Professional Holding Corp. Reports Second-Quarter Results
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Professional Holding Corp. Reports Second-Quarter Results

Thursday, July 29, 2021 6:15 PM
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Topic:
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Quarterly Net Income of $6.3 Million as Assets Approach $2.6 Billion

CORAL GABLES, FL / ACCESSWIRE / July 29, 2021 / Professional Holding Corp. (the "Company") (NASDAQ:PFHD), the parent company of Professional Bank (the "Bank"), today reported net income of $6.3 million, or $0.47 per share, for the second quarter of 2021 compared to net income of $4.8 million, or $0.36 per share, for the first quarter of 2021, and net income of $3.1 million, or $0.22, for the second quarter of 2020.

"The Company had a strong quarter of asset and net income growth." said Daniel R. Sheehan, Chairman and Chief Executive Officer. "These results were a product of continued scale and noninterest income improvement."

Results of Operations for the Three Months Ended June 30, 2021

  • Net income increased $1.5 million, or 32.3%, to $6.3 million compared to the prior quarter. The increase was primarily due to balance sheet expansion and increases in service charges on deposit accounts associated with acting as a correspondent bank for a Payroll Protection Program lender (the "Correspondent Banking Relationship").
  • During the quarter we recognized $1.4 million from the reduction of fees associated with the Bank's Payroll Protection Program ("Professional Bank PPP") and $0.7 million in deposit correspondent fees from the Correspondent Banking Relationship.
  • Net interest income decreased $0.7 million, or 3.8%, to $17.2 million compared to the prior quarter primarily due to a decrease in Professional Bank PPP loan fees coupled with payoffs of higher yielding loans.
  • Noninterest income increased $1.1 million, or 105.7%, to $2.3 million, compared to the prior quarter primarily due to increases in service charges from the Correspondent Banking Relationship, secondarily to an increase in SWAP fees, and to a one-time credit to an unwinding fee of a Federal Home Loan Bank advance.
  • Noninterest expense decreased $0.8 million, or 7.1%, to $11.0 million compared to the prior quarter primarily due to the payment of change-in-control obligations paid in the prior quarter.

Results of Operations for the Six Months Ended June 30, 2021

  • The variance in the six-month Results of Operations for 2021 compared to 2020 occurred in part due to the March 26, 2020, closing date of the Marquis Bancorp, Inc. ("MBI") acquisition as there were 95 days of MBI integration in the first six months of 2020 compared to 181 days in the first six month of 2021 (the "MBI Variance").
  • Net income increased $9.3 million, or 512.8%, to $11.1 million compared to the prior year. The increase was primarily due to the MBI Variance, Professional Bank PPP loan fees recognized, and deposit fees associated with the Correspondent Banking Relationship.
  • Net interest income increased $10.7 million, or 44.1%, to $35.1 million from the prior year primarily due to loan growth.
  • Noninterest income increased $1.6 million, or 87.6%, to $3.4 million, compared to the prior year primarily due to increases in service charges on deposit accounts associated with the Correspondent Banking Relationship, $0.5 million increase in SWAP referral fees, $0.3 million increase in Bank Owned Life Insurance ("BOLI"), and $0.2 million increase in fees generated from loans held for sale, offset by a $0.3 million decrease in SBA loan origination fees.
  • Noninterest expense increased $1.7 million, or 8.1%, to $22.7 million compared to the prior year. The year over year increase was due to increased salaries and investment in digital infrastructure. The Bank's number of employees increased from 137 as of December 31, 2019, to 179 as of June 30, 2020, which increase was due to the MBI merger, and further increased to 194 as of June 30, 2021.

Financial Condition:

At June 30, 2021:

  • Total assets increased 14.7%, or $0.4 billion, to $2.6 billion compared to the prior quarter primarily due to increases in customer deposit accounts associated with the Correspondent Banking Relationship and investments in taxable securities available-for-sale. Additionally, total assets increased 26.0%, or $0.5 billion, compared to June 30, 2020.
  • Total loans were flat at $1.7 billion compared to the prior quarter. New loan originations were $186.8 million ($169.2 million of conventional loans, of which $118.0 million funded, coupled with $17.6 million of Professional Bank PPP loans). The Professional Bank PPP loan balance decreased $66.7 million, or 31.7%, from the prior quarter.
  • Total Deposits increased 19.7%, or $0.4 billion, to $2.3 billion compared to the prior quarter primarily due to increases in noninterest bearing demand deposit accounts. Additionally, average assets for the quarter increased due to large balances associated with the Correspondent Banking Relationship.
  • Nonperforming assets remained unchanged at $2.8 million compared to the prior quarter. As of June 30, 2020, the Company had nonperforming assets of $6.2 million.

Capital

The Company continues to remain well capitalized per regulatory requirements. As of June 30, 2021, the Company had a total risk-based capital ratio of 14.1% and a leverage capital ratio of 7.8%. During the quarter, the Company infused $15.0 million of capital into the Bank in order support asset growth and maintain well capitalized ratios at the Bank.

On March 2, 2020, the Company's Board of Directors authorized the repurchase from time to time of the Company's Class A Common Stock. Under this program, shares may be repurchased in open market transactions, including plans complying with Rule 10b5-1 under the Exchange Act. On May 5, 2021, the Company issued a press release announcing that the Board of Directors of the Company authorized an increase in the amount available under its existing stock repurchase program such that, effective May 6, 2021, $10.0 million of additional funds were made available to repurchase outstanding shares of the Company's Class A Common Stock. For the three months ended June 30, 2021, the Company repurchased 193,289 shares of Class A Common Stock, at an average price of $17.88 per share. As of June 30, 2021, year to date, the Company repurchased 247,768 shares of Class A Common Stock, at an average price of $17.50 per share.

Liquidity

The Company maintains a strong liquidity position. At June 30, 2021, in addition to its balance sheet liquidity, the Company had the ability to generate approximately $370.9 million in liquidity through available resources. Additionally, the Company retained $20.2 million in cash held at the holding company.

Net Interest Income and Net Interest Margin Analysis

Net interest income was $17.2 million for the three months ended June 30, 2021. 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, 2021, the Company's cost of funds was 0.30%.

 
 For the Three Months Ended June 30, 
 
 2021  2020 
 
 Average  Interest  
 
  Average  Interest  
 
 
 
 Outstanding  Income/  Average  Outstanding  Income/  Average 
(Dollars in thousands)
 Balance  Expense(4)  Yield/Rate  Balance  Expense(4)  Yield/Rate 
Assets
 
 
  
 
  
 
  
 
  
 
  
 
 
Interest earning assets
 
 
  
 
  
 
  
 
  
 
  
 
 
Interest-bearing deposits
 580,632  178   0.12% 170,658  44   0.10%
Federal funds sold
  69,506   24   0.14%  32,965   12   0.15%
Federal Reserve Bank stock, FHLB stock and other corporate stock
  7,391   99   5.37%  7,598   131   6.93%
Investment securities - taxable
  70,137   161   0.92%  88,365   241   1.10%
Investment securities - tax exempt
  20,172   189   3.76%  20,973   197   3.78%
Loans(1)
  1,699,403   18,311   4.32%  1,501,590   17,897   4.79%
Total interest earning assets
  2,447,241   18,962   3.11%  1,822,149   18,522   4.09%
Loans held for sale
  2,638           -         
Noninterest earning assets
  115,358           102,663         
Total assets
 2,565,237          1,924,812         
Liabilities and stockholders' equity
                        
Interest-bearing liabilities
                        
Interest-bearing deposits
  1,377,712   1,430   0.42%  994,972   1,617   0.65%
Borrowed funds
  56,347   330   2.35%  230,516   614   1.07%
Total interest-bearing liabilities
  1,434,059   1,760   0.49%  1,225,488   2,231   0.73%
Noninterest-bearing liabilities
                        
Noninterest-bearing deposits
  890,292           475,613         
Other noninterest-bearing liabilities
  17,690           19,540         
Stockholders' equity
  223,196           204,171         
Total liabilities and stockholders' equity
 2,565,237          1,924,812         
Net interest spread(2)
          2.62%          3.36%
Net interest income
     17,202          16,291     
Net interest margin(3)
          2.82%          3.60%
  1. Includes nonaccrual loans.
  2. Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.
  3. Net interest margin is a ratio of net interest income to average interest earning assets for the same period.
  4. Interest income on loans includes loan fees of $1.8 million and $0.9 million for the three months ended June 30, 2021, and 2020, respectively.

Provision for Loan Losses

The Company's provision for loan losses amounted to $0.8 million for the quarter ended June 30, 2021, a decrease of $0.2 million compared to the prior quarter. The decrease in the provision expense was due primarily to loan payoffs in higher risk categories offset by an increase in loan originations.

Investment Securities

The Company's investment portfolio increased $40.9 million, or 47.1%, to $127.7 million compared to the prior quarter. The increase was primarily due to $41.1 million in purchase of securities available for sale, offset by paydowns and maturities. 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, 2021:


 
 June 30, 2021  December 31, 2020 
(Dollars in thousands)
 Amount  Percent  Amount  Percent 
Commercial real estate
 875,453   51.4% 777,776   46.7%
Owner Occupied
  305,854   -   286,992   - 
Non-Owner Occupied
  569,599   -   490,784   - 
Residential real estate
  361,946   21.3%  380,491   22.8%
Commercial (Non-PPP)
  229,215   13.5%  206,665   12.4%
Commercial (PPP)
  144,118   8.5%  189,977   11.4%
Construction and development
  74,175   4.4%  99,883   6.0%
Consumer and other loans
  14,575   0.9%  11,688   0.7%
Total loans
 1,699,482   100.0% 1,666,480   100.0%
Unearned loan origination (fees) costs, net
  (1,984)      (1,323)    
Unearned PPP loan origination (fees) costs, net
  (4,855)      (4,255)    
Allowance for loan loss
  (10,418)      (16,259)    
Loans held for sale
  (2,039)      (1,270)    
Loans, net(1)
 1,680,186      1,643,373     
  1. Does not include loan control, loan participation control or loans in process.

During the quarter ended June 30, 2021, the Company funded 172 loans representing $17.6 million under Round 3 of the Small Business Association's ("SBA") Payroll Protection Program ("PPP"). As of June 30, 2021, the Company participated in all three rounds of the PPP and funded 2,287 small business loans representing approximately $340.5 million in relief proceeds, of which 1,362 loans totaling $196.9 million were forgiven by the SBA. Most of the Professional Bank PPP loans were initially pledged to the Federal Reserve as part of the Payroll Protection Program Liquidity Facility ('PPPLF'). The PPPLF pledged loans are non-recourse to the Company. However, the Company paid off all of the PPPLF advances during the first and second quarter of 2021 and the balance of PPPLF advances made by the Company was $0 as of June 30, 2021.

As a result of the COVID-19 pandemic the Company has reviewed and processed numerous debt service relief requests in accordance with Section 4013 of the CARES Act and interagency guidelines published by federal banking regulators on March 13, 2020. As currently interpreted by the agencies, the guidelines assert that short-term modifications made on good faith for reasons related to the COVID-19 pandemic to borrowers who were current prior to such relief are not considered Troubled Debt Restructurings ("TDRs"). These modifications include deferrals of principal and interest, modification to interest only, and deferrals to escrow requirements. The modifications had varying terms up to six months. As of June 30, 2021, all these loans had returned to normal payment schedules.

Non-Performing Assets

As of June 30, 2021, the Company had nonperforming assets of $2.8 million, or 0.11% of total assets, compared to nonperforming assets of $2.8 million, or 0.13% of total assets, at March 31, 2021. As of June 30, 2020, the Company had nonperforming assets of $6.2 million, or 0.30% of total assets.

Allowance for Loan and Lease Loss ("ALLL")

The Company's allowance for loan losses increased $0.7 million, or 7.2%, to $10.4 million compared to the prior quarter. An appropriate level of reserve was maintained as a precaution against potential economic weakening related to COVID-19 variants. The Company's allowance for loan losses as a percentage of total gross loans plus loans held for sale (net of overdrafts and excluding Professional Bank PPP loans) was 0.67% at June 30, 2021, compared to 1.10% at December 31, 2020. The December 31, 2020, ALLL included the reserve for Coex Coffee International, Inc., see Reconciliation of non-GAAP Financial Measures.

PROFESSIONAL HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)

 
 June 30,  December 31, 
 
 2021  2020 
ASSETS
 
 
  
 
 
Cash and due from banks
 29,803  62,305 
Interest-bearing deposits
  586,377   129,291 
Federal funds sold
  36,156   25,376 
Cash and cash equivalents
  652,336   216,972 
Securities available for sale, at fair value - taxable
  100,735   65,110 
Securities available for sale, at fair value - tax exempt
  19,761   22,398 
Securities held to maturity (fair value June 30, 2021 - $1,296, December 31, 2020 - $1,561)
  1,285   1,547 
Equity securities
  5,942   6,005 
Loans, net of allowance of $10,418 and $16,259 as of June 30, 2021, and December 31, 2020, respectively
  1,680,168   1,643,373 
Loans held for sale
  2,039   1,270 
Federal Home Loan Bank stock, at cost
  2,341   3,229 
Federal Reserve Bank stock, at cost
  4,954   4,762 
Accrued interest receivable
  5,449   6,666 
Premises and equipment, net
  4,000   4,370 
Bank owned life insurance
  37,923   37,360 
Deferred tax asset
  9,446   10,525 
Goodwill
  24,621   24,621 
Core deposit intangibles
  1,280   1,422 
Other assets
  8,738   7,640 
Total assets
 2,561,018  2,057,270 
LIABILITIES AND STOCKHOLDERS' EQUITY
        
Deposits
        
Demand - non-interest bearing
 854,673  475,598 
Demand - interest bearing
  286,173   232,367 
Money market and savings
  874,637   715,003 
Time deposits
  261,680   236,575 
Total deposits
  2,277,163   1,659,543 
Official checks
  3,289   4,447 
Federal Home Loan Bank advances
  35,000   40,000 
Other borrowings
  -   114,573 
Subordinated debt
  10,062   10,153 
Accrued interest and other liabilities
  12,476   12,989 
Total liabilities
  2,337,990   1,841,705 
Stockholders' equity
        
Preferred stock, 10,000,000 shares authorized, none issued
  -   - 
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 14,289,480 and outstanding 13,475,781 shares as of June 30, 2021, and authorized 50,000,000 shares, issued 14,100,760 and outstanding 13,534,829 shares at December 31, 2020
  143   141 
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding at June 30, 2021, and December 31, 2020
  -   - 
Treasury stock, at cost
  (13,544)  (9,209)
Additional paid-in capital
  210,274   208,995 
Retained earnings
  25,872   14,756 
Accumulated other comprehensive income (loss)
  283   882 
Total stockholders' equity
  223,028   215,565 
Total liabilities and stockholders' equity
 2,561,018  2,057,270 

PROFESSIONAL HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

(Dollar amounts in thousands, except share data)

 
 Three Months Ended June 30,  Six Months Ended June 30, 
 
 2021  2020  2021  2020 
Interest income
 
 
  
 
  
 
  
 
 
Loans, including fees
 18,311  17,897  37,544  27,912 
Investment securities - taxable
  161   232   340   434 
Investment securities - tax exempt
  189   206   392   226 
Dividend income on restricted stock
  99   131   194   210 
Other
  202   56   264   760 
Total interest income
  18,962   18,522   38,734   29,542 
 
                
Interest expense
                
Deposits
  1,430   1,617   2,747   4,243 
Federal Home Loan Bank advances
  190   287   386   565 
Subordinated debt
  77   59   207   189 
Other borrowings
  63   268   313   193 
Total interest expense
  1,760   2,231   3,653   5,190 
 
                
Net interest income
  17,202   16,291   35,081   24,352 
Provision for loan losses
  762   1,750   1,800   2,595 
Net interest income after provision for loan losses
  16,440   14,541   33,281   21,757 
 
                
Non-interest income
                
Service charges on deposit accounts
  1,199   307   1,594   529 
Income from Bank owned life insurance
  281   126   563   255 
SBA origination fees
  -   84   145   114 
SWAP fees
  364   210   573   473 
Third party loan sales
  226   157   301   267 
Gain on sale and call of securities
  21   11   22   15 
Other
  211   73   223   171 
Total non-interest income
  2,302   968   3,421   1,824 
 
                
Non-interest expense
                
Salaries and employee benefits
  7,099   6,912   13,883   12,175 
Occupancy and equipment
  905   1,081   2,007   1,855 
Data processing
  276   421   566   597 
Marketing
  165   151   318   288 
Professional fees
  770   806   1,398   1,161 
Acquisition expenses
  -   560   684   2,223 
Regulatory assessments
  418   300   767   514 
Other
  1,321   1,317   3,119   2,221 
Total non-interest expense
  10,954   11,548   22,742   21,034 
 
                
Income before income taxes
  7,788   3,961   13,960   2,547 
Income tax provision
  1,457   830   2,844   733 
Net income
  6,331   3,131   11,116   1,814 
 
                
Earnings per share:
                
Basic
 0.47  0.23  0.83  0.16 
Diluted
 0.45  0.22  0.80  0.15 
 
                
Other comprehensive income:
                
Unrealized holding gain (loss) on securities available for sale
  (505)  743   (794)  1,068 
Tax effect
  124   (188)  195   (271)
Other comprehensive gain (loss), net of tax
  (381)  555   (599)  797 
Comprehensive income
 5,950  3,686  10,517  2,611 

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


 
 June 30, 2021  December 31, 2020 
Total loans (GAAP)
 1,680,186  1,643,373 
Add allowance for loan loss
  10,418   16,259 
Add unearned loan origination fees (costs), net
  6,839   5,578 
Add loans held for sale
  2,039   1,270 
Total gross loans
 1,699,482  1,666,480 
Less PPP loans
  144,118   189,977 
Total gross loans excluding Professional Bank PPP loans (non-GAAP)
 1,555,364  1,476,503 
Add purchase accounting loan marks
  16,133   18,835 
Total gross loans excluding PPP loans and loan marks (non-GAAP)
 1,571,497  1,495,338 

 
        
Allowance for loan loss as a % of total loans + loans held for sale (GAAP)
  0.62%  0.99%
Allowance for loan loss as a % of total gross loans excluding Professional Bank PPP loans (non-GAAP)
  0.67%  1.10%
Loan marks + allowance for loan loss / total gross loans excluding PPP loans and loan marks (non-GAAP)
  1.69%  2.35%

Certain Performance Metrics

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


 
 Three Months Ended  Three Months Ended  Six Months Ended  Six Months Ended 

 
 June 30, 2021  June 30, 2020  June 30, 2021  June 30, 2020 
Return on Average Assets
  0.99%  0.65%  0.95%  0.24%
Return on Average Equity
  11.35%  6.13%  10.05%  2.31%
Average Equity to Average Assets
  8.70%  10.61%  9.44%  10.24%

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 and the potential worsening of the pandemic resulting from variants of COVID-19, 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); critical accounting estimates; and other factors described in our Form 10-K for the year ended December 31, 2020, Form 10-Q for the quarter ended March 31, 2021, 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 Bank and Professional Holding Corp.:

Professional Holding Corp. (NASDAQ:PFHD) is the financial holding company for Professional Bank, a Florida state-chartered bank established in 2008 and based in Coral Gables, Florida. 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, professionals and entrepreneurs. Professional Bank currently operates its Florida network through nine branch locations and two loan production offices in the regional areas of Miami, Broward, Palm Beach, Duval (Jacksonville), Hillsborough and Pinellas (Tampa Bay) counties. It also has a Digital Innovation Center located in Cleveland, Ohio and a loan production office in New England. For more information, visit www.myprobank.com. Member FDIC. Equal Housing Lender.

Media Contact:

Eric Kalis or Todd Templin, BoardroomPR

[email protected] / [email protected]

954-370-8999

SOURCE: Professional Holding Corp.

Professional Holding Corp.
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