Professional Holding Corp. Reports First Quarter 2022 Results

Strong Loan Growth of Over 10% Annualized in First Quarter 2022 Across All non-PPP Lending Categories

CORAL GABLES, FL / ACCESSWIRE / April 29, 2022 / Professional Holding Corp. (the "Company") (NASDAQ:PFHD), the parent company of Professional Bank (the "Bank"), today reported net income of $2.4 million, or $0.18 per share, for the first quarter of 2022 compared to net income of $4.0 million, or $0.30 per share, for the fourth quarter of 2021, and net income of $4.8 million, or $0.36 per share, for the first quarter of 2021. First quarter 2022 earnings reflected expenses accrued in connection with the previously disclosed separation of the Company's former Chief Executive Officer, which on an after-tax basis reduced net income by $2.6 million or $0.19 cents per share.

"While the first quarter of 2022 had its challenges, we are optimistic about our future. We expect to continue our balance sheet and top-line growth and are laser focused on increasing profitability. We are excited about the markets we serve and anticipate that our talented workforce will exceed expectations," said Abel Iglesias, Chief Executive Officer.

Results of Operations for the Three Months Ended March 31, 2022

• Net income decreased $1.5 million, or 38.9%, to $2.4 million compared to $4.0 million in the prior quarter, due to severance and accelerated vesting expense on share-based compensation associated with the departure of the Company's former Chief Executive Officer. The decrease was comprised of higher noninterest expense of $3.6 million, partially offset by higher net interest income of $0.9 million and lower provision expense of $1.0 million. Adjusted pre-tax pre-provision earnings (non-GAAP), which excludes the severance and accelerated vesting expense, increased $0.2 million, or 3.5%, from the prior quarter to $6.7 million. In addition, adjusted net income (non-GAAP) increased $1.0 million, or 25.9%, from the prior quarter to $5.0 million (non-GAAP).
• Net interest income increased $0.9 million, or 5.1%, to $19.0 million compared to $18.1 million in the prior quarter, primarily due to an increase in interest income in the commercial and commercial real estate loan portfolios from an increase in average loans of $68.3 million to $1.8 billion compared to $1.7 billion in the prior quarter. Interest income also increased in the investment portfolio due to increased average balances and higher yields from the recent investment purchases.
• Provision for loan losses decreased $1.0 million, or 54.7%, to $0.9 million compared to $1.9 million in the prior quarter primarily due to the charge-off of a previously disclosed impaired loan that was recorded in the prior quarter.
• Noninterest income remained relatively steady compared to prior quarter at $1.3 million. A decrease of $0.1 million in small business administration ("SBA") fees was offset by a $0.1 million gain from the early payoff on Federal Home Loan Bank ("FHLB") borrowings.
• Noninterest expense increased $3.6 million, or 27.9%, to $16.5 million compared to $12.9 million in the prior quarter primarily due to a $2.9 million expense related to severance and accelerated vesting expense on share-based compensation associated with the departure of the Company's former Chief Executive Officer. The increase in noninterest expense also included an increase of $0.3 million in marketing expenses.

Financial Condition

At March 31, 2022:

• Total assets increased $0.2 billion, or 30.9%, annualized to $2.9 billion compared to December 31, 2021, primarily as a result of increases in cash and cash equivalents, net loans, and non-taxable securities available for sale. Total assets increased $0.6 billion, or 28.4% compared to March 31, 2021, primarily as a result of increases in cash and cash equivalents, net loans, and taxable securities available-for-sale.
• Total loans increased $45.6 million, or 10.4%, annualized to $1.8 billion compared to December 31, 2021. The increase was driven by loan originations of approximately $199.4 million, partially offset by paydowns and prepayments of $95.8 million. The Professional Bank PPP loan balance decreased $27.5 million, or 46.9%, to $31.1 million from December 31, 2021.
• Total deposits increased 36.9%, annualized or $0.2 billion, to $2.6 billion compared to December 31, 2021 primarily due to an increase in non-interest bearing demand deposit accounts and to a lesser extent, an increase in interest bearing demand deposit accounts.
• As of March 31, 2022, nonperforming assets remained unchanged at $2.1 million compared to December 31, 2021. As of March 31, 2021, the Company had nonperforming assets of $2.8 million. There were no charge-offs in the loan portfolio during the three months ended March 31, 2022, compared to a partial charge-off on one consumer loan in the prior quarter. For the three months ended March 31, 2021, the Company partially charged-off a commercial loan for $7.6 million.

Capital and Liquidity

The Company continues to remain well capitalized per regulatory requirements. As of March 31, 2022, the Company had a total risk-based capital ratio of 13.6% and a leverage capital ratio of 7.8%. The Company maintains a strong liquidity position. At March 31, 2022, in addition to its balance sheet liquidity, the Company had the ability to generate approximately $494.3 million in liquidity through available resources. Additionally, the Company retained $12.9 million in cash at the holding company. During the first quarter of 2022, the Company entered into a subordinated note purchase agreement with an institutional accredited investor, pursuant to which the Company issued and sold a 3.375% fixed-to-floating rate subordinated note due 2032 in the principal amount of $25.0 million, and increased the availability under its revolving line of credit at Valley National Bank, N.A. from $10.0 million to $25.0 million.

Net Interest Income and Net Interest Margin Analysis

Net interest income was $19.0 million for the three months ended March 31, 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 March 31, 2022, the Company's cost of funds was 0.32%.

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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 $1.6 million, $1.7 million and $2.7 million for the three months ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Provision for Loan Losses

The Company's provision for loan losses amounted to $0.9 million for the quarter ended March 31, 2022, and was primarily driven by loan growth during the quarter. The decrease of $1.0 million in provision expense for the first quarter of 2022 compared to the prior quarter was primarily due to the partial impairment of a consumer loan that was recorded in the prior quarter.

Investment Securities

The Company's investment portfolio increased $11.7 million, or 5.8%, to $212.9 million compared to the prior quarter. The increase was primarily due to purchases of approximately $28.6 million in mortgage-backed securities and community development district bonds, partially offset by $8.2 million in investment calls, redemptions and paydowns coupled with unrealized losses of $8.5 million during the 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 $0.8 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. Additionally, Pro Opp Fund LLC has an additional $0.9 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 March 31, 2022 and December 31, 2021:

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1. Includes $91.4 million of search fund lending.

Non-Performing Assets

As of March 31, 2022, the Company had nonperforming assets of $2.1 million, or 0.07% of total assets, compared to nonperforming assets of $2.1 million, or 0.08% of total assets, at December 31, 2021. As of March 31, 2021, the Company had nonperforming assets of $2.8 million, or 0.12% of total assets.

Allowance for Loan and Lease Loss ("ALLL")

The Company's allowance for loan losses increased $0.9 million, or 6.7%, to $13.6 million compared to the prior quarter primarily as a result of higher loan production volume this quarter. The Company's allowance for loan losses as a percentage of total loans held for investment (excluding Professional Bank PPP loans - non-GAAP, see Explanation of Certain Unaudited Non-GAAP Financial Measures) was 0.76% at March 31, 2022, compared to 0.74% at December 31, 2021. There were no changes to qualitative loss factors and minimal change in the historical loss factors for the current period with the driver for the increased allowance being loan growth.

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)

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 options during the year.

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 "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

1. Adjustments to non-interest expense for the three months ended March 31, 2022 were related to severance and accelerated vesting expense related to the departure of the former Chief Executive Officer. Adjustments to non-interest expense for the three months ended March 31, 2021 were related to change in control payments to two former Marquis employees.

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 March 31, 2022, December 31, 2021 and March 31, 2021.

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 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, 2021. 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 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.

SOURCE: Professional Holding Corp.