Professional Holding Corp. Reports Third Quarter 2022 Results

Rhea-AI Summary

Professional Holding Corp. (NASDAQ:PFHD) reported a net income of $8.5 million, or $0.63 per share, for Q3 2022, marking a 21.1% increase from Q2 2022. This growth was driven by a $2.9 million rise in net interest income, primarily due to Federal Reserve rate hikes. Year-over-year, net income also rose from $6.3 million in Q3 2021. However, noninterest income fell by 31.3% to $1.2 million, while noninterest expenses increased 9.9% to $13.9 million. Total deposits decreased by 32.2% annualized, with total loans up 3.5%.

Positive

• Net income increased by $1.5 million or 21.1% to $8.5 million compared to Q2 2022.
• Earnings per share rose to $0.63, up from $0.52 in Q2 2022 and $0.48 in Q3 2021.
• Net interest income increased by $2.9 million or 13.2% to $24.8 million, benefiting from interest rate hikes.

Negative

• Noninterest income decreased by $0.6 million or 31.3% to $1.2 million compared to the previous quarter.
• Total deposits decreased by $0.2 billion or 32.2% annualized from Q2 2022.
• Noninterest expenses rose by $1.2 million or 9.9% to $13.9 million, largely due to merger-related costs.

Another Strong Quarter Results in Earnings per Share of $0.63

CORAL GABLES, Fla.--(BUSINESS WIRE)-- Professional Holding Corp. (the “Company”) (NASDAQ:PFHD), the parent company of Professional Bank (the “Bank”), today reported net income of $8.5 million, or $0.63 per share, for the third quarter of 2022 compared to net income of $7.0 million, or $0.52 per share, for the second quarter of 2022, and net income of $6.3 million, or $0.48 per share, for the third quarter of 2021.

“Our team continues to deliver high quality results establishing a solid foundation as we prepare for our next phase,” said Abel Iglesias, Chief Executive Officer.

Results of Operations for the Three Months Ended September 30, 2022

• Net income increased by $1.5 million, or 21.1%, to $8.5 million compared to $7.0 million in the second quarter, due to an increase in net interest income of $2.9 million and a decrease in provision expense of $0.9 million, partially offset by a decrease in noninterest income of $0.6 million, an increase in noninterest expense of $1.2 million, and an increase in income tax provision of $0.5 million.
• Net interest income increased $2.9 million, or 13.2%, to $24.8 million compared to $21.9 million in the second quarter, due to the Federal Reserve’s target Federal Funds Rate increases during the third quarter and new loan production in a higher rate environment on the Company’s asset sensitive balance sheet. The Company’s yield on average interest earning assets increased 91 basis points while cost of funds increased 14 basis points compared to the prior quarter.
• Provision for loan losses expense decreased $0.9 million, or 40.0%, to $1.3 million compared to $2.2 million in the second quarter, primarily due to slower net loan growth during the third quarter. There were no net charge-offs during the three months ended September 30, 2022, compared to $0.7 million of charge-offs in the second quarter.
• Noninterest income decreased $0.6 million, or 31.3% to $1.2 million compared to $1.8 million in the prior quarter. The decrease was primarily due to $0.5 million of insurance proceeds recorded in the second quarter on a previously recognized contingency.
• Noninterest expense increased by $1.2 million, or 9.9%, to $13.9 million compared to $12.6 million in the prior quarter, primarily due to expenses of $1.0 million in connection with the pending merger with Seacoast, higher salaries and employee benefits of $0.5 million, of which $0.2 million was attributable to lower capitalized costs related to the development of internal-use software, and higher marketing expenses of $0.4 million due to a charitable contribution to the AAA scholarship foundation. These increases were partially offset by $0.2 million in lower Federal Deposit Insurance Corporation (“FDIC”) expense and a decrease in other noninterest expense. Other noninterest expense decreased by $0.3 million, or 14.9%, compared to the second quarter due to a $0.4 million decrease related to the loss contingency reclassification recorded in the prior quarter, partially offset by an increase in the provision for unfunded commitments of $0.1 million.

Results of Operations for the Nine Months Ended September 30, 2022

• Net income increased by $0.5 million, or 2.8%, to $17.9 million compared to $17.4 million in the prior year period, due to an increase in net interest income of $11.6 million, partially offset by an increase in provision expense of $1.6 million, a decrease in noninterest income of $0.6 million, an increase in noninterest expense of $8.6 million, and an increase in income tax provision of $0.3 million.
• Net interest income increased by $11.6 million, or 21.3%, to $65.8 million compared to $54.2 million in the prior year period, primarily due to the impact of the Federal Reserve’s target Federal Funds Rate increases in 2022 on the Company’s asset sensitive balance sheet, in addition to an increase in average loans from $1.7 billion in 2021 to $1.9 billion in 2022. Interest income also benefited from increased average balances and higher yields in the investment portfolio.
• Provision for loan losses increased by $1.6 million, or 55.0%, to $4.4 million compared to $2.9 million in the prior year period primarily due to loan growth. The ratio of annualized charge-offs to average loans was 0.05% during the nine months ended September 30, 2022, compared to 0.61% in the prior year period.
• Noninterest income decreased by $0.6 million, or 12.7% to $4.3 million compared to the prior year period. The decrease primarily reflected lower service charges of $0.6 million on deposit accounts compared to prior year due to service charges of approximately $0.7 million, associated with acting as a correspondent bank for a Payroll Protection Program lender, and lower swap fee income of $0.7 million. These decreases were partially offset by an increase of $0.8 million in other noninterest income, comprised of $0.5 million of expected insurance proceeds on a previously recognized contingency and a $0.2 million loss on fixed asset disposals recorded in 2021.
• Noninterest expense increased by $8.6 million, or 25.0%, to $43.0 million compared to $34.4 million in the prior year period primarily due to higher salaries and employee benefits of $5.5 million and higher other noninterest expense of $2.0 million. The increase in salaries and benefits was driven by the $2.9 million expense related to the departure of the Company’s former Chief Executive Officer, and higher employee compensation costs from higher headcount and bonus and sales incentives. The increase in other noninterest expense was primarily comprised of a $0.7 million loss related to a previously recognized contingency from the first quarter, a $0.3 million increase related to our Community Reinvestment Act (“CRA”) mutual fund investment valuation, and a $0.5 million increase in the provision for unfunded commitments.

Financial Condition

At September 30, 2022:

• Total assets decreased by $0.2 billion, or 27.8%, annualized to $2.5 billion, compared to June 30, 2022, primarily as a result of decreases in cash and cash equivalents, partially offset by an increase in loans.
• Total loans increased by $17.7 million, or 3.5%, annualized, compared to June 30, 2022. We experienced loan originations of approximately $193.5 million, of which $67.2 million funded, partially offset by paydowns and prepayments. The Professional Bank PPP loan balance decreased $5.6 million, or 68.0%, to $2.6 million from June 30, 2022.
• Total deposits decreased by $0.2 billion, or 32.2% annualized, compared to June 30, 2022, primarily due to a decreases in all of our deposit categories. Cost of deposits increased 15 basis points to 0.39% for the three months ended September 30, 2022, from 0.24% for the three months ended June 30, 2022.
• As of September 30, 2022, nonperforming assets increased $0.3 million to $1.8 million compared to $1.5 million at June 30, 2022, due to the addition of a nonaccrual loan in our commercial real estate portfolio during the three months ended September 30, 2022.

Capital and Liquidity

The Company continues to remain well capitalized per regulatory requirements. As of September 30, 2022, the Company had a total risk-based capital ratio of 13.2% and a leverage capital ratio of 9.2%. The Company maintains a strong liquidity position. At September 30, 2022, in addition to its balance sheet liquidity, the Company had the ability to generate approximately $459.3 million in liquidity through available resources. Additionally, the Company retained $9.2 million in cash at the holding company.

Net Interest Income and Net Interest Margin Analysis

Net interest income was $24.8 million for the three months ended September 30, 2022. 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 September 30, 2022, the Company’s cost of funds was 0.42%.

(Dollars in thousands)		For the Three Months Ended
		September 30, 2022									June 30, 2022									September 30, 2021
		Average Outstanding Balance			Interest Income/ Expense(4)			Average Yield/Rate			Average Outstanding Balance			Interest Income/ Expense(4)			Average Yield/Rate			Average Outstanding Balance			Interest Income/ Expense(4)			Average Yield/Rate
Assets
Interest earning assets
Interest-earning deposits		$	137,355		$	747		2.16	%		$	474,835		$	963		0.81	%		$	561,082		$	212		0.15	%
Federal funds sold			21,895			124		2.25	%			31,584			66		0.84	%			36,264			10		0.11	%
Federal Reserve Bank stock, FHLB stock and other corporate stock			7,384			108		5.80	%			7,318			105		5.76	%			7,521			96		5.06	%
Investment securities - taxable			168,662			736		1.73	%			177,082			704		1.59	%			105,498			186		0.70	%
Investment securities - tax exempt			27,572			228		3.28	%			28,422			232		3.27	%			19,402			177		3.62	%
Loans(1)			1,979,132			25,222		5.06	%			1,853,077			21,600		4.68	%			1,702,137			20,209		4.71	%
Total interest earning assets			2,342,000			27,165		4.60	%			2,572,318			23,670		3.69	%			2,431,904			20,890		3.41	%
Loans held for sale			31									639									1,478
Noninterest earning assets			156,584									152,134									125,751
Total assets		$	2,498,615								$	2,725,091								$	2,559,133
Liabilities and stockholders’ equity
Interest-bearing liabilities
Interest-bearing deposits			1,453,653			2,170		0.59	%			1,663,120			1,491		0.36	%			1,463,138			1,476		0.40	%
Borrowed funds			24,447			198		3.21	%			25,735			270		4.21	%			45,046			310		2.73	%
Total interest-bearing liabilities			1,478,100			2,368		0.64	%			1,688,855			1,761		0.42	%			1,508,184			1,786		0.47	%
Noninterest-bearing liabilities
Noninterest-bearing deposits			758,135									784,252									810,042
Other noninterest-bearing liabilities			24,492									21,098									16,746
Stockholders’ equity			237,888									230,886									224,161
Total liabilities and stockholders’ equity		$	2,498,615								$	2,725,091								$	2,559,133
Net interest income					$	24,797								$	21,909								$	19,104
Net interest spread(2)								3.96	%								3.27	%								2.94	%
Net interest margin(3)								4.20	%								3.42	%								3.12	%

_________________________________________

(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 $0.9 million, $1.4 million and $2.3 million for the three months ended September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

Net interest income was $65.8 million and the Company’s cost of funds was 0.34% for the nine months ended September 30, 2022.

		For the Nine Months Ended
		September 30, 2022									September 30, 2021
(Dollars in thousands)		Average Outstanding Balance			Interest Income/ Expense(4)			Average Yield/Rate			Average Outstanding Balance			Interest Income/ Expense(4)			Average Yield/Rate
Assets
Interest earning assets
Interest earning deposits		$	394,614		$	1,985		0.67	%		$	441,679		$	436		0.13	%
Federal funds sold			27,215			209		1.03	%			49,982			50		0.13	%
Federal Reserve Bank stock, FHLB stock and other corporate stock			7,433			310		5.58	%			7,624			290		5.09	%
Investment securities - taxable			177,604			2,078		1.56	%			81,941			526		0.86	%
Investment securities - tax-exempt			27,305			673		3.30	%			20,396			569		3.73	%
Loans (1)			1,869,450			66,602		4.76	%			1,688,499			57,753		4.57	%
Total interest earning assets			2,503,621			71,857		3.84	%			2,290,121			59,624		3.48	%
Loans held for sale			452									1,824
Noninterest earning assets			148,404									122,306
Total assets		$	2,652,477								$	2,414,251
Liabilities and shareholders’ equity
Interest-bearing liabilities
Interest-bearing deposits			1,595,585			5,247		0.44	%			1,350,795			4,223		0.42	%
Borrowed funds			33,463			857		3.42	%			82,229			1,216		1.98	%
Total interest-bearing liabilities			1,629,048			6,104		0.50	%			1,433,024			5,439		0.51	%
Noninterest-bearing liabilities
Noninterest-bearing deposits			769,026									742,530
Other noninterest-bearing liabilities			20,781									17,769
Shareholders’ equity			233,622									220,928
Total liabilities and shareholders’ equity		$	2,652,477								$	2,414,251
Net interest income					$	65,753								$	54,185
Net interest spread (2)								3.34	%								2.97	%
Net interest margin (3)								3.51	%								3.16	%

__________________________________

(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 $3.9 million and $6.7 million for the nine months ended September 30, 2022, and 2021, respectively.

Provision for Loan Losses

Provision for loan losses decreased by $0.9 million, or 40.0%, in the third quarter to $1.3 million compared to $2.2 million in the prior quarter, primarily due to slower net loan growth during the quarter. There were no net charge-offs during the three months ended September 30, 2022, compared to $0.7 million of charge-offs in the second quarter. Also, there was an addition of two impaired loans that required a specific reserve this quarter.

Investment Securities

The Company’s investment portfolio decreased $14.6 million, or 7.4%, to $183.8 million compared to the prior quarter. The decrease was primarily due to $7.2 million in investment calls, redemptions and paydowns coupled with an increase in unrealized losses of $7.2 million during the third quarter. 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). Equity securities include $0.9 million of investments, made through our subsidiary Pro Opp Fund LLC, in businesses directly and indirectly related to the Company’s core business as permitted under the U.S. Bank Holding Company Act. Pro Opp Fund LLC has an additional $0.8 million of unfunded investments outstanding.

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 September 30, 2022, June 30, 2022, and December 31, 2021:

(Dollars in thousands)		September 30, 2022							June 30, 2022							December 31, 2021
		Amount				Percent			Amount				Percent			Amount				Percent
Loans held for investment:
Commercial real estate		$	997,478			49.8	%		$	1,034,487			52.1	%		$	902,654			50.8	%
Residential real estate			452,521			22.6	%			422,239			21.2	%			377,511			21.2	%
Commercial (non-PPP) (1)			397,725			19.8	%			387,317			19.5	%			325,415			18.3	%
Commercial (PPP)			2,618			0.1	%			8,176			0.4	%			58,615			3.3	%
Construction and land development			128,570			6.4	%			114,938			5.8	%			91,520			5.1	%
Consumer and other			25,983			1.3	%			20,076			1.0	%			21,449			1.2	%
Total loans held for investment, gross			2,004,895			100.0	%			1,987,233			100.0	%			1,777,164			100.0	%
Allowance for loan losses			(16,485	)						(15,142	)						(12,704	)
Loans held for investment, net		$	1,988,410						$	1,972,091						$	1,764,460
Loans held for sale:
Loans held for sale		$	—			—	%		$	—			—	%		$	165			100.0	%
Total loans held for sale		$	—						$	—						$	165

_________________________________________

(1)

Includes search fund lending of $99.2 million, $102.1 million, and $84.0 million for September 30, 2022, June 30, 2022, and December 31, 2021, respectively.

Nonperforming Assets

As of September 30, 2022, the Company had nonperforming assets of $1.8 million, or 0.07% of total assets, compared to nonperforming assets of $1.5 million, or 0.06% of total assets, at June 30, 2022. The increase was due to the addition of a nonaccrual loan in our commercial real estate portfolio during the three months ended September 30, 2022.

Allowance for Loan and Lease Loss (“ALLL”)

The Company’s allowance for loan losses increased $1.3 million, or 8.9%, to $16.5 million at September 30, 2022, compared to June 30, 2022, due to loan production and the increase of specific reserves allocated to two impaired loans. The Company’s allowance for loan losses as a percentage of total loans held for investment was 0.82% at September 30, 2022, compared to 0.76% at June 30, 2022. There were minimal changes to qualitative loss factors and historical loss factors for the current period with the principal driver for the increased allowance being loan growth.

PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollar amounts in thousands, except share data)
		September 30, 2022				June 30, 2022				December 31, 2021
ASSETS
Cash and due from banks		$	43,863				41,202			$	38,469
Interest earning deposits			113,641				299,834				545,521
Federal funds sold			15,762				27,043				13,477
Cash and cash equivalents			173,266				368,079				597,467
Securities available for sale, at fair value - taxable			150,517				164,354				175,536
Securities available for sale, at fair value - tax exempt			26,863				27,453				18,765
Securities held to maturity (fair value September 30, 2022 – $178, June 30, 2022 – $197, December 31, 2021 – $242)			194				204				236
Equity securities			6,182				6,359				6,638
Loans, net of allowance of $16,485, $15,142, and $12,704 as of September 30, 2022, June 30, 2022, and December 31, 2021, respectively			1,988,410				1,972,091				1,764,460
Loans held for sale			—				—				165
Premises and equipment, net			7,867				8,570				9,020
Bank owned life insurance			54,534				54,134				38,485
Goodwill and intangibles			25,579				25,639				25,766
Other assets			41,465				34,631				27,573
Total assets		$	2,474,877			$	2,661,514			$	2,664,111
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – noninterest bearing		$	758,042			$	777,501			$	674,003
Demand – interest bearing			308,167			$	339,942				310,362
Money market and savings			976,766			$	1,055,813				1,121,330
Time deposits			145,316			$	208,479				265,693
Total deposits			2,188,291				2,381,735				2,371,388
Federal Home Loan Bank advances			—				—				35,000
Official Checks			5,350				5,815				4,125
Other borrowings			—				—				10,000
Subordinated debt			24,467				24,436				—
Accrued interest and other liabilities			18,905				15,930				12,074
Total liabilities			2,237,013				2,427,916				2,432,587
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued			—				—				—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares. Issued 14,769,354 and outstanding 13,811,084 shares as of September 30, 2022, issued 14,699,975 and outstanding 13,742,381 shares at June 30, 2022, issued 14,393,750 and outstanding 13,446,400 shares at December 31, 2021			148				147				144
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding on September 30, 2022, June 30, 2022, and December 31, 2021			—				—				—
Treasury stock, at cost			(16,214	)			(16,201	)			(16,003	)
Additional paid in capital			216,703				215,541				212,012
Retained earnings			54,006				45,533				36,120
Accumulated other comprehensive loss			(16,779	)			(11,422	)			(749	)
Total stockholders’ equity			237,864				233,598				231,524
Total liabilities and stockholders' equity		$	2,474,877			$	2,661,514			$	2,664,111

 

PROFESSIONAL HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands, except share data)
		Three Months Ended												Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021						September 30, 2022			September 30, 2021
Interest income
Loans, including fees		$	25,222		$	21,600		$	20,209					$	66,602		$	57,753
Investment securities - taxable			736			704			186						2,078			526
Investment securities - tax-exempt			228			232			177						673			569
Dividend income on restricted stock			108			105			96						310			290
Other			871			1,029			222						2,194			486
Total interest income			27,165			23,670			20,890						71,857			59,624
Interest expense
Deposits			2,170			1,491			1,476						5,247			4,223
Federal Home Loan Bank advances			—			3			182						137			568
Subordinated debt			198			266			128						696			335
Other borrowings			—			1			—						24			313
Total interest expense			2,368			1,761			1,786						6,104			5,439
Net interest income			24,797			21,909			19,104						65,753			54,185
Provision for loan losses			1,343			2,240			1,060						4,434			2,860
Net interest income after provision for loan losses			23,454			19,669			18,044						61,319			51,325
Noninterest income
Service charges on deposit accounts			542			577			643						1,636			2,237
Income from bank owned life insurance			400			376			281						1,049			844
SBA origination fees			90			48			21						138			166
Swap fee income			—			—			208						112			781
Loans held for sale income			6			45			161						122			462
Gain on sale and call of securities			—			13			1						13			23
Other			185			722			161						1,207			384
Total noninterest income			1,223			1,781			1,476						4,277			4,897
Noninterest expense
Salaries and employee benefits			8,003			7,473			7,350						26,696			21,233
Occupancy and equipment			1,001			1,010			935						3,013			2,942
Data processing			257			304			303						875			869
Marketing			565			125			420						886			738
Professional fees			830			886			689						2,635			2,087
Acquisition expenses			957			—			—						957			684
Regulatory assessments			254			473			481						1,276			1,248
Other			1,986			2,333			1,446						6,614			4,565
Total noninterest expense			13,853			12,604			11,624						42,952			34,366
Income before income taxes			10,824			8,846			7,896						22,644			21,856
Income tax provision			2,351			1,852			1,608						4,758			4,452
Net income		$	8,473		$	6,994		$	6,288					$	17,886		$	17,404
Earnings per share:
Basic		$	0.63		$	0.52		$	0.48					$	1.33		$	1.30
Diluted		$	0.60		$	0.50		$	0.45					$	1.27		$	1.25
Other comprehensive income:
Unrealized holding loss on securities available for sale		$	(7,176	)	$	(5,841	)	$	(288	)				$	(21,484	)	$	(1,081	)
Tax effect			1,819			1,481			71						5,454			265
Other comprehensive loss, net of tax			(5,357	)		(4,360	)		(217	)					(16,030	)		(816	)
Comprehensive income		$	3,116		$	2,634		$	6,071					$	1,856		$	16,588

PROFESSIONAL HOLDING CORP.
EARNINGS PER COMMON SHARE (Unaudited)
(Dollar amounts in thousands, except share data)

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding plus the effect of employee stock awards during the year.

		Three Months Ended											Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021					September 30, 2022			September 30, 2021
Basic earnings per share:
Net income		$	8,473		$	6,994		$	6,288				$	17,886		$	17,404
Total weighted average common stock outstanding			13,498,007			13,446,335			13,196,025					13,430,536			13,344,470
Net income per share		$	0.63		$	0.52		$	0.48				$	1.33		$	1.30
Diluted earnings per share:
Net income		$	8,473		$	6,994		$	6,288				$	17,886		$	17,404
Total weighted average common stock outstanding			13,498,007			13,446,335			13,196,025					13,430,536			13,344,470
Add: dilutive effect of employee restricted stock and options			742,008			628,550			659,402					661,214			568,613
Total weighted average diluted stock outstanding			14,240,015			14,074,885			13,855,427					14,091,750			13,913,083
Net income per share		$	0.60		$	0.50		$	0.45				$	1.27		$	1.25
Anti-dilutive restricted stock and options			16,874			29,250			7,357					49,167			278,007

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”), which we refer to as “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

(Dollar amounts in thousands, except per share data)		Three Months Ended										Nine Months Ended
		September 30, 2022			June 30, 2022			September 30, 2021				September 30, 2022			September 30, 2021
Net interest income (GAAP)		$	24,797		$	21,909		$	19,104			$	65,753		$	54,185
Total noninterest income			1,223			1,781			1,476				4,277			4,897
Total noninterest expense			13,853			12,604			11,624				42,952			34,366
Pre-tax pre-provision earnings (non-GAAP)		$	12,167		$	11,086		$	8,956			$	27,078		$	24,716
Total adjustments to noninterest expense (1)			(957	)		—			—				(3,872	)		(684	)
Adjusted pre-tax pre-provision earnings (non-GAAP)		$	13,124		$	11,086		$	8,956			$	30,950		$	25,400
Return on average assets (GAAP)			1.35	%		1.03	%		0.97	%			0.90	%		0.96	%
Annualized pre-tax pre-provision ROAA (non-GAAP)			1.93	%		1.63	%		1.39	%			1.36	%		1.37	%
Adjusted annualized pre-tax pre-provision ROAA (non-GAAP)			2.08	%		1.63	%		1.39	%			1.56	%		1.41	%

(1)

Adjustments to noninterest expense for the three months ended September 30, 2022, were related to acquisition expenses. Adjustments for the nine months ended September 30, 2022, were related to acquisition expenses and severance and accelerated vesting expense related to the departure of the former Chief Executive Officer. Adjustments to noninterest expense for the nine months ended September 30, 2021, were related to change in control payments to two former Marquis employees.

(Dollar amounts in thousands, except per share data)		September 30, 2022				June 30, 2022				December 31, 2021
Total loans held for investment, net (GAAP)		$	1,988,410			$	1,972,091			$	1,764,460
Add allowance for loan loss ("ALLL")			16,485				15,142				12,704
Total gross loans held for investment ("LHFI")			2,004,895				1,987,233				1,777,164
Less Professional Bank net PPP loans ("PPP")			2,618				8,176				58,615
Total gross LHFI excluding net PPP loans (non-GAAP)			2,002,277				1,979,057				1,718,549
Add purchase accounting loan marks ("PA")			8,480				9,937				13,003
Total gross LHFI excluding net PPP loans (non-GAAP) + PA marks		$	2,010,757			$	1,988,994			$	1,731,552
ALLL as a % of LHFI (GAAP)			0.82	%			0.76	%			0.71	%
ALLL as a % of total LHFI excluding net PPP loans (non-GAAP)			0.82	%			0.77	%			0.74	%
PA marks + ALLL / LHFI excluding net PPP loans (non-GAAP)			1.24	%			1.26	%			1.48	%

(Dollar amounts in thousands)		Three Months Ended													Nine Months Ended
		September 30, 2022				June 30, 2022				September 30, 2021					September 30, 2022				September 30, 2021
Net interest income (GAAP)		$	24,797			$	21,909			$	19,104				$	65,753			$	54,185
Less: PPP net interest income recognized			(200	)			(818	)			(2,151	)				(2,077	)			(7,048	)
Net interest income excluding PPP (non-GAAP)			24,597				21,091				16,953					63,676				47,137
Less: PA premium/discounts			(1,504	)			(1,648	)			(1,969	)				(4,813	)			(1,969	)
Net interest income excluding PPP and PA (non-GAAP)		$	23,093			$	19,443			$	14,984				$	58,863			$	45,168
Average interest earning assets (GAAP)			2,342,000				2,572,318				2,431,904					2,503,621				2,290,121
Less: average PPP loans			(4,796	)			(19,727	)			(117,256	)				(22,890	)			(164,691	)
Average interest earning assets, excluding PPP (non-GAAP)			2,337,204				2,552,591				2,314,648					2,480,731				2,125,430
Add: average PA marks			9,178				10,436				14,317					10,631				16,823
Average interest earning assets, excluding PPP and PA (non-GAAP)		$	2,346,382			$	2,563,027			$	2,328,965				$	2,491,362			$	2,142,253
Net interest margin (GAAP)			4.20	%			3.42	%			3.12	%				3.51	%			3.16	%
Net interest margin excluding PPP (non-GAAP)			4.18	%			3.31	%			2.91	%				3.43	%			2.97	%
Net interest margin excluding PPP and PA (non-GAAP)			3.90	%			3.04	%			2.55	%				3.16	%			2.82	%

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 periods presented below.

		Three Months Ended September 30, 2022			Three Months Ended June 30, 2022			Three Months Ended September 30, 2021				Nine Months Ended September 30, 2022			Nine Months Ended September 30, 2021
Return on average assets		1.35	%		1.03	%		0.97	%			0.90	%		0.96	%
Return on average equity		14.13	%		12.15	%		11.13	%			10.24	%		10.53	%
Average equity to average assets		9.52	%		8.47	%		8.76	%			8.81	%		9.15	%

Additional Materials

A slide presentation with supplemental financial information relating to this release can be accessed at https://proholdco.com.

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 communication 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; involve assumptions, risks and uncertainties; and are not guarantees. Several important factors could cause actual results to differ materially from those in forward-looking statements. Those factors include, without limitation:

• general business and economic conditions, either globally, nationally, in the State of Florida, or in the specific markets in which we operate, including the negative impacts and disruptions resulting from rising interest rates, supply chain challenges and inflation, which have had and may likely continue to have an adverse impact on our business operations and performance, and could continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically;
• the impact of Hurricane Ian on Florida generally, as well as certain of the communities we serve, and which could continue to have a negative impact on our business, credit portfolio, borrowers and our stock price;
• the effects of our lack of a diversified loan portfolio and concentration in the South Florida market;
• the risk that our proposed merger Seacoast Banking Corporation of Florida (“Seacoast”) may not be completed in a timely manner or at all, which may adversely affect our business and the price of our common stock;
• the diversion of management time on issues related to the merger with Seacoast;
• the effect of the announcement or pendency of the merger on Seacoast’s customer, employee and business relationships, operating results, and business generally;
• changes in laws or regulations;
• changes in interest rates, deposit flows, loan demand and real estate values;
• the ongoing impacts and disruptions resulting from COVID-19 or other variants on the economies and communities we serve, which has had and may likely continue to have an adverse impact on our business operations and performance, and could continue to have a negative impact on our credit portfolio, stock price, borrowers and the economy as a whole both globally and domestically; and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2021, and other filings with the Securities and Exchange Commission.

Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from those expressed in forward-looking statements. We caution investors not to rely unduly on any forward-looking statements and urge investors to carefully consider the risks described in our filings with the Securities and Exchange Commission, referred to above, which are available on www.proholdco.com and the SEC’s website at www.sec.gov. The Company expressly 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 LPOs 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 LPO in Bedford, New Hampshire that specializes in search fund lending. For more information, visit www.myprobank.com. Member FDIC. Equal Housing Lender.

On August 8, 2022, Seacoast, the holding company for Seacoast National Bank (“Seacoast Bank”), and Professional Holding Corp. (“Professional”) announced that they have signed a definitive agreement under which Seacoast will acquire Professional. The transaction is subject to approval of Professional’s shareholders, regulatory approvals and other conditions and is expected to be completed in the first quarter of 2023.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221028005058/en/

Investor Relations:

Mike Sontag

General Counsel

(561)-868-9040

ir@proholdco.com

Source: Professional Holding Corp.

FAQ

What were Professional Holding Corp's earnings for Q3 2022?

Professional Holding Corp reported earnings of $8.5 million, or $0.63 per share, for Q3 2022.

How did net interest income change in Q3 2022 for PFHD?

Net interest income increased by $2.9 million or 13.2% to $24.8 million in Q3 2022.

What was the decrease in noninterest income for PFHD in Q3 2022?

Noninterest income decreased by $0.6 million, or 31.3%, to $1.2 million compared to Q2 2022.

How have total deposits changed for PFHD in Q3 2022?

Total deposits decreased by $0.2 billion, or 32.2% annualized, compared to Q2 2022.

What was the increase in noninterest expense for PFHD in Q3 2022?

Noninterest expenses rose by $1.2 million, or 9.9%, to $13.9 million in Q3 2022.