LOS ANGELES–(BUSINESS WIRE)–PCB Bancorp (the “Company”) (NASDAQ: PCB), the holding company of PCB Bank (the “Bank”), today reported net income of $7.0 million, or $0.49 per diluted common share, for the third quarter of 2023, compared with $7.5 million, or $0.52 per diluted common share, for the previous quarter and $7.0 million, or $0.46 per diluted common share, for the year-ago quarter.

Q3 2023 Highlights

Net income totaled $7.0 million, or $0.49 per diluted common share, for the current quarter;
Recorded a provision for credit losses^(1),(2) of $751 thousand for the current quarter compared with $197 thousand for the previous quarter and $3.8 million for the year-ago quarter;
Allowance for Credit Losses (“ACL”)⁽¹⁾ on loans to loans held-for-investment ratio was 1.18% at September 30, 2023 compared with 1.17% at June 30, 2023 and 1.21% at September 30, 2022;
Net interest income was $22.4 million for the current quarter compared with $21.7 million for the previous quarter and $24.0 million for the year-ago quarter. Net interest margin was 3.57% for the current quarter compared with 3.55% for the previous quarter and 4.25% for the year-ago quarter;
Gain on sale of loans was $689 thousand for the current quarter compared with $769 thousand for the previous quarter and $1.4 million for the year-ago quarter;
Total assets were $2.57 billion at September 30, 2023, an increase of $11.6 million, or 0.5%, from $2.56 billion at June 30, 2023, an increase of $147.9 million, or 6.1%, from $2.42 billion at December 31, 2022, and an increase of $240.9 million, or 10.4%, from $2.33 billion at September 30, 2022;
Loans held-for-investment were $2.17 billion at September 30, 2023, an increase of $45.2 million, or 2.1%, from $2.12 billion at June 30, 2023, an increase of $121.5 million, or 5.9%, from $2.05 billion at December 31, 2022, and an increase of $208.4 million, or 10.6%, from $1.96 billion at September 30, 2022;
Total deposits were $2.19 billion at September 30, 2023, an increase of $3.9 million, or 0.2%, from $2.19 billion at June 30, 2023, an increase of $146.1 million, or 7.1%, from $2.05 billion at December 31, 2022, and an increase of $214.0 million, or 10.8%, from $1.98 billion at September 30, 2022; and
Announced a stock repurchase program on August 2, 2023 for the repurchase of up to 720,000 shares of the Company’s outstanding common stock through August 2, 2024. During the current quarter, the Company repurchased and retired 67,202 shares of common stock.

“We are pleased with our continued solid earnings, modest loan growth, and a slight increase in net interest margin and net interest income during the third quarter,” said Henry Kim, President and Chief Executive Officer. “Our loan balance increased 2.1% to $2.17 billion, deposit balance remained steady and our asset quality continued to be strong with non-performing assets and classified assets to total assets ratios of 0.15% and 0.26%, respectively.”

Mr. Kim added, “We announced a new stock repurchase program and repurchased 67,202 shares. The Company continued to maintain a strong capital position with the Bank’s tier 1 capital to average assets ratio of 13.44% and the Company’s tangible common equity to total assets ratio of 10.62%. These robust ratios provide us with extensive confidence to maneuver through these uncharted times and enable us to prudently manage our capital to maximize shareholder value.”

Mr. Kim concluded, “This past September, we celebrated our 20^th anniversary of PCB Bank. We will continue to build a strong franchise by focusing on maintaining a strong balance sheet and asset quality, disciplined expense management, repurchasing our shares whenever feasible, and maintainable cash dividend.”

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(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 in this release.
(2)	Provision (reversal) for credit losses on off-balance sheet credit exposures of $(10) thousand and $28 thousand, respectively, for the year-ago quarter and previous year-to-date period were recorded in Other Expense on Consolidated Statements of Income (Unaudited).

Financial Highlights (Unaudited)
($ in thousands, except per share data)	Three Months Ended													Nine Months Ended
($ in thousands, except per share data)	9/30/2023			6/30/2023			% Change		9/30/2022			% Change		9/30/2023			9/30/2022			% Change
Net income	$	7,023		$	7,477		(6.1	)%	$	6,953		1.0	%	$	24,797		$	26,285		(5.7	)%
Diluted earnings per common share	$	0.49		$	0.52		(5.8	)%	$	0.46		6.5	%	$	1.71		$	1.73		(1.2	)%

Net interest income	$	22,449		$	21,717		3.4	%	$	24,023		(6.6	)%	$	66,580		$	65,367		1.9	%
Provision (reversal) for credit losses ⁽¹⁾		751			197		281.2	%		3,753		(80.0	)%		(1,830	)		2,453		NM
Noninterest income		2,502			2,657		(5.8	)%		3,176		(21.2	)%		8,180			12,110		(32.5	)%
Noninterest expense		14,207			13,627		4.3	%		13,695		3.7	%		41,588			38,011		9.4	%

Return on average assets ⁽²⁾		1.09	%		1.19	%				1.19	%				1.32	%		1.58	%
Return on average shareholders’ equity ⁽²⁾		8.12	%		8.82	%				8.16	%				9.77	%		11.84	%
Return on average tangible common equity (“TCE”) ^(2),(3)		10.17	%		11.08	%				10.25	%				12.27	%		13.31	%
Net interest margin ⁽²⁾		3.57	%		3.55	%				4.25	%				3.63	%		4.05	%
Efficiency ratio ⁽⁴⁾		56.94	%		55.91	%				50.35	%				55.63	%		49.06	%

($ in thousands, except per share data)	9/30/2023			6/30/2023			% Change		12/31/2022			% Change		9/30/2022			% Change
Total assets	$	2,567,974		$	2,556,345		0.5	%	$	2,420,036		6.1	%	$	2,327,051		10.4	%
Net loans held-for-investment		2,142,006			2,097,560		2.1	%		2,021,121		6.0	%		1,935,476		10.7	%
Total deposits		2,192,129			2,188,232		0.2	%		2,045,983		7.1	%		1,978,098		10.8	%
Book value per common share ⁽⁵⁾	$	23.87		$	23.77				$	22.94				$	22.40
TCE per common share⁽³⁾	$	19.05		$	18.94				$	18.21				$	17.75
Tier 1 leverage ratio (consolidated)		13.76	%		13.84	%				14.33	%				14.74	%
Total shareholders’ equity to total assets		13.31	%		13.32	%				13.86	%				14.30	%
TCE to total assets ^{(3), (6)}		10.62	%		10.61	%				11.00	%				11.33	%

(1)	Provision (reversal) for credit losses on off-balance sheet credit exposures of $(10) thousand and $28 thousand, respectively, for the year-ago quarter and previous year-to-date period 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													Nine Months Ended
($ in thousands)	9/30/2023			6/30/2023			% Change		9/30/2022			% Change		9/30/2023			9/30/2022			% Change
Interest income/expense on
Loans	$	34,651		$	32,960		5.1	%	$	24,835		39.5	%	$	98,840		$	66,268		49.2	%
Investment securities		1,170			1,136		3.0	%		806		45.2	%		3,408			1,950		74.8	%
Other interest-earning assets		3,031			2,742		10.5	%		1,194		153.9	%		7,978			1,957		307.7	%
Total interest-earning assets		38,852			36,838		5.5	%		26,835		44.8	%		110,226			70,175		57.1	%
Interest-bearing deposits		16,403			15,121		8.5	%		2,798		486.2	%		43,437			4,689		826.4	%
Borrowings		—			—		—	%		14		(100.0	)%		209			119		75.6	%
Total interest-bearing liabilities		16,403			15,121		8.5	%		2,812		483.3	%		43,646			4,808		807.8	%
Net interest income	$	22,449		$	21,717		3.4	%	$	24,023		(6.6	)%	$	66,580		$	65,367		1.9	%
Average balance of
Loans	$	2,137,184		$	2,097,489		1.9	%	$	1,905,366		12.2	%	$	2,102,600		$	1,828,187		15.0	%
Investment securities		138,993			142,136		(2.2	)%		137,363		1.2	%		141,057			132,023		6.8	%
Other interest-earning assets		219,115			213,883		2.4	%		200,367		9.4	%		206,720			198,311		4.2	%
Total interest-earning assets	$	2,495,292		$	2,453,508		1.7	%	$	2,243,096		11.2	%	$	2,450,377		$	2,158,521		13.5	%
Interest-bearing deposits	$	1,561,582		$	1,527,522		2.2	%	$	1,137,739		37.3	%	$	1,500,523		$	1,058,105		41.8	%
Borrowings		—			—		—	%		2,033		(100.0	)%		5,212			7,824		(33.4	)%
Total interest-bearing liabilities	$	1,561,582		$	1,527,522		2.2	%	$	1,139,772		37.0	%	$	1,505,735		$	1,065,929		41.3	%
Total funding ⁽¹⁾	$	2,188,320		$	2,155,649		1.5	%	$	1,965,134		11.4	%	$	2,152,993		$	1,917,766		12.3	%
Annualized average yield/cost of
Loans		6.43	%		6.30	%				5.17	%				6.29	%		4.85	%
Investment securities		3.34	%		3.21	%				2.33	%				3.23	%		1.97	%
Other interest-earning assets		5.49	%		5.14	%				2.36	%				5.16	%		1.32	%
Total interest-earning assets		6.18	%		6.02	%				4.75	%				6.01	%		4.35	%
Interest-bearing deposits		4.17	%		3.97	%				0.98	%				3.87	%		0.59	%
Borrowings		—	%		—	%				2.73	%				5.36	%		2.03	%
Total interest-bearing liabilities		4.17	%		3.97	%				0.98	%				3.88	%		0.60	%
Net interest margin		3.57	%		3.55	%				4.25	%				3.63	%		4.05	%
Cost of total funding ⁽¹⁾		2.97	%		2.81	%				0.57	%				2.71	%		0.34	%
Supplementary information
Net accretion of discount on loans	$	775		$	751		3.2	%	$	867		(10.6	)%	$	2,197		$	2,682		(18.1	)%
Net amortization of deferred loan fees	$	226		$	247		(8.5	)%	$	243		(7.0	)%	$	648		$	2,014		(67.8	)%

(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 and year-to-date period compared with the same periods of 2022 were primarily due to an increase in overall interest rates on loans from the rising interest rate environment, partially offset by decreases in net accretion of discount on loans and net amortization of deferred loan fees from the decreased amount of SBA PPP loan payoffs.

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:

	9/30/2023				6/30/2023				12/31/2022				9/30/2022
	% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate
Fixed rate loans	22.4	%	4.75	%	22.6	%	4.64	%	23.2	%	4.51	%	24.0	%	4.43	%
Hybrid rate loans	38.8	%	4.71	%	39.2	%	4.62	%	39.1	%	4.40	%	38.0	%	4.23	%
Variable rate loans	38.8	%	8.52	%	38.2	%	8.39	%	37.7	%	7.86	%	38.0	%	6.75	%

Investment Securities. The increases in average yield for the current quarter and year-to-date period 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 and year-to-date period were primarily due to an increased interest rate on cash held at the Federal Reserve Bank.

Interest-Bearing Deposits. The increases in average cost for the current quarter and year-to-date period were primarily due to an increase in market rates and the migration of noninterest-bearing demand deposits to interest-bearing 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.

Provision (Reversal) for Credit Losses

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

	Three Months Ended												Nine Months Ended
($ in thousands)	9/30/2023			6/30/2023		% Change		9/30/2022			% Change		9/30/2023			9/30/2022		% Change
Provision (reversal) for credit losses on loans	$	822		$	157	423.6	%	$	3,753		(78.1	)%	$	(1,438	)	$	2,453	NM
Provision (reversal) for credit losses on off-balance sheet credit exposure ⁽¹⁾		(71	)		40	NM			(10	)	610.0	%		(392	)		28	NM
Total provision (reversal) for credit losses	$	751		$	197	281.2	%	$	3,743		(79.9	)%	$	(1,830	)	$	2,481	NM

(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, also known as the current expected credit losses (“CECL”) accounting standard, 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 in this release. See CECL Adoption and Allowance for Credit Losses sections included in the Balance Sheet section of this release for additional information.

The provision for credit losses on loans for the current quarter was primarily due to an increase in loan held-for-investment. The reversal for credit losses for the current year-to-date period was primarily due to net recoveries and the improvement in the economic forecast.

Noninterest Income

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

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2023		6/30/2023		% Change		9/30/2022		% Change		9/30/2023		9/30/2022		% Change
Gain on sale of loans	$	689	$	769	(10.4	)%	$	1,415	(51.3	)%	$	2,767	$	7,231	(61.7	)%
Service charges and fees on deposits		371		369	0.5	%		341	8.8	%		1,084		974	11.3	%
Loan servicing income		851		868	(2.0	)%		780	9.1	%		2,579		2,235	15.4	%
Bank-owned life insurance income		187		184	1.6	%		178	5.1	%		551		525	5.0	%
Other income		404		467	(13.5	)%		462	(12.6	)%		1,199		1,145	4.7	%
Total noninterest income	$	2,502	$	2,657	(5.8	)%	$	3,176	(21.2	)%	$	8,180	$	12,110	(32.5	)%

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

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2023		6/30/2023		% Change		9/30/2022		% Change		9/30/2023		9/30/2022		% Change
Gain on sale of SBA loans
Sold loan balance	$	17,697	$	16,762	5.6	%	$	27,313	(35.2	)%	$	61,592	$	105,438	(41.6	)%
Premium received		1,112		1,209	(8.0	)%		2,036	(45.4	)%		4,362		8,842	(50.7	)%
Gain recognized		689		769	(10.4	)%		1,407	(51.0	)%		2,767		7,223	(61.7	)%
Gain on sale of residential property loans
Sold loan balance	$	—	$	—	—	%	$	858	(100.0	)%	$	—	$	858	(100.0	)%
Gain recognized		—		—	—	%		8	(100.0	)%		—		8	(100.0	)%

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

	Three Months Ended													Nine Months Ended
($ in thousands)	9/30/2023			6/30/2023			% Change		9/30/2022			% Change		9/30/2023			9/30/2022			% Change
Loan servicing income
Servicing income received	$	1,321		$	1,317		0.3	%	$	1,302		1.5	%	$	3,922		$	3,819		2.7	%
Servicing assets amortization		(470	)		(449	)	4.7	%		(522	)	(10.0	)%		(1,343	)		(1,584	)	(15.2	)%
Loan servicing income	$	851		$	868		(2.0	)%	$	780		9.1	%	$	2,579		$	2,235		15.4	%
Underlying loans at end of period	$	536,424		$	539,160		(0.5	)%	$	538,904		(0.5	)%	$	536,424		$	538,904		(0.5	)%

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

Noninterest Expense

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

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2023		6/30/2023		% Change		9/30/2022		% Change		9/30/2023		9/30/2022		% Change
Salaries and employee benefits	$	8,572	$	8,675	(1.2	)%	$	8,457	1.4	%	$	26,175	$	25,177	4.0	%
Occupancy and equipment		1,964		1,919	2.3	%		1,650	19.0	%		5,779		4,584	26.1	%
Professional fees		685		772	(11.3	)%		587	16.7	%		2,189		1,632	34.1	%
Marketing and business promotion		980		203	382.8	%		909	7.8	%		1,555		1,426	9.0	%
Data processing		367		380	(3.4	)%		427	(14.1	)%		1,159		1,272	(8.9	)%
Director fees and expenses		152		217	(30.0	)%		179	(15.1	)%		549		530	3.6	%
Regulatory assessments		281		382	(26.4	)%		150	87.3	%		818		438	86.8	%
Other expense		1,206		1,079	11.8	%		1,336	(9.7	)%		3,364		2,952	14.0	%
Total noninterest expense	$	14,207	$	13,627	4.3	%	$	13,695	3.7	%	$	41,588	$	38,011	9.4	%

Salaries and Employee Benefits. The increases for the current quarter and year-to-date period compared with the same periods of 2022 were primarily due to increases in salaries and other employee benefit expense, partially offset by decreases in bonus accruals and incentives tied to sales of SBA loans originated at loan production offices. The number of full-time equivalent employees was 270, 272 and 274 as of September 30, 2023, June 30, 2023 and September 30, 2022, respectively.

Occupancy and Equipment. The increases for the current quarter and year-to-date period compared with the same periods of 2022 were primarily due to new branch openings during the second half of 2022. 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-to-date period compared with the same periods of 2022 were primarily due to increases in audit and consulting fees.

Marketing and Business Promotion. The increase for the current quarter compared with the previous quarter was primarily due to an increase in advertisements and the Company’s 20^th anniversary celebration.

Director fees and expenses. The decrease for the current quarter compared with the previous quarter was primarily due to the retirement of a director during the previous quarter.

Regulatory Assessments. The increases for the current quarter and year-to-date period compared with the same periods of 2022 were due to an increase in FDIC assessment rates. During the previous quarter, an adjustment of $113 thousand was made for the first quarter of 2023. The FDIC increased the initial base deposit insurance assessment rate schedules by two basis points beginning in the first quarterly assessment period of 2023.

Other Expense. The increases for the current quarter and year-to-date period were primarily due to increases in office expenses and armed guard expenses attributable to the branch network expansion. Provision (reversal) for credit losses on off-balance credit exposures of $(10) thousand and $28 thousand was included in other expense for the year-ago quarter and previous year-to-date period, respectively, while the provision (reversal) for the current reporting periods beginning January 1, 2023 was included in provision (reversal) for credit losses.

Balance Sheet (Unaudited)

Total assets were $2.57 billion at September 30, 2023, an increase of $11.6 million, or 0.5%, from $2.56 billion at June 30, 2023, an increase of $147.9 million, or 6.1%, from $2.42 billion at December 31, 2022, and an increase of $240.9 million, or 10.4%, from $2.33 billion at September 30, 2022. The increase for the current quarter was primarily due to an increase in loans held-for-investment, partially offset by decreases in cash and cash equivalents and loans held-for-sale. The increase for the year-to-date period 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 reflects the 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 Company recorded a net decrease of $1.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the ACL on loans of $1.1 million and the ACL on off-balance sheet credit exposures of $1.6 million, net of related deferred tax assets arising from temporary differences of $788 thousand. As a part of the adoption of ASC 326, the Company reviewed and revised certain loan segments for the Company’s ACL model. See Loan Segments Revision section of this release for a reconciliation of revised loan segments to legacy loan segments, which were utilized before the adoption of ASC 326.

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)	9/30/2023		6/30/2023		% Change		12/31/2022		% Change		9/30/2022		% Change
Commercial real estate:
Commercial property	$	814,547	$	793,946	2.6	%	$	772,020	5.5	%	$	759,644	7.2	%
Business property		537,351		533,592	0.7	%		526,513	2.1	%		526,395	2.1	%
Multifamily		132,558		124,029	6.9	%		124,751	6.3	%		121,830	8.8	%
Construction		19,246		16,942	13.6	%		17,054	12.9	%		14,592	31.9	%
Total commercial real estate		1,503,702		1,468,509	2.4	%		1,440,338	4.4	%		1,422,461	5.7	%
Commercial and industrial		279,608		272,278	2.7	%		249,250	12.2	%		216,036	29.4	%
Consumer:
Residential mortgage		363,369		359,655	1.0	%		333,726	8.9	%		297,506	22.1	%
Other consumer		20,926		21,985	(4.8	)%		22,749	(8.0	)%		23,234	(9.9	)%
Total consumer		384,295		381,640	0.7	%		356,475	7.8	%		320,740	19.8	%
Loans held-for-investment		2,167,605		2,122,427	2.1	%		2,046,063	5.9	%		1,959,237	10.6	%
Loans held-for-sale		6,693		13,065	(48.8	)%		22,811	(70.7	)%		18,982	(64.7	)%
Total loans	$	2,174,298	$	2,135,492	1.8	%	$	2,068,874	5.1	%	$	1,978,219	9.9	%

The increase in loans held-for-investment for the current quarter was primarily due to new funding and advances on lines of credit of $259.3 million, partially offset by pay-downs and pay-offs of $214.1 million. The increase for the current year-to-date period was primarily due to new funding and advances on lines of credit of $717.0 million and purchases of residential mortgage loans of $15.7 million, partially offset by pay-downs and pay-offs of $611.2 million.

The decrease in loans held-for-sale for the current quarter was primarily due to sales of $17.7 million, partially offset by new funding of $11.5 million. The decrease for the current year-to-date was primarily due to sales of $61.

Contacts

Timothy Chang

Executive Vice President & Chief Financial Officer

213-210-2000

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Business Wire

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Business Wire October 25, 2023

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