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Professional Holding Corp. Reports Second Quarter Results

·21 mins read

Quarterly Net Income of $3.1 Million as Assets Top $2.0 Billion

CORAL GABLES, FL / ACCESSWIRE / July 28, 2020 / Professional Holding Corp. (the "Company") (NASDAQ:PFHD), the parent company of Professional Bank (the "Bank"), today reported net income of $3.1 million, or $0.22 per diluted share for the second quarter of 2020 compared to a net loss of ($1.3 million) for the first quarter of 2020, and income of $0.5 million or $0.08 per diluted share for the second quarter of 2019. For the first six months of 2020, net income totaled $1.8 million, or $0.15 per diluted share, compared to net income of $0.9 million, or $0.14 per diluted share for the same period of 2019.

"I am proud of our team which continues to perform and adapt to the COVID-19 pandemic," said Daniel R. Sheehan, Chairman and Chief Executive Officer. "We remain committed to the welfare of our employees, clients, and the South Florida community by taking steps to safely remain open assisting existing clients and helping new ones. The Company issued $225.6 million of funds to small businesses through the Paycheck Protection Program ("PPP"), where our average loan amount was $152,616 and median loan was $44,650." Chief Financial Officer Mary Usategui commented that the Company realized efficiencies related to the successful integration of Marquis Bancorp. ("MBI") which led to a profitable second quarter.

Results of Operations:

For the second quarter of 2020:

  • Net interest income was $16.3 million, an increase of $9.5 million, or 139.7%, compared to the same period in 2019.

  • For the current quarter, net income was $3.1 million compared to $0.5 million for the same period in 2019. Pre-Tax Pre-Provision net income (non-GAAP, see Explanation of Certain unaudited non-GAAP Financial Measures) was $5.7 million for the current quarter, an increase of $6.1 million compared to a loss of ($0.6) million in the previous quarter, and 375% increase compared to the $1.2 million during the same period in 2019.

  • Noninterest income totaled $1.0 million for the second quarter 2020 unchanged from the second quarter 2019.

  • Noninterest expense totaled $11.5 million, an increase of $5.0 million, or 76.9%, compared to the same period in 2019. Increases in employee headcount and MBI acquisition expenses were primarily responsible for the increase.

Financial Condition:

At June 30, 2020:

  • Total assets increased to $2.0 billion, an increase of $0.3 billion, or 17.6%, compared to March 31, 2020 primarily due to SBA Paycheck Protection Program (PPP) funding. New loan originations were $62.6 million for the quarter, compared to $65.2 million the prior quarter, excluding PPP loans. Net new, non-PPP loan growth was relatively flat, with a modest $2.0 million increase.

  • Net loans increased to $1.6 billion, an increase of $0.3 billion, or 23.1%, compared to March 31, 2020 and an increase of $0.8 billion or 128.6% compared to June 30, 2019. We experienced growth across all loan types due to new organic origination and the MBI merger in the first quarter.

  • Nonperforming assets totaled $6.2 million compared to $4.0 million at March 31, 2020 and $1.1 million at June 30, 2019.

  • The Company maintained its strong capital position. As of June 30, 2020, the Company was well-capitalized with a total risk-based capital ratio of 15.9%, and a leverage capital ratio of 10.5%.

COVID-19 Operational Response and Bank Preparedness:

  • In early March 2020, the Company began preparing for potential disruptions and government limitations of activity relating to the COVID-19 pandemic. Preparations included: (i) conducting COVID-19 testing, (ii) publishing a "work from home" guide, (iii) phasing in remote operations with a focus on employee safety, redundancy, and business continuity, and (iv) hardware upgrades. The hardware upgrades included increased mobile/laptop capabilities, increased VPN licenses & bandwidth, and expanded technologies for video and conference line functionality.

  • The Company issued multi-level communications including the reinforcement of best practices with staff and clients about business and safety precautions and escalation procedures. Steps were taken to reduce branch traffic; additionally, all non-client facing employees are working remotely.

  • Policies and Procedures have been established to (i) take immediate precautionary steps with any exposed employees and (ii) for the eventual safe and orderly return to the office. The policy and procedures incorporate social distancing and alternating in-office schedules. Branches are given regularly scheduled deep cleanings to ensure workspaces are safe for our employees and clients.

  • The Company participated in the PPP and processed/closed/funded 1,478 small business loans representing over $225 million in relief proceeds. These loans were subsequently pledged to the Federal Reserve as part of the Paycheck Protection Program Liquidity Facility (PPPLF). The PPPLF pledged loans are non-recourse to the Bank.

  • The Company added an online PPP application form and automated the PPP loan closing documentation process.

  • As of July 10, 2020, we have reviewed and processed 181 debt service relief requests in accordance with Interagency guidelines published on March 13, 2020. As currently interpreted by the agencies, the guidelines assert that short-term modifications made in good faith for reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered troubled debt restructurings. These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications have varying terms up to six months. As of July 10, 2020, 13.1% of all loans have been approved for modification. Payment deferrals represent 7.6% of all loans and are comprised of 62 residential real estate loans totaling $43.4 million, 16 loans secured by owner occupied commercial real estate totaling $21.2 million, 20 loans collateralized by non-owner occupied commercial real estate totaling $36.2 million and 5 commercial and industrial loans totaling $2.6 million.

PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except per share data)

June 30,

December 31,

2020

2019

ASSETS

Cash and due from banks

$

38,034

$

21,408

Interest-bearing deposits

215,007

150,572

Federal funds sold

39,444

26,970

Cash and cash equivalents

292,485

198,950

Securities available for sale, at fair value

105,213

28,441

Securities held to maturity (fair value June 30, 2020 - $1,652, December 31, 2019 - $224)

1,635

214

Equity securities

995

971

Loans, net of allowance of $9,045 and $6,548 as of June 30, 2020 and December 31, 2019, respectively

1,559,861

785,167

Federal Home Loan Bank stock, at cost

4,291

2,994

Federal Reserve Bank stock, at cost

4,745

2,074

Accrued interest receivable

5,495

2,498

Premises and equipment, net

5,300

4,307

Bank owned life insurance

17,113

16,858

Deferred tax asset

6,901

1,859

Goodwill

14,728

-

Core deposit intangibles

3,783

-

Other assets

9,207

8,808

$

2,031,752

$

1,053,141

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits

Demand - non-interest bearing

$

495,086

$

184,211

Demand - interest bearing

763,108

599,318

Time deposits

258,249

109,344

Total deposits

1,516,443

892,873

Federal Home Loan Bank advances

65,077

55,000

Subordinated debt

9,932

-

Official checks

4,439

6,191

Line of credit

-

9,999

PPP loan advances

218,080

-

Accrued interest and other liabilities

15,347

9,776

Total liabilities

1,829,318

973,839

Commitments and contingent liabilities

Stockholders' equity

Preferred stock, 10,000,000 shares authorized, none issued

-

-

Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 13,252,745 and outstanding 12,692,451 shares as of June 30, 2020 and authorized 50,000,000 shares, issued 5,360,262 and outstanding 5,115,262 shares at December 31, 2019

132

53

Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized,752,184 shares issued and outstanding at June 30, 2020 and December 31, 2019

7

7

Treasury stock, at cost

(9,132

)

(4,155

)

Additional paid-in capital

202,438

77,019

Retained earnings

8,265

6,451

Accumulated other comprehensive gain (loss)

724

(73

)

Total stockholders' equity

202,434

79,302

$

2,031,752

$

1,053,141

PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

2020

2019

Interest income

Loans, including fees

$

17,897

$

8,712

$

27,912

$

16,787

Taxable securities

438

161

660

332

Dividend income on restricted stock

131

70

210

127

Other

56

555

760

1,024

Total interest income

18,522

9,498

29,542

18,270

Interest expense

Deposits

1,617

2,398

4,243

4,411

Federal Home Loan Bank advances

287

269

565

507

Other borrowings

327

-

382

-

Total interest expense

2,231

2,667

5,190

4,918

Net interest income

16,291

6,831

24,352

13,352

Provision for loan losses

1,750

495

2,595

382

Net interest income after provision for loan losses

14,541

6,336

21,757

12,970

Non-interest income

Service charges on deposit accounts

307

281

529

357

Income from Bank owned life insurance

126

85

255

142

Gain on sale of securities

11

3

15

3

Other

524

554

1,025

781

Total non-interest income

968

923

1,824

1,283

Non-interest expense

Salaries and employee benefits

6,912

4,558

12,175

8,872

Occupancy and equipment

1,081

602

1,855

1,123

Data processing

421

162

597

324

Marketing

151

133

288

272

Professional fees

806

307

1,161

582

Acquisition expenses

560

-

2,223

-

Regulatory assessments

300

145

514

307

Other

1,317

630

2,221

1,567

Total non-interest expense

11,548

6,537

21,034

13,047

Income before income taxes

3,961

722

2,547

1,206

Income tax provision

830

223

733

352

Net income

3,131

499

1,814

854

Earnings (loss) per share:

Basic

$

0.23

$

0.08

$

0.16

$

0.14

Diluted

$

0.22

$

0.08

$

0.15

$

0.14

Other comprehensive income:

Unrealized holding gain (loss) on securities available for sale

743

215

1,067

483

Tax effect

(188

)

(54

)

(270

)

(122

)

Other comprehensive gain (loss), net of tax

555

161

797

361

Comprehensive income (loss)

$

3,686

$

660

$

2,611

$

1,215

Capital

The Company's capital position remained strong as of June 30, 2020, with a total risk-based capital ratio of 15.9%, and a leverage capital ratio of 10.5%. The total risk-based capital ratio was 12.3% at December 31, 2019 and 14.1% at June 30, 2019 and the leverage capital ratio was 7.8% at December 31, 2019 and 9.6% at June 30, 2019. Each of the Company's capital ratios remain well in excess of regulatory requirements.

On March 2, 2020, the Company's Board of Directors authorized the purchase from time to time of up to $10 million of the Company's Class A Common Stock. Under this program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act. As of June 30, 2020, purchases totaling $5.0 million at an average price of $15.79 had been made under this program. Purchases during the quarter totaled $2.9 million or 182,097 shares. The Company has not made any repurchases since May 18, 2020.

Liquidity

The Company maintains a strong liquidity position. At June 30, 2020, in addition to its balance sheet liquidity, the Company had the ability to generate approximately $194.3 million in additional liquidity through available resources.

Net Interest Income and Net Interest Margin Analysis

The following table shows the average outstanding balance of each principal category of the Company's assets, liabilities and shareholders' equity, together with the average yields on assets and the average costs of liabilities for the periods indicated. Such yields and costs are calculated by dividing the annualized income or expense by the average daily balances of the corresponding assets or liabilities for the respective periods.

For the Three Months Ended June 30,

2020

2019

Average

Interest

Average

Interest

Outstanding

Income/

Average

Outstanding

Income/

Average

(Dollars in thousands)

Balance

Expense(4)

Yield/Rate

Balance

Expense(4)

Yield/Rate

Assets

Interest earning assets

Interest-bearing deposits

$

170,658

$

44

0.10

%

$

65,671

$

403

2.49

%

Federal funds sold

32,965

12

0.15

%

23,723

152

2.60

%

Federal Reserve Bank stock, FHLB stock and other corporate stock

7,598

131

6.93

%

4,291

70

6.62

%

Investment securities

109,338

438

1.61

%

28,930

161

2.26

%

Loans(1)

1,501,590

17,897

4.79

%

673,884

8,712

5.24

%

Total interest earning assets

1,822,149

18,522

4.09

%

796,499

9,498

4.84

%

Noninterest earning assets

102,663

47,026

Total assets

1,924,812

843,525

Liabilities and shareholders' equity

Interest-bearing liabilities

Interest-bearing deposits

994,972

1,617

0.65

%

543,668

2,398

1.79

%

Borrowed funds

230,516

614

1.07

%

45,055

269

2.42

%

Total interest-bearing liabilities

1,225,488

2,231

0.73

%

588,723

2,667

1.84

%

Noninterest-bearing liabilities

Noninterest-bearing deposits

475,613

162,269

Other noninterest-bearing liabilities

19,540

12,438

Shareholders' equity

204,171

80,095

Total liabilities and shareholders' equity

$

1,924,812

$

843,525

Net interest spread(2)

3.36

%

3.00

%

Net interest income

$

16,291

$

6,831

Net interest margin(3)

3.60

%

3.48

  1. Includes nonaccrual loans.

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

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

  4. Interest income on loans includes loan fees of $891 thousand and $148 thousand for the three months ended June 30, 2020 and 2019, respectively.

Provision for Loan Losses

The Company's provision for loan losses amounted to $1.8 million for the second quarter of 2020 compared to $0.5 million for the second quarter of 2019. The increased provision was intended to address the elevated credit risk levels related to the COVID-19 pandemic. The Company's allowance for loan losses as a percentage of total loans (excluding PPP loans) was 0.67% at June 30, 2020, compared to 0.55% at March 31, 2020. When taking into consideration the purchase accounting marks on the MBI loan portfolio our allowance for loan losses as a percentage of total loans (excluding PPP loans) would be approximately 1.95% (non-GAAP, see Explanation of Certain unaudited non-GAAP Financial Measures).

Investment Securities

The Company's investment portfolio increased by $83.8 million, or 349.2%, from $24.0 million at June 30, 2019 to $107.8 million at June 30, 2020. The investment of a portion of the proceeds from the Company's initial public offering is the primary reason for this increase. The Company invested these proceeds into liquid assets to provide more liquidity to fund loan growth, as well as securities available for sale. To supplement interest income earned on the Company's loan portfolio, the Company invests in high quality mortgage-backed securities, government agency bonds, corporate bonds, community development district bonds and equity securities (including mutual funds).

Loan Portfolio

The Company's primary source of income is derived from interest earned on loans. The Company's loan portfolio consists of loans secured by real estate as well as commercial business loans, construction and development loans, and other consumer loans. The Company's loan clients primarily consist of small to medium sized businesses, the owners and operators of those businesses, and other professionals, entrepreneurs and high net worth individuals. The Company's owner-occupied and investment commercial real estate loans, residential construction loans, and commercial business loans provide higher risk-adjusted returns, shorter maturities, and more sensitivity to interest rate fluctuations and are complemented by the relatively lower risk residential real estate loans to individuals. The Company's lending activities are principally directed to the Miami-Dade MSA. The following table summarizes and provides additional information about certain segments of the Company's loan portfolio as of June 30, 2020:

June 30, 2020

December 31, 2019

(Dollars in thousands)

Amount

Percent

Amount

Percent

Commercial real estate

$

704,947

44.8

%

$

270,981

34.2

%

Owner Occupied

259,345

-

112,618

-

Non-Owner Occupied

445,602

-

158,363

-

Residential real estate

388,613

24.6

%

342,257

43.2

%

Commercial

393,020

24.9

%

129,477

16.3

%

Construction and development

76,684

4.9

%

41,465

5.2

%

Consumer and other loans

13,281

0.8

%

8,287

1.1

%

Total loans

$

1,576,545

100.0

%

$

792,467

100.0

%

Unearned loan origination (fees) costs, net

(7,639

)

(752

)

Allowance for loan losses

(9,045

)

(6,548

)

Loans, net

$

1,559,861

$

785,167


Non-Performing Assets

As of June 30, 2020, the Company had nonperforming assets of $6.2 million, or 0.30% of total assets compared to nonperforming assets of $4.0 million, or 0.26% of total assets at March 31, 2020.

The Company learned on July 15, 2020 that one of its borrowers, Coex Coffee International Inc. ("Coex"), filed a Petition Commencing an Assignment for the Benefit of Creditors in the Circuit Court of the 11th Judicial Circuit in Miami-Dade County, Florida. Coex is primarily in the business of purchasing and selling green coffee beans. Coex has financed its business through various credit facilities from ten financial institutions totaling $191.9 million. The Company currently has a total of thirty-one (31) advances for the purchase of coffee from growers for periods of up to 90 days with an aggregate outstanding balance of $12.4 million. However, $4.1 million has been participated out without recourse to another financial institution leaving the Company with a current balance of $8.3 million. The loans are required to be over-collateralized. While at the time of petition, the advances were current, through court documents and legal inquiry (by the Company's counsel), the Company is presently investigating the status of its security and collateral. The situation remains fluid and as more information is obtained by the Company, we will evaluate the status and reserve associated with this loan.

Allowance for Loan and Lease Losses ("ALLL")

The Company's allowance for loan losses was $9.0 million at June 30, 2020, compared to $7.4 million at March 31, 2020, an increase of $1.6 million or 21.6%. The increased size of the Company's loan portfolio and the anticipated economic stress on the Company's customers resulting from the actual and projected effects of COVID-19 were primarily responsible for this increase. At March 31, 2020, the Company had an allowance for loan losses to total gross loans (net of overdrafts) ratio of 0.55%. At June 30, 2020, the Company's allowance for loan losses was 0.67% of total gross loans (net of overdrafts and excluding PPP loans) and provided coverage of 146.5% of nonperforming loans.

Explanation of Certain unaudited non-GAAP Financial Measures

This press release contains financial information determined by methods other than U.S. Generally Accepted Accounting Principles ("GAAP"), including adjusted net income and adjusted net income per share, which we refer to "non-GAAP financial measures." The table below provides a reconciliation between these non-GAAP measures and net income and net income per share, which are the most comparable GAAP measures.

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

Reconciliation of non-GAAP Financial Measures

Three Months Ended June 30,

Three Months Ended

Six Months Ended June 30,

2020

2019

March 31, 2020

2020

2019

Adjusted net income (non-GAAP)

Net income (GAAP)

$

3,131

$

499

$

(1,317

)

$

1,814

$

854

Less: income tax provision (benefit)

830

223

(97

)

733

352

Less: provision loan losses

1,750

495

845

2,595

382

Adjusted net income (non-GAAP)

$

5,711

$

1,217

$

(569

)

$

5,142

$

1,588

Adjusted net income per share (non-GAAP)

Earnings per share (GAAP)

$

0.23

$

0.08

$

(0.14

)

$

0.16

$

0.14

Effect of non-GAAP adjustments

0.19

0.12

0.08

0.29

0.12

Adjusted net income per share (non-GAAP)

$

0.43

$

0.21

$

(0.06

)

$

0.45

$

0.27

6/30/2020

Total Loans (less PPP loans)

1,352,556

Allowance for Loan Loss

9,045

GAAP: Allowance for Loan Loss as a % of Total Loans (excluding PPP loans)

0.67

%

Purchase Accounting Loan Marks

17,696

Total Loans (less PPP and excluding loan marks)

1,370,252

Non-GAAP: Loan Marks + Allowance / Total Loans (excluding PPP loans and loan marks)

1.95

%


Additional Materials

There is also a slide presentation with supplemental financial information relating to this release that can be accessed at https://myprobank.com/ir/.

Forward Looking Statements

This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements contained in this presentation that are not statements of historical fact may be deemed to be forward-looking statements, including, without limitation, statements preceded by, followed by or including words such as "anticipate," "intend," "believe," "estimate," "plan," "seek," "project" or "expect," "may," "will," "would," "could" or "should" and similar expressions. Forward looking statements represent the Company's current expectations, plans or forecasts and involve significant risks and uncertainties. Several important factors could cause actual results to differ materially from those in the forward-looking statements. Those factors include, without limitation, current and future economic and market conditions, including those that could impact credit quality and the ability to generate loans and gather deposits; the duration, extent and impact of the COVID-19 pandemic, including the governments' responses to the pandemic, on our and our customers' operations, personnel, and business activity (including developments and volatility), as well as COVID-19's impact on the credit quality of our loan portfolio and financial markets and general economic conditions; the effects of our lack of a diversified loan portfolio and concentration in the South Florida market; the impact of current and future interest rates and expectations concerning the actual timing and amount of interest rate movements; competition; our ability to execute business plans; geopolitical developments; legislative and regulatory developments; inflation or deflation; market fluctuations; natural disasters (including pandemics such as COVID-19); potential business uncertainties related to the integration of Marquis Bancorp (MBI), including into our operations critical accounting estimates; and other factors described in our Form 10-K for the year ended December 31, 2019, Form 10-Q for the fiscal quarter ended March 31, 2020 and other filings with the Securities and Exchange Commission. The Company disclaims any obligation to update any of the forward-looking statements included herein to reflect future events or developments or changes in expectations, except as may be required by law.

About Professional Holding Corp. and Professional Bank:

Professional Holding Corp. (NASDAQ:PFHD), is the financial holding company for Professional Bank, a Florida state-chartered bank established in 2008. Professional Bank focuses on providing creative, relationship-driven commercial banking products and services designed to meet the needs of small to medium-sized businesses, the owners and operators of these businesses, other professional entrepreneurs and high net worth individuals. Professional Bank currently operates through a network of nine locations in the regional areas of Miami, Broward, and Palm Beach counties. It also has a Digital Innovation Center located in Cleveland, Ohio. For more information, visit www.myprobank.com. Member FDIC. Equal Housing Lender.

Media Contacts:

Todd Templin or Eric Kalis
BoardroomPR

ttemplin@boardroompr.com/ekalis@boardroompr.com
954-370-8999

SOURCE: Professional Holding Corp.



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