Quarterly Net Income of $1.0 Million as Assets Top $2.1 Billion
CORAL GABLES, FL / ACCESSWIRE / October 29, 2020 / Professional Holding Corp. (the 'Company') (NASDAQ:PFHD), the parent company of Professional Bank (the 'Bank'), today reported net income of $1.0 million, or $0.07 per diluted share for the third quarter of 2020 compared to net income of $3.1 million for the second quarter of 2020, and net income of $0.5 million or $0.08 per diluted share for the third quarter of 2019. For the nine months ended September 30, 2020, net income totaled $2.8 million, or $0.21 per diluted share, compared to net income of $1.3 million, or $0.22 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 and continue to take steps to safely remain open assisting existing clients and helping new ones. The Company issued $226.2 million of funds to small businesses through the Paycheck Protection Program ('PPP'), where our average loan amount was $149,738 and median loan was $42,400'. Chief Financial Officer Mary Usategui commented that despite the increase in provision expense, the Company had a profitable third quarter due in part to the realized efficiencies related to the successful integration of Marquis Bancorp. ('MBI').
Results of Operations for the three months ended September 30, 2020
- Net income was $1.0 million compared to $0.5 million for the same period in 2019.
- Pre-Tax Pre-Provision earnings (non-GAAP, see Explanation of Certain unaudited non-GAAP Financial Measures) was $6.7 million for the current quarter, an increase of $1.0 million compared to pre-tax pre-provision earnings of $5.7 million in the previous quarter, and 409.1% increase compared to $1.1 million during the same period in 2019.
- Net interest income was $17.5 million, an increase of $1.2 million or 7.4% compared to the previous quarter and an increase of $10.2 million, or 140.7%, compared to the same period in 2019.
- Noninterest income totaled $1.0 million, unchanged from the previous quarter and up $0.1 million, or 14.7% million from the third quarter 2019.
- Noninterest expense totaled $11.7 million, an increase of $0.2 million or 1.7% compared to the previous quarter and an increase of $4.7 million, or 66.4%, compared to the same period in 2019. MBI acquisition expenses were primarily responsible for the increase.
Results of Operations for the nine months ended September 30, 2020
- Net income of $2.8 million, an increase of $1.4 million, or 105.0%, compared to the same period in 2019.
- Net interest income of $41.8 million, an increase of $21.2 million, or 102.9%, compared to the same period in 2019. This increase was primarily due to loan growth, partially offset by an increase in total deposits.
- Noninterest income totaled $2.8 million, an increase of $0.7 million, or 31.0%, compared to the same period in 2019.
- Noninterest expense of $32.7 million, which represented an increase of $12.7 million, or 63.0%, compared to the same period in 2019. MBI acquisition expenses were primarily responsible for the increase.
At September 30, 2020:
- Total assets increased to $2.1 billion, an increase of $0.1 billion, or 5.0%, compared to June 30, 2020 primarily through increases in loans and cash funded by non-interest-bearing deposits. New loan originations were $99.1 million for the quarter, compared to $62.6 million the prior quarter, excluding PPP loans. New non-PPP, loan growth $32.6 million, a 2,407.7% increase over the prior quarter.
- Net loans increased to $1.6 billion, up $29.1 million, or 1.9% compared to June 30, 2020 and an increase of $0.8 billion, or 100.0% compared to September 30, 2019. We experienced growth across all loan types due to new organic origination, excluding PPP loans, of $97.4 million for the quarter compared to $62.6 million in the prior quarter.
- Nonperforming assets totaled $9.9 million compared to $6.2 million at June 30, 2020 and $4.7 million at September 30, 2019.
- The Company maintained its strong capital position. As of September 30, 2020, the Company was well-capitalized with a total risk-based capital ratio of 15.7%, and a leverage capital ratio of 10.1%.
COVID-19 Operational Response and Bank Preparedness:
- The Company continues to work within the COVID-19 response plans which were originally established in the Spring of 2020. The Company continues to update these plans to ensure that they comply with the latest governmental guidelines and health conditions.
- As conditions permit, these plans facilitate our staff judiciously and safely returning to the office. On September 30, 2020, approximately 35% of our staff was working in the office while approximately 65% was working by remote access. This compares to July 10, 2020, when 20% of our staff was working in the office and 80% was working by remote access.
- The Company participated in the PPP and processed/closed/funded 1,506 small business loans representing $226.2 million in relief proceeds. The majority of these loans have been 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. In addition, the Company paid off approximately $75 million in PPPLF advances in mid-October 2020.
- The Company added an online PPP application form and automated the PPP loan closing documentation process. Thus far, there have been 76 loans submitted for forgiveness for a total of $48.2 million, or 21.3% of total PPP loan volume.
- As of October 8, 2020, we have reviewed and processed 238 debt service relief requests in accordance with Section 4013 of the CARES Act and the 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 October 8, 2020, 6.7% of all loans have been approved for modification and remained so. Payment deferrals represent 3.8% of all loans and are comprised of 23 residential real estate loans totaling $17.1 million, 6 loans secured by owner occupied commercial real estate totaling $11.7 million, 13 loans collateralized by non-owner occupied commercial real estate totaling $20.8 million and 4 commercial and industrial loans totaling $2.8 million. Additionally, as a part of the CARES Act, the SBA is paying six months of loan payments for the Company's SBA 7a borrowers, of which the Company holds $13.6 million in the non-guaranteed portion of 7a loans.
PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except share data)
PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands, except share data)
The Company's capital position remained strong as of September 30, 2020, with a total risk-based capital ratio of 15.7%, and a leverage capital ratio of 10.1%. The total risk-based capital ratio was 12.3% at December 31, 2019 and 12.5% at September 30, 2019 and the leverage capital ratio was 7.8% at December 31, 2019 and 8.4% at September 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 September 30, 2020, purchases totaling $5.0 million at an average price of $15.79 had been made under this program. The Company has not made any repurchases since May 18, 2020.
The Company maintains a strong liquidity position. At September 30, 2020, in addition to its balance sheet liquidity, the Company had the ability to generate approximately $235.1 million in additional liquidity through available resources.
Net Interest Income and Net Interest Margin Analysis
Net interest income was $17.5 million for the quarter. In addition to the $251.6 million in interest-bearing deposits at correspondent banks yielding 0.10%, the Company also has invested approximately $15 million in average balances at correspondent banks that currently pay 35 basis points in earnings credits, which are included in the $99.1 million in noninterest earning assets below. The total earnings credits accumulated this quarter was $12.3 thousand, which were used to offset some of the Company's noninterest expenses. 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.
- Includes nonaccrual loans.
- Net interest spread is the difference between interest earned on interest earning assets and interest paid on interest-bearing liabilities.
- Net interest margin is a ratio of net interest income to average interest earning assets for the same period.
- Interest income on loans includes loan fees of $1.2 million and $230 thousand for the three months ended September 30, 2020 and 2019, respectively.
Provision for Loan Losses
The Company's provision for loan losses amounted to $6.0 million for the third quarter of 2020 compared to $0.4 million for the third quarter of 2019. The increase was primarily due to the Company addressing the impairment of the Coex loan. The Company's allowance for loan losses as a percentage of total loans (net of overdrafts and excluding PPP loans) was 1.09% at September 30, 2020, compared to 0.67% at June 30, 2020.
The Company's investment portfolio increased by $70.3 million, or 239.1%, from $29.4 million at September 30, 2019 to $99.7 million at September 30, 2020. The investment of a portion of the proceeds from the Company's initial public offering and MBI acquisition are 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). When compared to the second quarter, the Company's investment portfolio decreased by $8.1 million, or 7.5% from $107.8 million to $99.7 million. The decrease was primarily a result of paydowns of $4.4 million and to a lesser extent $2.2 million in calls and $1.5 million in maturities of securities.
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 September 30, 2020:
As of September 30, 2020, the Company had nonperforming assets of $9.9 million, or 0.48% of total assets compared to nonperforming assets of $6.2 million, or 0.30% of total assets at June 30, 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 11th Judicial Circuit Court in Miami-Dade County, Florida. This state court action is similar to a federal bankruptcy case where the assignee is tasked, under the oversight of a judge, with the repayment of creditors of a troubled entity. Coex was primarily in the business of purchasing and selling green coffee beans. Coex financed its business through various credit facilities from ten financial institutions in an amount totaling $191.9 million. The Company currently has a total of thirty-one (31) advances to Coex for the purchase of coffee from growers for period of up to 90 days with an aggregate outstanding balance of $12.4 million. However, the Company has a current balance of $8.3 million due to a participation, without recourse, to another financial institution. The loans are collateralized by coffee beans and the proceeds from coffee sales. While at the time of petition, the advances were current, the preliminary records reviewed by the Assignee indicate that certain loan documents, including purchase orders, were fraudulent and that only $1.2 million of the associated value may be attributed as collateral against the aggregate outstanding balance. While definitive reports and orders have yet to be issued, based on the Assignee's preliminary evaluation, the Company considers it prudent to record an impairment of $7.6 million against the Bank's portion of the loan. The Company intends to vigorously pursue courses of actions available to it to mitigate potential losses, including a potential insurance claim, to recover as much of the current outstanding balance as possible. At this time the Company is unable to provide any assurances whether these courses of action will ultimately be successful.
Allowance for Loan and Lease Losses ('ALLL')
The Company's allowance for loan losses was $15.0 million at September 30, 2020, compared to $9.0 million at June 30, 2020, an increase of $6.0 million or 0.7%. The increase was primarily due to the Company addressing the impairment of the Coex loan. At June 30, 2020, the Company had an allowance for loan losses to total gross loans (net of overdrafts and excluding PPP loans) ratio of 0.67%. At September 30, 2020, the Company's allowance for loan losses was 1.09% of total gross loans (net of overdrafts and excluding PPP loans) and provided coverage of 151.6% 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
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 impairment estimate related to Coex and the Company's pursuit of actions to mitigate the ultimate losses on the Coex credit and the ability to recover as much of the outstanding indebtedness as possible; 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, Form 10-Q for the fiscal quarter ended June 30, 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 and intends to open a loan production office in New England in November 2020. For more information, visit www.myprobank.com. Member FDIC. Equal Housing Lender.
SOURCE: Professional Holding Corp.
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