PCB - PCB Bancorp Reports Earnings of $10.3 million for Q1 2023

April, 21 2023 04:05 PM Pacific City Financial Corporation

PCB Bancorp (the “Company”) (NASDAQ: PCB), the holding company of PCB Bank (the “Bank”), today reported net income of $10.3 million, or $0.70 per diluted common share, for the first quarter of 2023, compared with $8.7 million, or $0.58 per diluted common share, for the previous quarter and $10.2 million, or $0.67 per diluted common share, for the year-ago quarter.

Q1 2023 Highlights

Net income totaled $10.3 million, or $0.70 per diluted common share, for the current quarter;
Adopted Current Expected Credit Losses (“CECL”) accounting standard effective January 1, 2023, resulting in a cumulative effect adjustment to the allowance for credit losses (“ACL”) ⁽¹⁾ of $2.7 million;
Recorded a provision (reversal) for credit losses ^(1),(2) of $(2.8) million for the current quarter compared with $1.1 million for the previous quarter and $(1.2) million for the year-ago quarter;
ACL to loans held-for-investment ratio was 1.18% at March 31, 2023 compared with 1.22% at December 31, 2022 and 1.22% at March 31, 2022;
Net interest income was $22.4 million for the current quarter compared with $24.3 million for the previous quarter and $20.0 million for the year-ago quarter. Net interest margin was 3.79% for the current quarter compared with 4.15% for the previous quarter and 3.87% for the year-ago quarter;
Gain on sale of loans was $1.3 million for the current quarter compared with $759 thousand for the previous quarter and $3.8 million for the year-ago quarter;
Total assets were $2.50 billion at March 31, 2023, an increase of $80.5 million, or 3.3%, from $2.42 billion at December 31, 2022 and an increase of $300.8 million, or 13.7%, from $2.20 billion at March 31, 2022;
Loans held-for-investment were $2.09 billion at March 31, 2023, an increase of $46.4 million, or 2.3%, from $2.05 billion at December 31, 2022 and an increase of $349.5 million, or 20.1%, from $1.74 billion at March 31, 2022;
Total deposits were $2.14 billion at March 31, 2023, an increase of $95.7 million, or 4.7%, from $2.05 billion at December 31, 2022 and an increase of $231.3 million, or 12.1%, from $1.91 billion at March 31, 2022; and
Completed the repurchase program that was announced on July 28, 2022. Repurchased and retired 747,938 shares of common stock at a weighted-average price of $18.15 under this program.

“Our 2023 first quarter results, highlighted by our strong earnings, continued strong capital position, stable deposit balance, and disciplined credit culture, contributed to the steadfast value of our franchise,” stated Henry Kim, President and Chief Executive Officer. “We did not experience any meaningful deposit outflows immediately following the closure of regional banks. Instead, during the quarter, our deposit balances increased $95.7 million, of which, $25.7 million represented an increase in retail deposits.”

“Despite ongoing economic uncertainty, we began the year with another solid quarterly financial results highlighted by $10.3 million net income, or $0.70 per diluted shares, a 2.8% increase in tangible common equity per share to $18.72 from year-end, and a common equity tier 1 capital ratio of 16.03% at the bank level.”

“Although recent bank failures may disrupt the banking industry for a period of time, we are seeing this as an opportunity for our franchise to differentiate itself and provide a sanctuary to customers to put their trust in PCB and in the community banks. Our customers can rely on our ample liquidity and strong capital to withstand any economic uncertainty, and we are well-positioned to accommodate our customers’ lending and deposit needs,” concluded Kim.

-------------------------------------------------------------------------------------

(1)

Provision (reversal) for credit losses and ACL for reporting periods beginning with January 1, 2023 are presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310 on this report

(2)

Provision for credit losses on off-balance sheet credit exposures of $57 thousand and $2 thousand, respectively, for the previous and year-ago quarters were recorded in Other Expense on Consolidated Statements of Income (Unaudited).

Financial Highlights (Unaudited)



($ in thousands, except per share data)

Three Months Ended

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Net income

$
10,297


$
8,702


18.3
%

$
10,240


0.6
%
Diluted earnings per common share

$
0.70


$
0.58


20.7
%

$
0.67


4.5
%











Net interest income

$
22,414


$
24,265


(7.6
)%

$
19,993


12.1
%
Provision (reversal) for credit losses ⁽¹⁾


(2,778
)


1,149


NM



(1,191
)

133.2
%
Noninterest income


3,021



2,389


26.5
%


5,286


(42.8
)%
Noninterest expense


13,754



13,115


4.9
%


12,071


13.9
%











Return on average assets ⁽²⁾


1.69
%


1.44
%




1.92
%


Return on average shareholders’ equity ⁽²⁾


12.46
%


10.31
%




16.01
%


Return on average tangible common equity (“TCE”) ^(2),(3)


15.70
%


12.99
%




16.01
%


Net interest margin ⁽²⁾


3.79
%


4.15
%




3.87
%


Efficiency ratio ⁽⁴⁾


54.08
%


49.20
%




47.75
%

($ in thousands, except per share data)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Total assets

$
2,500,524


$
2,420,036


3.3
%

$
2,199,742


13.7
%
Net loans held-for-investment


2,067,748



2,021,121


2.3
%


1,721,757


20.1
%
Total deposits


2,141,689



2,045,983


4.7
%


1,910,379


12.1
%
Book value per common share ⁽⁵⁾

$
23.56


$
22.94




$
17.47



TCE per common share ⁽³⁾

$
18.72


$
18.21




$
17.47



Tier 1 leverage ratio (consolidated)


13.90
%


14.33
%




12.22
%


Total shareholders’ equity to total assets


13.47
%


13.86
%




11.87
%


TCE to total assets ^{(3), (6)}


10.71
%


11.00
%




11.87
%


(1)
Provision for credit losses on off-balance sheet credit exposures of $57 thousand and $2 thousand, respectively, for the previous and year-ago quarters were recorded in Other Expense on Consolidated Statements of Income (Unaudited). See Provision (reversal) for credit losses included in the Result of Operations discussion for additional information.
(2)
Ratios are presented on an annualized basis.
(3)
Non-GAAP. See “Non-GAAP Measures” for reconciliation of this measure to its most comparable GAAP measure.
(4)
Calculated by dividing noninterest expense by the sum of net interest income and noninterest income.
(5)
Calculated by dividing total shareholders’ equity by the number of outstanding common shares.
(6)
The Company did not have any intangible asset component for the presented periods.

Result of Operations (Unaudited)

Net Interest Income and Net Interest Margin

The following table presents the components of net interest income for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Interest income/expense on










Loans

$
31,229


$
28,786


8.5
%

$
20,190


54.7
%
Investment securities


1,102



957


15.2
%


476


131.5
%
Other interest-earning assets


2,205



1,833


20.3
%


228


867.1
%
Total interest-earning assets


34,536



31,576


9.4
%


20,894


65.3
%
Interest-bearing deposits


11,913



7,295


63.3
%


850


1,301.5
%
Borrowings


209



16


1,206.3
%


51


309.8
%
Total interest-bearing liabilities


12,122



7,311


65.8
%


901


1,245.4
%
Net interest income

$
22,414


$
24,265


(7.6
)%

$
19,993


12.1
%
Average balance of










Loans

$
2,072,415


$
2,004,220


3.4
%

$
1,773,376


16.9
%
Investment securities


142,079



134,066


6.0
%


123,230


15.3
%
Other interest-earning assets


186,809



182,018


2.6
%


198,918


(6.1
)%
Total interest-earning assets

$
2,401,303


$
2,320,304


3.5
%

$
2,095,524


14.6
%
Interest-bearing deposits

$
1,410,812


$
1,269,739


11.1
%

$
1,034,012


36.4
%
Borrowings


15,811



1,739


809.2
%


10,400


52.0
%
Total interest-bearing liabilities

$
1,426,623


$
1,271,478


12.2
%

$
1,044,412


36.6
%
Total funding ⁽¹⁾

$
2,114,198


$
2,043,110


3.5
%

$
1,885,038


12.2
%
Annualized average yield/cost of









Loans


6.11
%


5.70
%




4.62
%


Investment securities


3.15
%


2.83
%




1.57
%


Other interest-earning assets


4.79
%


4.00
%




0.46
%


Total interest-earning assets


5.83
%


5.40
%




4.04
%


Interest-bearing deposits


3.42
%


2.28
%




0.33
%


Borrowings


5.36
%


3.65
%




1.99
%


Total interest-bearing liabilities


3.45
%


2.28
%




0.35
%


Net interest margin


3.79
%


4.15
%




3.87
%


Cost of total funding ⁽¹⁾


2.33
%


1.42
%




0.19
%


Supplementary information










Net accretion of discount on loans

$
671


$
869


(22.8
)%

$
908


(26.1
)%
Net amortization of deferred loan fees

$
175


$
167


4.8
%

$
1,165


(85.0
)%

(1)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Loans. The increases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to an increase in overall interest rates on loans from the rising interest rate environment.

The following table presents a composition of total loans by interest rate type accompanied with the weighted-average contractual rates as of the dates indicated:



3/31/2023

12/31/2022

3/31/2022


% to Total Loans

Weighted-Average Contractual Rate

% to Total Loans

Weighted-Average Contractual Rate

% to Total Loans

Weighted-Average Contractual Rate
Fixed rate loans

23.4
%

4.64
%

23.2
%

4.51
%

26.7
%

4.25
%
Hybrid rate loans

39.0
%

4.51
%

39.1
%

4.40
%

31.5
%

4.07
%
Variable rate loans

37.6
%

8.26
%

37.7
%

7.86
%

41.8
%

4.14
%

Investment Securities. The increases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to a decrease in net amortization of premiums on securities and higher yield on newly purchased investment securities.

Other Interest-Earning Assets. The increases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to an increased interest rate on cash held at the Federal Reserve Bank (“FRB”) account.

Interest-Bearing Deposits. The increases in average cost for the current quarter compared with the previous and year-ago quarters were primarily due to an increase in market rates.

Provision (Reversal) for Credit Losses

The following table presents a composition of provision (reversal) for credit losses for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Provision (reversal) for credit losses on loans

$
(2,417
)

$
1,149

NM

$
(1,191
)

102.9
%
Provision (reversal) for credit losses on off-balance sheet credit exposure ⁽¹⁾


(361
)


57

NM


2


NM

Total provision (reversal) for credit losses

$
(2,778
)

$
1,206

NM

$
(1,189
)

133.6
%

(1)

Provision for credit losses on off-balance sheet credit exposures for previous and year-ago quarters were recorded in Other Expense on Consolidated Statements of Income (Unaudited).

On January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach. Provision (reversal) for credit losses and ACL for reporting periods beginning with January 1, 2023 are presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310 on this report. See CECL Adoption and Allowance for Credit Losses sections included in the Balance Sheet discussion for additional information.

The reversal for credit losses for the current quarter was primarily due to net recoveries of $1.1 million and decreases in classified and nonaccrual loans during the current quarter.

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Gain on sale of loans

$
1,309

$
759

72.5
%

$
3,777

(65.3
)%
Service charges and fees on deposits


344


352

(2.3
)%


303

13.5
%
Loan servicing income


860


734

17.2
%


700

22.9
%
Bank-owned life insurance income


180


181

(0.6
)%


172

4.7
%
Other income


328


363

(9.6
)%


334

(1.8
)%
Total noninterest income

$
3,021

$
2,389

26.5
%

$
5,286

(42.8
)%

Gain on Sale of Loans. The following table presents information on gain on sale of loans for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Gain on sale of SBA loans










Sold loan balance

$
27,133

$
17,448

55.5
%

$
39,683

(31.6
)%
Premium received


2,041


1,102

85.2
%


4,206

(51.5
)%
Gain recognized


1,309


759

72.5
%


3,777

(65.3
)%

Loan Servicing Income. The following table presents information on loan servicing income for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Loan servicing income










Servicing income received

$
1,284


$
1,284


—
%

$
1,230


4.4
%
Servicing assets amortization


(424
)


(550
)

(22.9
)%


(530
)

(20.0
)%
Loan servicing income

$
860


$
734


17.2
%

$
700


22.9
%
Underlying loans at end of period

$
540,502


$
531,095


1.8
%

$
531,183


1.8
%

The Company services SBA loans and certain residential property loans that are sold to the secondary market.

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Salaries and employee benefits

$
8,928

$
7,879

13.3
%

$
8,595

3.9
%
Occupancy and equipment


1,896


1,897

(0.1
)%


1,397

35.7
%
Professional fees


732


607

20.6
%


403

81.6
%
Marketing and business promotion


372


724

(48.6
)%


207

79.7
%
Data processing


412


434

(5.1
)%


404

2.0
%
Director fees and expenses


180


176

2.3
%


169

6.5
%
Regulatory assessments


155


159

(2.5
)%


141

9.9
%
Other expense


1,079


1,239

(12.9
)%


755

42.9
%
Total noninterest expense

$
13,754

$
13,115

4.9
%

$
12,071

13.9
%

Salaries and Employee Benefits. The increase for the current quarter compared with the previous quarter was primarily due to increases in salaries and other employee benefit expense, including bonus and vacation accruals, from an increase in number of employees, as well as annual merit increases, partially offset by a decrease in incentives tied to sales of Loan Production Offices (“LPO”) originated SBA loans. The increase for the current quarter compared with the year-ago quarter was primarily due to increases in salaries and other employee benefit expense, partially offset by decreases in bonus accrual and incentives tied to the sales of LPO originated SBA loans. The number of full-time equivalent employees was 276, 272 and 256 as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

Occupancy and Equipment. The increase for the current quarter compared with the year-ago quarter was primarily due to new branch openings during the second half of 2022. The Company opened 3 new full-service branches in Dallas and Carrollton, Texas and Palisades Park, New Jersey.

Professional Fees. The increases for the current quarter and year were primarily due to an increase in internal audit fees.

Marketing and Business Promotion. The decreases for the current quarter compared with the previous quarter was primarily due to the larger marketing activities and advertisements for the Bank's name change to PCB Bank and new branch openings during the previous quarter.

Other Expense. The decrease for the current quarter compared with the previous quarter was primarily due to an increased office expense for the new branches during the previous quarter. The increase for the current quarter compared with the year-ago quarter was primarily due to increases in office expenses, other loan related expenses and armed guard expenses from the branch network expansion. Provision for credit losses on off-balance credit exposures of $57 thousand and $2 thousand was included in other expense for the previous and year-ago quarters, respectively, while the current quarter provision was included in provision (reversal) for credit losses.

Balance Sheet (Unaudited)

Total assets were $2.50 billion at March 31, 2023, an increase of $80.5 million, or 3.3%, from $2.42 billion at December 31, 2022 and an increase of $300.8 million, or 13.7%, from $2.20 billion at March 31, 2022. The increase for the current quarter was primarily due to increases in cash and cash equivalents and loans held-for-investment, partially offset by a decrease in loans held-for-sale.

CECL Adoption

On January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach. The initial adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within in the scope of ASC 326 as of January 1, 2023, as well as management’s current expectation of future economic conditions. The following table summarizes the initial adjustment to the ACL as of January 1, 2023:

($ in thousands)

Pre-ASC 326 Adoption

Impact of ASC 326 Adoption

As Reported Under ASC 326
Assets






Commercial real estate loans

$
15,536

$
(610
)

$
14,926
Commercial and industrial loans


5,502


4,344



9,846
Consumer loans


3,904


(2,667
)


1,237
Total ACL on loans


24,942


1,067



26,009
Deferred tax assets


3,115


788



3,903
Liabilities






ACL on off-balance sheet credit exposures ⁽¹⁾

$
299

$
1,607


$
1,906
Shareholders’ equity






Retained earnings

$
127,181

$
(1,886
)

$
125,295

(1)

ACL on off-balance sheet credit exposures was recorded in Accrued Interest Payable and Other Liabilities on Consolidated Balance Sheets (Unaudited).

In conjunction with the adoption of ASC 326, the Company made an accounting policy election not to measure an ACL on accrued interest receivables. When accrued interest receivable is deemed to be uncollectable, the Company promptly reverses such balances through current period interest income in the period they are deemed uncollectable. Additionally, the Company has also elected not to include the balance of accrued interest receivable in the amortized cost basis of financial assets within the scope of ASC 326. Accrued interest receivable will continue to be presented separately in the Consolidated Balance Sheets.

The measurement of the ACL on loans is performed by collectively evaluating loans with similar risk characteristics using a discounted cash flow approach. The discounted cash flow methodology incorporates a probability of default (“PD”) and loss given default (“LGD”) model, as well as reasonable and supportable forecasts, and generates estimate of the contractual cash flows that are not expected to be collected over the life of the loan.

As a part of the adoption of ASC 326, the Company reviewed loan segmentation and revised certain loan segmentations for the Company’s ACL model. Before the adoption of ASC 326, commercial property and SBA property loans were separately presented and represented 63.0% and 6.6% of loans held-for-investment at December 31, 2022, respectively. The Company re-divided these loan segments into commercial property (non-owner occupied), business property (owner occupied) and multifamily loans as these new loan segments are determined to share similar characteristics under the Company’s ACL model. In addition, four loan segments before the adoption of ASC 326 (commercial term loans, commercial lines of credit, SBA term loans and SBA PPP loans), which represented 12.2% of loans held-for-investment at December 31, 2022, are combined into a single loan segment, commercial and industrial loans, as these loans are determined to share similar risk characteristics under the Company’s ACL model. In this report, loan segments on loan related disclosures for prior period comparisons are revised accordingly in order to be comparable to the Company’s new loan segmentations.

Loans

The following table presents a composition of total loans (includes both loans held-for-sale and loans held-for-investment) as of the dates indicated:

($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Commercial real estate:










Commercial property

$
780,282

$
772,020

1.1
%

$
646,764

20.6
%
Business property


521,965


526,513

(0.9
)%


536,107

(2.6
)%
Multifamily


127,012


124,751

1.8
%


96,630

31.4
%
Construction


15,930


17,054

(6.6
)%


9,522

67.3
%
Total commercial real estate


1,445,189


1,440,338

0.3
%


1,289,023

12.1
%
Commercial and industrial


267,674


249,250

7.4
%


217,048

23.3
%
Consumer:










Residential mortgage


356,967


333,726

7.0
%


215,132

65.9
%
Other consumer


22,612


22,749

(0.6
)%


21,752

4.0
%
Total consumer


379,579


356,475

6.5
%


236,884

60.2
%
Loans held-for-investment


2,092,442


2,046,063

2.3
%


1,742,955

20.1
%
Loans held-for-sale


14,352


22,811

(37.1
)%


18,340

(21.7
)%
Total loans

$
2,106,794

$
2,068,874

1.8
%

$
1,761,295

19.6
%

The increase in loans held-for-investment for the current quarter was primarily due to new funding and advances on lines of credit of $189.6 million and purchases of residential mortgage loans of $15.7 million, partially offset by pay-downs and pay-offs of $159.0 million.

The decrease in loans held-for-sale for the current quarter was primarily due to sales of $27.1 million and pay-downs and pay-offs of $4.1 million, partially offset by new funding of $22.7 million.

The following table presents a composition of off-balance sheet credit exposure as of the dates indicated:

($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Commercial property

$
6,811

$
7,006

(2.8
)%

$
8,319

(18.1
)%
Business property


12,307


8,396

46.6
%


10,518

17.0
%
Multifamily


4,500


4,500

—
%


5,500

(18.2
)%
Construction


16,563


18,211

(9.0
)%


6,528

153.7
%
Commercial and industrial


279,543


254,668

9.8
%


179,366

55.9
%
Other consumer


399


692

(42.3
)%


1,080

(63.1
)%
Total commitments to extend credit


320,123


293,473

9.1
%


211,311

51.5
%
Letters of credit


5,400


5,392

0.1
%


5,505

(1.9
)%
Total off-balance sheet credit exposure

$
325,523

$
298,865

8.9
%

$
216,816

50.1
%

Allowance for Credit Losses

The following table presents activities in ACL for the periods indicated:



Three Months Ended
($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
ACL on loans










Balance at beginning of period

$
24,942


$
23,761


5.0
%

$
22,381


11.4
%
Impact of ASC 326 adoption


1,067



—


NM



—


NM

Charge-offs


—



(28
)

(100.0
)%


(12
)

(100.0
)%
Recoveries


1,102



60


1,736.7
%


20


5,410.0
%
Provision (reversal) for credit losses on loans


(2,417
)


1,149


NM



(1,191
)

102.9
%
Balance at end of period

$
24,694


$
24,942


(1.0
)%

$
21,198


16.5
%
Percentage to loans held-for-investment at end of period


1.18
%


1.22
%




1.22
%


ACL on off-balance sheet credit exposure ⁽¹⁾










Balance at beginning of period

$
299


$
242


23.6
%

$
214


39.7
%
Impact of ASC 326 adoption


1,607



—


NM



—


NM

Provision (reversal) for credit losses on off-balance sheet credit exposure


(361
)


57


NM



2


NM

Balance at end of period

$
1,545


$
299


416.7
%

$
216


615.3
%

(1)

ACL on off-balance sheet credit exposures was recorded in Accrued Interest Payable and Other Liabilities on Consolidated Balance Sheets (Unaudited).

Credit Quality

The following table presents a summary of non-performing loans, non-performing assets and classified assets as of the dates indicated:

($ in thousands)

3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Nonaccrual loans










Commercial real estate:










Commercial property

$
—


$
—


—
%

$
166


(100.0
)%
Business property


2,904



2,985


(2.7
)%


567


412.2
%
Total commercial real estate


2,904



2,985


(2.7
)%


733


296.2
%
Commercial and industrial


11



—


—
%


199


(94.5
)%
Consumer:










Residential mortgage


—



372


(100.0
)%


461


(100.0
)%
Other consumer


45



3


1,400.0
%


25


80.0
%
Total consumer


45



375


(88.0
)%


486


(90.7
)%
Total nonaccrual loans held-for-investment


2,960



3,360


(11.9
)%


1,418


108.7
%
Loans past due 90 days or more and still accruing


—



—


—
%


—


—
%
Non-performing loans (“NPLs”) held-for-investment


2,960



3,360


(11.9
)%


1,418


108.7
%
NPLs held-for-sale


—



4,000


(100.0
)%


—


—
%
Total NPLs


2,960



7,360


(59.8
)%


1,418


108.7
%
Other real estate owned (“OREO”)


—



—


—
%


—


—
%
Non-performing assets (“NPAs”)

$
2,960


$
7,360


(59.8
)%

$
1,418


108.7
%
Loans past due and still accruing










Past due 30 to 59 days

$
779


$
47


1,557.4
%

$
119


554.6
%
Past due 60 to 89 days


13



87


(85.1
)%


1


1,200.0
%
Past due 90 days or more


—



—


—
%


—


—
%
Total loans past due and still accruing

$
792


$
134


491.0
%

$
120


560.0
%
Special mention loans

$
5,527


$
6,857


(19.4
)%

$
5,562


(0.6
)%
Classified assets









Classified loans held-for-investment

$
6,060


$
6,211


(2.4
)%

$
5,377


12.7
%
Classified loans held-for-sale


—



4,000


(100.0
)%


—


—
%
OREO


—



—


—
%


—


—
%
Classified assets

$
6,060


$
10,211


(40.7
)%

$
5,377


12.7
%
NPLs held-for-investment to loans held-for-investment


0.14
%


0.16
%




0.08
%


NPAs to total assets


0.12
%


0.30
%




0.06
%


Classified assets to total assets


0.24
%


0.42
%




0.24
%

During the current quarter, NPLs held-for-sale of $4.0 million were paid-off.

Investment Securities

Total investment securities were $144.7 million at March 31, 2023, an increase of $2.8 million, or 2.0%, from $141.9 million at December 31, 2022 and an increase of $13.3 million, or 10.1%, from $131.3 million at March 31, 2022. The increase for the current quarter was primarily due to purchases of $4.9 million and a fair value increase of $2.0 million, partially offset by principal pay-downs and calls of $4.1 million and net premium amortization of $57 thousand.

Deposits

The following table presents the Company’s deposit mix as of the dates indicated:



3/31/2023

12/31/2022

3/31/2022
($ in thousands)

Amount

% to Total

Amount

% to Total

Amount

% to Total
Noninterest-bearing demand deposits

$
653,970

30.5
%

$
734,989

35.9
%

$
891,797

46.7
%
Interest-bearing deposits












Savings


7,584

0.4
%


8,579

0.4
%


15,037

0.8
%
NOW


15,696

0.7
%


11,405

0.6
%


17,543

0.9
%
Retail money market accounts


436,906

20.3
%


494,749

24.1
%


431,057

22.5
%
Brokered money market accounts


1

0.1
%


8

0.1
%


1

0.1
%
Retail time deposits of












$250,000 or less


356,049

16.6
%


295,354

14.4
%


246,100

12.8
%
More than $250,000


454,464

21.3
%


353,876

17.3
%


173,844

9.1
%
State and brokered time deposits


217,019

10.1
%


147,023

7.2
%


135,000

7.1
%
Total interest-bearing deposits


1,487,719

69.5
%


1,310,994

64.1
%


1,018,582

53.3
%
Total deposits

$
2,141,689

100.0
%

$
2,045,983

100.0
%

$
1,910,379

100.0
%













Estimated total deposits not covered by deposit insurance

$
1,019,689

47.6
%

$
1,062,111

51.9
%

$
1,015,255

53.1
%

The decrease in noninterest-bearing demand deposits was primarily due to strong deposit market competition and the migration of noninterest-bearing demand deposits to money market accounts and time deposits attributable to the rising market rates. To retain existing and attract new customers, the Bank offers competitive rates on deposit products in the rising interest rate environment.

The increase in retail time deposits for the current quarter was primarily due to new accounts of $300.3 million, renewals of the matured accounts of $117.4 million and balance increases of $6.9 million, partially offset by matured and closed accounts of $263.3 million.

Liquidity

The following table presents a summary of the Company’s liquidity position as of March 31, 2023:

($ in thousands)

3/31/2023

12/31/2022

% Change
Cash and cash equivalents

$
190,519


$
147,031


29.6
%
Cash and cash equivalents to total assets


7.6
%


6.1
%









Available borrowing capacity






FHLB advances

$
604,999


$
561,745


7.7
%
Federal Reserve Discount Window


29,776



23,902


24.6
%
Overnight federal funds lines


65,000



65,000


—
%
Total

$
699,775


$
650,647


7.6
%
Total available borrowing capacity to total assets


28.0
%


26.9
%

During the current quarter, the Company increased cash and cash equivalents by $43.5 million, or 29.6%, to $190.5 million and available borrowing capacity by $49.1 million, or 7.6%, to $699.8 million. As of March 31, 2023, the Company's cash and cash equivalents and available borrowing capacity cover approximately 87.3% of deposits not covered by deposit insurance compared to 75.1% at December 31, 2022.

Shareholders’ Equity

Shareholders’ equity was $336.8 million at March 31, 2023, an increase of $1.4 million, or 0.4%, from $335.4 million at December 31, 2022 and an increase of $75.8 million, or 29.0%, from $261.1 million at March 31, 2022. The increase for the current quarter was primarily due to net income, partially offset by cash dividends declared on common stock of $2.2 million and repurchase of 385,381 shares of common stock at a weighted-average price of $17.76, totaling $6.8 million.

Stock Repurchase

On July 28, 2022, the Company’s Board of Directors approved a repurchase program authorizing for the repurchase of up to 5% of the Company’s outstanding common stock as of the date of the board meeting, which represented 747,938 shares, through February 1, 2023. On January 26, 2023, the Company announced the amendment to the repurchase program, which extended the program expiration from February 1, 2023 to February 1, 2024. The Company completed the repurchase program during the current quarter. Under this repurchase program, the Company repurchased and retired 747,938 shares of common stock at a weighted-average price of $18.15 per share, totaling $13.6 million.

Issuance of Preferred Stock Under the Emergency Capital Investment Program

On May 24, 2022, the Company issued 69,141 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference of $1,000 per share (“Series C Preferred Stock”) for the capital investment of $69.1 million from the U.S. Treasury under the Emergency Capital Investment Program (“ECIP”). ECIP investment is treated as tier 1 capital for regulatory capital purposes.

The Series C Preferred Stock bears no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the lending growth criteria listed in the terms of the ECIP investment with an annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on average annual amount of lending in years 2 through 10.

Capital Ratios

Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion. The following table presents capital ratios for the Company and the Bank as of the dates indicated:



3/31/2023

12/31/2022

3/31/2022

Well Capitalized Requirements
PCB Bancorp








Common tier 1 capital (to risk-weighted assets)

13.09
%

13.29
%

14.77
%

N/A

Total capital (to risk-weighted assets)

17.61
%

17.83
%

15.97
%

N/A

Tier 1 capital (to risk-weighted assets)

16.37
%

16.62
%

14.77
%

N/A

Tier 1 capital (to average assets)

13.90
%

14.33
%

12.22
%

N/A

PCB Bank








Common tier 1 capital (to risk-weighted assets)

16.03
%

16.30
%

14.43
%

6.5
%
Total capital (to risk-weighted assets)

17.27
%

17.52
%

15.63
%

10.0
%
Tier 1 capital (to risk-weighted assets)

16.03
%

16.30
%

14.43
%

8.0
%
Tier 1 capital (to average assets)

13.62
%

14.05
%

11.94
%

5.0
%

About PCB Bancorp

PCB Bancorp is the bank holding company for PCB Bank, a California state chartered bank, offering a full suite of commercial banking services to small to medium-sized businesses, individuals and professionals, primarily in Southern California, and predominantly in Korean-American and other minority communities.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control, including but not limited to general economic uncertainty in the United States and abroad, the impact of inflation, changes in interest rates (including actions taken by the Federal Reserve to address inflation), deposit flows, and real estate values, and their corresponding impact on our customers, and the network and data incident discovered on August 30, 2021. These and other important factors are detailed in various securities law filings made periodically by the Company, copies of which are available from the Company without charge. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements. Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.

PCB Bancorp and Subsidiary
Consolidated Balance Sheets (Unaudited)
($ in thousands, except share and per share data)


3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Assets










Cash and due from banks

$
25,801


$
23,202


11.2
%

$
19,693


31.0
%
Interest-bearing deposits in other financial institutions


164,718



123,829


33.0
%


230,519


(28.5
)%
Total cash and cash equivalents


190,519



147,031


29.6
%


250,212


(23.9
)%
Securities available-for-sale, at fair value


144,665



141,863


2.0
%


131,345


10.1
%
Loans held-for-sale


14,352



22,811


(37.1
)%


18,340


(21.7
)%
Loans held-for-investment


2,092,442



2,046,063


2.3
%


1,742,955


20.1
%
Allowance for credit losses on loans


(24,694
)


(24,942
)

(1.0
)%


(21,198
)

16.5
%
Net loans held-for-investment


2,067,748



2,021,121


2.3
%


1,721,757


20.1
%
Premises and equipment, net


6,473



6,916


(6.4
)%


3,106


108.4
%
Federal Home Loan Bank and other bank stock


10,183



10,183


—
%


8,577


18.7
%
Bank-owned life insurance


30,244



30,064


0.6
%


29,530


2.4
%
Deferred tax assets, net


3,753



3,115


20.5
%


11,895


(68.4
)%
Servicing assets


7,345



7,347


—
%


7,533


(2.5
)%
Operating lease assets


5,854



6,358


(7.9
)%


6,511


(10.1
)%
Accrued interest receivable


7,998



7,472


7.0
%


5,050


58.4
%
Other assets


11,390



15,755


(27.7
)%


5,886


93.5
%
Total assets

$
2,500,524


$
2,420,036


3.3
%

$
2,199,742


13.7
%
Liabilities










Deposits










Noninterest-bearing demand

$
653,970


$
734,989


(11.0
)%

$
891,797


(26.7
)%
Savings, NOW and money market accounts


460,187



514,741


(10.6
)%


463,638


(0.7
)%
Time deposits of $250,000 or less


513,068



382,377


34.2
%


281,100


82.5
%
Time deposits of more than $250,000


514,464



413,876


24.3
%


273,844


87.9
%
Total deposits


2,141,689



2,045,983


4.7
%


1,910,379


12.1
%
Federal Home Loan Bank advances


—



20,000


(100.0
)%


10,000


(100.0
)%
Operating lease liabilities


6,238



6,809


(8.4
)%


7,176


(13.1
)%
Accrued interest payable and other liabilities


15,767



11,802


33.6
%


11,129


41.7
%
Total liabilities


2,163,694



2,084,594


3.8
%


1,938,684


11.6
%
Commitments and contingent liabilities










Shareholders’ equity










Preferred stock


69,141



69,141


—
%


—


—
%
Common stock


143,356



149,631


(4.2
)%


155,614


(7.9
)%
Retained earnings


133,415



127,181


4.9
%


109,142


22.2
%
Accumulated other comprehensive loss, net


(9,082
)


(10,511
)

(13.6
)%


(3,698
)

145.6
%
Total shareholders’ equity


336,830



335,442


0.4
%


261,058


29.0
%
Total liabilities and shareholders’ equity

$
2,500,524


$
2,420,036


3.3
%

$
2,199,742


13.7
%











Outstanding common shares


14,297,870



14,625,474





14,944,663



Book value per common share ⁽¹⁾

$
23.56


$
22.94




$
17.47



TCE per common share ⁽²⁾

$
18.72


$
18.21




$
17.47



Total loan to total deposit ratio


98.37
%


101.12
%




92.20
%


Noninterest-bearing deposits to total deposits


30.54
%


35.92
%




46.68
%

(1)

The ratios are calculated by dividing total shareholders’ equity by the number of outstanding common shares. The Company did not have any intangible equity components for the presented periods.

(2)

Non-GAAP. See “Non-GAAP Measures” for reconciliation of this measure to its most comparable GAAP measure.

PCB Bancorp and Subsidiary
Consolidated Statements of Income (Unaudited)
($ in thousands, except share and per share data)


Three Months Ended


3/31/2023

12/31/2022

% Change

3/31/2022

% Change
Interest and dividend income










Loans, including fees

$
31,229


$
28,786


8.5
%

$
20,190


54.7
%
Investment securities


1,102



957


15.2
%


476


131.5
%
Other interest-earning assets


2,205



1,833


20.3
%


228


867.1
%
Total interest income


34,536



31,576


9.4
%


20,894


65.3
%
Interest expense










Deposits


11,913



7,295


63.3
%


850


1,301.5
%
Other borrowings


209



16


1,206.3
%


51


309.8
%
Total interest expense


12,122



7,311


65.8
%


901


1,245.4
%
Net interest income


22,414



24,265


(7.6
)%


19,993


12.1
%
Provision (reversal) for credit losses


(2,778
)


1,149


NM



(1,191
)

133.2
%
Net interest income after provision (reversal) for credit losses


25,192



23,116


9.0
%


21,184


18.9
%
Noninterest income










Gain on sale of loans


1,309



759


72.5
%


3,777


(65.3
)%
Service charges and fees on deposits


344



352


(2.3
)%


303


13.5
%
Loan servicing income


860



734


17.2
%


700


22.9
%
Bank-owned life insurance income


180



181


(0.6
)%


172


4.7
%
Other income


328



363


(9.6
)%


334


(1.8
)%
Total noninterest income


3,021



2,389


26.5
%


5,286


(42.8
)%
Noninterest expense










Salaries and employee benefits


8,928



7,879


13.3
%


8,595


3.9
%
Occupancy and equipment


1,896



1,897


(0.1
)%


1,397


35.7
%
Professional fees


732



607


20.6
%


403


81.6
%
Marketing and business promotion


372



724


(48.6
)%


207


79.7
%
Data processing


412



434


(5.1
)%


404


2.0
%
Director fees and expenses


180



176


2.3
%


169


6.5
%
Regulatory assessments


155



159


(2.5
)%


141


9.9
%
Other expense


1,079



1,239


(12.9
)%


755


42.9
%
Total noninterest expense


13,754



13,115


4.9
%


12,071


13.9
%
Income before income taxes


14,459



12,390


16.7
%


14,399


0.4
%
Income tax expense


4,162



3,688


12.9
%


4,159


0.1
%
Net income

$
10,297


$
8,702


18.3
%

$
10,240


0.6
%











Earnings per common share










Basic

$
0.71


$
0.59




$
0.69



Diluted

$
0.70


$
0.58




$
0.67



Average common shares










Basic


14,419,155



14,700,010





14,848,014



Diluted


14,574,929



14,904,106





15,141,693














Dividend paid per common share

$
0.15


$
0.15




$
0.15



Return on average assets ⁽¹⁾


1.69
%


1.44
%




1.92
%


Return on average shareholders’ equity ⁽¹⁾


12.46
%


10.31
%




16.01
%


Return on average TCE ^{(1), (2)}


15.70
%


12.99
%




16.01
%


Efficiency ratio ⁽³⁾


54.08
%


49.20
%




47.75
%

(1)

Ratios are presented on an annualized basis.

(2)

Non-GAAP. See “Non-GAAP Measures” for reconciliation of this measure to its most comparable GAAP measure.

(3)

The ratios are calculated by dividing noninterest expense by the sum of net interest income and noninterest income.

PCB Bancorp and Subsidiary
Average Balance, Average Yield, and Average Rate (Unaudited)
($ in thousands)


Three Months Ended


3/31/2023

12/31/2022

3/31/2022


Average Balance

Interest Income/ Expense

Avg. Yield/Rate ⁽⁶⁾

Average Balance

Interest Income/ Expense

Avg. Yield/Rate ⁽⁶⁾

Average Balance

Interest Income/ Expense

Avg. Yield/Rate ⁽⁶⁾
Assets


















Interest-earning assets


















Total loans ⁽¹⁾

$
2,072,415


$
31,229

6.11
%

$
2,004,220


$
28,786

5.70
%

$
1,773,376


$
20,190

4.62
%
Mortgage-backed securities


97,578



683

2.84
%


90,346



585

2.57
%


84,223



307

1.48
%
Collateralized mortgage obligation


26,743



256

3.88
%


25,570



221

3.43
%


18,242



48

1.07
%
SBA loan pool securities


9,027



82

3.68
%


9,545



71

2.95
%


10,095



38

1.53
%
Municipal bonds ⁽²⁾


4,221



34

3.27
%


4,050



33

3.23
%


5,632



36

2.59
%
Corporate bonds


4,510



47

4.23
%


4,555



47

4.09
%


5,038



47

3.78
%
Other interest-earning assets


186,809



2,205

4.79
%


182,018



1,833

4.00
%


198,918



228

0.46
%
Total interest-earning assets


2,401,303



34,536

5.83
%


2,320,304



31,576

5.40
%


2,095,524



20,894

4.04
%
Noninterest-earning assets


















Cash and due from banks


21,155







21,139







20,385





ACL on loans


(26,757
)






(23,800
)






(22,377
)




Other assets


75,175







78,069







67,600





Total noninterest-earning assets


69,573







75,408







65,608





Total assets

$
2,470,876






$
2,395,712






$
2,161,132





Liabilities and Shareholders’ Equity


















Interest-bearing liabilities


















Deposits


















NOW and money market accounts

$
485,962



3,445

2.87
%

$
540,312



2,852

2.09
%

$
431,981



313

0.29
%
Savings


8,099



5

0.25
%


10,692



3

0.11
%


15,644



2

0.05
%
Time deposits


916,751



8,463

3.74
%


718,735



4,440

2.45
%


586,387



535

0.37
%
Total interest-bearing deposits


1,410,812



11,913

3.42
%


1,269,739



7,295

2.28
%


1,034,012



850

0.33
%
Other borrowings


15,811



209

5.36
%


1,739



16

3.65
%


10,400



51

1.99
%
Total interest-bearing liabilities


1,426,623



12,122

3.45
%


1,271,478



7,311

2.28
%


1,044,412



901

0.35
%
Noninterest-bearing liabilities


















Noninterest-bearing demand


687,575







771,632







840,626





Other liabilities


21,509







17,770







16,727





Total noninterest-bearing liabilities


709,084







789,402







857,353





Total liabilities


2,135,707







2,060,880







1,901,765





Total shareholders’ equity


335,169







334,832







259,367





Total liabilities and shareholders’ equity

$
2,470,876






$
2,395,712






$
2,161,132





Net interest income



$
22,414





$
24,265





$
19,993


Net interest spread ⁽³⁾





2.38
%





3.12
%





3.69
%
Net interest margin ⁽⁴⁾





3.79
%





4.15
%





3.87
%
Total deposits

$
2,098,387


$
11,913

2.30
%

$
2,041,371


$
7,295

1.42
%

$
1,874,638


$
850

0.18
%
Total funding ⁽⁵⁾

$
2,114,198


$
12,122

2.33
%

$
2,043,110


$
7,311

1.42
%

$
1,885,038


$
901

0.19
%

(1)

Total loans include both loans held-for-sale and loans held-for-investment..

(2)

The yield on municipal bonds has not been computed on a tax-equivalent basis.

(3)

Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.

(4)

Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.

(5)

(6)

Annualized.

PCB Bancorp and Subsidiary

Non-GAAP Measures

($ in thousands)

Adjusted ACL on loans to loans held-for-investment ratio

Adjusted ACL on loans to loans held-for-investment ratio is calculated by removing SBA PPP loans from loans held-for-investment from the ACL on loans to loans held-for-investment ratio calculation. Management believed this non-GAAP measure enhanced comparability to prior periods and provided supplemental information regarding the Company’s credit trends; however, this non-GAAP measure had become less significant as most of SBA PPP loan balance were forgiven or paid off during 2022. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. The following table provides reconciliations of this non-GAAP measure with financial measure defined by GAAP.

($ in thousands)


3/31/2023

12/31/2022

3/31/2022
Loans held-for-investment
(a)

$
2,092,442


$
2,046,063


$
1,742,955

Less: SBA PPP loans
(b)


1,100



1,197



22,926

Loans held-for-investment, excluding SBA PPP loans
(c)=(a)-(b)

$
2,091,342


$
2,044,866


$
1,720,029

ACL on Loans
(d)

$
24,694


$
24,942


$
21,198

ACL on loans to loans held-for-investment ratio
(d)/(a)


1.18
%


1.22
%


1.22
%
Adjusted ACL on loans to loans held-for-investment ratio
(d)/(c)


1.18
%


1.22
%


1.23
%

Return on average tangible common equity, tangible common equity per common share and tangible common equity to total assets ratios

The Company's TCE is calculated by subtracting preferred stock from stockholders’ equity. The Company does not have any intangible assets for the presented periods. Return on average TCE, TCE per common share, and TCE to total assets constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management in its analysis of the Company's performance. This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. The following tables provide reconciliations of the non-GAAP measures with financial measures defined by GAAP.

($ in thousands)


Three Months Ended


3/31/2023

12/31/2022

3/31/2022
Average total shareholders' equity
(a)

$
335,169


$
334,832


$
259,367

Less: average preferred stock
(b)


69,141



69,141



—

Average TCE
(c)=(a)-(b)

$
266,028


$
265,691


$
259,367

Net income
(d)

$
10,297


$
8,702


$
10,240

Return on average shareholder's equity ⁽¹⁾
(d)/(a)


12.46
%


10.31
%


16.01
%
Return on average TCE ⁽¹⁾
(d)/(c)


15.70
%


12.99
%


16.01
%








(1) Annualized.

($ in thousands, except per share data)


3/31/2023

12/31/2022

3/31/2022
Total shareholders' equity
(a)

$
336,830


$
335,442


$
261,058

Less: preferred stock
(b)


69,141



69,141



—

TCE
(c)=(a)-(b)

$
267,689


$
266,301


$
261,058

Outstanding common shares
(d)


14,297,870



14,625,474



14,944,663

Book value per common share
(a)/(d)

$
23.56


$
22.94


$
17.47

TCE per common share
(c)/(d)

$
18.72


$
18.21


$
17.47

Total assets
(e)

$
2,500,524


$
2,420,036


$
2,199,742

Total shareholders' equity to total assets
(a)/(e)


13.47
%


13.86
%


11.87
%
TCE to total assets
(c)/(e)


10.71
%


11.00
%


11.87
%

View source version on businesswire.com: https://www.businesswire.com/news/home/20230421005103/en/

Timothy Chang
Executive Vice President & Chief Financial Officer
213-210-2000

Company Name:	Pacific City Financial Corporation
Stock Symbol:	PCB
Market:	NASDAQ
Website:	paccitybank.com

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