidity in more liquid assets due to our continued robust demand for loans. Stockholders’ equity decreased $1.8 million, or 0.8%, compared to December 31, 2021, primarily due to a decrease of $6.3 million in accumulated other comprehensive net income partially offset by increased retained earnings of $2.4 million for the three months ended March 31, 2022.

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

Ta b le of Contents

growth and excess due to the Correspondent Banking Relationship, cash and cash equivalents increased $144.3 million, or 24.1%, to $741.7 million, compared to $597.5 million on December 31, 2021, primarily due to an increase 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, or equity. Trading securities (if any) are held principally for resale and recorded at their fair value with changes in fair value included in income. Held to maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Equity securities 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 securities consist of securities not classified as trading securities nor as held to maturity securities. Unrealized holding gains and losses on available for sale securities are excluded from income and reported in comprehensive income or loss. Gains and losses on the sale of available for sale securities are recorded on the trade date and are determined using the specific-identification method. Premiums and discounts on securities available for sale are recognized in interest income using the interest method.

Our investment portfolio increased $11.7 million, or 5.8%, to $212.9 million compared to December 31, 2021, primarily due to purchases of $28.6 million in securities available for sale, offset by paydowns, and maturities. To supplement interest income earned on the Company’s loan portfolio, the Company invests in mortgage-backed securities, government agency bonds, corporate bonds, community development district bonds, and equity securities (including mutual funds).

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


	March 31, 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	$	37,713	$	37,199	$	40,368	$	39,934
Mortgage-backed securities	142,815		134,215		131,273		130,103
United States agency obligations	2,943		2,833		3,939		3,986
Corporate bonds	1,500		1,511		1,500		1,513
Total	$	184,971	$	175,758	$	177,080	$	175,536
Securities Available for Sale - tax-exempt
Community Development District bonds	$	29,645	$	29,411	$	17,163	$	17,674
Municipals	1,047		1,035		1,051		1,091
Total	$	30,692	$	30,446	$	18,214	$	18,765
Securities Held to Maturity
Mortgage-backed securities	$	218	$	214	$	236	$	242


Total	$	218	$	214	$	236	$	242
Equity Securities
Mutual Funds	$	5,639	$	5,639	$	5,838	$	5,838
Other equity securities	800		800		800		800
Total	$	6,439	$	6,439	$	6,638	$	6,638

Ta b le 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 March 31, 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	$	—	—	%	$	404	0.78	%	$	19,238	1.37	%	$	18,071	1.44	%	$	37,713	$	37,199	1.40	%
Mortgage-backed securities	—		—	%	624		1.00	%	4,732		0.96	%	137,460		1.67	%	142,816		134,215		1.64	%
United States agency obligations	—		—	%	1,002		2.66	%	1,941		1.31	%	—		—	%	2,943		2,833		1.77	%
Corporate bonds	1,500		1.98	%	—		—	%	—		—	%	—		—	%	1,500		1,511		1.98	%
Total	$	1,500	1.98	%	$	2,030	1.78	%	$	25,911	1.29	%	$	155,531	1.64	%	$	184,972	$	175,758	1.60	%
Available for Sale - tax-exempt
CDD bonds	$	4,235	3.92	%	$	20,186	4.30	%	$	5,225	3.60	%	$	—	—	%	$	29,646	$	29,411	4.12	%
Municipals	—		—	%	1,047		2.27	%	—		—	%	—		—	%	1,047		1,035		2.27	%
Total	$	4,235	3.92	%	$	21,233	4.20	%	$	5,225	3.60	%	$	—	—	%	$	30,693	$	30,446	4.06	%
Held to Maturity
Mortgage-backed securities	—		—	%	—		—	%	—		—	%	218		2.77	%	218		214		2.77	%


Total	$	—	—	%	$	—	—	%	$	—	—	%	$	218	2.77	%	$	218	$	214	2.77	%
Equity Securities
Mutual Funds	5,639		1.44	%	—		—	%	—		—	%	—		—	%	5,639		5,639		1.44	%
Other equity securities	800		—	%	—		—	%	—		—	%	—		—	%	800		800		—	%
Total	$	6,439	1.44	%	$	—	—	%	$	—	—	%	$	—	—	%	$	6,439	$	6,439	1.26	%

(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.

Commercial Real Estate Loans. We originate both owner-occupied and non-owner-occupied commercial real estate loans. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. Commercial real estate loans that are secured by owner-occupied commercial real estate and primarily supported by operating cash flows are also included in this category of loans. As of March 31, 2022, we had $355.4 million of owner-occupied commercial real estate loans and $576.5 million of investment commercial real estate loans, representing 38.1% and 61.9%, respectively, of our commercial real estate portfolio. As of March 31, 2022, the average loan balance of loans in our commercial real estate loan portfolio was approximately $1.4 million for owner-occupied and $2.4 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 March 31, 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 March 31, 2022, our weighted-average loan-to-value ratios for owner-occupied and non-owner-occupied commercial real estate were 49.4% and 49.5%, respectively and debt service coverage ratios were 3.15x and 1.97x, 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

Ta b le of Contents

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 March 31, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Auto (Car Lot/Auto Repair)	$	26,676	2.9%	$	27,419	3.0%
Educational Facility	25,898		2.8%	32,281		3.6%
Gas Station	56,702		6.1%	60,854		6.7%
Hotel	84,876		9.1%	75,617		8.4%
Mixed Use	37,748		4.1%	28,762		3.2%
Multifamily	138,853		14.9%	140,496		15.6%
Office	114,358		12.3%	109,010		12.1%
Other / Special Use	70,005		7.5%	56,276		6.2%
Religious Facility	10,500		1.1%	10,679		1.2%
Retail	211,166		22.6%	209,283		23.2%
Vacant Land	6,560		0.7%	6,523		0.7%
Warehouse	148,562		15.9%	145,454		16.1%
Total	$	931,904	100.0%	$	902,654	100.0%


	As of March 31, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Real Estate
Broward	$	158,990	17.1%	$	111,224	12.3%
Miami-Dade	509,139		54.6%	559,966		62.0%
Palm Beach	158,474		17.0%	139,517		15.5%
Other FL County	93,197		10.0%	49,892		5.5%
Out of State	12,104		1.3%	42,055		4.7%
Total	$	931,904	100.0%	$	902,654	100.0%

As of March 31, 2022, non-owner occupied commercial real estate loans of $576.5 million represented 31.3% 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 March 31, 2022, our weighted average loan-to-value ratio on our construction, vacant land, and land development loans were 50.4%, 50.5% and 54.4%, respectively. We require construction and development loans to establish an interest reserve account, which is sufficient to pay the loan through completion of the project. We conduct semi-annual stress testing of our construction loan portfolio and closely monitor underlying real estate conditions as well as our borrowers’ trends of sales valuations as compared to underwriting valuations as part of our ongoing risk management efforts. We also closely monitor our borrowers’ progress in construction build out and strictly enforce our original underwriting guidelines for construction milestones and completion timelines.

Ta b le of Contents


	As of March 31, 2022				As of December 31, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent
Construction & Development
1 – 4 Family Construction	$	50,588	51.1	%	$	47,164	51.5	%
Commercial Construction	—		—	%	—		—	%
Land Development	9,694		9.8	%	9,620		10.5	%
Vacant Land	38,702		39.1	%	34,736		38.0	%
Total	$	98,984	100.0	%	$	91,520	100.0	%


	As of March 31, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Construction & Development
Broward	$	2,037	2.1%	$	1,194	1.3%
Miami-Dade	72,635		73.3%	67,562		73.9%
Palm Beach	22,260		22.5%	21,080		23.0%
Other FL County	2,052		2.1%	1,684		1.8%
Total	$	98,984	100.0%	$	91,520	100.0%

As of March 31, 2022, total construction and land development loans of $99.0 million represented 5.4% of total risk-weighted assets.

Residential Real Estate Loans. We offer one-to-four family mortgage loans primarily on owner-occupied primary residences and, to a lesser extent, investor-owned residences, which make up approximately 15.1% of our residential loan portfolio. Our residential loans also include home equity lines of credit, which totaled approximately $46.7 million, or approximately 12.3% of our residential loan portfolio as of March 31, 2022. The average loan balance of closed-end residential loans in our residential portfolio was approximately $0.8 million as of March 31, 2022. As of March 31, 2022, we did not have any residential real estate loans with a loan to value over 100%. Our one-to-four family residential loans have a relatively small balance spread between many individual borrowers compared to our other loan categories. Our owner-occupied residential real estate loans usually have fixed rates for five, seven or 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 March 31, 2022					As of December 31, 2021
(Dollars in thousands)	Amount		Percent	LTV (%)		Amount		Percent	LTV (%)
Residential Real Estate
Owner Occupied	$	276,747	72.6%	55.5	%	$	272,858	72.3%	57.8	%
Investor Owned Residences	57,734		15.1%	52.3	%	54,698		14.5%	50.7	%
HELOC	46,701		12.3%	55.7	%	49,955		13.2%	57.1	%
Total	$	381,182	100.0%			$	377,511	100.0%

Loans held for sale	$	988	100.0%			$	165		100.0	%

Ta b le 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 loans in our commercial loan portfolio, excluding Professional Bank PPP loans was $0.8 million as of March 31, 2022. As of March 31, 2022, non-Professional Bank PPP commercial loans totaled $357.1 million, and Professional Bank PPP commercial loans totaled $31.1 million. For commercial loans over $0.5 million, a global cash flow analysis is generally required, is part of the analysis for the credit approval. “Global cash flow” is defined as a cash flow calculation which includes all income sources of all principals in the transaction as well as all debt payments, including the debt service associated with the proposed transaction. In general, a minimum 1.20x debt service coverage is preferred, but in no event may the debt service coverage ratio be less than 1.00x. As of March 31, 2022, the debt service coverage ratio for our Bank commercial loan portfolio was approximately 2.52x for non-Professional Bank PPP loans, excluding approximately 2.8% of the commercial loan portfolio that is cash secured. Most commercial business loans, which exclude Professional Bank PPP loans, are secured by a lien on general business assets including, among other things, available real estate, accounts receivable, promissory notes, inventory and equipment, and we generally obtain a personal guaranty from the borrower or other principal. The following table shows our commercial loan portfolio by industry segment as of March 31, 2022.


	As of March 31, 2022			As of December 31, 2021
(Dollars in thousands)	Amount		Percent	Amount		Percent
Commercial Loans (non-PPP)
Business Products	$	—	—%	$	13	—%
Business Services	70,072		19.6%	73,868		22.7%
Communication	10,393		2.9%	389		0.1%
Construction	33,818		9.5%	31,285		9.6%
Finance	115,106		32.3%	100,849		31.1%
Healthcare	23,380		6.5%	23,564		7.2%
Services	36,830		10.3%	34,112		10.5%
Technology	7,284		2.0%	2,979		0.9%
Trade	47,086		13.2%	47,522		14.6%
Transportation	1,163		0.3%	1,593		0.5%
Other	11,992		3.4%	9,241		2.8%
Total	$	357,124	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.

Ta b le of Contents

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


	March 31, 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	$	92,895	$	253,067	$	563,529	$	22,413	$	931,904
Residential Real Estate	4,096		19,979		17,611		339,496		381,182
Commercial*	106,157		136,011		118,228		27,825		388,221
Construction and Development	43,544		20,954		3,096		31,390		98,984
Consumer and Other	4,475		6,691		11,259		—		22,425
Total loans	$	251,167	$	436,702	$	713,723	$	421,124	$	1,822,716

Amounts with fixed rates	$	88,159	$	330,456	$	696,833	$	399,689	$	1,515,137
Amounts with floating rates	$	163,008	$	106,246	$	16,890	$	21,435	$	307,579
*Includes Paycheck Protection Program (PPP) loans.

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

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

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. When interest accrual is discontinued, all unpaid accrued interest is reversed from income. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are, in management’s opinion, reasonably assured. Any loan which the Bank deems to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss. Loans that are past due for 180 days or more are charged off unless the loan is well secured and in the process of collection. We currently have no loans accruing over 90 days or greater past due as of March 31, 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 $2.1 million as of March 31, 2022, or 0.07% of total assets. We had nonperforming assets of

Ta b le of Contents

$2.1 million as of December 31, 2021, or 0.08% of total assets. We believe that our low loan-to-value loan portfolio is well positioned to withstand these types of discrete events as they occur from time 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)	March 31, 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		654
Accruing loans 90 or more days past due	—		—
Total nonperforming loans	$	2,122	$	2,122
Other real estate owned	—		—
Total nonperforming assets	$	2,122	$	2,122
Restructured loans-nonaccrual	$	—	$	—
Restructured loans-accruing	$	14	$	55
Ratio of nonperforming loans to total loans	0.12%		0.12%
Ratio of nonperforming assets to total assets	0.07%		0.08%

Credit Quality Indicators

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

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Generally, all credits greater than $1.0 million, other than residential real estate loans, are reviewed no less than annually to monitor and adjust, if necessary, the credit risk profile. Loans classified as “substandard” or “special mention” are reviewed quarterly for further evaluation to determine if they are appropriately classified and whether there is any impairment. Beyond the annual review, all loans are graded at initial issuance. In addition, during the renewal process of any loan, as well as if a loan becomes past due, we will determine the appropriate loan grade. Loans excluded from the review process above are generally classified as “pass” credits until: (a) they become past due; (b) management becomes aware of deterioration in the creditworthiness of the borrower; or (c) the client contacts us for a modification. In these circumstances, the loan is specifically evaluated for potential reclassification to special mention, substandard, doubtful, or even a charged-off status. See Note 4 - Loans to the Consolidated Financial Statements (unaudited) dated March 31, 2022, for additional information regarding risk category of loans by class of loans.

Ta b le of Contents

Allowance for Loan Losses

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

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

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

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

Ta b le of Contents

The following table analyzes the activity in the allowance for the three months ended March 31, 2022, and 2021.


	For the Three Months Ended March 31,
(Dollars in thousands)	2022			2021
Balance at beginning of period	$	12,704		$	16,259
Charge-offs
Commercial real estate	—			—
Residential real estate	—			—
Commercial	—			(7,641)
Construction and development	—			—
Consumer and other	—			—
Total Charge-offs	—			(7,641)
Recoveries
Commercial real estate	—			—
Residential real estate	—			—
Commercial	—			—
Construction and development	—			—
Consumer and other	—			—
Total recoveries	—			—
Net charge-offs	—			(7,641)
Provision for loan losses	851			1,038
Balance at end of period	$	13,555		$	9,656
Ratio of net charge-offs to average loans	—		%	1.86		%

	March 31, 2022			December 31, 2021
ALLL as a percentage of loans at end of period	0.75		%	0.72		%
ALLL as a percentage of loans (excluding PPP loans) at end of period (non-GAAP)	0.76		%	0.74		%
ALLL as a multiple of net charge-offs	N/A			1.5
ALLL as a percentage of nonperforming loans	638.8		%	598.7		%

Our allowance for loan losses was $13.6 million on March 31, 2022, compared to $12.7 million on December 31, 2021, an increase of 6.7%. The increase was primarily due to a higher volume of loan production during the three months ended March 31, 2022. On March 31, 2022, our allowance for loan losses was 0.76% of total gross loans (excluding Professional Bank PPP loans) and provided coverage of 638.8% of our nonperforming loans, compared to an allowance for loan losses to total gross loans (net of overdrafts) ratio of 0.74% as of December 31, 2021. See Reconciliation of non-GAAP Financial Measures. We believe our allowance on March 31, 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 March 31, 2022, and December 31, 2021.


	March 31, 2022			December 31, 2021
(Dollars in thousands)	Allowance		Percent	Allowance		Percent
Commercial real estate	$	4,735	34.9%	$	4,471	35.2%
Residential real estate	2,382		17.6%	2,339		18.4%
Commercial	5,133		37.8%	4,637		36.5%
Construction and development	511		3.8%	471		3.7%
Consumer and other	794		5.9%	786		6.2%
Total allowance for loan losses	$	13,555	100.0%	$	12,704	100.0%

Ta b le of Contents

On March 31, 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 $2.3 million, of which $2.3 million required a specific reserve of $1.3 million, compared to a recorded investment in impaired loans of $2.1 million, with a recorded investment of $2.1 million, on nonaccrual with a required specific reserve of $1.3 million on December 31, 2021. There was also a substandard accruing loan with a recorded investment of $2.3 million, with no allowance on December 31, 2021.

Impaired loans also include certain loans that were modified as troubled debt restructurings (“TDR”). On March 31, 2022, we had one loan amounting to $14 thousand that was considered to be a TDR, compared to the same loan amounting to $55 thousand on December 31, 2021. We did not allocate any specific reserves to loans that have been modified as TDRs as of March 31, 2022, and December 31, 2021.

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 $89.3 million and $84.4 million, on March 31, 2022, and December 31, 2021, respectively. Additionally, we supplement our deposits with wholesale funding sources such as 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 March 31, 2022, and December 31, 2021, these wholesale deposits represented 2.4% and 3.9%, respectively, of our total deposits.

Average interest-bearing deposits increased $463.6 million, or 38.4%, during the three months ended March 31, 2022, compared to the same time period in 2021 prior year primarily due to a $259.6 million increase in NOW accounts and a $165.9 million increase in money market account balances from organic growth. In order to fund our loan growth, our bankers are actively involved with our strategic efforts and are incentivized to grow core deposits. The average rate paid on interest-bearing deposits decreased 6 basis points to for the three months ended March 31, 2022, compared to the three months ended March 31, 2021. As of March 31, 2022, we had approximately $57.9 million in brokered deposits representing 2.2% of total deposits. Brokered deposits decreased approximately $0.5 million, or 0.8%, compared to December 31, 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.


	For the Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
(Dollars in thousands)	Average Balance		Average Rate	Average Balance		Average Rate
NOW accounts	$	319,771	0.18%	$	60,162	0.25%
Money market accounts	1,022,564		0.38%	856,615		0.38%
Brokered deposits	58,549		0.46%	30,480		0.31%
Savings accounts	13,189		0.10%	25,064		0.37%
Certificates of deposit	258,314		0.65%	236,420		0.74%
Total interest-bearing deposits	1,672,387		0.38%	1,208,741		0.44%
Noninterest-bearing deposits	764,763		—%	524,114		—%
Total deposits	$	2,437,150	0.26%	$	1,732,855	0.31%

Ta b le of Contents

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


	For the Three Months Ended March 31, 2022				For the Year Ended December 31, 2021
(Dollars in thousands)	Ending Balance		% of Total		Ending Balance		% of Total
NOW accounts	$	356,600	13.8	%	$	310,362	13.1	%
Money market accounts	1,037,795		40.1	%	1,055,033		44.5	%
Brokered deposits	57,908		2.2	%	58,365		2.5	%
Savings accounts	12,397		0.5	%	12,558		0.5	%
Certificates of deposit	251,220		9.7	%	261,067		11.0	%
Total interest-bearing deposits	1,715,920		66.3	%	1,697,385		71.6	%
Noninterest-bearing deposits	871,357		33.7	%	674,003		28.4	%
Total deposits(1)	$	2,587,277	100.0	%	$	2,371,388	100.0	%

__________________________________

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

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

Debt

See Note 7 - Debt and Borrowings to the Consolidated Financial Statements (unaudited) dated March 31, 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 March 31, 2022, approximately $236.6 million in total loans that were pledged as collateral for our FHLB borrowings. We utilize these borrowings to meet liquidity needs and to fund certain fixed rate loans in our portfolio. As of March 31, 2022 and December 31, 2021, we had $5.0 million and $35.0 million in outstanding advances, respectively. As of March 31, 2022 and December 31, 2021, we had $145.2 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.


(Dollars in thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Weighted average interest rate at period-end	0.81%		1.96%
Maximum month-end balance during period	$	35,000	$	40,000
Average balance outstanding during period	$	26,333	$	40,000
Weighted average interest rate during period	2.04%		1.96%

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 March 31, 2022 and December 31, 2021.

Ta b le of Contents

Liquidity and Capital Resources

Capital Resources

Stockholders’ equity decreased $1.8 million, or 0.8%, to $229.8 million on March 31, 2022, compared to December 31, 2021, primarily due to a decrease of $6.3 million in accumulated other comprehensive net income partially offset by net income of $2.4 million for the three months ended March 31, 2022.

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

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

As of March 31, 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 three months ended March 31, 2022, the Company infused $7.5 million of capital into the Bank to support asset growth and maintain well capitalized ratios at the Bank.

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


	Actual				Minimum for capital adequacy				Minimum to be well capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2022
Total capital ratio
Bank	$	235,860	12.8	%	$	147,313	8.0	%	$	184,141	10.0	%
Company	250,202		13.6	%	147,313		8.0	%	N/A		N/A
Tier 1 Capital ratio
Bank	221,203		12.0	%	110,484		6.0	%	147,313		8.0	%
Company	211,136		11.5	%	110,484		6.0	%	N/A		N/A
Tier 1 Leverage ratio
Bank	221,203		8.1	%	108,580		4.0	%	135,725		5.0	%
Company	211,136		7.8	%	108,580		4.0	%	N/A		N/A
Common Equity Tier 1
Bank	221,203		12.0	%	82,863		4.5	%	119,692		6.5	%
Company	211,136		11.5	%	82,863		4.5	%	N/A		N/A

Ta b le of Contents


	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	12.1%	$	147,313	8.0%	$	184,141	10.0%
Company	220,206		12.0%	147,313		8.0%	N/A		N/A
Tier 1 capital ratio
Bank	208,997		11.3%	110,484		6.0%	147,313		8.0%
Company	206,507		11.9%	110,484		6.0%	N/A		N/A
Tier1 leverage ratio
Bank	208,997		7.7%	108,580		4.0%	135,725		5.0%
Company	206,507		7.7%	108,580		4.0%	N/A		N/A
Common equity tier 1 capital ratio
Bank	208,997		12.1%	82,863		4.5%	119,692		6.5%
Company	206,507		11.9%	82,863		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.

On March 31, 2022, we had the ability to generate approximately $494.3 million in additional liquidity through all of our available resources beyond our overnight funds sold position. During the three months ended March 31, 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 million to $25.0 million. In addition to the primary borrowing outlets mentioned above, we also have the ability to generate liquidity by borrowing from the Federal Reserve Discount Window and through brokered deposits. We recognize the importance of maintaining liquidity and have developed a Contingent Liquidity Plan, which addresses various liquidity stress levels and our response and action based on the level of severity. We periodically test our credit facilities for access to the funds, but also understand that as the severity of the liquidity level increases, certain credit facilities may no longer be available. We conduct quarterly liquidity stress tests and the results are reported to our Asset-Liability Management Committee and our Board. We believe the liquidity available to us is currently sufficient to meet our ongoing needs.

We also view our investment portfolio as a liquidity source and have the option to pledge securities in our portfolio as collateral for borrowings or deposits, and/or sell selected securities. On March 31, 2022, and December 31, 2021, there were $236.6 million and $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 5.07 years and 4.41 years on March 31, 2022, and December 31, 2021, respectively. The duration of our investment portfolio was 4.48 years and 4.08 years on March 31, 2022, and 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 March 31, 2022, cash held at the holding company was approximately $12.9 million. Our average net overnight funds sold position (defined as funds sold plus interest-bearing deposits with other banks less funds purchased) was $28.2 million during three months ended March 31, 2022, compared to an average net overnight funds sold position of $42.9 million for the year ended December 31, 2021. As of March 31, 2022, cash held at the Federal Reserve was approximately $670.1 million compared to $544.0 million as of December 31, 2021.

Ta b le of Contents

We expect our capital expenditures over the next 12 months to be approximately $2.0 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

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. At March 31, 2022, inflation was rising at a higher and more sustained level than anticipated by the Federal Reserve. As a result, the current market expects a change in monetary policy which would include interest rate increases in 2022 which could lead to market volatility.

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 March 31, 2022.


(Dollars in thousands)	Due in One Year or Less		Due after One Through Three Years		Due After Three Through Five Years		Due After Five Years		Total
FHLB advances	$	—	$	—	$	—	$	5,000	$	5,000
Time deposits of $250,000 or less	84,168		4,452		—		—		88,620
Time deposits of more than $250,000	164,208		3,020		—		—		167,228
Operating leases	1,349		2,371		1,493		445		5,658
Subordinated debt	—		—		—		24,409		24,409
Total	$	249,725	$	9,843	$	1,493	$	29,854	$	290,915

Off-Balance Sheet Items

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

Our commitments associated with outstanding letters of credit and commitments to extend credit 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)	March 31, 2022		December 31, 2021
Unfunded lines of credit	$	460,743	$	418,167
Commitments to extend credit	102,193		108,824
Standby letters of credit	11,842		12,095
Total credit extension commitments	$	574,778	$	539,086

Ta b le of Contents

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

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

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

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

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

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 March 31, 2022, and 2021.


(Dollars in thousands)	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Return on average assets	0.36	%	0.90	%
Return on average equity	4.23	%	8.74	%
Average equity to average assets	8.48	%	10.35	%

Market Risk and Interest Rate Sensitivity

Overview

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

Interest Rate Risk Management

Our net income is largely dependent on net interest income. Net interest income is susceptible to interest rate risk to the degree that interest-bearing liabilities mature or reprice on a different basis than interest earning assets. When interest-bearing liabilities mature or reprice more quickly than interest earning assets in a given period, a significant increase in market rates of

Ta b le of Contents

interest could adversely affect net interest income. Similarly, when interest earning assets mature or reprice more quickly than interest-bearing liabilities, falling market interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders’ equity.

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

The balance sheet is subject to testing for interest rate shock possibilities to indicate the inherent interest rate risk. We prepare a current base case and several alternative interest rate simulations (-400, -300, -200, -100, +100, +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

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.

Ta b le of Contents

REPRICING GAP


March 31, 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	$	468,979	$	58,224	$	229,046	$	756,249	$	1,052,912	$	1,809,161
Loans held for sale	988		—		—		988		—		988
Securities	43,524		13,398		10,393		67,315		145,546		212,861
Interest earning deposits at other financial institutions	671,595		—		—		671,595		46,042		717,637
Federal funds sold	24,089		—		—		24,089		—		24,089
FHLB & FRB stock	7,286		—		—		7,286		—		7,286
Total interest earning assets	$	1,216,461	$	71,622	$	239,439	$	1,527,522	$	1,244,500	$	2,772,022
Interest-Bearing Liabilities
Interest-bearing deposits	$	731,091	$	24,384	$	109,728	$	865,203	$	594,869	$	1,460,072
Time deposits	28,803		53,057		166,516		248,376		7,472		255,848
Total interest-bearing deposits	759,894		77,441		276,244		1,113,579		602,341		1,715,920

FHLB advances	—		—		—		—		5,000		5,000


Subordinated debt	—		—		—		—		24,409		24,409
Total interest-bearing liabilities	$	759,894	$	77,441	$	276,244	$	1,113,579	$	631,750	$	1,745,329
Period gap	$	456,567	$	(5,819)	$	(36,805)	$	413,943	$	612,750
Cumulative gap	$	456,567	$	450,748	$	413,943	$	413,943	$	1,026,693
Ratio of cumulative gap to total earning assets	37.53%		629.34%		172.88%		27.10%		82.50%
Ratio of cumulative gap to cumulative total earning assets	16.47%		16.26%		14.93%		14.93%		37.04%

Ta b le of Contents

CASH FLOW GAP


March 31, 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	$	119,724	$	65,347	$	287,759	$	472,830	$	1,336,331	$	1,809,161
Loans held for sale	988		—		—		988		—		988
Securities	7,533		6,912		15,356		29,801		183,060		212,861
Interest earning deposits at other financial institutions	671,595		—		—		671,595		46,042		717,637
Federal funds sold	24,089		—		—		24,089		—		24,089
FHLB & FRB stock (1)	7,286		—		—		7,286		—		7,286
Total interest earning assets	$	831,215	$	72,259	$	303,115	$	1,206,589	$	1,565,433	$	2,772,022
Interest-Bearing Liabilities
Interest-bearing deposits	$	731,091	$	24,384	$	109,728	$	865,203	$	594,869	$	1,460,072
Time deposits	28,803		53,057		166,516		248,376		7,472		255,848
Total interest-bearing deposits	759,894		77,441		276,244		1,113,579		602,341		1,715,920

FHLB advances	5,000		—		—		5,000		—		5,000


Subordinated debt	—		—		—		—		24,409		24,409
Total interest-bearing liabilities	$	764,894	$	77,441	$	276,244	$	1,118,579	$	626,750	$	1,745,329
Period gap	$	66,321	$	(5,182)	$	26,871	$	88,010	$	938,683
Cumulative gap	$	66,321	$	61,139	$	88,010	$	88,010	$	1,026,693
Ratio of cumulative gap to total earning assets	7.98%		84.61%		29.04%		7.29%		65.59%
Ratio of cumulative gap to cumulative total earning assets	2.39%		2.21%		3.17%		3.17%		37.04%

(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 March 31, 2022, and December 31, 2021.


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	%
March 31, 2022	(17.9)	%	(16.1)	%	(14.8)	%	(9.0)	%	—	%	6.0	%	11.8	%	17.6	%	23.4	%
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	%
March 31, 2022	(32.1)	%	(31.1)	%	(26.4)	%	(11.3)	%	—	%	7.4	%	14.9	%	22.4	%	29.8	%
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

Ta b le of Contents

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.

The following table illustrates the results of our EVE analysis as of March 31, 2022, and December 31, 2021.


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	%
March 31, 2022	(5.5)	%	(7.1)	%	(7.1)	%	(2.9)	%	—	%	1.1	%	1.9	%	2.0	%	1.6	%
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 accounting and reporting policies are in accordance with GAAP and conform to general practices within the banking industry. Our financial position and results of operations are affected by management's application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in our consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include our accounting for the allowance for loan losses and fair value measurements. Significant accounting policies are discussed in the Notes to Consolidated Financial Statements within our Annual Report. There have been no changes in such policies or the application of such policies during the three months ended March 31, 2022.

In June 2016, FASB issued 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 ("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). For Public Business Entities that are non-SEC filers and for SEC filers that are considered small reporting companies, it is effective for January 1, 2023. Early adoption is still permitted. The Company's management is in the process of evaluating credit loss estimation models. Updates to business processes and the documentation of accounting policy decisions are ongoing. The Company may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on the Company's consolidated financial statements has not yet been determined. The Company will adopt this accounting standard effective January 1, 2023.

Explanation of Certain unaudited non-GAAP Financial Measures

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

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

Ta b le of Contents

Reconciliation of non-GAAP Financial Measures


	Three Months Ended
(Dollar amounts in thousands, except per share data)	March 31, 2022			December 31, 2021			March 31, 2021
Net interest income (GAAP)	$	19,047		$	18,123		$	17,879
Total non-interest income	1,273			1,290			1,119
Total non-interest expense	16,495			12,900			11,788
Pre-tax pre-provision earnings (non-GAAP)	$	3,825		$	6,513		$	7,210
Total adjustments to non-interest expense (1)	(2,915)			—			(684)
Adjusted pre-tax pre-provision earnings (non-GAAP)	$	6,740		$	6,513		$	7,894

Net interest income after provision for loan losses (GAAP)	$	18,196		$	16,243		$	16,841
Total non-interest income	1,273			1,290			1,119
Total non-interest expense	16,495			12,900			11,788
Total adjustments to non-interest expense (1)	(2,915)			—			(684)
Adjusted income before income taxes (non-GAAP)	$	5,889		$	4,633		$	6,856
Income tax provision	903			673			1,541
Adjusted net income (non-GAAP)	$	4,986		$	3,960		$	5,315

Return on average assets (GAAP)	0.36		%	0.58		%	0.90		%
Annualized pre-tax pre-provision ROAA (non-GAAP)	0.57		%	0.95		%	1.36		%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)	1.00		%	0.95		%	1.49		%

(1)Adjustments to non-interest expense for the three months ended March 31, 2022 were related to severance and accelerated vesting expense related to the departure of the former Chief Executive Officer. Adjustments to non-interest expense for the three months ended March 31, 2021 were related to change in control payments to two former Marquis employees.


(Dollar amounts in thousands, except per share data)	March 31, 2022			December 31, 2021
Total loans held for investment (GAAP)	$	1,809,161		$	1,764,460
Add allowance for loan loss ("ALLL")	13,555			12,704
Total gross loans held for investment ("LHFI")	1,822,716			1,777,164
Less Professional Bank net PPP loans ("PPP")	$	31,097		$	58,615
Total gross LHFI excluding net PPP loans (non-GAAP)	$	1,791,619		$	1,718,549
Add purchase accounting loan marks ("PA")	11,466			13,003
Total gross LHFI excluding net PPP loans (non-GAAP) + PA marks	$	1,803,085		$	1,731,552

ALLL as a % of LHFI (GAAP)	0.75		%	0.72		%
ALLL as a % of total LHFI excluding net PPP loans (non-GAAP)	0.76		%	0.74		%
PA marks + ALLL / LHFI excluding net PPP loans (non-GAAP)	1.39		%	1.48		%

Ta b le of Contents


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

Net interest income (GAAP)	$	19,047		$	18,123		$	17,879
Less: PPP net interest income recognized	(1,059)			(1,269)			(2,982)
Net interest income excluding PPP (non-GAAP)	17,988			16,854			14,897
Less: PA premium/discounts	(1,661)			(1,442)			(1,269)
Net interest income excluding PPP and PA (non-GAAP)	$	16,327		$	15,412		$	13,628
Average interest earning assets (GAAP)	2,599,372			2,584,329			1,986,324
Less: average PPP loans	(44,585)			(72,728)			(190,713)
Average interest earning assets, excluding PPP (non-GAAP)	2,554,787			2,511,601			1,795,611
Add: average PA marks	12,314			14,051			18,459
Average interest earning assets, excluding PPP and PA (non-GAAP)	$	2,567,101		$	2,525,652		$	1,814,070
Net interest margin (GAAP)	2.97		%	2.78		%	3.65		%
Net interest margin excluding PPP (non-GAAP)	2.86		%	2.66		%	3.36		%
Net interest margin excluding PPP and PA (non-GAAP)	2.58		%	2.42		%	3.04		%

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 Financial Officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2022. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in 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 Company’s management, including the Chief Executive Officer and Chief 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 March 31, 2022.

Changes in Internal Control over Financial Reporting

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

Ta b le 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 2021 Form 10-K included a discussion of the many risks and uncertainties we face, any one or more of which could have a material adverse effect on our business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. Other than as noted below, there have been no material changes to our risk factors as previously described under Item 1A of our 2021 Form 10-K.

Our business and financial results are affected by general economic conditions, employment trends, and changes in economic conditions or financial markets may materially adversely affect our business and financial condition.

In general, a prolonged period of slow growth in the U.S. economy or any deterioration in general economic conditions or financial markets could materially adversely affect our results of operations, net worth and financial condition. Global economic conditions can also adversely affect our business and financial results. Changes or volatility in market conditions resulting from deterioration in or uncertainty regarding global economic conditions can adversely affect the value of our assets, which could materially adversely affect our results of operations, net worth and financial condition. Differing rates of economic recovery from the COVID-19 pandemic around the world along with continued dislocations in supply chains remain a concern for policy makers and financial markets. To the extent global economic conditions negatively affect the U.S. economy, they also could negatively affect the credit performance of the loans in our book of business. Volatility or uncertainty in global or domestic political conditions also can significantly affect economic conditions and financial markets. Global or domestic political unrest also could affect economic growth and financial markets. For example, the ongoing conflict between Russia and Ukraine and related economic sanctions imposed on Russia, as well as any further actions by Russia, the United States or others relating to this conflict, may further impact the global economy and financial markets, which could further increase inflationary pressure and interest rates, as well as negatively affect economic growth and result in disruptions in the financial markets.

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

(a)Not applicable.

(b)Not applicable.

(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, 2021, on May 5, 2021, 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. Under this 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 March 31, 2022, are shown below:


Periods	Total Number of Shares Purchased	Average Price Paid per Share		Approximate Dollar Value of Shares that May yet be Purchased Under the Plan
January 1, 2022 to January 31, 2022:	—	$	—	$	4,091,454
February 1, 2022 to February 28, 2022:	—	—		4,091,454
March 1, 2022 to March 31, 2022:	—	—		4,091,454
Total - 1st Quarter	—	$	—	$	4,091,454

Ta b le of Contents

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Ta b le 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 C F O 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 C F O 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

Ta b le of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, in the capacities set forth opposite their names on May 13, 2022.

Signature

Title

Date

/s/ Abel L. Iglesias

Chief Executive Officer

May 13, 2022

Abel L. Iglesias

(Principal Executive Officer)

/s/ Mary Usategui

Chief Financial Officer

May 13, 2022

Mary Usategui

(Principal Financial Officer)

/s/ Jennifer Boyd

Chief Accounting Officer

May 13, 2022

Jennifer Boyd

(Principal Accounting Officer)