C1 Financial, Inc. - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - C1 Financial, Inc.	v421635_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - C1 Financial, Inc.	v421635_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - C1 Financial, Inc.	v421635_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - C1 Financial, Inc.	v421635_ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission file number 001-36595

C1 FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Florida		46-4241720
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

100 5th Street South		33701
St. Petersburg, Florida		(Zip Code)
(Address of principal executive offices)

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

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ¨ No ¨

Indicate the number of shares outstanding of the issuer’s common stock, par value $1.00 per share, as of October 16, 2015: 16,100,966.

C1 FINANCIAL, INC. AND SUBSIDIARIES
INDEX

	Page

Part I Financial Information	2
Item 1. Financial Statements	2
Unaudited Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014	2
Unaudited Consolidated Statements of Income - Three and Nine Months Ended September 30, 2015 and 2014	3
Unaudited Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2015 and 2014	4
Unaudited Consolidated Statements of Changes in Stockholders’ Equity - Nine Months Ended September 30, 2015 and 2014	5
Unaudited Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2015 and 2014	6
Notes to Unaudited Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosure About Market Risk	54
Item 4. Controls and Procedures.	55
Part II Other Information	56
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3. Defaults Upon Senior Securities	56
Item 4. Mine Safety Disclosures	56
Item 5. Other Information	56
Item 6. Exhibits	56
Signatures	57
Exhibit Index	58

Forward-Looking Statements

We have made statements under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Quarterly Report on Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or “may,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be inaccurate. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

There are a number of potential factors, risks and uncertainties that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including, the following:

changes in general economic and financial market conditions;

changes in the regulatory environment, economic conditions generally and in the financial services industry;

changes in the economy affecting real estate values;

our ability to achieve loan and deposit growth;

projected population and income growth in our targeted market areas;

volatility and direction of market interest rates and a weakening of the economy which could materially impact credit quality trends and the ability to generate loans; and

those other factors and risks described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Registration Statement on Form S-1, No. 333-206107, declared effective by the Commission on August 13, 2015.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations.

Part I
Financial Information

Item 1. Financial Statements

C1 Financial, Inc.

Consolidated Balance Sheets (Unaudited)
September 30, 2015 and December 31, 2014

(Dollars in thousands, except per share data)
(Balance Sheet data at December 31, 2014 is derived from audited financial statements)

	September 30, 2015		December 31, 2014
ASSETS
Cash and cash equivalents	$	175,289	$	185,703
Time deposits in other financial institutions		247		-
Federal Home Loan Bank stock, at cost		11,668		9,224
Loans receivable (net of allowance of $7,932 at September 30, 2015 and $5,324 at December 31, 2014)		1,376,617		1,179,056
Premises and equipment, net		63,613		64,075
Other real estate owned, net		26,490		34,916
Bank-owned life insurance (BOLI)		43,018		43,907
Accrued interest receivable		4,269		3,490
Core deposit intangible		754		987
Prepaid expenses		4,778		5,243
Other assets		5,740		10,090
Total assets	$	1,712,483	$	1,536,691

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	336,361	$	278,543
Interest bearing		928,019		888,959
Total deposits		1,264,380		1,167,502
Federal Home Loan Bank advances		242,000		178,500
Other liabilities		6,543		4,051
Total liabilities		1,512,923		1,350,053
Commitments and contingencies (Note 8)

Stockholders’ equity
Common stock, par value $1.00; 100,000,000 shares authorized; 16,100,966 shares issued and outstanding at both September 30, 2015 and December 31, 2014		16,101		16,101
Additional paid-in capital		148,122		148,122
Retained earnings		35,337		22,415
Accumulated other comprehensive income		-		-
Total stockholders’ equity		199,560		186,638
Total liabilities and stockholders’ equity	$	1,712,483	$	1,536,691

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Income STATEMENTS

(Unaudited)
(Dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015		2014
Interest income
Loans, including fees	$	20,340		$	16,028		$	56,803	$	46,481
Securities		3			2			9		59
Federal funds sold and other		203			215			618		612
Total interest income		20,546			16,245			57,430		47,152
Interest expense
Savings and interest-bearing demand deposits		654			546			1,887		1,572
Time deposits		795			953			2,256		2,919
Federal Home Loan Bank advances		1,057			709			2,861		1,852
Other borrowings		-			15			-		44
Total interest expense		2,506			2,223			7,004		6,387
Net interest income		18,040			14,022			50,426		40,765
Provision (reversal of provision) for loan losses		(67	)		207			1,400		4,815
Net interest income after provision for loan losses		18,107			13,815			49,026		35,950
Noninterest income
Gains on sales of securities		-			-			-		241
Gains on sales of loans		79			775			893		2,323
Service charges and fees		602			526			1,750		1,658
Bargain purchase gain		-			37			-		48
Gains on sales of other real estate owned, net		177			68			573		720
Bank-owned life insurance		276			41			626		118
Mortgage banking fees		-			-			-		47
Gains (losses) on disposals of premises and equipment, net		-			(12	)		2,590		(12	)
Other noninterest income		980			362			1,619		1,041
Total noninterest income		2,114			1,797			8,051		6,184
Noninterest expense
Salaries and employee benefits		5,276			4,777			15,722		13,526
Occupancy expense		1,388			1,138			3,960		3,310
Furniture and equipment		779			673			2,275		1,954
Regulatory assessments		349			362			1,100		1,067
Network services and data processing		1,075			1,033			3,239		2,824
Printing and office supplies		54			77			183		270
Postage and delivery		78			52			242		181
Advertising and promotion		873			812			2,752		2,634
Other real estate owned related expense, net		468			511			1,559		1,625
Other real estate owned – valuation allowance expense		102			45			168		609
Amortization of intangible assets		70			117			233		412
Professional fees		673			750			1,880		2,174
Loan collection expenses		86			140			173		463
Other noninterest expense		701			793			2,166		2,178
Total noninterest expense		11,972			11,280			35,652		33,227
Income before income taxes		8,249			4,332			21,425		8,907
Income tax expense		3,244			1,706			8,503		3,525
Net income	$	5,005		$	2,626		$	12,922	$	5,382
Earnings per common share:
Basic	$	0.31		$	0.18		$	0.80	$	0.40
Diluted	$	0.31		$	0.18		$	0.80	$	0.40

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)
(Dollars in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net income	$	5,005	$	2,626	$	12,922	$	5,382
Other comprehensive income:
Unrealized gains/losses on available-for-sale securities:
Unrealized holding gains arising during the period		-		-		-		241
Reclassification adjustments for gains included in net income*		-		-		-		(241	)
Tax effect*		-		-		-		-
Total other comprehensive income, net of tax		-		-		-		-
Comprehensive income	$	5,005	$	2,626	$	12,922	$	5,382

Amounts for realized gains on available-for-sale securities are included in gains on sales of securities in the consolidated income statements. Income taxes associated with the unrealized holding gains arising during the period, net of the reclassification adjustments for gains included in net income were $0 for both the three months ended September 30, 2015 and 2014, respectively, and $0 for both the nine months ended September 30, 2015 and 2014. The amounts related to income taxes on gains included in net income are included in income tax expense in the consolidated income statements.

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)
Nine Months Ended September 30, 2015 and 2014

(Dollars in thousands)

	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at January 1, 2014	$	12,217	$	93,906	$	15,691	$	-	$	121,814
Issuance of common stock, net of costs of $4,653 (3,884,034 shares)		3,884		54,023		-		-		57,907
Net income		-		-		5,382		-		5,382
Other		-		193		-		-		193
Other comprehensive income		-		-		-		-		-

Balance at September 30, 2014	$	16,101	$	148,122	$	21,073	$	-	$	185,296

Balance at January 1, 2015	$	16,101	$	148,122	$	22,415	$	-	$	186,638
Net income		-		-		12,922		-		12,922
Other comprehensive income		-		-		-		-		-

Balance at September 30, 2015	$	16,101	$	148,122	$	35,337	$	-	$	199,560

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

Consolidated Statements of Cash Flows

(Unaudited)
(Dollars in thousands)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income	$	12,922		$	5,382
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		1,400			4,815
Depreciation		2,543			2,076
Net accretion of purchase accounting adjustments		(1,327	)		(1,807	)
Accretion of loan discount		(404	)		(205	)
Amortization of other intangible assets		233			411
Increase in other real estate owned valuation allowance		168			609
Increase in cash surrender value of BOLI		(626	)		(119	)
Gains on sales of securities		-			(241	)
Bargain purchase gain		-			(48	)
Net change in deferred income tax expense		515			40
Gains on sales of loans		(893	)		(2,323	)
Gains on sales of other real estate owned, net		(573	)		(720	)
(Gains) losses on disposals of premises and equipment, net		(2,590	)		12
Gains on early redemption of Federal Home Loan Bank advances		(670	)		-
Net change in other assets and liabilities:
Accrued interest receivable and other assets		3,522			(2,317	)
Other liabilities		2,747			(771	)
Net cash from operating activities		16,967			4,794
Cash flows from investing activities
Net change in time deposits in other financial institutions		(247	)		-
Loan originations, net of repayments		(206,426	)		(104,302	)
Proceeds from loans sold		8,401			21,954
Proceeds from sales of other real estate owned		10,297			6,250
Proceeds from sales, calls and maturities of securities		-			996
Purchases of Federal Home Loan Bank stock		(4,479	)		(1,958	)
Proceeds from sales of Federal Home Loan Bank stock		2,035			472
Purchases of premises and equipment		(3,939	)		(8,402	)
Proceeds from sales of premises and equipment		4,448			6
Surrender of BOLI		1,457			-
Net cash transferred in bank acquisition		-			48
Net cash from investing activities		(188,453	)		(84,936	)
Cash flows from financing activities
Net proceeds from issuance of common stock		-			57,907
Net change in deposits		96,902			124,024
Repayment of Federal Home Loan Bank advances		(35,830	)		(6,500	)
Proceeds from Federal Home Loan Bank advances		100,000			45,000
Net cash from financing activities		161,072			220,431
Net change in cash and cash equivalents		(10,414	)		140,289
Cash and cash equivalents at beginning of the period		185,703			143,452
Cash and cash equivalents at end of the period	$	175,289		$	283,741
Supplemental information:
Cash paid during the period for interest	$	7,127		$	6,610
Cash paid during the period for income taxes		8,752			5,171
Non-cash items:
Transfers from loans to other real estate owned		1,466			3,046

See accompanying notes to unaudited consolidated financial statements.

C1 Financial, Inc.

NOTES TO Consolidated FINANCIAL Statements

(Unaudited)
September 30, 2015 and 2014

(Dollars in thousands, except per share data)

NOTE 1 – BASIS OF PRESENTATION

Nature of Operations and Principles of Consolidation: The consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 include C1 Financial, Inc. (“Parent Company”) and its wholly owned subsidiary, C1 Bank (the “Bank”), together referred to as “the Company”.

C1 Bank is a state chartered bank and is subject to the regulations of certain government agencies. The Bank provides a variety of banking services to individuals through its 31 banking centers and one loan production office located in nine counties (Pinellas, Hillsborough, Pasco, Manatee, Sarasota, Charlotte, Lee, Miami-Dade, and Orange). Its primary deposit products are checking, money market, savings, and term certificate accounts, and its primary lending products are commercial real estate loans, residential real estate loans, commercial loans, and consumer loans. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets and consumer assets. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on real estate values and general economic conditions.

The consolidated financial information included herein as of and for the three and nine months ended September 30, 2015 and 2014 is unaudited. Accordingly, it does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. However, such information reflects all adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for a fair statement of the financial condition and results of operations for the interim periods. Certain account reclassifications have been made to the 2014 financial statements in order to conform to classifications used in the current year. Reclassifications had no effect on 2014 net income or stockholders’ equity. The results for the three and nine months ended September 30, 2015 are not indicative of annual results. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The December 31, 2014 consolidated balance sheet was derived from the Company’s December 31, 2014 audited Consolidated Financial Statements.

Earnings per share: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the effect of any potentially dilutive common stock equivalents (i.e., outstanding stock options). Earnings per common share is restated for all stock splits and stock dividends through the date of the issuance of the financial statements.

NOTE 2 – INITIAL PUBLIC OFFERING

C1 Financial, Inc. qualifies as an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). On June 2, 2014, the Company submitted a confidential draft Registration Statement on Form S-1 with the Securities and Exchange Commission (“SEC”) with respect to the shares to be registered and sold. On July 11, 2014, the Company filed a public Registration Statement on Form S-1 with the SEC. On July 17, 2014, the Board of Directors of the Company approved a resolution for C1 Financial, Inc. to sell shares of common stock to the public in an initial public offering. The Registration statement was declared effective by the SEC on August 13, 2014. The Company issued 2,761,356 shares of common stock at $17 per share, which included 129,777 shares of common stock purchased by the underwriters of the offering on September 9, 2014 in connection with the partial exercise of the over-allotment option held by such underwriters. Total proceeds received by the Company, net of offering costs was $42.3 million.

In connection with the initial public offering, on July 17, 2014, the Board of Directors approved a 7-for-1 reverse stock split of the Company’s common stock, which was approved by the majority stockholders and became effective on August 13, 2014. The effect of the split on authorized, issued and outstanding common and preferred shares and earnings per share has been retroactively applied to all periods presented.

NOTE 3 – INVESTMENT SECURITIES

The Bank had no securities available for sale as of September 30, 2015 and December 31, 2014 due to the decision to sell all marketable securities in the Bank’s portfolio in 2013. During the second quarter of 2014, the Bank recorded gains on the sale of equity securities from an acquired bank.

Proceeds and gross gains and (losses) from the sales of securities available for sale for the three and nine months ended September 30, 2015 and 2014, respectively, were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Proceeds from sales of securities	$	-	$	-	$	-	$	996
Gross gains	$	-	$	-	$	-	$	241
Gross (losses)		-		-		-		-
Net gains (losses) on sales of securities	$	-	$	-	$	-	$	241

NOTE 4 – LOANS

The loan portfolio was as follows at September 30, 2015 and December 31, 2014:

	September 30, 2015			December 31, 2014
Real estate
Residential	$	267,238		$	224,416
Commercial		791,669			723,577
Construction		168,823			107,436
Total real estate		1,227,730			1,055,429
Commercial		76,940			75,360
Consumer		85,605			57,733
Total loans, gross		1,390,275			1,188,522
Less:
Net deferred loan fees		(5,726	)		(4,142	)
Allowance for loan losses		(7,932	)		(5,324	)
Total loans, net	$	1,376,617		$	1,179,056

The Bank has divided the loan portfolio into various portfolio segments, each with different risk characteristics and methodologies for assessing risk. The portfolio segments identified are as follows:

Residential real estate loans are typically secured by 1-4 family residential properties located mostly in Florida and are underwritten in accordance with policies set forth and approved by the Board of Directors, including repayment capacity and source, value of the underlying property, credit history and stability.

Repayment of residential real estate loans is primarily dependent upon the personal income or business income generated by the secured rental property of the borrowers (in the case of investment properties), which can be impacted by the economic conditions in their market area or, in the case of loans to foreign borrowers, their country of origin from which their source of income originates.

Commercial real estate loans are typically segmented into classes such as office buildings and condominiums, retail buildings and shopping centers, warehouse and other. Commercial real estate loans are secured by the subject property and are underwritten based upon standards set forth in the Bank’s policies approved by the Board of Directors. Such standards include, among other factors, loan to value limits, cash flow and debt service coverage, and general creditworthiness of the obligors.

Construction loans to borrowers are extended for the purpose of financing the construction of owner occupied and nonowner occupied properties. These loans are categorized as construction loans during the construction period, later converting to commercial or residential real estate loans after the construction is complete and amortization of the loan begins. Construction loans are approved based on an analysis of the borrower and guarantor, the viability of the project and on an acceptable percentage of the appraised value of the property securing the loan. Construction loan funds are disbursed periodically based on the percentage of construction completed.

Commercial loans are primarily underwritten on the basis of the borrowers’ ability to service such debt from income. When possible, commercial loans are secured by real estate. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. As a general practice, collateral is taken as a security interest in any available real estate, equipment, or other chattel, although loans may also be made on an unsecured basis. Collateralized working capital loans typically are secured by short-term assets whereas long-term loans are primarily secured by long-term assets.

Consumer loans are extended for various purposes. This segment also includes home improvement loans, lines of credit, personal loans, and deposit account collateralized loans. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Loans to consumers are extended after a credit evaluation, including the creditworthiness of the borrower, the purpose of the credit, and the primary and secondary sources of repayment.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2015 and 2014:

Three Months Ended September 30, 2015	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,319		$	4,477		$	800	$	530		$	549		$	7,675

Loans charged-off		(50	)		(2	)		-		(1	)		(41	)		(94	)
Recoveries		76			41			136		105			60			418
Net recoveries		26			39			136		104			19			324

Provision (reversal of provision) for loan losses		169			(130	)		90		(163	)		(33	)		(67	)
Ending balance	$	1,514		$	4,386		$	1,026	$	471		$	535		$	7,932

Three Months Ended September 30, 2014	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	741		$	2,653		$	280	$	647		$	272		$	4,593

Loans charged-off		(126	)		(1	)		-		(9	)		(21	)		(157	)
Recoveries		527			37			31		183			20			798
Net (charge-offs) recoveries		401			36			31		174			(1	)		641

Provision (reversal of provision) for loan losses		(334	)		660			88		(226	)		19			207
Ending balance	$	808		$	3,349		$	399	$	595		$	290		$	5,441

The following tables present the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2015 and 2014:

Nine Months Ended September 30, 2015	Residential Real Estate			Commercial Real Estate			Construction		Commercial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	820		$	3,423		$	416	$	373		$	292		$	5,324

Loans charged-off		(50	)		(3	)		-		(67	)		(47	)		(167	)
Recoveries		298			186			228		550			113			1,375
Net recoveries		248			183			228		483			66			1,208

Provision (reversal of provision) for loan losses		446			780			382		(385	)		177			1,400
Ending balance	$	1,514		$	4,386		$	1,026	$	471		$	535		$	7,932

Nine Months Ended September 30, 2014	Residential Real Estate			Commercial Real Estate			Construction			Commercial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	439		$	1,860		$	241		$	537		$	335		$	3,412

Loans charged-off		(224	)		(205	)		-			(4,055	)		(259	)		(4,743	)
Recoveries		964			266			334			358			35			1,957
Net (charge-offs) recoveries		740			61			334			(3,697	)		(224	)		(2,786	)

Provision (reversal of provision) for loan losses		(371	)		1,428			(176	)		3,755			179			4,815
Ending balance	$	808		$	3,349		$	399		$	595		$	290		$	5,441

On June 30, 2014, the Bank charged-off in-full its only loan under the shared national credit program in the amount of $4.0 million. The Bank deemed the loan to be uncollectible in June 2014 and the full loan was charged off as the Bank believed that cash flow to repay the loan was collateral-dependent and other sources of repayment were no more than nominal. The value of the collateral, in this case closely held stock, was determined to be uncertain. Subsequently, the Bank collected $147 thousand of recoveries during the third quarter of 2014 and $393 thousand during the second quarter of 2015.

The following table provides the allocation of the allowance for loan losses by portfolio segment at September 30, 2015:

September 30, 2015	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Specific Reserves:
Impaired Loans	$	142	$	230	$	125	$	50	$	-	$	547
Purchased credit impaired loans		32		17		4		-		-		53
Total Specific Reserves		174		247		129		50		-		600
General Reserves		1,340		4,139		897		421		535		7,332
Total	$	1,514	$	4,386	$	1,026	$	471	$	535	$	7,932

Loans:
Individually evaluated for impairment	$	1,481	$	5,051	$	177	$	600	$	1	$	7,310
Purchased credit impaired loans		5,634		17,971		1,175		779		63		25,622
Collectively evaluated for impairment		260,123		768,647		167,471		75,561		85,541		1,357,343
Total ending loans balance	$	267,238	$	791,669	$	168,823	$	76,940	$	85,605	$	1,390,275

The following table provides the allocation of the allowance for loan losses by portfolio segment at December 31, 2014:

December 31, 2014	Residential Real Estate		Commercial Real Estate		Construction		Commercial		Consumer		Total
Specific Reserves:
Impaired Loans	$	107	$	339	$	-	$	68	$	-	$	514
Purchased credit impaired loans		46		37		8		-		1		92
Total Specific Reserves		153		376		8		68		1		606
General Reserves		667		3,047		408		305		291		4,718
Total	$	820	$	3,423	$	416	$	373	$	292	$	5,324

Loans:
Individually evaluated for impairment	$	1,813	$	5,395	$	230	$	1,013	$	104	$	8,555
Purchased credit impaired loans		6,580		19,360		1,480		687		66		28,173
Collectively evaluated for impairment		216,023		698,822		105,726		73,660		57,563		1,151,794
Total ending loans balance	$	224,416	$	723,577	$	107,436	$	75,360	$	57,733	$	1,188,522

The following table presents loans individually evaluated for impairment by portfolio segment as of September 30, 2015 and December 31, 2014. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken.

	September 30, 2015						December 31, 2014
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated

With no related allowance recorded:
Residential real estate	$	1,110	$	1,023	$	-	$	1,643	$	1,464	$	-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		4,185		3,926		-		4,346		4,000		-
Nonowner occupied		-		-		-		608		553		-
Secured by farmland		185		143		-		185		143		-
Construction		-		-		-		280		230		-
Commercial		666		479		-		1,007		777		-
Consumer		1		1		-		169		104		-
With allowance recorded:
Residential real estate		484		458		142		364		349		107
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		1,043		982		230		776		699		339
Nonowner occupied		-		-		-		-		-		-
Secured by farmland		-		-		-		-		-		-
Construction		177		177		125		-		-		-
Commercial		146		121		50		314		236		68
Consumer		-		-		-		-		-		-

Total	$	7,997	$	7,310	$	547	$	9,692	$	8,555	$	514

Average impaired loans and related interest income for the three months ended September 30, 2015 and 2014 were as follows:

	Three Months Ended September 30, 2015						Three Months Ended September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Residential real estate	$	1,036	$	-	$	-	$	1,014	$	-	$	-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		4,027		-		-		1,404		-		-
Nonowner occupied		-		-		-		784		-		-
Secured by farmland		143		-		-		1,275		9		-
Construction		-		-		-		-		-		-
Commercial		484		-		-		241		1		-
Consumer		1		-		-		27		-		-
With allowance recorded:
Residential real estate		460		-		-		662		-		-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		983		4		-		3,569		-		-
Nonowner occupied		-		-		-		-		-		-
Secured by farmland		-		-		-		-		-		-
Construction		177		-		-		89		-		-
Commercial		126		2		-		871		3		-
Consumer		-		-		-		116		-		-

Total	$	7,437	$	6	$	-	$	10,052	$	13	$	-

Average impaired loans and related interest income for the nine months ended September 30, 2015 and 2014 were as follows:

	Nine Months Ended September 30, 2015						Nine Months Ended September 30, 2014
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
With no related allowance recorded:
Residential real estate	$	1,185	$	4	$	-	$	884	$	5	$	-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		3,967		2		-		2,339		13		-
Nonowner occupied		361		-		-		774		1		-
Secured by farmland		143		-		-		1,701		17		-
Construction		43		-		-		3		-		-
Commercial		630		1		-		260		7		-
Consumer		1		-		-		45		-		-
With allowance recorded:
Residential real estate		552		-		-		531		6		-
Commercial real estate
Multifamily		-		-		-		-		-		-
Owner occupied		887		12		-		2,022		17		-
Nonowner occupied		-		-		-		102		-		-
Secured by farmland		-		-		-		-		-		-
Construction		77		-		-		-		-		-
Commercial		182		5		-		833		10		-
Consumer		27		-		-		116		-		-

Total	$	8,055	$	24	$	-	$	9,610	$	76	$	-

The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual as of September 30, 2015 and December 31, 2014:

	September 30, 2015				December 31, 2014
	Nonaccrual		Loans Past Due Over 90 Days Still Accruing		Nonaccrual		Loans Past Due Over 90 Days Still Accruing
Residential real estate	$	3,004	$	-	$	4,168	$	-
Commercial real estate		12,486		-		14,582		-
Construction		177		-		449		-
Commercial		1,106		-		1,591		-
Consumer		1		-		104		-
Total	$	16,774	$	-	$	20,894	$	-

The reported amounts as of September 30, 2015 and December 31, 2014 include nonaccrual purchased credit impaired loans of $10,072 and $12,980, respectively. Purchased credit impaired loans are placed on nonaccrual and accounted for under the cost recovery method when repayment is expected through foreclosure or repossession of the collateral, and the timing of foreclosure or repossession cannot be estimated with reasonable certainty. These loans are measured for impairment under the Bank’s policy for measuring impairment on collateral dependent impaired loans that were originated by the Bank and included in impaired loans if there is a subsequent decline in the value of the collateral.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2015:

September 30, 2015	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	477	$	684	$	3,004	$	4,165	$	263,073	$	267,238
Commercial real estate
Multifamily		-		-		-		-		31,736		31,736
Owner occupied		1,132		310		9,297		10,739		233,651		244,390
Nonowner occupied		2,960		-		3,046		6,006		456,178		462,184
Secured by farmland		17,273		-		143		17,416		35,943		53,359
Construction		-		-		177		177		168,646		168,823
Commercial		-		96		1,106		1,202		75,738		76,940
Consumer		156		27		1		184		85,421		85,605
Total	$	21,998	$	1,117	$	16,774	$	39,889	$	1,350,386	$	1,390,275

The increase in 30-59 days past due related to a commercial real estate loan secured by Brazilian farmland with a recorded investment of $17,273.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2014:

December 31, 2014	30 – 59 Days Past Due		60 – 89 Days Past Due		Greater than 89 Days Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	1,256	$	165	$	4,168	$	5,589	$	218,827	$	224,416
Commercial real estate
Multifamily		356		-		-		356		32,545		32,901
Owner occupied		1,829		-		10,261		12,090		219,146		231,236
Nonowner occupied		2,593		-		4,178		6,771		392,831		399,602
Secured by farmland		-		-		143		143		59,695		59,838
Construction		85		-		449		534		106,902		107,436
Commercial		550		-		1,591		2,141		73,219		75,360
Consumer		49		48		104		201		57,532		57,733
Total	$	6,718	$	213	$	20,894	$	27,825	$	1,160,697	$	1,188,522

Troubled Debt Restructurings:

The following tables summarize troubled debt restructurings that were performing in accordance with the restructured terms at September 30, 2015 and December 31, 2014:

	September 30, 2015				December 31, 2014
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
Residential real estate		-	$	-		-	$	-
Commercial real estate
Multifamily		-		-		-		-
Owner occupied		1		518		1		532
Nonowner occupied		1		369		1		374
Secured by farmland		-		-		-		-
Construction		-		-		-		-
Commercial		-		-		-		-
Consumer		1		74		-		-
Total		3	$	961		2	$	906

As of September 30, 2015 and December 31, 2014, the Bank had no nonaccruing troubled debt restructurings and was not committed to lend any additional amounts to customers with outstanding loans that were classified as troubled debt restructurings.

There was one loan (a consumer loan with a recorded investment of $74) modified as a troubled debt restructuring during the nine months ended September 30, 2015. There were no loans modified as troubled debt restructurings during the nine months ended September 30, 2014.

There were no troubled debt restructurings that defaulted during the nine months ended September 30, 2015 and 2014. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Credit Quality Indicators:

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed at least annually. The Bank uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

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

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans not meeting the criteria above include homogeneous loans, which include residential real estate and consumer loans. The credit quality indicators used for loans not meeting the criteria above are payment status and historical payment experience. As of September 30, 2015 and December 31, 2014, loans by risk category were as follows:

September 30, 2015	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	259,152	$	2,548	$	5,538	$	-	$	267,238
Commercial real estate
Multifamily		31,736		-		-		-		31,736
Owner occupied		221,350		9,925		13,115		-		244,390
Nonowner occupied		453,573		5,565		3,046		-		462,184
Secured by farmland		52,800		416		143		-		53,359
Construction		167,210		893		720		-		168,823
Commercial		75,207		353		1,380		-		76,940
Consumer		85,455		149		1		-		85,605

Total	$	1,346,483	$	19,849	$	23,943	$	-	$	1,390,275

December 31, 2014	Pass		Special Mention		Substandard		Doubtful		Total
Residential real estate	$	215,998	$	2,405	$	6,013	$	-	$	224,416
Commercial real estate
Multifamily		32,667		234		-		-		32,901
Owner occupied		205,078		11,059		15,099		-		231,236
Nonowner occupied		389,430		5,994		4,178		-		399,602
Secured by farmland		59,022		673		143		-		59,838
Construction		105,027		1,357		1,052		-		107,436
Commercial		73,321		311		1,728		-		75,360
Consumer		57,568		61		104		-		57,733

Total	$	1,138,111	$	22,094	$	28,317	$	-	$	1,188,522

The Bank acquired loans through the acquisitions of First Community Bank of America, The Palm Bank and First Community Bank of Southwest Florida 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 these purchased credit impaired loans at September 30, 2015 and December 31, 2014 was approximately $25,569 and $28,081, respectively.

The Bank maintained an allowance for loan losses of $53 and $92 at September 30, 2015 and December 31, 2014, respectively, for loans acquired with deteriorated quality. During the three months ended September 30, 2015 and 2014, the Bank accreted $139 and $105, respectively, into interest income on these loans. During the nine months ended September 30, 2015 and 2014, the Bank accreted $416 and $356, respectively, into interest income on these loans. The remaining accretable discount was $2,005 at September 30, 2015. The Bank did not transfer any nonaccretable discount on these loans during the periods presented.

NOTE 5 – FAIR VALUES

Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability 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 that may be used to measure fair value:

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 fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. The fair value of investment securities available for sale is considered a Level 2 in the fair value hierarchy and is measured on a recurring basis.

The Company had no other assets or liabilities measured at fair value on a recurring basis at September 30, 2015 and December 31, 2014.

The fair values of impaired loans with specific allocations of the allowance for loan losses and other real estate owned are 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 appraisers to adjust for differences between the comparable sales and income data available. For the commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. At September 30, 2015 and December 31, 2014, the range of capitalization rates utilized to determine the fair value of the underlying collateral ranged from 8.0% to 12.0%. Adjustments to comparable sales may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given asset over time. As such, the fair values of impaired loans and other real estate owned are considered a Level 3 in the fair value hierarchy and are measured on a nonrecurring basis.

The following tables present assets reported on the balance sheet at their fair value by level within the fair value hierarchy as of September 30, 2015 and December 31, 2014. As required by Accounting Standards Codification (“ASC”) 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The fair value of assets measured on a nonrecurring basis was as follows at September 30, 2015:

	September 30, 2015 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measured on a Nonrecurring Basis:
Impaired Loans
Residential real estate		$	-		$	-		$	316
Commercial real estate			-			-			752
Construction			-			-			52
Commercial			-			-			71
Consumer			-			-			-
Total Impaired Loans			-			-			1,191
Other real estate owned
Residential			-			-			1,194
Commercial			-			-			10,615
Total other real estate owned			-			-			11,809
Total		$	-		$	-		$	13,000

Impaired loans, which had a specific allowance for loan losses allocated, had a fair value of $1,191 (recorded investment of $1,738 with a valuation allowance of $547) at September 30, 2015, which reflected a provision for loan losses of $4 and $37 for the three and nine months ended September 30, 2015, respectively.

Other real estate owned, which is measured at fair value less costs to sell, had a net carrying amount of $11,809 (recorded investment of $14,719, net of a valuation allowance of $2,910) at September 30, 2015, which reflected write-downs of $102 and $168 for the three and nine months ended September 30, 2015, respectively.

The fair value of assets measured on a nonrecurring basis was as follows at December 31, 2014:

	December 31, 2014 Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair Value Measured on a Nonrecurring Basis:
Impaired Loans
Residential real estate		$	-		$	-		$	242
Commercial real estate			-			-			360
Construction			-			-			-
Commercial			-			-			168
Consumer			-			-			-
Total Impaired Loans			-			-			770
Other real estate owned
Residential			-			-			2,337
Commercial			-			-			12,867
Total other real estate owned			-			-			15,204
Total		$	-		$	-		$	15,974

Impaired loans, which had a specific allowance for loan losses allocated, had a fair value of $770 (recorded investment of $1,284 with a valuation allowance of $514) at December 31, 2014, which reflected a provision for loan losses of $292 for the year ended December 31, 2014.

Other real estate owned had a net carrying amount of $15,204 (recorded investment of $20,054, net of a valuation allowance of $4,850) at December 31, 2014, which reflected write-downs of $3,242 for the year ended December 31, 2014.

The following methods and assumptions were used to estimate the fair value of each class of financial assets and liabilities for which it is practicable to estimate that value. These financial assets and liabilities are reported in the Company’s consolidated balance sheets at their carrying amounts. Fair value methods and assumptions are periodically evaluated by the Company.

Cash and cash equivalents – For these short-term highly liquid instruments, the carrying amount is a reasonable estimate of fair value.

Investment securities – Fair values for investment securities, excluding Federal Home Loan Bank stock, are discussed above. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.

Loans – The fair value measurement of certain impaired loans is discussed above. For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for all other loans are estimated using discounted cash flow analyses, using the interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. An overall valuation adjustment was made for specific credit risks as well as general portfolio credit risk. The methods utilized to estimate the fair value do not necessarily represent an exit price.

Accrued interest receivable and payable – The carrying amount of accrued interest receivable and payable approximates fair value due to the short-term nature of these financial instruments.

Deposits – The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable upon demand at September 30, 2015 and December 31, 2014, resulting in a Level 1 classification in the fair value hierarchy. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities, resulting in a Level 2 classification in the fair value hierarchy.

Short-term borrowings – Rates currently available to the Company for borrowings with similar terms and remaining maturities are used to estimate the fair value of existing borrowings by discounting future cash flows.

Long-term debt – Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt by discounting future cash flows.

Commitments to extend credit and standby letters of credit – The value of the unrecognized financial instruments is estimated based on the related deferred fee income associated with the commitments, which is not material to the Company's financial statements at September 30, 2015 and December 31, 2014.

The estimated fair values of the Bank's financial assets and liabilities at September 30, 2015 and December 31, 2014 approximated as follows:

			Fair Value Measurement at September 30, 2015 Using:
	Carrying amount		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	175,289	$	175,289	$	-	$	-
Loans, net		1,376,617		-		-		1,385,827
Accrued interest receivable		4,269		-		-		4,269
Financial liabilities
Deposits	$	1,264,380	$	997,794	$	268,650	$	-
Federal Home Loan Bank advances		242,000		-		245,823		-
Accrued interest payable		190		-		190		-

			Fair Value Measurement at December 31, 2014 Using:
	Carrying amount		(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and cash equivalents	$	185,703	$	185,703	$	-	$	-
Loans, net		1,179,056		-		-		1,177,725
Accrued interest receivable		3,490		-		-		3,490
Financial liabilities
Deposits	$	1,167,502	$	854,246	$	314,201	$	-
Federal Home Loan Bank advances		178,500		-		178,162		-
Accrued interest payable		235		-		235		-

NOTE 6 – EARNINGS PER COMMON SHARE

Basic earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the effect of any potentially dilutive common stock equivalents (i.e., outstanding stock options). There were no antidilutive common stock equivalents during the periods presented.

The following table provides information on the calculation of earnings per common share for the three and nine months ended September 30, 2015 and 2014, respectively:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Basic
Net Income	$	5,005	$	2,626	$	12,922	$	5,382

Weighted average shares of common stock outstanding		16,100,966		14,572,140		16,100,966		13,442,318

Basic earnings per common share	$	0.31	$	0.18	$	0.80	$	0.40

Diluted
Net Income	$	5,005	$	2,626	$	12,922	$	5,382

Weighted average shares of common stock outstanding		16,100,966		14,572,140		16,100,966		13,442,318

Add: Dilutive effect of common stock equivalents		-		-		-		-

Average shares and dilutive potential common shares		16,100,966		14,572,140		16,100,966		13,442,318

Diluted earnings per common share	$	0.31	$	0.18	$	0.80	$	0.40

NOTE 7 – REGULATORY MATTERS

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies, including the Bank’s primary federal regulator, the Federal Deposit Insurance Corporation (FDIC). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification 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 the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined), or leverage ratio. Beginning in 2015, Interim Final Basel III rules require the Bank to maintain minimum amounts and ratios of common equity Tier I capital (as defined in the regulations) to risk-weighted assets (as defined). Additionally under Basel III rules, the decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. For December 31, 2014, regulatory capital ratios were calculated under Basel I rules.

To be categorized as well capitalized, the Bank must maintain minimum Total risk-based, Tier I risk-based, common equity Tier I risk-based (2015) and Tier I leverage ratios as set forth in the table below. As of September 30, 2015 and December 31, 2014, the Bank met all capital adequacy requirements to be considered well capitalized. There were no conditions or events since the end of the third quarter of 2015 that management believes have changed the Bank’s classification as well capitalized. There is no threshold for well-capitalized status for bank holding companies.

Certain of our activities are restricted due to commitments entered into with the Federal Reserve by us and certain of our foreign national controlling stockholders, including but not limited to being prohibited from incurring additional debt to any third party without prior approval from the Federal Reserve.

The Company’s and Bank's actual and required capital ratios as of September 30, 2015 and December 31, 2014 were as follows:

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
September 30, 2015	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets
C1 Financial, Inc.	$	206,885		14.04	%	$	117,851		8.00	%	$	N/A		N/A
C1 Bank		206,203		14.00	%		117,843		8.00	%		147,304		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		198,953		13.51	%		88,388		6.00	%		N/A		N/A
C1 Bank		198,271		13.46	%		88,383		6.00	%		117,843		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		198,953		13.51	%		66,291		4.50	%		N/A		N/A
C1 Bank		198,271		13.46	%		66,287		4.50	%		95,748		6.50	%
Tier 1 capital to average assets
C1 Financial, Inc.		198,953		11.79	%		67,492		4.00	%		N/A		N/A
C1 Bank		198,271		11.75	%		67,488		4.00	%		84,360		5.00	%

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
December 31, 2014	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets
C1 Financial, Inc.	$	190,712		14.74	%	$	103,532		8.00	%	$	N/A		N/A
C1 Bank		190,019		14.68	%		103,523		8.00	%		129,404		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		185,388		14.33	%		51,766		4.00	%		N/A		N/A
C1 Bank		184,695		14.27	%		51,762		4.00	%		77,642		6.00	%
Tier 1 capital to average assets
C1 Financial, Inc.		185,388		11.95	%		62,049		4.00	%		N/A		N/A
C1 Bank		184,695		11.91	%		62,045		4.00	%		77,556		5.00	%

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit and standby letters of credit. A summary of these commitments and contingent liabilities is as follows:

September 30, 2015	Fixed		Variable		Total
Unused lines of credit	$	4,976	$	34,510	$	39,486
Standby letters of credit		2,189		182		2,371
Commitments to fund loans		14,582		153,950		168,532
Total	$	21,747	$	188,642	$	210,389

December 31, 2014	Fixed		Variable		Total
Unused lines of credit	$	3,549	$	36,081	$	39,630
Standby letters of credit		1,358		182		1,540
Commitments to fund loans		22,986		124,893		147,879
Total	$	27,893	$	161,156	$	189,049

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The following discussion pertains to our historical results on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

Overview

Our name expresses our ideals to put our Clients 1st and our Community 1st. We are focused on serving the needs of entrepreneurs, tailoring a wide range of relationship banking services to entrepreneurs and their families, including commercial loans and a full line of depository products. We are based in St. Petersburg, Florida and operate from 31 banking centers and one loan production office on the West Coast of Florida and in Miami-Dade and Orange Counties. As of December 31, 2014, we were the 18^th largest bank headquartered in the state of Florida by assets and the 16th largest by equity, having grown both organically and through acquisitions, and we were the sixth fastest-growing bank in the country as measured by asset growth for the five-year period ending June 30, 2014.

In April 2015, we opened a branch in Doral, our 31^st banking center and fourth in Miami-Dade County. This opening will strengthen our presence in Miami-Dade County and allow us to continue to serve our clients and expand our reach.

We generate most of our revenue from interest on loans. Our primary source of funding for our loans is deposits. Our largest expenses are interest on those deposits and salaries plus related employee benefits. We measure our performance through our net interest margin, return on average assets, and return on average common equity, while maintaining appropriate regulatory leverage and risk-based capital ratios.

Our common stock is listed on the New York Stock Exchange under the symbol “BNK”.

Overview of Recent Financial Performance and Trends

Our financial performance reflects improvements in economic conditions in the areas in which we operate across Florida, the acquisitions we have completed, our progress in restructuring the acquired banks and disposing of classified assets, the implementation of our banking strategy and other general economic and competitive trends in our markets.

Our net interest income was $18.0 million and $14.0 million in the three-month periods ended September 30, 2015 and September 30, 2014, respectively. In the three-month periods ended September 30, 2015 and September 30, 2014, our net income of $5.0 million and $2.6 million, respectively, represented a return on average assets, or ROAA, of 1.18% and 0.70%, respectively, and a return on average equity, or ROAE, of 10.02% and 6.47%, respectively. Our ratio of average equity to average assets in the three-month periods ended September 30, 2015 and September 30, 2014 was 11.75% and 10.77%, respectively.

Our net interest income was $50.4 million and $40.8 million in the nine-month periods ended September 30, 2015 and September 30, 2014, respectively. In the nine-month periods ended September 30, 2015 and September 30, 2014, our net income of $12.9 million and $5.4 million, respectively, represented an ROAA of 1.06% and 0.50%, respectively, and an ROAE of 8.94% and 5.03%, respectively. Our ratio of average equity to average assets in the nine-month periods ended September 30, 2015 and September 30, 2014 was 11.88% and 9.99%, respectively.

Our assets totaled $1.712 billion and $1.537 billion as of September 30, 2015 and December 31, 2014, respectively. Loans receivable, net, as of September 30, 2015 and December 31, 2014 were $1.377 billion and $1.179 billion, respectively. Total deposits were $1.264 billion and $1.168 billion as of September 30, 2015 and December 31, 2014, respectively.

On July 17, 2014, the Board of Directors of the Company approved a resolution for C1 Financial, Inc. to sell shares of common stock to the public in an initial public offering. On June 2, 2014, the Company submitted a confidential draft Registration Statement on Form S-1 with the SEC with respect to the shares to be registered and sold. On July 11, 2014, the Company filed a public Registration Statement on Form S-1 with the SEC. The Registration statement was declared effective by the SEC on August 13, 2014. The Company issued 2,761,356 shares of common stock at $17 per share, which included 129,777 shares of common stock purchased by the underwriters of the offering, on September 9, 2014 in connection with the partial exercise of the over-allotment option held by such underwriters. Total proceeds received by the Company, net of offering costs, was approximately $42.3 million.

In connection with the initial public offering, on July 17, 2014, the Board of Directors approved a 7-for-1 reverse stock split of the Company’s common stock, which was approved by the majority shareholders and became effective on August 13, 2014. The effect of the split on authorized, issued and outstanding common and preferred shares and income per share has been retroactively applied to all periods presented.

Critical Accounting Policies and Estimates

To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, our management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, fair value of other real estate owned, purchased credit impaired, or PCI, loans, deferred tax assets and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required for each loan portfolio segment using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All substandard commercial, commercial real estate and construction loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, may be collectively evaluated for impairment, and accordingly, not separately identified for impairment disclosures.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral-dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, we determine the amount of valuation allowance in accordance with the accounting policy for the allowance for loan losses.

The general component of our allowance analysis covers nonimpaired loans and is based on our historical loss experience over the past two years as adjusted for certain current factors described in the paragraph below. As of September 30, 2015, approximately 21% of our loan portfolio consisted of loans underwritten by different credit teams than our current team, including loans acquired from Community Bank of Manatee, First Community Bank of America, The Palm Bank and First Community Bank of Southwest Florida (together, the “Acquired Loans”). The Acquired Loans were originated under different economic conditions than exist today and were underwritten utilizing different underwriting standards. We consider the Acquired Loans to be seasoned since they were originated more than five years ago. As such, we use the historical loss experience for the pool of Acquired Loans over the past two years as part of the general component of our allowance analysis for the Acquired Loans.

This actual historical loss experience is supplemented with management adjustment factors based on the risks present for each portfolio segment (separated for originated and acquired loans), including: (i) levels of and trends in delinquencies and nonaccrual loans; (ii) trends in volume and terms of loans; (iii) changes in lending policies, procedures, and practices; (iv) experience, ability and depth of lending management and other relevant staff; (v) changes in the quality of the loan review system; (vi) changes in the underlying collateral; (vii) changes in competition, and the legal and regulatory environment; (viii) effects of changes in credit concentrations; and (ix) national and local economic trends and conditions. To determine the impact of these factors, management looks at external indicators such as unemployment rate, GDP growth, trends in consumer credit, real estate prices in the geographical areas where the Bank operates, information related to other Florida banks, the competitive and regulatory environment, as well as internal indicators such as loan growth, credit concentrations and loan review process. Each of the adjustment factors is graded in a scale from “significantly improved compared to historical period” to “significantly declined compared to historical period,” and historical loss rates are adjusted based on this assessment. If a factor is graded “same compared to historical period,” no adjustments are made to the historical loss experience for that specific pool and loan category with respect to such factor. In addition, a risk rating adjustment factor is determined at the loan level, based on the individual risk rating of each loan.

As of September 30, 2015, approximately 79% of our loan portfolio consists of loans originated by C1 Bank from 2010 to the present and, as such, may not be seasoned. Generally, the historical loss rate of the C1 Bank originated loans has been very low; however, due to the unseasoned nature of the C1 Bank originated loans, the historical loss rate may not effectively capture the probable incurred losses in this portion of our loan portfolio. Accordingly, we performed a peer statistical analysis of U.S. banks to determine what would be a normalized loss rate for our originated loans, considering characteristics like profitability, asset growth and geographical location, among others. While there are characteristics unique to each financial institution that drive loss rates and make a bank more or less risky than its peers, the purpose of this peer statistical analysis was to estimate a “better” loss rate, but in the context of a model that controls for characteristics like geography, asset growth and recovering economic conditions.

For this analysis, we first looked at two- and three-year median loss rates for all U.S. banks, which were both below loss rates in the C1 Bank originated loan portfolio after factoring in management adjustments. Understanding that the median peer loss rates may not capture specifics of the C1 Bank originated loans, such as profitability, asset growth and geographical location, among others, we performed a regression-based study of credit-loss rates for all commercial banks in the United States over a three-year period ending in 2013. The model incorporated the following variables: amount of past due loans, geography, capitalization, bank age, management, asset size, asset quality, earnings, and credit risk. We completed this analysis during the second quarter of 2014 and it was first used for the calculation of the allowance for loan losses as of June 30, 2014.

This peer analysis affects the determination of our allowance for loan losses, as we use the highest of the actual losses and the outcome of the analysis as the input for the calculation of the general component of the allowance for loan losses for the C1 Bank originated loans. The peer analysis will be updated during the first quarter of each year and will be used as an element for the calculation of the allowance for loan losses during that specific year, until such time when we develop relevant loss history for C1 Bank originated loans. The purpose of using the highest of actual and peer analysis loss rates is to prevent relying on lower C1 Bank originated loan loss rates, which could actually be caused by an unseasoned portfolio and may not effectively capture the probable incurred losses in the C1 Bank originated loan portion of our portfolio.

During the first quarter of 2015, we updated the analysis applying the same statistical regression for the two and three year periods ending in 2014, and the result was used as an element to the calculation of the allowance for loan losses as of September 30, 2015.

We view this peer analysis as a short-term proxy until we develop additional loss history for the C1 Bank originated loans that approximate a full business cycle. The average business cycle length according to the National Bureau of Economic Research during the last 11 business cycles has been close to six years, and the FDIC defines seven years as a de novo period for extended supervisory activities for new charters (although we are not a de novo institution). By the end of 2015, our first loans (2010 vintage) will be completing 6 years since origination, in line with the average U.S. business cycle and close to the 7-year de novo period defined by the FDIC. We expect our historical losses to become more representative as we get closer to this point.

Fair Value of Other Real Estate Owned

Other real estate owned (“OREO”) represents assets acquired through foreclosure or other proceedings. Foreclosed assets acquired are initially recorded at fair value at the date of foreclosure less estimated costs to sell, which establishes a new cost basis. Any write-down to fair value at the time of transfer to OREO is charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management to ensure that properties recorded in OREO are carried at the lower of cost or fair value less estimated costs of disposal. Valuation allowances are adjusted as necessary. Expenses from the operations of OREO foreclosed assets, net of rental income and changes in the OREO valuation allowance are included in noninterest expense.

Purchased Credit Impaired, or PCI, Loans

As part of our acquisitions, we acquired loans that have evidence of credit deterioration since origination. These acquired loans are recorded at their fair value, such that there is no carryover of the allowance for loan losses.

Such purchased loans are accounted for individually or aggregated into pools of loans based on common risk characteristics. We estimate the amount and timing of expected cash flows for each purchased loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

Loans are placed on nonaccrual and accounted for under the cost recovery method when repayment is expected through foreclosure or repossession of the collateral, and the timing of foreclosure or repossession cannot be estimated with reasonable certainty. These loans are measured for impairment under the Bank’s policy for measuring impairment on collateral-dependent impaired loans that were originated by the Bank and included in impaired loans if there is a subsequent decline in the value of the collateral.

Deferred Tax Assets

Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. The deferred tax assets and liabilities represent the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize interest and/or penalties related to income tax matters in income tax expense.

Fair Values of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

JOBS Act

The JOBS Act allows us to delay the implementation of certain new accounting standards on our financial statements. However, at September 30, 2015 and December 31, 2014, we have adopted all new accounting standards that could affect the comparability of our financial statements to those of other public entities.

Results of Operations

Net Interest Income

Net interest income is the largest component of our income, and is affected by the interest rate environment, and the volume and the composition of our interest-earning assets and interest-bearing liabilities. Net interest margin represents net interest income divided by average interest-earning assets. We earn interest income from interest, dividends and fees earned on interest-earning assets, as well as from accretion of discounts on acquired loans. Our interest-earning assets include loans, securities available for sale and other securities, Federal funds sold and balances at the Federal Reserve Bank, time deposits in other financial institutions, and Federal Home Loan Bank (“FHLB”) stock. We incur interest expense on interest-bearing liabilities, including interest-bearing deposits, borrowings and other forms of indebtedness as well as from amortization of premiums on purchased time deposits and debt. Our interest-bearing liabilities include deposits, advances from the FHLB, and other borrowings.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

Our net interest income increased 28.7% to $18.0 million in the three-month period ended September 30, 2015 from $14.0 million in the three-month period ended September 30, 2014, primarily due to increased average balances and yields on earning assets and improvements in deposit mix, which was partially offset by higher average balances and rates on FHLB advances. Net interest margin in the three-month period ended September 30, 2015 increased to 4.75% from 4.18% in the three-month period ended September 30, 2014, mainly due to the yield on average earning assets increasing 57 basis points.

Interest income increased 26.5% to $20.5 million in the three-month period ended September 30, 2015 from $16.2 million in the three-month period ended September 30, 2014, due to higher average balances of and yields earned on interest-earning assets. In the three-month period ended September 30, 2015, average interest-earning assets increased to $1.508 billion from $1.331 billion in the three-month period ended September 30, 2014, mainly due to growth in our loan portfolio, which resulted from organic loan originations (partially offset by loan prepayments in the C1Bank originated loan portfolio, and loans paying off in both the C1 Bank originated loan portfolio and in the acquired portfolio). The average yield earned on interest-earning assets increased to 5.41% in the three-month period ended September 30, 2015 from 4.84% in the three-month period ended September 30, 2014, primarily due to a redeployment of lower-yielding cash investments into higher-yielding loans. The yield on loans was enhanced by greater loan fees (mainly due to prepayments), which was partially offset by a lower effect of accretion income on loans acquired from an acquired bank. Average loans receivable as a percentage of average interest-earning assets increased from 82.5% in the three-month period ended September 30, 2014 to 91.1% in the three-month period ended September 30, 2015.

Interest expense increased 12.7% to $2.5 million in the three-month period ended September 30, 2015 from $2.2 million in the three-month period ended September 30, 2014, due to an increase in the average balances of and rates paid on interest-bearing liabilities. In the three-month period ended September 30, 2015, average interest-bearing liabilities increased to $1.158 billion from $1.057 billion in the three-month period ended September 30, 2014, mainly due to longer term borrowings from the FHLB. In addition, the average rate paid on interest-bearing liabilities increased from 0.83% to 0.86%, primarily due to a higher rate on FHLB advances. Borrowing longer term from the FHLB was an asset/liability management decision to reduce exposure to increasing interest rates. Partially offsetting the increase in rates due to FHLB advances was a reduction in rates on interest-bearing deposits, mainly due to an improvement in the deposit mix. The cost of interest-bearing deposits decreased to 0.63% in the three-month period ended September 30, 2015 when compared to 0.68% in the three-month period ended September 30, 2014, due to a lower share of time deposits. In addition, average noninterest-bearing deposits increased by 20.2% to $325.0 million in the three-month period ended September 30, 2015 (representing 26.3% of total average deposits), from $270.3 million in the three-month period ended September 30, 2014 (representing 23.6% of total average deposits).

The table below shows the average balances, income and expense, and yields and rates of each of our interest-earning assets and interest-bearing liabilities for the periods indicated:

	Three-Month Periods Ended September 30,
	2015							2014
	Average		Income/		Yields/			Average		Income/		Yields/
	Balances(1)		Expense		Rates			Balances(1)		Expense		Rates
	(in thousands)
Interest-earning assets:
Loans receivable(2)	$	1,374,425	$	20,340		5.87	%	$	1,098,466	$	16,028		5.79	%
Securities available for sale and other securities		250		3		4.56	%		250		2		4.56	%
Federal funds sold and balances at Federal Reserve Bank		121,155		68		0.22	%		222,894		129		0.23	%
Time deposits in other financial institutions		247		-		0.42	%		-		-		0.00	%
FHLB stock		11,824		135		4.51	%		9,152		86		3.71	%

Total interest-earning assets		1,507,901		20,546		5.41	%		1,330,762		16,245		4.84	%
Noninterest-earning assets:
Cash and due from banks		38,612							39,723
Other assets(3)		141,149							123,182
Total noninterest-earning assets		179,761							162,905

Total assets	$	1,687,662						$	1,493,667

Interest-bearing liabilities:
Interest-bearing deposits:
Time	$	274,925		795		1.15	%	$	346,037		953		1.09	%
Money market		443,152		490		0.44	%		354,146		390		0.44	%
Interest-bearing demand		155,418		142		0.36	%		139,175		135		0.38	%
Savings		38,921		22		0.22	%		38,130		21		0.22	%
Total interest-bearing deposits		912,416		1,449		0.63	%		877,488		1,499		0.68	%
Other interest-bearing liabilities:
FHLB advances		245,847		1,057		1.71	%		176,964		709		1.59	%
Other borrowings		-		-		0.00	%		3,000		15		1.96	%

Total interest-bearing liabilities		1,158,263		2,506		0.86	%		1,057,452		2,223		0.83	%
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits		325,044							270,328
Other liabilities		6,127							4,954
Stockholders’ equity		198,228							160,933
Total noninterest-bearing liabilities and stockholders’ equity		529,399							436,215

Total liabilities and stockholders’ equity	$	1,687,662						$	1,493,667
Interest rate spread (taxable-equivalent basis)						4.55	%						4.01	%
Net interest income (taxable-equivalent basis)			$	18,040						$	14,022
Net interest margin (taxable-equivalent basis)						4.75	%						4.18	%
Average interest-earning assets to average interest-bearing liabilities						130.2	%						125.8	%

(1)

Calculated using daily averages.

(2)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses). Interest on loans includes net deferred fees and costs, and other loan fees of $1.4 million and $515 thousand in the three-month periods ended September 30, 2015 and 2014, respectively.

(3)

Other assets include bank-owned life insurance, tax lien certificates, OREO, fixed assets, interest receivable, prepaid expense and others.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

Our net interest income increased 23.7% to $50.4 million in the nine-month period ended September 30, 2015 from $40.8 million in the nine-month period ended September 30, 2014, primarily due to increased average balances and yields on earning assets, mainly relating to loans, and improvements in deposit mix, which was partially offset by higher average balances and rates on FHLB advances. Net interest margin in the nine-month period ended September 30, 2015 increased to 4.68% from 4.29% in the nine-month period ended September 30, 2014, mainly due to the yield on average earning assets increasing 37 basis points.

Interest income increased 21.8% to $57.4 million in the nine-month period ended September 30, 2015 from $47.2 million in the nine-month period ended September 30, 2014, due to higher average balances of and yields earned on interest-earning assets. In the nine-month period ended September 30, 2015, average interest-earning assets increased to $1.441 billion from $1.271 billion in the nine-month period ended September 30, 2014, mainly due to growth in our loan portfolio, which resulted from organic loan originations (partially offset by loan prepayments in the C1Bank originated loan portfolio, and loans paying off in both the C1 Bank originated loan portfolio and in the acquired portfolio). The average yield earned on interest-earning assets increased to 5.33% in the nine-month period ended September 30, 2015 from 4.96% in the nine-month period ended September 30, 2014, primarily due to a redeployment of lower-yielding cash investments into higher-yielding loans. The yield on loans was enhanced by greater loan fees (mainly due to prepayments), which was partially offset by a lower effect of accretion income on loans acquired from an acquired bank. Average loans receivable as a percentage of average interest-earning assets increased from 83.9% in the nine-month period ended September 30, 2014 to 89.5% in the nine-month period ended September 30, 2015.

Interest expense increased 9.7% to $7.0 million in the nine-month period ended September 30, 2015 from $6.4 million in the nine-month period ended September 30, 2014, due to an increase in the average balances of and rates paid on interest-bearing liabilities. In the nine-month period ended September 30, 2015, average interest-bearing liabilities increased to $1.112 billion from $1.049 billion in the nine-month period ended September 30, 2014, mainly due to longer term borrowings from the FHLB. In addition, the average rate paid on interest-bearing liabilities increased from 0.81% to 0.84%, primarily due to a higher rate on FHLB advances. Borrowing longer term from the FHLB was an asset/liability management decision to reduce exposure to increasing interest rates. Partially offsetting the increase in rates due to FHLB advances was a reduction in rates on interest-bearing deposits, mainly due to an improvement in the deposit mix. The cost of interest-bearing deposits decreased to 0.63% in the nine-month period ended September 30, 2015 when compared to 0.68% in the nine-month period ended September 30, 2014, due to a lower share of time deposits. In addition, average noninterest-bearing deposits increased by 34.0% to $317.1 million in the nine-month period ended September 30, 2015 (representing 26.4% of total average deposits), from $236.7 million in the nine-month period ended September 30, 2014 (representing 21.1% of total average deposits).

The table below shows the average balances, income and expense, and yields and rates of each of our interest-earning assets and interest-bearing liabilities for the periods indicated:

	Nine-Month Periods Ended September 30,
	2015							2014
	Average		Income/		Yields/			Average		Income/		Yields/
	Balances(1)		Expense		Rates			Balances(1)		Expense		Rates
	(in thousands)
Interest-earning assets:

Loans receivable(2)	$	1,290,074	$	56,803		5.89	%	$	1,065,815	$	46,481		5.83	%
Securities available for sale and other securities		250		9		4.56	%		520		59		15.25	%
Federal funds sold and balances at Federal Reserve Bank		139,866		259		0.25	%		195,850		355		0.24	%
Time deposits in other financial institutions		132		-		0.44	%		-		-		0.00	%
FHLB stock		11,048		359		4.35	%		8,554		257		4.01	%

Total interest-earning assets		1,441,370		57,430		5.33	%		1,270,739		47,152		4.96	%
Noninterest-earning assets:
Cash and due from banks		37,668							41,739
Other assets(3)		147,886							121,089
Total noninterest-earning assets		185,554							162,828

Total assets	$	1,626,924						$	1,433,567

Interest-bearing liabilities:
Interest-bearing deposits:
Time	$	267,148		2,256		1.13	%	$	359,436		2,919		1.09	%
Money market		431,168		1,411		0.44	%		342,898		1,103		0.43	%
Interest-bearing demand		148,831		411		0.37	%		142,661		405		0.38	%
Savings		38,917		65		0.22	%		38,344		64		0.22	%
Total interest-bearing deposits		886,064		4,143		0.63	%		883,339		4,491		0.68	%
Other interest-bearing liabilities:
FHLB advances		225,483		2,861		1.70	%		162,499		1,852		1.52	%
Other borrowings		-		-		0.00	%		3,000		44		1.96	%

Total interest-bearing liabilities		1,111,547		7,004		0.84	%		1,048,838		6,387		0.81	%
Noninterest-bearing liabilities and stockholders’ equity:
Demand deposits		317,078							236,666
Other liabilities		4,967							4,902
Stockholders’ equity		193,332							143,161
Total noninterest-bearing liabilities and stockholders’ equity		515,377							384,729

Total liabilities and stockholders’ equity	$	1,626,924						$	1,433,567
Interest rate spread (taxable-equivalent basis)						4.49	%						4.15	%
Net interest income (taxable-equivalent basis)			$	50,426						$	40,765
Net interest margin (taxable-equivalent basis)						4.68	%						4.29	%
Average interest-earning assets to average interest-bearing liabilities						129.7	%						121.2	%

(1)

Calculated using daily averages.

(2)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses). Interest on loans includes net deferred fees and costs, and other loan fees of $3.5 million and $1.6 million in the nine-month periods ended September 30, 2015 and 2014, respectively.

(3)

Other assets include bank-owned life insurance, tax lien certificates, OREO, fixed assets, interest receivable, prepaid expense and others.

Rate/Volume Analysis

The tables below detail the components of the changes in net interest income for the three-month period ended September 30, 2015 when compared to the three-month period ended September 30, 2014 and the nine-month period ended September 30, 2015 when compared to the nine-month period ended September 30, 2014. For each major category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes due to average volumes and changes due to average rates, with the changes in both volumes and rates allocated to these two categories based on the proportionate absolute changes in each category.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

	Three-Month Period Ended September 30, 2015
	Compared to
	Three-Month Period Ended September 30, 2014
	Due to Changes in
	Average Volume			Average Rate			Net Increase (Decrease)
	(in thousands)
Interest income from earning assets:
Loans receivable(1)	$	4,088		$	224		$	4,312
Securities available for sale and other securities		-			1			1
Federal funds sold and balances at Federal Reserve Bank		(56	)		(5	)		(61	)
Time deposits in other financial institutions		-			-			-
FHLB stock		28			21			49
Total interest income(2)		4,060			241			4,301
Interest expense from deposits and borrowings:
Time deposits		(208	)		50			(158	)
Money market deposit accounts		100			-			100
Interest-bearing demand deposits		14			(7	)		7
Savings deposits		1			-			1
FHLB advances		291			57			348
Other borrowings		(8	)		(7	)		(15	)
Total interest expense		190			93			283
Change in net interest income	$	3,870		$	148		$	4,018

(1)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses).

(2)

Interest on loans includes net deferred fees and costs, and other loan fees of $1.4 million and $515 thousand in the three-month periods ended September 30, 2015 and 2014, respectively.

The $4.3 million increase in interest income when comparing the three-month period ended September 30, 2015 to the three-month period ended September 30, 2014 was primarily due to changes in loan volumes and yields. Higher average loan balances and yields increased interest income $4.1 million and $224 thousand, respectively. The $283 thousand increase in interest expense when comparing the three-month period ended September 30, 2015 to the three-month period ended September 30, 2014 was primarily due to changes in volumes and rates of FHLB advances. Higher average balances and rates of FHLB advances increased interest expense $291 thousand and $57 thousand, respectively, for a total increase of $348 thousand. Partially offsetting the increase in interest expense due to FHLB advances was $50 thousand less in interest expense due to changes in interest-bearing deposit volumes and rates, which reflected an improvement in the deposit mix.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014


	Nine-Month Period Ended September 30, 2015
	Compared to
	Nine-Month Period Ended September 30, 2014
	Due to Changes in
	Average Volume			Average Rate			Net Increase (Decrease)
	(in thousands)
Interest income from earning assets:
Loans receivable(1)	$	9,839		$	483		$	10,322
Securities available for sale and other securities		(22	)		(28	)		(50	)
Federal funds sold and balances at Federal Reserve Bank		(110	)		14			(96	)
Time deposits in other financial institutions		-			-			-
FHLB stock		79			23			102
Total interest income(2)		9,786			492			10,278
Interest expense from deposits and borrowings:
Time deposits		(767	)		104			(663	)
Money market deposit accounts		282			26			308
Interest-bearing demand deposits		17			(11	)		6
Savings deposits		1			-			1
FHLB advances		770			239			1,009
Other borrowings		(22	)		(22	)		(44	)
Total interest expense		281			336			617
Change in net interest income	$	9,505		$	156		$	9,661

(1)

Average loans are gross, including nonaccrual loans and overdrafts (net of deferred loan fees and before the allowance for loan losses).

(2)

Interest on loans includes net deferred fees and costs, and other loan fees of $3.5 million and $1.6 million in the nine-month periods ended September 30, 2015 and 2014, respectively.

The $10.3 million increase in interest income when comparing the nine-month period ended September 30, 2015 to the nine-month period ended September 30, 2014 was primarily due to changes in loan volumes and yields. Higher average loan balances and yields increased interest income $9.8 million and $483 thousand, respectively. The $617 thousand increase in interest expense when comparing the nine-month period ended September 30, 2015 to the nine-month period ended September 30, 2014 was primarily due to changes in volumes and rates of FHLB advances. Higher average balances and rates of FHLB advances increased interest expense $770 thousand and $239 thousand, respectively, for a total increase of $1.0 million. Partially offsetting the increase in interest expense due to FHLB advances was $348 thousand less in interest expense due to changes in interest-bearing deposit volumes and rates, which reflected an improvement in the deposit mix.

Provision for Loan Losses

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

We recorded a $67 thousand reversal of provision for loan losses for the three-month period ended September 30, 2015 and a $207 thousand provision for loan losses for the three-month period ended September 30, 2014. The reversal of provision for the three-month period ended September 30, 2015 included $455 thousand of allowance for new loans funded during the quarter, offset by $324 thousand in net recoveries, a $144 thousand reduction for general reserves related to existing loans paying down and a $54 thousand reduction in specific reserves for impaired and purchased credit impaired loans. The provision for the three-month period ended September 30, 2014 included $533 thousand resulting from a refinement of management adjustment factors largely related to the regulatory environment and $315 thousand of allowance primarily for new loans funded during the quarter, partially offset by $641 thousand in net recoveries.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

Our provision for loan losses declined to $1.4 million for the nine-month period ended September 30, 2015 from $4.8 million for the nine-month period ended September 30, 2014. The provision for the nine-month period ended September 30, 2015 included $1.6 million of allowance for new loans funded year-to-date, $1.0 million in general reserves related to existing loans and a $31 thousand increase in specific reserves for impaired and purchased credit impaired loans, partially offset by $1.2 million in net recoveries (including a $393 thousand recovery related to our only shared national credit loan charged off in June 2014). The provision for the nine-month period ended September 30, 2014 reflected charge-offs of $4.7 million (primarily the charge off in-full of our only loan under the shared national credit program), a provision of $1.1 million to the general component of the allowance for loan losses as a result of our peer analysis (see “—Critical Accounting Policies and Estimates—Allowance for Loan Losses”), an addition of $533 thousand resulting from a refinement of management adjustment factors largely related to the regulatory environment, and an allowance for new loans funded during the quarter. Partially offsetting these amounts were recoveries of $2.0 million.

Noninterest Income

Noninterest income includes gains on sales of securities, gains on sales of loans, service charges and fees, bargain purchase gain, gains on sales of other real estate owned, net, bank-owned life insurance, mortgage banking fees and other noninterest income.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

Noninterest income increased 17.6% to $2.1 million in the three-month period ended September 30, 2015 from $1.8 million in the three-month period ended September 30, 2014. The increase was primarily due to a $670 thousand gain on the early redemption of FHLB advances (redeemed to adjust our liability duration mix), which is included in noninterest income, $235 thousand additional income from BOLI (due to a $35.0 million investment completed in December 2014) and $109 thousand additional gains on sales of OREO. Partially offsetting these increases in noninterest income was a $696 thousand decline in gains on sales of Small Business Administration (“SBA”) loans. The decrease in gains on sales of SBA loans was mainly a result of the lower volume of loans sold, which depends on multiple factors such as loan originations, mix between marketable and portfolio loans (depending on loan type, terms and market conditions) and funding timing for loans available to be sold.

The following table sets forth the components of noninterest income for the periods indicated:

	Three-Month Periods Ended September 30,
	2015		2014
	(in thousands)
Gains on sales of loans	$	79	$	775
Service charges and fees		602		526
Bargain purchase gain		-		37
Gains on sales of other real estate owned, net		177		68
Bank-owned life insurance		276		41
Gains (losses) on disposals of premises and equipment, net		-		(12	)
Other noninterest income		980		362
Total noninterest income	$	2,114	$	1,797

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

Noninterest income increased 30.2% to $8.1 million in the nine-month period ended September 30, 2015 from $6.2 million in the nine-month period ended September 30, 2014, primarily due to a $2.6 million gain on the sale of land (excess parking lots in Wynwood) during the second quarter of 2015, the $670 thousand gain on the early redemption of FHLB advances and $508 thousand additional income from BOLI due to the additional $35.0 million investment completed in December 2014. Partially offsetting these increases in noninterest income were a $1.4 million decline in gains on sales of SBA loans (due to a lower volume of loans sold, which depends on multiple factors as described above) and a $147 thousand decline in gains on sales of OREO. Noninterest income for the nine-month period ended September 30, 2014 included $241 thousand in gains on sales of securities.

The following table sets forth the components of noninterest income for the periods indicated:

	Nine-Month Periods Ended September 30,
	2015		2014
	(in thousands)
Gains on sales of securities	$	-	$	241
Gains on sales of loans		893		2,323
Service charges and fees		1,750		1,658
Bargain purchase gain		-		48
Gains on sales of other real estate owned, net		573		720
Bank-owned life insurance		626		118
Mortgage banking fees		-		47
Gains (losses) on disposals of premises and equipment, net		2,590		(12	)
Other noninterest income		1,619		1,041
Total noninterest income	$	8,051	$	6,184

Noninterest Expense

Noninterest expense includes primarily salaries and employee benefits, occupancy expense, network services and data processing, advertising and promotion, OREO expenses and professional fees, among others. We monitor the ratio of noninterest expense to the sum of net interest income plus noninterest income, which is commonly known as the efficiency ratio.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

Noninterest expense increased 6.1% to $12.0 million in the three-month period ended September 30, 2015 from $11.3 million in the three-month period ended September 30, 2014. The increase was mainly due to higher salaries and employee benefits ($499 thousand), occupancy expense ($250 thousand), and furniture and equipment ($106 thousand). The increase in salaries and employee benefits was primarily related to growth in our average number of employees and provisions for incentive compensation booked in 2015 based on our anticipated growth. The increase in noninterest expense in the other categories related mainly to the increased scale of our operations, including two additional banking centers since the end of the third quarter of 2014. The increase in noninterest expense was partially offset by a reduction in professional fees ($77 thousand) and loan collection expenses ($54 thousand), primarily due to less activity required relating to nonperforming assets.

The following table sets forth the components of noninterest expense for the periods indicated:

	Three-Month Periods Ended September 30,
	2015		2014
	(in thousands)
Salaries and employee benefits	$	5,276	$	4,777
Occupancy expense		1,388		1,138
Furniture and equipment		779		673
Regulatory assessments		349		362
Network services and data processing		1,075		1,033
Printing and office supplies		54		77
Postage and delivery		78		52
Advertising and promotion		873		812
Other real estate owned related expense		468		511
Other real estate owned – valuation allowance expense		102		45
Amortization of intangible assets		70		117
Professional fees		673		750
Loan collection expenses		86		140
Other noninterest expense		701		793
Total noninterest expense	$	11,972	$	11,280

In the three-month periods ended September 30, 2015 and September 30, 2014, our efficiency ratio was 59.4% and 71.3%, respectively. The improved efficiency ratio for the three-month period ended September 30, 2015 was mainly due to higher net interest income and noninterest income, which included the $670 thousand gain on the early redemption of FHLB advances. We also closely track annualized revenue per employee and average assets per employee, as measures of efficiency. Annualized revenue per employee was $367 thousand in the three-month period ended September 30, 2015 as compared to $305 thousand in the three-month period ended September 30, 2014 and average assets per employee were $6.9 million in the three-month period ended September 30, 2015 as compared to $6.4 million in the three-month period ended September 30, 2014, which reflected our efforts to achieve productivity gains as we grow our balance sheet. We had 239 full-time equivalent employees at September 30, 2015 and 246 at September 30, 2014.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

Noninterest expense increased 7.3% to $35.7 million in the nine-month period ended September 30, 2015 from $33.2 million in the nine-month period ended September 30, 2014. The increase was mainly due to higher salaries and employee benefits ($2.2 million), occupancy expense ($650 thousand), network services and data processing ($415 thousand), and furniture and equipment ($321 thousand). The increase in salaries and employee benefits was primarily related to growth in our average number of employees and provisions for incentive compensation booked in 2015 based on our anticipated growth. The increase in noninterest expense in each of the other categories related mainly to the increased scale of our operations, including two additional banking centers since the end of the third quarter of 2014. The increase in noninterest expense was partially offset by a reduction in professional fees ($294 thousand), loan collection expenses ($290 thousand) and OREO valuation allowance expense ($441 thousand). Lower professional fees and loan collection expenses were due to less activity required relating to nonperforming assets and lower OREO valuation allowance expense reflected that a smaller amount of write-downs were required on OREO properties.

The following table sets forth the components of noninterest expense for the periods indicated:

	Nine-Month Periods Ended September 30,
	2015		2014
	(in thousands)
Salaries and employee benefits	$	15,722	$	13,526
Occupancy expense		3,960		3,310
Furniture and equipment		2,275		1,954
Regulatory assessments		1,100		1,067
Network services and data processing		3,239		2,824
Printing and office supplies		183		270
Postage and delivery		242		181
Advertising and promotion		2,752		2,634
Other real estate owned related expense		1,559		1,625
Other real estate owned – valuation allowance expense		168		609
Amortization of intangible assets		233		412
Professional fees		1,880		2,174
Loan collection expenses		173		463
Other noninterest expense		2,166		2,178
Total noninterest expense	$	35,652	$	33,227

In the nine-month periods ended September 30, 2015 and September 30, 2014, our efficiency ratio was 61.0% and 71.1%, respectively. The improved efficiency ratio for the nine-month period ended September 30, 2015 was mainly due to higher net interest income and noninterest income, which included the $2.6 million gain on the sale of land during the second quarter of 2015 and the $670 thousand gain on the early redemption of FHLB advances. Annualized revenue per employee was $360 thousand in the nine-month period ended September 30, 2015 as compared to $321 thousand in the nine-month period ended September 30, 2014 and average assets per employee were $6.7 million in the nine-month period ended September 30, 2015 as compared to $6.5 million in the nine-month period ended September 30, 2014, which reflected our productivity gains and growth.

Income Taxes

The provision for income taxes includes federal and state income taxes. Fluctuations in effective tax rates reflect the effect of the differences in the inclusion or deductibility of certain income and expenses, respectively, for income tax purposes. Our future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments we make and our overall level of taxable income.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

In the three-month period ended September 30, 2015, we recorded income tax expense of $3.2 million (an effective income tax rate of 39.3%), compared to income tax expense of $1.7 million (an effective income tax rate of 39.4%) in the three-month period ended September 30, 2014. The increase in income tax expense was due primarily to our greater income before taxes.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

In the nine-month period ended September 30, 2015, we recorded income tax expense of $8.5 million (an effective income tax rate of 39.7%), compared to income tax expense of $3.5 million (an effective income tax rate of 39.6%) in the nine-month period ended September 30, 2014. The increase in income tax expense was due primarily to our greater income before taxes.

Net Income

We evaluate our net income using the common industry ratio, ROAA, which is equal to net income for the period annualized, divided by the daily average of total assets for the period. We also use ROAE, which is equal to net income for the period annualized, divided by the daily average of total stockholders’ equity for the period.

Three-month period ended September 30, 2015 compared to three-month period ended September 30, 2014

In the three-month period ended September 30, 2015, our net income of $5.0 million, or $0.31 basic and diluted net income per common share, represented an ROAA of 1.18% and an ROAE of 10.02%. Our average equity-to-assets ratio (average equity divided by average total assets) in the three-month period ended September 30, 2015 was 11.75%. In comparison, in the three-month period ended September 30, 2014, our net income of $2.6 million, or $0.18 basic and diluted net income per common share, represented an ROAA of 0.70% and an ROAE of 6.47%. Our average equity-to-assets ratio in the three-month period ended September 30, 2014 was 10.77%.

Nine-month period ended September 30, 2015 compared to nine-month period ended September 30, 2014

In the nine-month period ended September 30, 2015, our net income of $12.9 million, or $0.80 basic and diluted net income per common share, represented an ROAA of 1.06% and an ROAE of 8.94%. Our average equity-to-assets ratio in the nine-month period ended September 30, 2015 was 11.88%. In comparison, in the nine-month period ended September 30, 2014, our net income of $5.4 million, or $0.40 basic and diluted net income per common share, represented an ROAA of 0.50% and an ROAE of 5.03%. Our average equity-to-assets ratio in the nine-month period ended September 30, 2014 was 9.99%.

Financial Condition

Our assets totaled $1.712 billion and $1.537 billion at September 30, 2015 and December 31, 2014, respectively. Loans receivable, net, as of September 30, 2015 and December 31, 2014 were $1.377 billion and $1.179 billion, respectively. Total deposits were $1.264 billion and $1.168 billion as of September 30, 2015 and December 31, 2014, respectively. Total liabilities, consisting of deposits, FHLB advances and other liabilities totaled $1.513 billion and $1.350 billion as of September 30, 2015 and December 31, 2014, respectively. The increases in total assets, loans receivable, net, deposits and liabilities in 2015 were primarily due to organic growth.

Stockholders’ equity was $199.6 million and $186.6 million as of September 30, 2015 and December 31, 2014. The increase in stockholders’ equity was due to $12.9 million of net income earned during the nine-month period ended September 30, 2015.

Loans

Our loan portfolio is our primary earning asset. Our strategy is to grow the loan portfolio by originating commercial and consumer loans that we believe to be of high quality, that comply with our credit policies and that produce revenues consistent with our financial objectives. We originate SBA loans which may be sold on the secondary market depending on loan terms and market conditions.

Loans by Portfolio Segment

The following table sets forth the carrying amounts of our loans by portfolio segment as of the dates indicated:

	As of September 30, 2015					As of December 31, 2014
	Amount			% of Total		Amount			% of Total
	(in thousands, except %)

Real estate:
Residential	$	267,238			19.2	$	224,416			18.9
Commercial		791,669			57.0		723,577			60.9
Construction		168,823			12.1		107,436			9.0
Total real estate		1,227,730			88.3		1,055,429			88.8
Commercial		76,940			5.5		75,360			6.3
Consumer		85,605			6.2		57,733			4.9
Total loans		1,390,275			100.0		1,188,522			100.0
Less:
Net deferred loan fees		(5,726	)				(4,142	)
Allowance for loan losses		(7,932	)				(5,324	)
Loans receivable, net	$	1,376,617				$	1,179,056

As of September 30, 2015 and December 31, 2014, 88.3% and 88.8%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

Loan Maturity and Sensitivities

The following tables show the contractual maturities of our loan portfolio at the dates indicated. Loans with scheduled maturities are reported in the maturity category in which the payment is due. Demand loans with no stated maturity and overdrafts are reported in the “due in 1 year or less” category. Loans that have adjustable rates are shown as amortizing to final maturity rather than when the interest rates are next subject to change. The tables do not include prepayment or scheduled principal repayments.

As of September 30, 2015	Due in 1 Year or Less		Due in 1 to 5 Years		Due After 5 Years		Total
	(in thousands)
Real estate:
Residential	$	49,630	$	79,642	$	137,966	$	267,238
Commercial		114,232		374,553		302,884		791,669
Construction		79,604		59,320		29,899		168,823
Total real estate		243,466		513,515		470,749		1,227,730
Commercial		18,043		33,956		24,941		76,940
Consumer		5,992		73,174		6,439		85,605
Total loans	$	267,501	$	620,645	$	502,129	$	1,390,275

As of December 31, 2014	Due in 1 Year or Less		Due in 1 to 5 Years		Due After 5 Years		Total
	(in thousands)
Real estate:
Residential	$	21,030	$	76,262	$	127,124	$	224,416
Commercial		91,071		368,497		264,009		723,577
Construction		22,140		51,022		34,274		107,436
Total real estate		134,241		495,781		425,407		1,055,429
Commercial		20,325		32,425		22,610		75,360
Consumer		1,279		42,108		14,346		57,733
Total loans	$	155,845	$	570,314	$	462,363	$	1,188,522

The following tables present the sensitivities to changes in interest rates of our portfolio at the dates indicated:

As of September 30, 2015	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Real estate:
Residential	$	68,079	$	199,159	$	267,238
Commercial		293,266		498,403		791,669
Construction		57,389		111,434		168,823
Total real estate		418,734		808,996		1,227,730
Commercial		33,161		43,779		76,940
Consumer		36,980		48,625		85,605
Total loans	$	488,875	$	901,400	$	1,390,275

As of December 31, 2014	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Real estate:
Residential	$	63,395	$	161,021	$	224,416
Commercial		306,928		416,649		723,577
Construction		31,569		75,867		107,436
Total real estate		401,892		653,537		1,055,429
Commercial		37,312		38,048		75,360
Consumer		10,522		47,211		57,733
Total loans	$	449,726	$	738,796	$	1,188,522

As part of our asset/liability management strategy, we rarely offer fixed-rate loans with maturity above five years. As of September 30, 2015, less than 3.0% of our total loans (and 1.5% of the loans in our originated loan portfolio) were fixed-rate with a maturity over 5 years. As of September 30, 2015, 64.8% of our total loans (and 62.8% of the loans in our originated loan portfolio) was made up of variable-rate loans. The fixed-rate portion of our originated portfolio had a weighted average time to maturity of 2.7 years. The following table presents the contractual maturities of our loan portfolio at the dates indicated, segregated into fixed and variable interest rate loans as of September 30, 2015:

As of September 30, 2015	Fixed Interest Rate		Variable Interest Rate		Total
	(in thousands)
Maturity
One year or less	$	107,245	$	160,256	$	267,501
One to five years		348,726		271,919		620,645
More than five years		32,904		469,225		502,129
Total loans	$	488,875	$	901,400	$	1,390,275

Loan Growth

We monitor new loan production by loan type, borrower type, market and profitability. Our operating strategy focuses on growing assets by originating commercial and consumer loans that we believe to be of high quality. For the nine-month period ended September 30, 2015, we originated a total of $446.9 million of new loans, including $389.2 million of real estate loans ($74.4 million, $172.1 million and $142.7 million of which were residential, commercial and construction real estate loans, respectively), $24.2 million of commercial loans, and $33.5 million of consumer loans. As of September 30, 2015, the average loan outstanding size in our originated portfolio was $1.0 million. For the nine-month period ended September 30, 2014, we originated a total of $349.7 million of new loans, including $311.4 million of real estate loans ($44.6 million, $144.4 million and $122.3 million of which were residential, commercial and construction real estate loans, respectively), $33.7 million of commercial loans, and $4.6 million of consumer loans.

	Nine-Month Period Ended September 30, 2015				Nine-Month Period Ended September 30, 2014
	Amount		% of Total		Amount		% of Total
	(in thousands, except %)
New loan originations
Real estate:
Residential	$	74,418		16.7	$	44,619		12.8
Commercial		172,053		38.5		144,436		41.3
Construction		142,738		31.9		122,327		35.0
Total real estate		389,209		87.1		311,382		89.1
Commercial		24,238		5.4		33,682		9.6
Consumer		33,458		7.5		4,594		1.3
Total loans	$	446,905		100.0	$	349,658		100.0

The total loan origination amount in the nine-month period ended September 30, 2015 reflected strong organic growth across our markets.

In addition to growing organically, our acquisition strategy, which has focused on acquiring banks in Florida regional markets, has resulted in an increase in the number and balance of loans outstanding after each transaction. Subsequently, these balances decline as these loans mature and are paid down. These acquired loans were recorded at their fair value, such that there was no carryover of the allowance for loan losses. As of September 30, 2015 and December 31, 2014, the breakdown of our portfolio by originating bank was as follows:

	As of September 30, 2015				As of December 31, 2014
	Amount		% of Total		Amount		% of Total
	(in thousands, except %)
Originating Bank
C1 Bank	$	1,095,247		78.8	$	840,275		70.7
Community Bank of Manatee		53,411		3.8		64,121		5.4
First Community Bank of America		116,770		8.4		136,476		11.5
The Palm Bank		20,312		1.5		24,073		2.0
First Community Bank of Southwest Florida		104,535		7.5		123,577		10.4
Total loans	$	1,390,275		100.0	$	1,188,522		100.0

Asset Quality

In order to operate with a sound risk profile, we have focused on originating loans we believe to be of high quality and disposing of nonperforming assets as rapidly as possible.

For certain acquired loans, there was evidence at acquisition of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The unpaid principal balance and carrying amount of these purchased credit impaired loans at September 30, 2015 and December 31, 2014 were as follows:

	September 30, 2015		December 31, 2014
	(in thousands)
Unpaid principal balance	$	36,219	$	38,831
Carrying amount, net of allowance of $53 and $92		25,569		28,081

Accretable discount, or income expected to be collected was $2.0 million and $2.4 million at September 30, 2015 and December 31, 2014, respectively.

Foreign Outstandings

We have made four commercial loans to three Brazilian corporations, which at September 30, 2015 and December 31, 2014 in total exceeded 1% of our total assets. These loans to the three Brazilian borrowers are secured by collateral outside of the U.S., and had aggregate outstanding balances at September 30, 2015 and December 31, 2014, of $41.2 million and $44.0 million, representing 2.4% and 2.9% of our total assets, respectively. These loans to foreign borrowers were made in accordance with the credit policy and procedures in place at the time of origination. The first two loans, with a combined recorded investment of $17.4 million, are secured by a first lien on farmland appraised at $44.7 million (of which we are entitled to 50.9%, as the collateral is shared on a first lien basis with another bank), representing a 76% loan-to-value. The three main parcels of this collateral pool (representing 83% of collateral) were appraised during 2014, and the rest in 2012. These loans were past due 31 days as of October 16, 2015. The third loan, with a recorded investment of $17.6 million, is secured by a first lien on farmland appraised at $39.9 million during 2015, representing a 44% loan-to-value. This loan was included in the 30-59 days past due category as of September 30, 2015. One payment was received in early October but the payment needed to bring the loan current has been delayed. The final loan, with a recorded investment of $6.2 million is secured by closely held stock. This loan is current and paying as agreed. The Brazilian economy is experiencing negative growth, a material decline in the value of its currency, increasing rates of inflation, growing unemployment, banking strikes and higher interest rates; the country has been recently downgraded by one of the rating agencies to non-investment grade (junk) status. These macroeconomic trends coupled with a growing corruption scandal involving the government, state-owned enterprises and some of the largest private corporations have placed significant stress on the Brazilian economy and may affect the ability of our borrowers to repay their loans and the value of our underlying collateral. Exchange rate fluctuations may stress the debt service coverage of these borrowers and impact the U.S. dollar value of the collateral. We may be forced to modify these loans in an attempt to collect, which would increase our level of classified assets, would harm our earnings, negatively impact our capital, and which could increase regulatory scrutiny. The substantial size of each of these individual relationships could, if unpaid, materially adversely affect our earnings and capital. These three borrowers are not affiliates of our controlling stockholders and the loans were not made in consideration of our relationship with our controlling stockholders. We are not actively seeking additional loans with collateral in Brazil.

Nonperforming and Substandard Assets

Our nonperforming loans consist of loans that are on nonaccrual status, including nonperforming troubled debt restructurings. Loans graded as substandard but still accruing, which may include loans restructured as troubled debt restructurings, are considered impaired and classified substandard. Troubled debt restructurings include loans on which we have granted a concession on the interest rate or original repayment terms due to financial difficulties of the borrower.

We generally place loans on nonaccrual status when they become 90 days or more past due, unless they are well secured and in the process of collection. 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 a loan is placed on nonaccrual status, any interest previously accrued but not collected, is reversed from income. The interest on these loans is accounted for on the cash-basis or cost-recovery method until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. As of September 30, 2015 and December 31, 2014, there were $16.8 million and $20.9 million, respectively, in nonperforming loans. If such nonperforming loans would have been current during the nine-month period ended September 30, 2015, the year ended December 31, 2014 and the nine-month period ended September 30, 2014, we would have recorded an additional $736 thousand, $1.1 million and $832 thousand of interest income, respectively. No interest income from nonperforming loans was recognized for the nine-month period ended September 30, 2015, the year ended December 31, 2014 and the nine-month period ended September 30, 2014.

As of September 30, 2015 and December 31, 2014, we had no accruing loans that were contractually past due 90 days or more as to principal and interest. As of September 30, 2015, we had three troubled debt restructurings totaling $961 thousand and as of December 31, 2014, we had two troubled debt restructurings totaling $906 thousand.

Accounting standards require the Bank to identify loans, where full repayment of principal and interest is doubtful, as impaired loans. These standards require that impaired loans be valued at the present value of expected future cash flows, discounted at the loan’s effective interest rate, or by using the observable market price of the loan or the fair value of the underlying collateral if the loan is collateral dependent. We have implemented these standards in our monthly review of the adequacy of the allowance for loan losses, and identify and value impaired loans in accordance with guidance on these standards. As part of the review process, the Bank also identifies loans classified as special mention, which have a potential weakness that deserves management’s close attention. In our loan review process, we seek to identify and address classified and nonperforming loans as early as possible.

Loans totaling $23.9 million were classified substandard under the Bank’s policy at September 30, 2015, while loans totaling $28.3 million were classified substandard under the Bank’s policy at December 31, 2014. The decrease in September 30, 2015 when compared to December 31, 2014 was mainly due to the work out of substandard loans as the Bank focuses its efforts in resolving nonperforming assets through foreclosure. The following tables set forth information related to the credit quality of our loan portfolio at September 30, 2015 and December 31, 2014:

As of September 30, 2015	Pass		Special Mention		Substandard		Total
	(in thousands)
Real estate:
Residential	$	259,152	$	2,548	$	5,538	$	267,238
Commercial		759,459		15,906		16,304		791,669
Construction		167,210		893		720		168,823
Total real estate		1,185,821		19,347		22,562		1,227,730
Commercial		75,207		353		1,380		76,940
Consumer		85,455		149		1		85,605
Total loans	$	1,346,483	$	19,849	$	23,943	$	1,390,275

As of December 31, 2014	Pass		Special Mention		Substandard		Total
	(in thousands)
Real estate:
Residential	$	215,998	$	2,405	$	6,013	$	224,416
Commercial		686,197		17,960		19,420		723,577
Construction		105,027		1,357		1,052		107,436
Total real estate		1,007,222		21,722		26,485		1,055,429
Commercial		73,321		311		1,728		75,360
Consumer		57,568		61		104		57,733
Total loans	$	1,138,111	$	22,094	$	28,317	$	1,188,522

Real estate we have acquired through bank acquisitions or as a result of foreclosure is classified as OREO until sold. Our policy is to initially record OREO at fair value less estimated costs to sell at the date of foreclosure. After foreclosure, other real estate is carried at the lower of the initial carrying amount (fair value less estimated costs to sell or lease), or at the value determined by subsequent appraisals of the other real estate. Subsequent decreases in value are booked as other real estate owned—valuation allowance expense in the income statement. We held $26.5 million of OREO as of September 30, 2015, a decline of $8.4 million from the $34.9 million as of December 31, 2014, mainly due to sales. Our ratio of total nonperforming assets to total assets improved to 2.53% at September 30, 2015 from 3.63% at December 31, 2014, primarily due to the decline in OREO and nonperforming loans.

The following table sets forth certain information on nonperforming loans and OREO, the ratio of such loans and OREO to total assets as of the dates indicated, and certain other related information.

	As of
	September 30, 2015			December 31, 2014

Total nonperforming loans	$	16,774		$	20,894
OREO		26,490			34,916
Total nonperforming loans as a percentage of total loans		1.21	%		1.76	%
Total nonperforming assets as a percentage of total assets		2.53	%		3.63	%
Total accruing loans over 90 days delinquent as a percentage of total assets		0.00	%		0.00	%
Loans restructured as troubled debt restructurings	$	961		$	906
Troubled debt restructurings as a percentage of total loans		0.07	%		0.08	%

Allowance for Loan Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable incurred losses in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Among the material estimates required to establish the allowance are loss exposure at default, the amount and timing of future cash flows on impacted loans, value of collateral, and determination of the loss factors to be applied to the various elements of the portfolio.

Our allowance for loan losses consists of two components. The first component is allocated to individually evaluated loans found to be impaired and is calculated in accordance with ASC 310. The second component is allocated to all other loans that are not individually identified as impaired pursuant to ASC 450 (“nonimpaired loans”). This component is calculated for all nonimpaired loans on a collective basis in accordance with ASC 450. For additional discussion on our calculation of the allowance for loan losses, see “—Critical Accounting Policies and Estimates—Allowance for Loan Losses”.

The nonperforming loans related to acquired banks were marked to market and recorded at fair value at acquisition with no carryover of the allowance for loan losses. Therefore, our allowance for loan losses mainly reflects the general component allowance for performing loans originated by C1 Bank.

Our allowance for loan losses was allocated as follows as of the dates indicated in the table below:

	As of
	September 30, 2015				December 31, 2014
	Amount		% of Loans to Total Loans		Amount		% of Loans to Total Loans

Real estate:
Residential	$	1,514		19.2	$	820		18.9
Commercial		4,386		57.0		3,423		60.9
Construction		1,026		12.1		416		9.0
Total real estate		6,926		88.3		4,659		88.8
Commercial		471		5.5		373		6.3
Consumer		535		6.2		292		4.9
Total allowance for loan losses	$	7,932		100.0	$	5,324		100.0

The following table sets forth certain information with respect to activity in our allowance for loan losses during the periods indicated:

	Three-Month Periods Ended September 30,						Nine-Month Periods Ended September 30,
	2015			2014			2015			2014
Allowance for loan losses at beginning of period	$	7,675		$	4,593		$	5,324		$	3,412
Charge-offs:
Residential real estate		(50	)		(126	)		(50	)		(224	)
Commercial real estate		(2	)		(1	)		(3	)		(205	)
Construction		-			-			-			-
Commercial		(1	)		(9	)		(67	)		(4,055	)
Consumer		(41	)		(21	)		(47	)		(259	)
Total charge-offs		(94	)		(157	)		(167	)		(4,743	)
Recoveries:
Residential real estate		76			527			298			964
Commercial real estate		41			37			186			266
Construction		136			31			228			334
Commercial		105			183			550			358
Consumer		60			20			113			35
Total recoveries		418			798			1,375			1,957
Net (charge-offs) recoveries		324			641			1,208			(2,786	)
Provision (reversal of provision) for loan losses		(67	)		207			1,400			4,815
Allowance for loan losses at end of period	$	7,932		$	5,441		$	7,932		$	5,441
Ratio of annualized net charge-offs (recoveries) during the period to average loans outstanding during the period		(0.09	)%		(0.23	)%		(0.13	)%		0.35	%
Allowance for loan losses as a percentage of total loans at end of period		0.57			0.48			0.57			0.48
Allowance for loan losses as a percentage of nonperforming loans		47.29			26.39			47.29			26.39

Our allowance for loan losses to total loans increased to 0.57% at September 30, 2015 from 0.48% at September 30, 2014, and our allowance for loan losses to nonperforming loans increased to 47.29% at September 30, 2015 from 26.39% at September 30, 2014. Additionally, as a result of our acquisition strategy, we acquired the right to seek deficiency judgments resulting from defaulted loans from our acquired banks (including loans that defaulted before the acquisitions). We have actively pursued recovery of these deficiency amounts. This strategy has resulted in recoveries of $1.4 million and $2.0 million in the nine-month periods ended September 30, 2015 and September 30, 2014, respectively.

Investment Securities

We did not carry any balance of investment securities as of September 30, 2015 and December 31, 2014 due to our decision to sell the entirety of our securities available for sale portfolio in 2013. This decision was based on our assessment that improving economic conditions could begin to put upward pressure on interest rates, which prompted us to redeploy these assets into loans.

Bank-Owned Life Insurance

As of September 30, 2015 and December 31, 2014, we maintained investments in bank-owned life insurance of $43.0 million and $43.9 million, respectively, $35.0 million of which was purchased during December 2014. The purchase allowed us to deploy excess cash, has enhanced noninterest income and offset the rising costs of employee benefits. Included in the balance at September 30, 2015 and December 31, 2014 was $7.5 million and $8.9 million, respectively, relating to policies on former officers of an acquired bank, $1.5 million of which was surrendered in the second quarter of 2015. During the second quarter of 2015, we sent surrender notices for the remaining $7.5 million acquired polices. We expect to receive the proceeds within six to twelve months, at which time we may decide to use these proceeds to increase the investment in the BOLI purchased during December 2014.

Deposits

We monitor deposit growth by account type, market and rate. We seek to fund asset growth primarily with low-cost customer deposits in order to maintain a stable liquidity profile and net interest margin. Total deposits as of September 30, 2015 and December 31, 2014 were $1.264 billion and $1.168 billion, respectively. Our growth in deposits during the first nine months of 2015 was due primarily to our organic growth efforts by our banking centers and marketing team to expand our client reach, including the opening of our branch in Doral in April 2015.

The following table sets forth the distribution by type of our deposit accounts for the dates indicated.

	As of
	September 30, 2015				December 31, 2014
	Amount		% of Total Deposits		Amount		% of Total Deposits
	(in thousands, except %)
Deposit Type
Noninterest-bearing demand	$	336,361		26.6	$	278,543		23.9
Interest-bearing demand		177,688		14.1		140,598		12.0
Money market and savings		483,745		38.2		435,105		37.3
Time		266,586		21.1		313,256		26.8
Total deposits	$	1,264,380		100.0	$	1,167,502		100.0
Time Deposits
0.00 - 0.50%	$	30,852		11.6	$	25,294		8.1
0.51 - 1.00%		56,770		21.3		77,480		24.7
1.01 - 1.50%		126,424		47.4		160,808		51.3
1.51 - 2.00%		28,562		10.7		27,813		8.9
2.01 - 2.50%		20,402		7.7		11,160		3.6
Above 2.50%		3,576		1.3		10,701		3.4
Total time deposits	$	266,586		100.0	$	313,256		100.0

The following tables set forth our time deposits segmented by months to maturity and deposit amount:

	As of September 30, 2015
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
	(dollars in thousands)
Months to maturity:
Three or less	$	16,432	$	13,820	$	30,252
Over Three to Six		6,131		10,205		16,336
Over Six to Twelve		48,387		20,787		69,174
Over Twelve		79,427		71,397		150,824
Total	$	150,377	$	116,209	$	266,586

	As of December 31, 2014
	Time Deposits of $100 and Greater		Time Deposits of Less Than $100		Total
	(dollars in thousands)
Months to maturity:
Three or less	$	48,262	$	22,535	$	70,797
Over Three to Six		33,493		21,831		55,324
Over Six to Twelve		22,783		25,137		47,920
Over Twelve		79,180		60,035		139,215
Total	$	183,718	$	129,538	$	313,256

As of September 30, 2015 and December 31, 2014, we had brokered deposits of $38.7 million and $17.0 million, respectively.

Borrowings

Deposits are the primary source of funds for our lending activities and general business purposes; however, we may obtain advances from the FHLB, purchase federal funds, and engage in overnight borrowing from the Federal Reserve, correspondent banks, or by entering into client purchase agreements. We also use these sources of funds as part of our asset/liability management process to control our long-term interest rate risk exposure, even if it may increase our short-term cost of funds. This may include match funding of fixed-rate loans. Our level of short-term borrowings can fluctuate on a daily basis depending on funding needs and the source of funds to satisfy the needs. As of September 30, 2015, we had $242.0 million outstanding in advances from the FHLB with the following average rates and maturities:

	As of September 30, 2015
	Amount		% of total		Average rate (%)
Maturity year:
2015	$	13,000		5.4		0.44	%
2016		32,000		13.2		1.66	%
2017		12,000		5.0		2.13	%
2018		45,000		18.6		1.52	%
2019		45,000		18.6		1.98	%
2020		85,000		35.1		1.85	%
2023		10,000		4.1		2.70	%
Total	$	242,000		100.0		1.76	%

Liquidity and Capital Resources

Liquidity Management

We are expected to maintain adequate liquidity at the Bank. Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We manage liquidity based upon policy limits set by the board of directors and cash flow modeling. To maintain adequate liquidity, we also monitor indicators of potential liquidity risk, utilize cash flow projection models to forecast liquidity needs, model liquidity stress scenarios and develop contingency plans, and identify alternative back-up sources of liquidity. The liquidity reserve may consist of cash on hand, cash on demand in deposits with correspondent banks, cash equivalents such as federal funds sold, United States securities or securities guaranteed by the United States, and other investments. In addition, we have a fed funds line of $25 million with our correspondent bank and available borrowing capacity with the FHLB based on our collateral position. We believe that the sources of available liquidity are adequate to meet all reasonably immediate short-term and intermediate-term demands.

As of September 30, 2015, we held cash equal to 13.6% of total deposits and borrowings due in less than 12 months, which represented approximately $30.7 million of excess cash above our target.

We intend to use our current excess liquidity and capital for general corporate purposes, including loan growth.

Capital Management

We manage capital to comply with our internal planning targets and regulatory capital standards. We review capital levels on a monthly basis. We evaluate a number of capital ratios, including regulatory capital ratios required by the federal banking agencies such as Tier 1 capital to risk-weighted assets and Tier 1 capital to average total adjusted assets (the leverage ratio).

As of September 30, 2015 and December 31, 2014, we had an equity-to-assets ratio of 11.65% and 12.15%, respectively. As of September 30, 2015 and December 31, 2014, we had a Tier 1 capital to risk-weighted assets ratio of 13.51% and 14.33%, respectively, and a Tier 1 leverage ratio of 11.79% and 11.95%, respectively. The regulatory capital ratios as of September 30, 2015 were calculated under Interim Final Basel III rules and the regulatory capital ratios as of December 31, 2014 were calculated under Basel I rules. There is no threshold for well-capitalized status for bank holding companies.

As of September 30, 2015 and December 31, 2014, the regulatory capital ratios of the Company and Bank exceeded the required minimums, as seen in the table below:

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
September 30, 2015	Amount		Ratio (%)			Amount		Ratio (%)			Amount		Ratio (%)
	(in thousands, except %)
Total capital to risk-weighted assets
C1 Financial, Inc.	$	206,885		14.04	%	$	117,851		8.00	%	$	N/A		N/A
C1 Bank		206,203		14.00	%		117,843		8.00	%		147,304		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		198,953		13.51	%		88,388		6.00	%		N/A		N/A
C1 Bank		198,271		13.46	%		88,383		6.00	%		117,843		8.00	%
Common equity tier 1 capital to risk-weighted assets
C1 Financial, Inc.		198,953		13.51	%		66,291		4.50	%		N/A		N/A
C1 Bank		198,271		13.46	%		66,287		4.50	%		95,748		6.50	%
Tier 1 leverage ratio
C1 Financial, Inc.		198,953		11.79	%		67,492		4.00	%		N/A		N/A
C1 Bank		198,271		11.75	%		67,488		4.00	%		84,360		5.00	%

	Actual					Required for Capital Adequacy Purposes					Well Capitalized Under Prompt Corrective Action Provision
December 31, 2014	Amount		Ratio (%)			Amount		Ratio (%)			Amount		Ratio (%)
	(in thousands, except %)
Total capital to risk-weighted assets
C1 Financial, Inc.	$	190,712		14.74	%	$	103,532		8.00	%	$	N/A		N/A
C1 Bank		190,019		14.68	%		103,523		8.00	%		129,404		10.00	%
Tier 1 capital to risk-weighted assets
C1 Financial, Inc.		185,388		14.33	%		51,766		4.00	%		N/A		N/A
C1 Bank		184,695		14.27	%		51,762		4.00	%		77,642		6.00	%
Tier 1 leverage ratio
C1 Financial, Inc.		185,388		11.95	%		62,049		4.00	%		N/A		N/A
C1 Bank		184,695		11.91	%		62,045		4.00	%		77,556		5.00	%

Off-Balance Sheet Arrangements

We are party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments largely include commitments to extend credit and standby letters of credit. Total amounts committed under these financial instruments were $210.4 million and $189.0 million as of September 30, 2015 and December 31, 2014, respectively. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We use the same credit policies in making commitments to extend credit and generally use the same credit policies for letters of credit as for on-balance sheet instruments.

Unused lines of credit and commitments to fund loans are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Unused commercial lines of credit, which comprise a substantial portion of these commitments, generally expire within a year from their date of origination. The amount of collateral obtained, if any, by us upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with financial institutions, and securities.

We believe the likelihood of our unused lines of credit and standby letters of credit either needing to be totally funded or funded at the same time is low. However, should significant funding requirements occur, we have cash and available borrowing capacity from various sources to meet these requirements.

Our off-balance sheet arrangements at September 30, 2015 and December 31, 2014 are summarized in the tables that follow:

	Amount of Commitment Expiration Per Period as of September 30, 2015
	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total Amounts Committed
	(in thousands)

Unused lines of credit	$	12,794	$	7,080	$	2,645	$	16,967	$	39,486
Standby letters of credit		2,203		67		101		-		2,371
Commitments to fund loans		42,728		67,155		18,316		40,333		168,532
Total	$	57,725	$	74,302	$	21,062	$	57,300	$	210,389

	Amount of Commitment Expiration Per Period as of December 31, 2014
	1 Year or Less		Over 1 Through 3 Years		Over 3 Through 5 Years		Over 5 Years		Total Amounts Committed
	(in thousands)

Unused lines of credit	$	12,808	$	10,778	$	6,340	$	9,704	$	39,630
Standby letters of credit		-		1,473		67		-		1,540
Commitments to fund loans		17,080		65,402		26,838		38,559		147,879
Total	$	29,888	$	77,653	$	33,245	$	48,263	$	189,049

Generally Accepted Accounting Principles (GAAP) Reconciliation and Explanation of Non-GAAP Financial Measures

(In thousands, except per share and employee data)

Some of the financial measures included in this Quarterly Report on Form 10-Q are not measures of financial performance recognized by GAAP. We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition and results of operations computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP measures that other companies use. The following tables provide a more detailed analysis of these non-GAAP financial measures.

	Third Quarter			Second Quarter			First Quarter			Fourth Quarter			Third Quarter
	2015			2015			2015			2014			2014

Loan loss reserves
Allowance for loan losses	$	7,932		$	7,675		$	5,787		$	5,324		$	5,441
Acquired performing loans discount		2,830			3,047			3,242			3,532			3,811
Total	$	10,762		$	10,722		$	9,029		$	8,856		$	9,252
Loans receivable, gross	$	1,390,275		$	1,361,459		$	1,256,606		$	1,188,522		$	1,134,351
Allowance for loan losses to total loans receivable		0.57	%		0.56	%		0.46	%		0.45	%		0.48	%
Allowance plus performing loans discount to total loans receivable		0.77	%		0.79	%		0.72	%		0.75	%		0.82	%

Efficiency ratio
Noninterest expense	$	11,972		$	11,845		$	11,835		$	14,005		$	11,280
Taxable-equivalent net interest income	$	18,040		$	16,811		$	15,575		$	14,919		$	14,022
Noninterest income	$	2,114		$	4,335		$	1,602		$	1,554		$	1,797
Gains on sales of securities		-			-			-			-			-
Adjusted noninterest income	$	2,114		$	4,335		$	1,602		$	1,554		$	1,797
Efficiency ratio		59.4	%		56.0	%		68.9	%		85.0	%		71.3	%

Revenue and average assets per average number of employees
Interest income	$	20,546		$	19,115		$	17,769		$	17,158		$	16,245
Noninterest income		2,114			4,335			1,602			1,554			1,797
Total revenue	$	22,660		$	23,450		$	19,371		$	18,712		$	18,042
Total revenue annualized	$	89,901		$	94,058		$	78,560		$	74,238		$	71,580
Total average assets	$	1,687,662		$	1,615,468		$	1,576,419		$	1,552,264		$	1,493,667
Average number of employees		245			245			241			242			235
Revenue per average number of employees	$	367		$	384		$	326		$	307		$	305
Average assets per average number of employees	$	6,888		$	6,594		$	6,541		$	6,414		$	6,356

Tangible stockholders' equity and Tangible book value per share
Total stockholders' equity	$	199,560		$	194,555		$	189,812		$	186,638		$	185,296
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(754	)		(824	)		(904	)		(987	)		(1,074	)
Tangible stockholders' equity	$	198,557		$	193,482		$	188,659		$	185,402		$	183,973

Common shares outstanding		16,101			16,101			16,101			16,101			16,101
Book value per share	$	12.39		$	12.08		$	11.79		$	11.59		$	11.51
Tangible book value per share		12.33			12.02			11.72			11.51			11.43

Adjusted yield earned on loans
Reported yield on loans		5.87	%		5.89	%		5.90	%		5.84	%		5.79	%
Effect of accretion income on acquired loans		(0.10	)%		(0.10	)%		(0.14	)%		(0.19	)%		(0.14	)%
Adjusted yield on loans		5.77	%		5.79	%		5.76	%		5.65	%		5.65	%

Adjusted rate paid on total deposits
Reported rate paid on total deposits		0.46	%		0.44	%		0.47	%		0.50	%		0.52	%
Effect of premium amortization on acquired deposits		0.00	%		0.01	%		0.01	%		0.00	%		0.01	%
Adjusted rate paid on total deposits		0.46	%		0.45	%		0.48	%		0.50	%		0.53	%

Adjusted net interest margin
Reported net interest margin		4.75	%		4.71	%		4.56	%		4.24	%		4.18	%
Effect of accretion income on acquired loans		(0.09	)%		(0.09	)%		(0.12	)%		(0.16	)%		(0.11	)%
Effect of premium amortization on acquired deposits and borrowings		(0.02	)%		(0.02	)%		(0.03	)%		(0.03	)%		(0.04	)%
Adjusted net interest margin		4.64	%		4.60	%		4.41	%		4.05	%		4.03	%

Average excess cash
Average total deposits	$	1,237,460		$	1,185,325		$	1,186,076		$	1,174,001		$	1,147,816
Borrowings due in one year or less		16,136			17,750			25,189			28,940			34,753
Total base for liquidity	$	1,253,596		$	1,203,075		$	1,211,265		$	1,202,941		$	1,182,569
Minimum liquidity level (10% of base) (a)	$	125,360		$	120,308		$	121,127		$	120,294		$	118,257
Average cash and cash equivalents (b)		159,767			168,740			204,588			271,827			262,617
Cash above liquidity level (b)-(a)		34,407			48,432			83,461			151,533			144,360
Less estimated short-term deposits		(23,834	)		(20,823	)		(11,353	)		(24,421	)		(28,440	)
Average excess cash	$	10,573		$	27,609		$	72,108		$	127,112		$	115,920

Tangible equity to tangible assets
Total stockholders' equity	$	199,560		$	194,555		$	189,812		$	186,638		$	185,296
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(754	)		(824	)		(904	)		(987	)		(1,074	)
Tangible stockholders' equity	$	198,557		$	193,482		$	188,659		$	185,402		$	183,973

Total assets	$	1,712,483		$	1,677,806		$	1,596,739		$	1,536,691		$	1,548,045
Less: Goodwill		(249	)		(249	)		(249	)		(249	)		(249	)
Other intangible assets		(754	)		(824	)		(904	)		(987	)		(1,074	)
Tangible assets	$	1,711,480		$	1,676,733		$	1,595,586		$	1,535,455		$	1,546,722

Equity/Assets		11.65	%		11.60	%		11.89	%		12.15	%		11.97	%
Tangible Equity/Tangible Assets		11.60	%		11.54	%		11.82	%		12.07	%		11.89	%

Definitions of Non-GAAP financial measures

Allowance for loan losses plus performing loans discount to total loans receivable adds the remaining discount on acquired performing loans to the allowance for loan losses to determine the total reserves and loan discounts established against our loans. Our management believes that this metric provides useful information for investors to analyze the overall level of reserves in banks that have completed acquisitions with no allowance carryover.

Efficiency ratio is defined as total noninterest expense divided by the sum of taxable-equivalent net interest income and noninterest income. Noninterest income is adjusted for nonrecurring gains and losses on sales of securities. This ratio is important to investors looking for a measure of efficiency in the Company's productivity measured by the amount of revenue generated for each dollar spent.

Revenue per average number of employees is annualized total interest income and total noninterest income divided by the average number of employees during the period and measures the Company's productivity by calculating the average amount of revenue generated per employee. Average assets per average number of employees is average assets divided by the average number of employees during the period and measures the average value of assets per employee.

Tangible stockholders' equity is defined as total equity reduced by goodwill and other intangible assets. Tangible book value per share is tangible stockholders' equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets. We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

Adjusted yield earned on loans is our yield on loans after excluding loan accretion from our acquired loan portfolio. Our management uses this metric to better assess the impact of purchase accounting on yield on loans, as the effect of loan discounts accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet.

Adjusted rate paid on total deposits is our cost of deposits after excluding amortization of premiums for acquired time deposits. Our management uses this metric to better assess the impact of purchase accounting on cost of deposits, as the effect of amortization of premiums related to deposits is expected to decrease as the acquired deposits mature or roll off of our balance sheet.

Adjusted net interest margin is net interest margin after excluding loan accretion from the acquired loan portfolio and amortization of premiums for acquired time deposits and Federal Home Loan Bank advances. Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discounts accretion and amortization of premiums related to deposits or borrowings is expected to decrease as the acquired loans and deposits mature or roll off of our balance sheet.

Average excess cash represents the cash and cash equivalents in excess of our minimum liquidity level (defined as 10% of average total deposits plus borrowings due in one year or less), minus Company estimated short-term deposits. In 2015, based on an historical analysis, we changed our methodology for estimating short-term deposits, which reduced the results beginning in the first quarter of 2015.

Tangible equity to tangible assets is defined as total equity reduced by goodwill and other intangible assets, divided by total assets reduced by goodwill and other intangible assets. This measure is important to investors interested in relative changes from period-to-period in total equity and total assets, each exclusive of changes in intangible assets. We have not considered loan servicing rights as an intangible asset for purposes of this calculation.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk Management

Interest rate risk management is carried out through our directors’ asset/liability committee (“ALCO”) & investments committee, which consists of certain directors and our Chief Executive Officer, supported by our Chief Financial Officer, business unit heads and certain other officers. To manage interest rate risk, our board of directors has established quantitative and qualitative guidelines with respect to our net interest income exposure and how interest rate shocks affect our financial performance. Consistent with industry practice, we measure interest rate risk by utilizing the concept of economic value of equity, which is the intrinsic value of assets, less the intrinsic value of liabilities. Economic value of equity does not take into account management intervention and assumes the change is instantaneous. Further, economic value of equity only evaluates risk to the current balance sheet. Therefore, in addition to this measurement, we also evaluate and consider the impact of interest rate shocks on other business factors, such as forecasted net interest income for subsequent years. In both cases, sensitivity is measured versus a base case, which assumes the forward curve for interest rates as of the balance sheet date.

Management continually reviews and refines its interest rate risk management process in response to the changing economic climate. Currently, our model projects minus 400, minus 300, minus 200, minus 100, 0, plus 100, plus 200, plus 300 and plus 400 basis point changes to evaluate our interest rate sensitivity and to determine whether specific action is needed to improve the current structure, either through economic hedges and matching strategies or by utilizing derivative instruments. In the current interest rate environment, management believes the minus 200, minus 300 and minus 400 basis point scenarios are highly unlikely.

Based upon the current interest rate environment, as of September 30, 2015 and December 31, 2014, our sensitivity to interest rate risk based on a static scenario, assuming no change in asset and liability balances, was as follows:

As of September 30, 2015
	Next 12 Months
Interest Rate	Net Interest Income						Economic Value of Equity
Change in Basis Points	$ Change			% Change			$ Change			% Change
(in millions, except %)
(400)	$	(9.8	)		(13.8	)	$	(46.2	)		(20.1	)
(300)		(8.5	)		(12.0	)		(36.9	)		(16.0	)
(200)		(5.7	)		(8.0	)		(23.7	)		(10.3	)
(100)		(2.7	)		(3.9	)		(9.2	)		(4.0	)
0		-			-			-			-
100		4.3			6.0			8.3			3.6
200		8.6			12.1			15.6			6.8
300		12.8			18.0			18.3			8.0
400		17.0			24.0			27.1			11.8

As of December 31, 2014
	Next 12 Months
Interest Rate	Net Interest Income						Economic Value of Equity
Change in Basis Points	$ Change			% Change			$ Change			% Change
(in millions, except %)
(400)	$	(5.3	)		(8.6	)	$	(38.5	)		(18.5	)
(300)		(4.7	)		(7.7	)		(35.2	)		(16.9	)
(200)		(2.6	)		(4.2	)		(25.1	)		(12.1	)
(100)		(0.4	)		(0.7	)		(9.6	)		(4.6	)
0		-			-			-			-
100		2.2			3.6			4.5			2.2
200		4.6			7.5			7.4			3.5
300		7.1			11.5			9.9			4.7
400		9.5			15.5			11.7			5.6

We used many assumptions to calculate the impact of changes in interest rates on our portfolio, and actual results may not be similar to projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. Actual results may also differ due to our actions, if any, in response to the changing rates.

In the event the model indicates an unacceptable level of risk, we may take a number of actions to reduce this risk, including adjusting the maturity and/or rate sensitivity of our borrowings, changing our loan portfolio strategy or entering into hedging transactions, among others. As of September 30, 2015, we were in compliance with all of the limits and policies established by management.

Item 4. Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), as of September 30, 2015, and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II
Other Information

Item 1. Legal Proceedings

We are currently involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts as we believe to be reasonable under the circumstances, although insurance may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse effect on our consolidated financial position, cash flows or operating results.

Item 1A. Risk Factors

As of October 16, 2015, there have been no material changes from the risk factors previously disclosed in response to “Part I—Item 3. Risk Factors” of our Registration Statement on Form S-1, No. 333-206107, declared effective by the Commission on August 13, 2015.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits filed or furnished with this quarterly report are shown on the Exhibit List that follows the signatures to this report, which list is incorporated herein by reference.

Signatures

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

C1 FINANCIAL, INC.

Signature	Title	Date

/s/ Cristian A. Melej	Chief Financial Officer	October 16, 2015
Cristian A. Melej	(Principal Financial Officer)

Exhibit Index***

Number		Exhibit Title
31.1*		Certification Statement of Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification Statement of Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**		Certification Statement of Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**		Certification Statement of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		Interactive Data Files

*		Filed herewith.

**		Furnished herewith.

***		Reports filed under the Securities Exchange Act (Form 10-K, Form 10-Q and Form 8-K) are under File No. 001-36595.

Attached files

C1 Financial, Inc. Reports

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