PCB Bancorp Reports Earnings of $5.9 million for Q4 2023 and $30.7 million for 2023

LOS ANGELES, January 25, 2024--(BUSINESS WIRE)--PCB Bancorp (the "Company") (NASDAQ: PCB), the holding company of PCB Bank (the "Bank"), today reported net income of $5.9 million, or $0.41 per diluted common share, for the fourth quarter of 2023, compared with $7.0 million, or $0.49 per diluted common share, for the previous quarter and $8.7 million, or $0.58 per diluted common share, for the year-ago quarter. For 2023, net income was $30.7 million, or $2.12 per diluted common share, compared with $35.0 million and $2.31 per diluted common share, for the previous year.

Q4 2023 and Full Year Highlights

  • Net income totaled $5.9 million, or $0.41 per diluted common share, for the current quarter and $30.7 million, or $2.12 per diluted common share for the current year;

  • Recorded a provision for credit losses(1),(2) of $1.7 million for the current quarter compared with $751 thousand for the previous quarter and $1.1 million for the year-ago quarter. For the current year, provision (reversal) for the credit losses was $(132) thousand compared with $3.6 million for the previous year;

  • Allowance for Credit Losses ("ACL")(1) on loans to loans held-for-investment ratio was 1.19% at December 31, 2023 compared with 1.18% at September 30, 2023 and 1.22% at December 31, 2022;

  • Net interest income was $21.9 million for the current quarter compared with $22.4 million for the previous quarter and $24.3 million for the year-ago quarter. Net interest margin was 3.40% for the current quarter compared with 3.57% for the previous quarter and 4.15% for the year-ago quarter. For the current year, net interest income and net interest margin were $88.5 million and 3.57%, respectively, compared with $89.6 million and 4.08%, respectively, for the previous year;

  • Gain on sale of loans was $803 thousand for the current quarter compared with $689 thousand for the previous quarter and $759 thousand for the year-ago quarter. For the current year, gain on sale of loans was $3.6 million compared with $8.0 million for the previous year;

  • Total assets were $2.79 billion at December 31, 2023, an increase of $221.5 million, or 8.6%, from $2.57 billion at September 30, 2023, and an increase of $369.5 million, or 15.3%, from $2.42 billion at December 31, 2022;

  • Loans held-for-investment were $2.32 billion at December 31, 2023, an increase of $155.8 million, or 7.2%, from $2.17 billion at September 30, 2023, and an increase of $277.4 million, or 13.6%, from $2.05 billion at December 31, 2022;

  • Total deposits were $2.35 billion at December 31, 2023, an increase of $159.5 million, or 7.3%, from $2.19 billion at September 30, 2023, and an increase of $305.6 million, or 14.9%, from $2.05 billion at December 31, 2022; and

  • The Company repurchased and retired 60,074 shares of common stock during the current quarter. For the current year, the Company repurchased and retired 512,657 shares of common stock.

"We are pleased with our fourth quarter and full-year performance. Our results reflect our solid business strategy of strong relationship banking, which continues to provide strong loan funding opportunities and stable operating performance that has positioned us well to overcome the continued economic uncertainties," said Henry Kim, President and Chief Executive Officer. "PCB’s performance for the fourth quarter of 2023 benefited from strong loan growth and higher yields on interest-earning assets. However, the continued higher interest rate environment and its effect on our funding costs resulted in moderate compression in net interest margin during the quarter. During the quarter loan balance increased 7.1% to $2.3 billion, deposit balance increased 7.3% to $2.4 billion, and we continue to maintain very strong credit metrics with ACL to loans ratio of 1.19%, and non-performing assets and classified assets to total assets ratios of 0.23% and 0.34%, respectively."

Mr. Kim added, "As we look ahead in 2024, PCB is well positioned to continue delivering solid results with emphasis on strong balance sheet and sound asset quality with robust capital levels that are above our peers to operate in all economic cycles and changing market conditions."

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

(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 for credit losses on off-balance sheet credit exposures of $57 thousand and $85 thousand, respectively, for the year-ago quarter and previous year were recorded in Other Expense on Consolidated Statements of Income (Unaudited).

 

Financial Highlights (Unaudited)

 

($ in thousands, except per share data)

 

Three Months Ended

 

Year Ended

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Net income

 

$

5,908

 

 

$

7,023

 

 

(15.9

)%

 

$

8,702

 

 

(32.1

)%

 

$

30,705

 

 

$

34,987

 

 

(12.2

)%

Diluted earnings per common share

 

$

0.41

 

 

$

0.49

 

 

(16.3

)%

 

$

0.58

 

 

(29.3

)%

 

$

2.12

 

 

$

2.31

 

 

(8.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

21,924

 

 

$

22,449

 

 

(2.3

)%

 

$

24,265

 

 

(9.6

)%

 

$

88,504

 

 

$

89,632

 

 

(1.3

)%

Provision (reversal) for credit losses (1)

 

 

1,698

 

 

 

751

 

 

126.1

%

 

 

1,149

 

 

47.8

%

 

 

(132

)

 

 

3,602

 

 

NM

Noninterest income

 

 

2,503

 

 

 

2,502

 

 

%

 

 

2,389

 

 

4.8

%

 

 

10,683

 

 

 

14,499

 

 

(26.3

)%

Noninterest expense

 

 

14,469

 

 

 

14,207

 

 

1.8

%

 

 

13,115

 

 

10.3

%

 

 

56,057

 

 

 

51,126

 

 

9.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (2)

 

 

0.89

%

 

 

1.09

%

 

 

 

 

1.44

%

 

 

 

 

1.20

%

 

 

1.54

%

 

 

Return on average shareholders’ equity (2)

 

 

6.82

%

 

 

8.12

%

 

 

 

 

10.31

%

 

 

 

 

9.02

%

 

 

11.42

%

 

 

Return on average tangible common equity ("TCE") (2),(3)

 

 

8.54

%

 

 

10.17

%

 

 

 

 

12.99

%

 

 

 

 

11.31

%

 

 

13.23

%

 

 

Net interest margin (2)

 

 

3.40

%

 

 

3.57

%

 

 

 

 

4.15

%

 

 

 

 

3.57

%

 

 

4.08

%

 

 

Efficiency ratio (4)

 

 

59.23

%

 

 

56.94

%

 

 

 

 

49.20

%

 

 

 

 

56.52

%

 

 

49.10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands, except per share data)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

Total assets

 

$

2,789,506

 

 

$

2,567,974

 

 

8.6

%

 

$

2,420,036

 

 

15.3

%

Net loans held-for-investment

 

 

2,295,919

 

 

 

2,142,006

 

 

7.2

%

 

 

2,021,121

 

 

13.6

%

Total deposits

 

 

2,351,612

 

 

 

2,192,129

 

 

7.3

%

 

 

2,045,983

 

 

14.9

%

Book value per common share (5)

 

$

24.46

 

 

$

23.87

 

 

 

 

$

22.94

 

 

 

TCE per common share (3)

 

$

19.62

 

 

$

19.05

 

 

 

 

$

18.21

 

 

 

Tier 1 leverage ratio (consolidated)

 

 

13.43

%

 

 

13.76

%

 

 

 

 

14.33

%

 

 

Total shareholders’ equity to total assets

 

 

12.51

%

 

 

13.31

%

 

 

 

 

13.86

%

 

 

TCE to total assets (3), (6)

 

 

10.03

%

 

 

10.62

%

 

 

 

 

11.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Provision for credit losses on off-balance sheet credit exposures of $57 thousand and $85 thousand, respectively, for the year-ago quarter and previous year 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 shareholdersequity 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

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Interest income/expense on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

37,189

 

 

$

34,651

 

 

7.3

%

 

$

28,786

 

 

29.2

%

 

$

136,029

 

 

$

95,054

 

 

43.1

%

Investment securities

 

 

1,271

 

 

 

1,170

 

 

8.6

%

 

 

957

 

 

32.8

%

 

 

4,679

 

 

 

2,907

 

 

61.0

%

Other interest-earning assets

 

 

2,491

 

 

 

3,031

 

 

(17.8

)%

 

 

1,833

 

 

35.9

%

 

 

10,469

 

 

 

3,790

 

 

176.2

%

Total interest-earning assets

 

 

40,951

 

 

 

38,852

 

 

5.4

%

 

 

31,576

 

 

29.7

%

 

 

151,177

 

 

 

101,751

 

 

48.6

%

Interest-bearing deposits

 

 

18,728

 

 

 

16,403

 

 

14.2

%

 

 

7,295

 

 

156.7

%

 

 

62,165

 

 

 

11,984

 

 

418.7

%

Borrowings

 

 

299

 

 

 

 

 

%

 

 

16

 

 

1,768.8

%

 

 

508

 

 

 

135

 

 

276.3

%

Total interest-bearing liabilities

 

 

19,027

 

 

 

16,403

 

 

16.0

%

 

 

7,311

 

 

160.3

%

 

 

62,673

 

 

 

12,119

 

 

417.1

%

Net interest income

 

$

21,924

 

 

$

22,449

 

 

(2.3

)%

 

$

24,265

 

 

(9.6

)%

 

$

88,504

 

 

$

89,632

 

 

(1.3

)%

Average balance of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

2,242,457

 

 

$

2,137,184

 

 

4.9

%

 

$

2,004,220

 

 

11.9

%

 

$

2,137,851

 

 

$

1,872,557

 

 

14.2

%

Investment securities

 

 

139,227

 

 

 

138,993

 

 

0.2

%

 

 

134,066

 

 

3.8

%

 

 

140,596

 

 

 

132,538

 

 

6.1

%

Other interest-earning assets

 

 

175,336

 

 

 

219,115

 

 

(20.0

)%

 

 

182,018

 

 

(3.7

)%

 

 

198,809

 

 

 

194,205

 

 

2.4

%

Total interest-earning assets

 

$

2,557,020

 

 

$

2,495,292

 

 

2.5

%

 

$

2,320,304

 

 

10.2

%

 

$

2,477,256

 

 

$

2,199,300

 

 

12.6

%

Interest-bearing deposits

 

$

1,650,132

 

 

$

1,561,582

 

 

5.7

%

 

$

1,269,739

 

 

30.0

%

 

$

1,538,234

 

 

$

1,111,449

 

 

38.4

%

Borrowings

 

 

21,000

 

 

 

 

 

%

 

 

1,739

 

 

1,107.6

%

 

 

9,192

 

 

 

6,290

 

 

46.1

%

Total interest-bearing liabilities

 

$

1,671,132

 

 

$

1,561,582

 

 

7.0

%

 

$

1,271,478

 

 

31.4

%

 

$

1,547,426

 

 

$

1,117,739

 

 

38.4

%

Total funding (1)

 

$

2,249,026

 

 

$

2,188,320

 

 

2.8

%

 

$

2,043,110

 

 

10.1

%

 

$

2,177,200

 

 

$

1,949,360

 

 

11.7

%

Annualized average yield/cost of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

6.58

%

 

 

6.43

%

 

 

 

 

5.70

%

 

 

 

 

6.36

%

 

 

5.08

%

 

 

Investment securities

 

 

3.62

%

 

 

3.34

%

 

 

 

 

2.83

%

 

 

 

 

3.33

%

 

 

2.19

%

 

 

Other interest-earning assets

 

 

5.64

%

 

 

5.49

%

 

 

 

 

4.00

%

 

 

 

 

5.27

%

 

 

1.95

%

 

 

Total interest-earning assets

 

 

6.35

%

 

 

6.18

%

 

 

 

 

5.40

%

 

 

 

 

6.10

%

 

 

4.63

%

 

 

Interest-bearing deposits

 

 

4.50

%

 

 

4.17

%

 

 

 

 

2.28

%

 

 

 

 

4.04

%

 

 

1.08

%

 

 

Borrowings

 

 

5.65

%

 

 

%

 

 

 

 

3.65

%

 

 

 

 

5.53

%

 

 

2.15

%

 

 

Total interest-bearing liabilities

 

 

4.52

%

 

 

4.17

%

 

 

 

 

2.28

%

 

 

 

 

4.05

%

 

 

1.08

%

 

 

Net interest margin

 

 

3.40

%

 

 

3.57

%

 

 

 

 

4.15

%

 

 

 

 

3.57

%

 

 

4.08

%

 

 

Cost of total funding (1)

 

 

3.36

%

 

 

2.97

%

 

 

 

 

1.42

%

 

 

 

 

2.88

%

 

 

0.62

%

 

 

Supplementary information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net accretion of discount on loans

 

$

806

 

 

$

775

 

 

4.0

%

 

$

869

 

 

(7.2

)%

 

$

3,003

 

 

$

3,551

 

 

(15.4

)%

Net amortization of deferred loan fees

 

$

449

 

 

$

226

 

 

98.7

%

 

$

167

 

 

168.9

%

 

$

1,097

 

 

$

2,181

 

 

(49.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 increases in overall interest rates on loans from the rising interest rate environment and net amortization of deferred loan fees from the increased amount of prepayment penalties. The increase in average yield for the current year compared with the previous year was primarily due to the increase in overall interest rates on loans, 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:

 

 

12/31/2023

 

9/30/2023

 

12/31/2022

 

 

% to Total Loans

 

Weighted-Average Contractual Rate

 

% to Total Loans

 

Weighted-Average Contractual Rate

 

% to Total Loans

 

Weighted-Average Contractual Rate

Fixed rate loans

 

21.2

%

 

4.86

%

 

22.4

%

 

4.75

%

 

23.2

%

 

4.51

%

Hybrid rate loans

 

39.0

%

 

4.93

%

 

38.8

%

 

4.71

%

 

39.1

%

 

4.40

%

Variable rate loans

 

39.8

%

 

8.51

%

 

38.8

%

 

8.52

%

 

37.7

%

 

7.86

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Securities. The increases in average yield for the current quarter and year 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 were primarily due to an increased interest rate on cash held at the Federal Reserve Bank and an increase in dividend received on Federal Home Loan Bank stock.

Interest-Bearing Deposits. The increases in average cost for the current quarter and year 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.

Provision (Reversal) for Credit Losses

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

 

 

Three Months Ended

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Provision for credit losses on loans

 

$

1,935

 

 

$

822

 

 

135.4

%

 

$

1,149

 

68.4

%

 

$

497

 

 

$

3,602

 

(86.2

)%

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

 

 

(237

)

 

 

(71

)

 

233.8

%

 

 

57

 

 

NM

 

 

(629

)

 

 

85

 

 

NM

Total provision (reversal) for credit losses

 

$

1,698

 

 

$

751

 

 

126.1

%

 

$

1,206

 

 

40.8

%

 

$

(132

)

 

$

3,687

 

 

NM

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Provision for credit losses on off-balance sheet credit exposures for year-ago quarter and previous year 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.

Noninterest Income

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

 

 

Three Months Ended

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Gain on sale of loans

 

$

803

 

 

$

689

 

 

16.5

%

 

$

759

 

 

5.8

%

 

$

3,570

 

 

$

7,990

 

 

(55.3

)%

Service charges and fees on deposits

 

 

391

 

 

 

371

 

 

5.4

%

 

 

352

 

 

11.1

%

 

 

1,475

 

 

 

1,326

 

 

11.2

%

Loan servicing income

 

 

751

 

 

 

851

 

 

(11.8

)%

 

 

734

 

 

2.3

%

 

 

3,330

 

 

 

2,969

 

 

12.2

%

Bank-owned life insurance income

 

 

202

 

 

 

187

 

 

8.0

%

 

 

181

 

 

11.6

%

 

 

753

 

 

 

706

 

 

6.7

%

Other income

 

 

356

 

 

 

404

 

 

(11.9

)%

 

 

363

 

 

(1.9

)%

 

 

1,555

 

 

 

1,508

 

 

3.1

%

Total noninterest income

 

$

2,503

 

 

$

2,502

 

 

%

 

$

2,389

 

 

4.8

%

 

$

10,683

 

 

$

14,499

 

 

(26.3

)%

 

 

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

 

 

Three Months Ended

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Gain on sale of SBA loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sold loan balance

 

$

20,751

 

 

$

17,697

 

 

17.3

%

 

$

17,448

 

 

18.9

%

 

$

82,343

 

 

$

122,886

 

 

(33.0

)%

Premium received

 

 

1,250

 

 

 

1,112

 

 

12.4

%

 

 

1,102

 

 

13.4

%

 

 

5,612

 

 

 

9,944

 

 

(43.6

)%

Gain recognized

 

 

803

 

 

 

689

 

 

16.5

%

 

 

759

 

 

5.8

%

 

 

3,570

 

 

 

7,982

 

 

(55.3

)%

Gain on sale of residential mortgage 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

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Loan servicing income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Servicing income received

 

$

1,290

 

 

$

1,321

 

 

(2.3

)%

 

$

1,284

 

 

0.5

%

 

$

5,212

 

 

$

5,103

 

 

2.1

%

Servicing assets amortization

 

 

(539

)

 

 

(470

)

 

14.7

%

 

 

(550

)

 

(2.0

)%

 

 

(1,882

)

 

 

(2,134

)

 

(11.8

)%

Loan servicing income

 

$

751

 

 

$

851

 

 

(11.8

)%

 

$

734

 

 

2.3

%

 

$

3,330

 

 

$

2,969

 

 

12.2

%

Underlying loans at end of period

 

$

532,231

 

 

$

536,424

 

 

(0.8

)%

 

$

531,095

 

 

0.2

%

 

$

532,231

 

 

$

531,095

 

 

0.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

Salaries and employee benefits

 

$

8,397

 

 

$

8,572

 

 

(2.0

)%

 

$

7,879

 

 

6.6

%

 

$

34,572

 

 

$

33,056

 

 

4.6

%

Occupancy and equipment

 

 

2,145

 

 

 

1,964

 

 

9.2

%

 

 

1,897

 

 

13.1

%

 

 

7,924

 

 

 

6,481

 

 

22.3

%

Professional fees

 

 

898

 

 

 

685

 

 

31.1

%

 

 

607

 

 

47.9

%

 

 

3,087

 

 

 

2,239

 

 

37.9

%

Marketing and business promotion

 

 

772

 

 

 

980

 

 

(21.2

)%

 

 

724

 

 

6.6

%

 

 

2,327

 

 

 

2,150

 

 

8.2

%

Data processing

 

 

393

 

 

 

367

 

 

7.1

%

 

 

434

 

 

(9.4

)%

 

 

1,552

 

 

 

1,706

 

 

(9.0

)%

Director fees and expenses

 

 

207

 

 

 

152

 

 

36.2

%

 

 

176

 

 

17.6

%

 

 

756

 

 

 

706

 

 

7.1

%

Regulatory assessments

 

 

285

 

 

 

281

 

 

1.4

%

 

 

159

 

 

79.2

%

 

 

1,103

 

 

 

597

 

 

84.8

%

Other expense

 

 

1,372

 

 

 

1,206

 

 

13.8

%

 

 

1,239

 

 

10.7

%

 

 

4,736

 

 

 

4,191

 

 

13.0

%

Total noninterest expense

 

$

14,469

 

 

$

14,207

 

 

1.8

%

 

$

13,115

 

 

10.3

%

 

$

56,057

 

 

$

51,126

 

 

9.6

%

 

 

Salaries and Employee Benefits. The decrease for the current quarter compared with the previous quarter was primarily due to a decrease in vacation accrual, partially offset by increases in salaries and other employee benefit expense, and incentives tied to sales of SBA loans originated at loan production offices. 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 a decrease in vacation accrual. The increase for the current year compared with the previous year was primarily due to increases in salaries and other employee benefit expense, partially offset by decreases in bonus and vacation accruals, and incentives tied to sales of SBA loans originated at loan production offices. The number of full-time equivalent employees was 270, 270 and 272 as of December 31, 2023, September 30, 2023 and December 31, 2022, respectively.

Occupancy and Equipment. The increases for the current quarter compared with the previous and year-ago quarters were primarily due to expansions of headquarters and relocation of a regional office and branches. The Company plans to relocate and consolidate a regional office and two branches into one location in Orange County, California in 2024. The increase for the current year compared with the previous year was primarily due to the expansions of headquarters and the relocation of a regional office and branches, as well as 3 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 during the second half of 2022.

Professional Fees. The increases for the current quarter and year were primarily due to increases in consulting and internal audit fees for enhancing internal controls and process, and professional fees related to a planned core system conversion.

Marketing and Business Promotion. The decrease for the current quarter compared with the previous quarter was primarily due to the Company’s 20th anniversary celebration during the previous quarter.

Director Fees and Expenses. The increase for the current quarter compared with the previous quarter was primarily due to additional expenses related to stock options issued to directors during the current quarter.

Regulatory Assessments. The increases for the current quarter and year compared with the same periods of 2022 were due to an increase in FDIC assessment rates. 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 increase for the current quarter compared with the previous quarter was primarily due to increases in office expense and loan related expense. The increase for the current year was primarily due to increases in office expenses and armed guard expenses from the branch network expansion. Provision for credit losses on off-balance credit exposures of $57 thousand and $85 thousand was included in other expense for the year-ago quarter and previous year, 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 $2.79 billion at December 31, 2023, an increase of $221.5 million, or 8.6%, from $2.57 billion at September 30, 2023, and an increase of $369.5 million, or 15.3%, from $2.42 billion at December 31, 2022. The increases for the current quarter and year were primarily due to increases in cash and cash equivalents, loans held-for-investment and operating lease assets. The increase in operating lease assets was primarily due to renewal and additional leases of the Company’s headquarters and a new location for the relocation of a regional office and branches.

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 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)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial property

 

$

855,270

 

 

$

814,547

 

 

5.0

%

 

$

772,020

 

 

10.8

%

Business property

 

 

558,772

 

 

 

537,351

 

 

4.0

%

 

 

526,513

 

 

6.1

%

Multifamily

 

 

132,500

 

 

 

132,558

 

 

%

 

 

124,751

 

 

6.2

%

Construction

 

 

24,843

 

 

 

19,246

 

 

29.1

%

 

 

17,054

 

 

45.7

%

Total commercial real estate

 

 

1,571,385

 

 

 

1,503,702

 

 

4.5

%

 

 

1,440,338

 

 

9.1

%

Commercial and industrial

 

 

342,002

 

 

 

279,608

 

 

22.3

%

 

 

249,250

 

 

37.2

%

Consumer:

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

389,420

 

 

 

363,369

 

 

7.2

%

 

 

333,726

 

 

16.7

%

Other consumer

 

 

20,645

 

 

 

20,926

 

 

(1.3

)%

 

 

22,749

 

 

(9.2

)%

Total consumer

 

 

410,065

 

 

 

384,295

 

 

6.7

%

 

 

356,475

 

 

15.0

%

Loans held-for-investment

 

 

2,323,452

 

 

 

2,167,605

 

 

7.2

%

 

 

2,046,063

 

 

13.6

%

Loans held-for-sale

 

 

5,155

 

 

 

6,693

 

 

(23.0

)%

 

 

22,811

 

 

(77.4

)%

Total loans

 

$

2,328,607

 

 

$

2,174,298

 

 

7.1

%

 

$

2,068,874

 

 

12.6

%

 

 

The increase in loans held-for-investment for the current quarter was primarily due to new funding and advances on lines of credit of $468.4 million, partially offset by pay-downs and pay-offs of $312.5 million. The increase for the current year-to-date period was primarily due to new funding and advances on lines of credit of $1.19 billion and purchases of residential mortgage loans of $15.7 million, partially offset by pay-downs and pay-offs of $923.0 million.

The decrease in loans held-for-sale for the current quarter was primarily due to sales of $20.8 million, partially offset by new funding of $19.3 million. The decrease for the current year-to-date was primarily due to sales of $82.3 million and pay-downs and pay-offs of $4.4 million, partially offset by new funding of $69.0 million.

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

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

Commercial property

 

$

11,634

 

 

$

9,827

 

 

18.4

%

 

$

7,006

 

 

66.1

%

Business property

 

 

9,899

 

 

 

8,388

 

 

18.0

%

 

 

8,396

 

 

17.9

%

Multifamily

 

 

1,800

 

 

 

1,800

 

 

%

 

 

4,500

 

 

(60.0

)%

Construction

 

 

23,739

 

 

 

29,293

 

 

(19.0

)%

 

 

18,211

 

 

30.4

%

Commercial and industrial

 

 

351,025

 

 

 

283,119

 

 

24.0

%

 

 

254,668

 

 

37.8

%

Other consumer

 

 

3,421

 

 

 

271

 

 

1,162.4

%

 

 

692

 

 

394.4

%

Total commitments to extend credit

 

 

401,518

 

 

 

332,698

 

 

20.7

%

 

 

293,473

 

 

36.8

%

Letters of credit

 

 

6,583

 

 

 

6,083

 

 

8.2

%

 

 

5,392

 

 

22.1

%

Total off-balance sheet credit exposure

 

$

408,101

 

 

$

338,781

 

 

20.5

%

 

$

298,865

 

 

36.6

%

 

 

Credit Quality

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

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

Nonaccrual loans

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

Commercial property

 

$

958

 

 

$

686

 

 

39.7

%

 

$

 

 

%

Business property

 

 

2,865

 

 

 

2,964

 

 

(3.3

)%

 

 

2,985

 

 

(4.0

)%

Total commercial real estate

 

 

3,823

 

 

 

3,650

 

 

4.7

%

 

 

2,985

 

 

28.1

%

Commercial and industrial

 

 

68

 

 

 

72

 

 

(5.6

)%

 

 

 

 

%

Consumer:

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

 

 

 

 

 

%

 

 

372

 

 

(100.0

)%

Other consumer

 

 

25

 

 

 

8

 

 

212.5

%

 

 

3

 

 

733.3

%

Total consumer

 

 

25

 

 

 

8

 

 

212.5

%

 

 

375

 

 

(93.3

)%

Total nonaccrual loans held-for-investment

 

 

3,916

 

 

 

3,730

 

 

5.0

%

 

 

3,360

 

 

16.5

%

Loans past due 90 days or more and still accruing

 

 

 

 

 

 

 

%

 

 

 

 

%

Non-performing loans ("NPLs") held-for-investment

 

 

3,916

 

 

 

3,730

 

 

5.0

%

 

 

3,360

 

 

16.5

%

NPLs held-for-sale

 

 

 

 

 

 

 

%

 

 

4,000

 

 

(100.0

)%

Total NPLs

 

 

3,916

 

 

 

3,730

 

 

5.0

%

 

 

7,360

 

 

(46.8

)%

Other real estate owned ("OREO")

 

 

2,558

 

 

 

 

 

%

 

 

 

 

%

Non-performing assets ("NPAs")

 

$

6,474

 

 

$

3,730

 

 

73.6

%

 

$

7,360

 

 

(12.0

)%

Loans past due and still accruing

 

 

 

 

 

 

 

 

 

 

Past due 30 to 59 days

 

$

1,394

 

 

$

654

 

 

113.1

%

 

$

47

 

 

2,866.0

%

Past due 60 to 89 days

 

 

34

 

 

 

54

 

 

(37.0

)%

 

 

87

 

 

(60.9

)%

Past due 90 days or more

 

 

 

 

 

 

 

%

 

 

 

 

%

Total loans past due and still accruing

 

$

1,428

 

 

$

708

 

 

101.7

%

 

 

134

 

 

965.7

%

Special mention loans

 

$

5,156

 

 

$

5,281

 

 

(2.4

)%

 

$

6,857

 

 

(24.8

)%

Classified assets

 

 

 

 

 

 

 

 

 

Classified loans held-for-investment

 

$

7,000

 

 

$

6,742

 

 

3.8

%

 

$

6,211

 

 

12.7

%

Classified loans held-for-sale

 

 

 

 

 

 

 

%

 

 

4,000

 

 

(100.0

)%

OREO

 

 

2,558

 

 

 

 

 

%

 

 

 

 

%

Classified assets

 

$

9,558

 

 

$

6,742

 

 

41.8

%

 

$

10,211

 

 

(6.4

)%

NPLs held-for-investment to loans held-for-investment

 

 

0.17

%

 

 

0.17

%

 

 

 

 

0.16

%

 

 

NPAs to total assets

 

 

0.23

%

 

 

0.15

%

 

 

 

 

0.30

%

 

 

Classified assets to total assets

 

 

0.34

%

 

 

0.26

%

 

 

 

 

0.42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the current quarter, the Company recognized an OREO of $2.6 million by transferring a SBA 7(a) loan, of which its guaranteed portion was previously sold. The Company’s exposure is 25% of the OREO and 75% will be submitted to the SBA upon the sale of property. During the first quarter of 2023, NPLs held-for-sale of $4.0 million were paid-off.

Allowance for Credit Losses

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

 

 

Three Months Ended

 

Year Ended

($ in thousands)

 

12/31/2023

 

9/30/2023

 

% Change

 

12/31/2022

 

% Change

 

12/31/2023

 

12/31/2022

 

% Change

ACL on loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

25,599

 

 

$

24,867

 

 

2.9

%

 

$

23,761

 

 

7.7