Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934


For the quarterly period ended		Commission file
June 30, 2020		number 001‑39215

Professional Holding Corp.

(Exact name of Registrant as specified in its charter)


Florida				46-5144312
(State or other jurisdiction of				(I.R.S. Employer
incorporation or organization)				Identification Number)

396 Alhambra Circle, Suite 255

Coral Gables, FL 33134 (786) 483-1757

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
Class A Common Stock	PFHD	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☒

		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Number of shares of common stock outstanding as of August 12, 2020: 13,450,393

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TABLE OF CONTENTS


Part I	Financial Information	3

Item 1	Consolidated Financial Statements (unaudited)	3

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3	Quantitative and Qualitative Disclosures About Market Risk	58

Item 4	Controls and Procedures	58

Part II	Other Information	58

Item 1	Legal Proceedings	58

Item 1A	Risk Factors	58

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3	Defaults Upon Senior Securities	60

Item 4	Mine Safety Disclosures	60

Item 5	Other Information	60

Item 6	Exhibits	60

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PART I—FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited).

PROFESSIONAL HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollar amounts in thousands, except share data)


	June 30,		December 31,
	2020		2019
ASSETS
Cash and due from banks	$	38,034	$	21,408
Interest-bearing deposits		215,007		150,572
Federal funds sold		39,444		26,970
Cash and cash equivalents		292,485		198,950
Securities available for sale, at fair value		105,213		28,441
Securities held to maturity (fair value June 30, 2020 – $1,652, December 31, 2019 – $224)		1,635		214
Equity securities		995		971
Loans, net of allowance of $9,045 and $6,548 as of June 30, 2020 and December 31, 2019, respectively		1,559,861		785,167
Federal Home Loan Bank stock, at cost		4,291		2,994
Federal Reserve Bank stock, at cost		4,745		2,074
Accrued interest receivable		5,495		2,498
Premises and equipment, net		5,300		4,307
Bank owned life insurance		17,113		16,858
Goodwill		14,728		—
Core deposit intangibles		3,783		—
Other assets		16,108		10,667
	$	2,031,752	$	1,053,141
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Demand – non-interest bearing	$	495,086	$	184,211
Demand – interest bearing		763,108		599,318
Time deposits		258,249		109,344
Total deposits		1,516,443		892,873
Federal Home Loan Bank advances		65,077		55,000
Subordinated debt		9,932		—
Official checks		4,439		6,191
Line of credit		—		9,999
PPPLF advances		218,080		—
Accrued interest and other liabilities		15,347		9,776
Total liabilities		1,829,318		973,839
Commitments and contingent liabilities
Stockholders’ equity
Preferred stock, 10,000,000 shares authorized, none issued		—		—
Class A Voting Common stock, $0.01 par value; authorized 50,000,000 shares, issued 13,252,745 and outstanding 12,692,451 shares as of June 30, 2020 and authorized 50,000,000 shares, issued 5,360,262 and outstanding 5,115,262 shares at December 31, 2019		132		53
Class B Non-Voting Common stock, $0.01 par value; 10,000,000 shares authorized,752,184 shares issued and outstanding at June 30, 2020 and December 31, 2019		7		7
Treasury stock, at cost		(9,132)		(4,155)
Additional paid-in capital		202,438		77,019
Retained earnings		8,265		6,451
Accumulated other comprehensive gain (loss)		724		(73)
Total stockholders’ equity		202,434		79,302
	$	2,031,752	$	1,053,141

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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,
	2020		2019		2020		2019
Interest income
Loans, including fees	$	17,897	$	8,712	$	27,912	$	16,787
Taxable securities		438		161		660		332
Dividend income on restricted stock		131		70		210		127
Other		56		555		760		1,024
Total interest income		18,522		9,498		29,542		18,270

Interest expense
Deposits		1,617		2,398		4,243		4,411
Federal Home Loan Bank advances		287		269		565		507
Other borrowings		327		—		382		—
Total interest expense		2,231		2,667		5,190		4,918

Net interest income		16,291		6,831		24,352		13,352
Provision for loan losses		1,750		495		2,595		382
Net interest income after provision for loan losses		14,541		6,336		21,757		12,970

Non-interest income
Service charges on deposit accounts		307		281		529		357
Income from Bank owned life insurance		126		85		255		142
Gain on sale and call of securities		11		3		15		3
Other		524		554		1,025		781
Total non-interest income		968		923		1,824		1,283

Non-interest expense
Salaries and employee benefits		6,912		4,558		12,175		8,872
Occupancy and equipment		1,081		602		1,855		1,123
Data processing		421		162		597		324
Marketing		151		133		288		272
Professional fees		806		307		1,161		582
Acquisition expenses		560		—		2,223		—
Regulatory assessments		300		145		514		307
Other		1,317		630		2,221		1,567
Total non-interest expense		11,548		6,537		21,034		13,047

Income before income taxes		3,961		722		2,547		1,206
Income tax provision		830		223		733		352
Net income		3,131		499		1,814		854

Earnings (loss) per share:
Basic	$	0.23	$	0.08	$	0.16	$	0.14
Diluted	$	0.22	$	0.08	$	0.15	$	0.14

Other comprehensive income:
Unrealized holding gain (loss) on securities available for sale		743		215		1,068		483
Tax effect		(188)		(54)		(271)		(122)
Other comprehensive gain (loss), net of tax		555		161		797		361
Comprehensive income (loss)	$	3,686	$	660	$	2,611	$	1,215

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PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)

(Dollar amounts in thousands, except share data)


										Accumulated
						Additional				Other
	Common Stock			Treasury		Paid-in		Retained		Comprehensive
	Shares	Amount		Stock		Capital		Earnings		Income (Loss)		Total
Balance at March 31, 2020	13,537,565	$	138	$	(6,257)	$	201,670	$	5,134	$	169	$	200,854
Issuance of common stock, net of issuance cost	89,167		1		—		450		—		—		451
Treasury stock	(182,097)		—		(2,875)		(5)		—		—		(2,880)
Employee stock purchase plan	—		—		—		27		—		—		27
Net income	—		—		—		—		3,131		—		3,131
Other comprehensive gain	—		—		—		—		—		555		555
Stock based compensation	—		—		—		296		—		—		296
Balance at June 30, 2020	13,444,635	$	139	$	(9,132)	$	202,438	$	8,265	$	724	$	202,434

Balance at March 31, 2019	5,916,987	$	60	$	(393)	$	76,244	$	4,470	$	(225)	$	80,156
Issuance of common stock, net of issuance cost	36,000		—		—		330		—		—		330
Treasury stock	(15,000)		—		(262)		—		—		—		(262)
Employee stock purchase plan	—		—		—		30		—		—		30
Net income	—		—		—		—		499		—		499
Other comprehensive gain	—		—		—		—		—		161		161
Stock based compensation	—		—		—		8		—		—		8
Balance at June 30, 2019	5,937,987	$	60	$	(655)	$	76,612	$	4,969	$	(64)	$	80,922

Balance at December 31, 2019	5,867,446	$	60	$	(4,155)	$	77,019	$	6,451	$	(73)	$	79,302
Issuance of common stock, net of Issuance cost	3,664,667		37		—		60,221		—		—		60,258
Treasury stock	(315,294)		—		(4,977)		(9)		—		—		(4,986)
Marquis Bancorp (MBI) acquisition	4,227,816		42		—		64,657		—		—		64,699
Employee stock purchase plan	—		—		—		58		—		—		58
Net income	—		—		—		—		1,814		—		1,814
Other comprehensive gain	—		—		—		—		—		797		797
Stock based compensation	—		—		—		492		—		—		492
Balance at June 30, 2020	13,444,635		139		(9,132)		202,438		8,265		724		202,434

Balance at January 1, 2019	5,923,884	$	59	$	(220)	$	76,152	$	4,115	$	(425)	$	79,681
Issuance of common stock, net of Issuance cost	39,103		1		—		385		—		—		386
Treasury stock	(25,000)		—		(435)		—		—		—		(435)
Employee stock purchase plan	—		—		—		57		—		—		57
Net income	—		—		—		—		854		—		854
Other comprehensive gain	—		—		—		—		—		361		361
Stock based compensation	—		—		—		18		—		—		18
Balance at June 30, 2019	5,937,987	$	60	$	(655)	$	76,612	$	4,969	$	(64)	$	80,922

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PROFESSIONAL HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollar amounts in thousands, except share data)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities
Net income (loss)	$	1,814	$	854
Adjustments to reconcile net income to net cash from operating activities
Provision for loan losses		2,595		382
Deferred income tax benefit		(499)		199
Depreciation and amortization		739		156
Gain on sale of securities		4		3
Gain on call of securities		11		—
Equity unrealized change in market value		(24)		—
Net amortization of securities		(936)		(278)
Net amortization of deferred loan fees		1,118		407
Employee stock purchase plan		58		—
Stock compensation		492		57
Income from bank owned life insurance		(255)		(142)
Changes in operating assets and liabilities:
Accrued interest receivable		(1,472)		(466)
Other assets		1,887		(635)
Official checks, accrued interest, interest payable and other liabilities		(3,395)		7,194
Net cash provided by operating activities		2,137		7,731

Cash flows from investing activities
Proceeds from maturities and paydowns of securities available for sale		6,256		285
Proceeds from calls of securities available for sale		4,835		2,805
Proceeds from paydowns of securities held to maturity		44		22
Purchase of securities available for sale		(60,693)		(10,308)
Sale of securities available for sale		1,739		4,504
Loans originations, net of principal repayments		(257,801)		(115,113)
Proceeds from sale of loan		110		—
Purchase of Federal Reserve Bank stock		(2,671)		(361)
Purchase of Federal Home Loan Bank Stock		(1,297)		(1,015)
Proceeds of Federal Home Loan Bank Stock		—		425
Purchase of company owned life insurance		—		(8,000)
Purchases of premises and equipment		(741)		(490)
Proceeds from acquisition		26,860		—
Net cash used in investing activities		(283,359)		(127,246)

Cash flows from financing activities
Net increase (decrease) in deposits		126,404		136,456
Proceeds from issuance of stock, net of issuance costs		60,258		404
Purchase of treasury stock		(4,986)		(435)
Proceeds from Federal Home Loan Bank advances		10,000		20,000
Repayments of Federal Home Loan advances		(25,000)		(10,000)
Repayment of line of credit		(9,999)		—
Proceeds from PPPLF advances		218,080		—
Net cash provided by financing activities		374,757		146,425

Increase in cash and cash equivalents		93,535		26,910

Cash and cash equivalents at beginning of period		198,950		86,883

Cash and cash equivalents at end of period	$	292,485	$	113,793

Supplemental cash flow information:
Cash paid during the period for interest	$	4,907	$	4,891
Cash paid during the period for taxes		20		389

Supplemental noncash disclosures:
Other comprehensive gain (loss) – change in unrealized gain (loss) on securities available for sale, net of tax	$	797	$	361
Lease liabilities arising from obtaining right of use assets		1,620		5,673
Total asset acquired		589,374		—
Total liabilities assumed		539,403		—

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PROFESSIONAL HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Tables in thousands, except share data)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements of Professional Holding Corp. and its subsidiary, Professional Bank (the “Bank” and collectively with Professional Holding Corp., the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or any other period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates:

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the global economy and created uncertainty in world financial markets. The economic effects of the coronavirus COVID-19 pandemic have significantly impacted business and economic activity in the U.S. and around the world. There have been full and partial business closures, increases in unemployment as workers are furloughed, laid off, or had hours limited. Such disruptions could adversely affect our loan and deposit fee income as well as create downward pressure on the quality of our loan portfolio possibly leading to an increase in loan charge-offs.

The coronavirus COVID-19 is an unprecedented event that has created high levels of uncertainty. We are hopeful that the CARES Act and derivative programs will be a stabilizing force for the next 90 to 180 days, and we are vigilantly monitoring global events and actions being taken by various Federal and State Agencies. We have maintained interim periodic communications with our regulators and have not experienced any material deposit outflows to date and frequently communicate with our credit clients. Given the fluidity of the situation, management cannot predict the long-term impact of novel coronavirus COVID-19 for the remainder of 2020 or beyond.

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New accounting standards that have not yet been adopted:

The following provides a brief description of accounting standards that have been issued but are not yet adopted that could have a material effect on the Company’s financial statements:


ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
Description	In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (CECL) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (i.e. loan commitments, standby letters of credit, financial guarantees and other similar instruments).
Date of Adoption	For PBEs that are non-SEC filers and for SEC filers that are considered emerging growth companies, it is effective for January 1, 2023. Early adoption is still permitted.
Effect on the Consolidated Financial Statements	The Company's management is in the process of evaluating credit loss estimation models. Updates to business processes and the documentation of accounting policy decisions are ongoing. The company may recognize an increase in the allowance for credit losses upon adoption, recorded as a one-time cumulative adjustment to retained earnings. However, the magnitude of the impact on the Company's consolidated financial statements has not yet been determined. The Company will adopt this accounting standard effective January 1, 2023.

NOTE 2 — EARNINGS PER SHARE

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.


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Basic earnings per share:
Net Income(loss)	$	3,131	$	499	$	1,814	$	854
Total weighted average common stock outstanding		13,416		5,919		11,517		5,920
Net income(loss) per share	$	0.23	$	0.08	$	0.16	$	0.14
Diluted earnings per share:
Net Income	$	3,131	$	499	$	1,814	$	854
Total weighted average common stock outstanding		13,416		5,919		11,517		5,920
Add: Dilutive effect of employee stock options		518		204		527		214
Total weighted average diluted stock outstanding		13,934		6,123		12,044		6,134
Net income per share	$	0.22	$	0.08	$	0.15	$	0.14

For the three months ended June 30, 2020 and 2019 there were 29 thousand and no stock options that were anti-dilutive, respectively. For the six months ended June 30, 2020 and 2019 there were 29 thousand and no stock options that were anti-dilutive, respectively.

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NOTE 3 — SECURITIES

The following table summarizes the amortized cost and fair value of securities available-for-sale and securities held-to-maturity at June 30, 2020 and December 31, 2019 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss and gross unrecognized gains and losses:


			Gross		Gross
	Amortized		Unrealized		Unrealized
June 30, 2020	Cost		Gains		Losses		Fair Value
Available-for-sale
Small Business Administration loan pools	$	33,340	$	35	$	(277)	$	33,098
Mortgage-backed securities		36,201		572		(17)		36,756
U.S. agency obligations		8,015		149		(1)		8,163
Community Development District bonds		22,616		489		(8)		23,097
Municipals		1,070		25		-		1,095
Corporate bonds		3,002		3		(1)		3,004
Total available-for-sale	$	104,244	$	1,273	$	(304)	$	105,213

			Gross		Gross
	Amortized		Unrecognized		Unrecognized
	Cost		Gains		Losses		Fair Value
Held-to-Maturity
Mortgage-backed securities	$	430	$	19	$	—	$	449
US Treasury		204		—		—		204
Foreign Bonds		1,001		—		(2)		999
Total Held-to-Maturity	$	1,635	$	19	$	(2)	$	1,652


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2019	Cost		Gains		Losses		Value
Available-for-sale
Small Business Administration loan pools	$	17,303	$	19	$	(139)	$	17,183
Mortgage-backed securities		5,237		—		(52)		5,185
U.S. agency obligations		4,000		70		—		4,070
Corporate bonds		2,000		3		—		2,003
Total available-for-sale	$	28,540	$	92	$	(191)	$	28,441

			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Held-to-Maturity
Mortgage-backed securities	$	214	$	10	$	—	$	224
Total Held-to-Maturity	$	214	$	10	$	—	$	224

As of June 30, 2020 and December 31, 2019, Corporate bonds are comprised of investments in the financial services industry. During the six months ended June 30, 2020, the net investment portfolio increased by $78.2 million as a result of purchases and acquisitions. Proceeds from sales of securities during the three and six months ended June 30, 2020 were $0 and $1.7 million, with gross realized gains of $0 and $4 thousand, respectively. Proceeds from calls of securities during the three and six months ended June 30, 2020 were $4.8 million and $4.8 million, with gross realized gains of $11 and $11 thousand, respectively. Proceeds from sales and calls of securities for the year ended December 31, 2019 were $4.5 million and $0.5 million, respectively. Securities pledged as of June 30, 2020, and December 31, 2019 were $13.6 million and $14.9 million, respectively.

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The scheduled maturities of securities as of June 30, 2020 are as follows. The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.


	June 30, 2020
	Amortized		Fair
	Cost		Value
Available-for-sale
Due in one year or less	$	4,013	$	4,014
Due after one year through five years		26,880		27,463
Due after five years through ten years		3,495		3,573
Due after ten years		315		309
Subtotal	$	34,703	$	35,359

SBA loan pools	$	33,340	$	33,098
Mortgage-backed securities		36,201		36,756
Total available-for-sale	$	104,244	$	105,213

Held-to-maturity
Due in one year or less	$	204	$	204
Due after one year through five years		1,001		999
Subtotal	$	1,205	$	1,203

Mortgage-backed securities	$	430	$	449
Total held-to-maturity	$	1,635	$	1,652

At June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The tables below indicate the fair value of debt securities with unrealized losses and for the period of time of which these losses were outstanding at June 30, 2020 and December 31, 2019, respectively, aggregated by major security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

June 30, 2020
Available-for-sale
Small Business Administration loan pools	$	25,008	$	(204)	$	4,278	$	(73)	$	29,286	$	(277)
Mortgage-backed securities		2,970		(17)		—		—		2,970		(17)
U.S. agency obligations		2,004		(1)		—		—		2,004		(1)
Community Development District bonds		587		(8)		—		—		587		(8)
Municipals		—		—		—		—		—		—
Corporate bonds		1,000		(1)		—		—		1,000		(1)
Total available-for-sale	$	31,569	$	(231)	$	4,278	$	(73)	$	35,847	$	(304)

December 31, 2019
Available-for-sale
SBA loan pools	$	9,984	$	(63)	$	4,035	$	(76)	$	14,019	$	(139)
Mortgage-backed		1,914		(24)		2,541		(28)		4,455		(52)
U.S. agency obligations		—		—		—		—		—		—
Corporate bonds		—		—		—		—		—		—
Total available-for-sale	$	11,898	$	(87)	$	6,576	$	(104)	$	18,474	$	(191)

The unrealized holding losses within the investment portfolio are considered to be temporary and are mainly due to changes in the interest rate cycle. The unrealized loss positions may fluctuate positively or negatively with changes in interest rates or spreads. Because

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the decline in fair value is attributable to changes in interest rates and not credit quality, since we do not have any securities in an OTTI position, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2020. No credit losses were recognized in operations during for the six months ended June 30, 2020 or during 2019.

NOTE 4 — LOANS

Loans

PFHD

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