PCB Bancorp Reports Earnings of $10.2 million for Q1 2022

LOS ANGELES, April 28, 2022--(BUSINESS WIRE)--PCB Bancorp (the "Company") (NASDAQ: PCB), the holding company of Pacific City Bank (the "Bank"), today reported net income of $10.2 million, or $0.67 per diluted common share, for the first quarter of 2022, compared with $10.7 million, or $0.70 per diluted common share, for the previous quarter and $8.6 million, or $0.55 per diluted common share, for the year-ago quarter.

Q1 2022 Highlights

• Net income totaled $10.2 million, or $0.67 per diluted common share, for the current quarter;

  • The Company recorded a reversal for loan losses of $1.2 million for the current quarter compared with $1.5 million for the previous quarter and $1.1 million for the year-ago quarter.

  • Allowance for loan losses to loans held-for-investment⁽¹⁾ ratio was 1.22% at March 31, 2022 compared with 1.29% at December 31, 2021 and 1.51% at March 31, 2021. Adjusted allowance for loan losses to loans held-for-investment ratio⁽²⁾ was 1.23% at March 31, 2022 compared with 1.34% at December 31, 2021 and 1.74% at March 31, 2021.

  • Net interest income was $20.0 million for the current quarter compared with $20.1 million for the previous quarter and $17.8 million for the year-ago quarter. Net interest margin was 3.87% for the current quarter compared with 3.87% for the previous quarter and 3.70% for the year-ago quarter.

  • Gain on sale of loans was $3.8 million for the current quarter compared with $3.4 million for the previous quarter and $1.3 million for the year-ago quarter.

• Total assets were $2.20 billion at March 31, 2022, an increase of $50.0 million, or 2.3%, from $2.15 billion at December 31, 2021 and an increase of $149.1 million, or 7.3%, from $2.05 billion at March 31, 2021;

• Loans held-for-investment were $1.74 billion at March 31, 2022, an increase of $10.8 million, or 0.6%, from $1.73 billion at December 31, 2021 and an increase of $57.0 million, or 3.4%, from $1.69 billion at March 31, 2021; and

  • SBA PPP loans totaled $22.9 million, $65.3 million and $218.7 million at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

  • The Company had no loans under modified terms related to COVID-19 at March 31, 2022 and December 31, 2021. Loans under modified terms related to the COVID-19 pandemic totaled $19.8 million at March 31, 2021.

• Total deposits were $1.91 billion at March 31, 2022, an increase of $43.2 million, or 2.3%, from $1.87 billion at December 31, 2021 and an increase of $156.6 million, or 8.9%, from $1.75 billion at March 31, 2021.

Henry Kim, President and Chief Executive Officer, commented, "PCB kicked off the year with another solid quarterly financial results that were highlighted by the net income of $10.2 million or $0.67 per diluted share, an 8.1% annualized total loan growth, excluding SBA PPP, a 22.2% annualized retail deposit growth, and a 12.5% increase in book value per share to $17.47, compared with March 31, 2021. In addition, with 41.8% of our loans in variable rate, our asset sensitive balance sheet is well position to benefit from the current rising interest rate environment. Our exceptional credit quality continued with recognition of net recoveries for the quarter, and non-performing loans to loans held-for-investment ratio of 0.08%, and classified assets to total assets ratio of 0.24%."

"In spite of the ongoing challenging economic environment from the pandemic and global conflict, we will continue to execute our focused expansion initiatives of opening three new full-service branches during the second half of this year; two in Dallas, Texas area, and one in Palisades Park, New Jersey. We are optimistic in our outlook and expect to continue to deliver strong growth and earnings for the rest of the year and beyond," concluded Kim.

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

(1)		Loans held-for-investment are presented net of deferred fees and costs in this press release.
(2)		Adjusted allowance for loan losses to loans held-for-investment ratio is a non-GAAP measure, which excludes U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans from loans held-for-investment. See "Non-GAAP Measures" for reconciliation of this measure to its most comparable GAAP measure.

Financial Highlights (Unaudited)

($ in thousands, except per share data)		Three Months Ended
		3/31/2022				12/31/2021				% Change		3/31/2021				% Change
Net income		$	10,240			$	10,676			(4.1)%		$	8,560			19.6%
Diluted earnings per common share		$	0.67			$	0.70			(4.3)%		$	0.55			21.8%
Net interest income		$	19,993			$	20,095			(0.5)%		$	17,819			12.2%
Reversal for loan losses			(1,191	)			(1,462	)		(18.5)%			(1,147	)		3.8%
Noninterest income			5,286				4,838			9.3%			2,857			85.0%
Noninterest expense			12,071				11,168			8.1%			9,669			24.8%
Return on average assets (1)			1.92	%			2.01	%					1.75	%
Return on average shareholders’ equity (1), (2)			16.01	%			16.84	%					14.66	%
Net interest margin (1)			3.87	%			3.87	%					3.70	%
Efficiency ratio (3)			47.75	%			44.79	%					46.76	%

($ in thousands, except per share data)		3/31/2022				12/31/2021				% Change		3/31/2021				% Change
Total assets		$	2,199,742			$	2,149,735			2.3%		$	2,050,672			7.3%
Net loans held-for-investment			1,721,757				1,709,824			0.7%			1,660,402			3.7%
Total deposits			1,910,379				1,867,134			2.3%			1,753,771			8.9%
Book value per common share (2), (4)		$	17.47			$	17.24			1.3%		$	15.53			12.5%
Tier 1 leverage ratio (consolidated)			12.22	%			12.11	%					12.03	%
Total shareholders’ equity to total assets (2)			11.87	%			11.92	%					11.72	%

(1)		Ratios are presented on an annualized basis.
(2)		The Company did not have any intangible equity components for the presented periods.
(3)		The ratios are calculated by dividing noninterest expense by the sum of net interest income and noninterest income.
(4)		Calculated by dividing total shareholders’ equity by the number of outstanding common shares.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on global economic and market conditions. The U.S. government has enacted a number of monetary and fiscal policies to provide fiscal stimulus and relief in order to mitigate the impact of the COVID-19 pandemic. However, the COVID-19 pandemic continues to be a challenge to public health, including the emergence of new variants, and impact global economic and market conditions, including global supply chain disruptions and high inflation.

Since the beginning of the crisis, the Company has taken a number of steps to protect the safety of its employees and to support its customers. The Company has enabled its staff to work remotely and established safety measures within its bank premises and branches for both employees and customers. In order to support its customers, the Company has been in close contact with them, assessing the level of impact on their businesses, and putting a process in place to evaluate each client’s specific situation and provide relief programs where appropriate, including SBA PPP loans and loan modifications related to the COVID-19 pandemic.

At this time, the Company cannot estimate the long term impact of the COVID-19 pandemic, but these conditions are expected to continue to impact its business, results of operations, and financial condition negatively.

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)		3/31/2022				12/31/2021				% Change		3/31/2021				% Change
Interest income/expense on
Loans		$	20,190			$	20,363			(0.8)%		$	18,744			7.7%
Investment securities			476				441			7.9%			360			32.2%
Other interest-earning assets			228				191			19.4%			154			48.1%
Total interest-earning assets			20,894				20,995			(0.5)%			19,258			8.5%
Interest-bearing deposits			850				847			0.4%			1,311			(35.2)%
Borrowings			51				53			(3.8)%			128			(60.2)%
Total interest-bearing liabilities			901				900			0.1%			1,439			(37.4)%
Net interest income		$	19,993			$	20,095			(0.5)%		$	17,819			12.2%
Average balance of
Loans		$	1,773,376			$	1,758,421			0.9%		$	1,641,634			8.0%
Investment securities			123,230				128,650			(4.2)%			123,851			(0.5)%
Other interest-earning assets			198,918				175,468			13.4%			189,153			5.2%
Total interest-earning assets		$	2,095,524			$	2,062,539			1.6%		$	1,954,638			7.2%
Interest-bearing deposits		$	1,034,012			$	1,008,027			2.6%		$	1,053,845			(1.9)%
Borrowings			10,400				13,315			(21.9)%			75,556			(86.2)%
Total interest-bearing liabilities		$	1,044,412			$	1,021,342			2.3%		$	1,129,401			(7.5)%
Total funding (1)		$	1,885,038			$	1,845,846			2.1%		$	1,736,477			8.6%
Annualized average yield/cost of
Loans			4.62	%			4.59	%					4.63	%
Investment securities			1.57	%			1.36	%					1.18	%
Other interest-earning assets			0.46	%			0.43	%					0.33	%
Total interest-earning assets			4.04	%			4.04	%					4.00	%
Interest-bearing deposits			0.33	%			0.33	%					0.50	%
Borrowings			1.99	%			1.58	%					0.69	%
Total interest-bearing liabilities			0.35	%			0.35	%					0.52	%
Net interest margin			3.87	%			3.87	%					3.70	%
Cost of total funding (1)			0.19	%			0.19	%					0.34	%
Supplementary information
Net accretion of discount on loans		$	908			$	815			11.4%		$	745			21.9%
Net amortization of deferred loan fees		$	1,165			$	1,434			(18.8)%		$	1,220			(4.5)%

(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 increase in average yield for the current quarter compared with the previous quarter was primarily due to increases in net accretion of discount on loans, prepayment penalties and late-charges, partially offset by a decrease in net deferred loan fee amortization during the current quarter. Compared with the year-ago quarter, the decrease in average yield was primarily due to a decrease in overall interest rates on loans from lower market rates throughout 2021, partially offset by an increase in net accretion of discount on loans.

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:

		3/31/2022				12/31/2021				3/31/2021
		% to Total Loans		Weighted- Average Contractual Rate		% to Total Loans		Weighted- Average Contractual Rate		% to Total Loans		Weighted- Average Contractual Rate
Fixed rate loans		26.7 %		4.25 %		28.4 %		3.98 %		36.3 %		3.44 %
Hybrid rate loans		31.5 %		4.07 %		29.1 %		4.16 %		19.3 %		4.77 %
Variable rate loans		41.8 %		4.14 %		42.5 %		3.95 %		44.4 %		4.04 %

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 mortgage-backed securities and collateralized mortgage obligations.

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 increases in dividend income on Federal Home Loan Bank ("FHLB") stock and interest rate on cash held at the Federal Reserve Bank ("FRB") account. The increases in average balance for the current quarter compared with the previous and year-ago quarters were primarily due to an increase in deposits, partially offset by an increase in loans. The Company maintains most of its cash at the FRB account. For additional detail, please see the discussion in "Loans" and "Deposits" under the "Balance Sheet" discussion.

Interest-Bearing Deposits. The decrease in average cost for the current quarter compared with the year-ago quarter was primarily due to the decreases in market rates.

Borrowings. The increase in average cost for the current quarter compared with the year-ago quarter was primarily due to matured borrowings with lower interest rates during 2021. At March 31, 2022, the Company had a term FHLB advance of $10.0 million with an interest rate of 2.07% that matures on June 29, 2022.

Reversal for Loan Losses

Reversal for loan losses was $1.2 million for the current quarter compared with $1.5 million for the previous quarter and $1.1 million for the year-ago quarter. The reversal for the current quarter was primarily due to a decrease in qualitative adjustment factor allocations related to economic implications of the COVID-19 pandemic. The Company recorded net recoveries of $8 thousand for the current quarter compared with $36 thousand for the previous quarter and $151 thousand for the year-ago quarter.

Adjusted allowance for loan losses to loans held-for-investment ratio⁽¹⁾ was 1.23%, 1.34%, and 1.74% at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

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

(1)

Adjusted allowance for loan losses to loans held-for-investment ratio is a non-GAAP measure, which excludes SBA PPP loans from loans held-for-investment. See "Non-GAAP Measures" for reconciliation of this measure to its most comparable GAAP measure.

Noninterest Income

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

		Three Months Ended
($ in thousands)		3/31/2022			12/31/2021			% Change		3/31/2021			% Change
Gain on sale of loans		$	3,777		$	3,374		11.9%		$	1,322		185.7%
Service charges and fees on deposits			303			308		(1.6)%			293		3.4%
Loan servicing income			700			688		1.7%			882		(20.6)%
Bank-owned life insurance income			172			108		59.3%			—		NM
Other income			334			360		(7.2)%			360		(7.2)%
Total noninterest income		$	5,286		$	4,838		9.3%		$	2,857		85.0%

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)		3/31/2022			12/31/2021			% Change		3/31/2021			% Change
Gain on sale of SBA loans
Sold loan balance		$	39,683		$	36,765		7.9%		$	10,919		263.4%
Premium received			4,206			3,683		14.2%			1,309		221.3%
Gain recognized			3,777			3,363		12.3%			1,195		216.1%
Gain on sale of residential property loans
Sold loan balance		$	—		$	559		(100.0)%		$	7,907		(100.0)%
Gain recognized			—			9		(100.0)%			127		(100.0)%

The Company also sold certain commercial property loans of $3.4 million during the previous quarter.

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

		Three Months Ended
($ in thousands)		3/31/2022				12/31/2021				% Change		3/31/2021				% Change
Loan servicing income
Servicing income received		$	1,230			$	1,202			2.3%		$	1,273			(3.4)%
Servicing assets amortization			(530	)			(514	)		3.1%			(391	)		35.5%
Loan servicing income		$	700			$	688			1.7%		$	882			(20.6)%
Underlying loans at end of period		$	531,183			$	519,706			2.2%		$	492,981			...