PCB Bancorp Reports Record Earnings of $9.8 Million for Q2 2021

admin July 23, 2021

8 16 minutes read

LOS ANGELES–(BUSINESS WIRE)–PCB Bancorp (the “Company”) (NASDAQ: PCB), the holding company of Pacific City Bank (the “Bank”), today reported net income of $9.8 million, or $0.64 per diluted common share for the second quarter of 2021, compared with $8.6 million, or $0.55 per diluted common share, for the previous quarter and $3.4 million, or $0.22 per diluted common share, for the year-ago quarter.

Q2 2021 Highlights

Net income totaled $9.8 million or $0.64 per diluted common share;
- The Company recorded a provision (reversal) for loan losses of $(934) thousand for the current quarter compared with $(1.1) million for the previous quarter and $3.9 million for the year-ago quarter.
- Allowance for loan losses to total loans held-for-investment ratio was 1.45% at June 30, 2021 compared with 1.51% at March 31, 2021 and 1.30% at June 30, 2020. Excluding U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, allowance for loan losses to total loans held-for-investment ratio was 1.62% and 1.74% at June 30, 2021 and March 31, 2021, respectively.
- Net interest income was $19.0 million for the current quarter compared with $17.8 million for the previous quarter and $15.4 million for the year-ago quarter. Net interest margin was 3.83% for the second quarter of 2021 compared with 3.70% for the previous quarter and 3.22% for the year-ago quarter.
- Gain on sale of loans was $4.0 million for the current quarter compared with $1.3 million for the previous quarter and $1.5 million for the year-ago quarter.
Total assets were $2.06 billion at June 30, 2021, an increase of $9.3 million, or 0.5%, from $2.05 billion at March 31, 2021 and an increase of $39.2 million, or 1.9%, from $2.02 billion at June 30, 2020;
Loans held-for-investment, net of deferred costs (fees), were $1.72 billion at June 30, 2021, an increase of $33.7 million, or 2.0%, from $1.69 billion at March 31, 2021 and an increase of $166.1 million, or 10.7%, from $1.55 billion at June 30, 2020;
- SBA PPP loans totaled $181.0 million and $218.7 million at June 30, 2021 and March 31, 2021, respectively.
- Loans under modified terms related to COVID-19 totaled $16.2 million and $19.8 million at June 30, 2021 and March 31, 2021, respectively.
Total deposits were $1.80 billion at June 30, 2021, an increase of $43.9 million from $1.75 billion at March 31, 2021 and an increase of $150.7 million, or 9.2%, from $1.65 billion at June 30, 2020;
Announced a repurchase program on April 8, 2021 for the repurchase up to 5% of outstanding common stock, which represented 775,000 shares, through September 7, 2021. As of June 30, 2021, the Company repurchased and retired 646,334 shares of common stock; and
Declared an increased cash dividend of $0.12 per share on July 22, 2021. This represents the 26th consecutive quarterly dividend paid by PCB Bancorp.

Henry Kim, President and Chief Executive Officer, commented, “We are pleased to announce another record quarter with net income of $9.8 million for the second quarter of 2021, an increase from $8.6 million in the first quarter of 2021. On a year-to-date basis, net income totaled $18.4 million for the first six months of 2021, up from $6.9 million in the first six months of 2020, a 165% increase. We continue to experience positive credit trends and improving economic conditions that resulted in additional release of loan loss reserves in the quarter. Our total loan portfolio excluding SBA PPP loans increased to $1.55 billion at June 30, 2021, an increase of $79.1 million, compared to March 31, 2021 and an increase of $125.9 million compared to June 30, 2020. During the second quarter of 2021, we prudently took advantage of our market opportunities to deploy excess liquidity into organic loans.”

Mr. Kim continued, “Net interest margin improved by thirteen basis points in the second quarter of 2021 as compared to the first quarter of 2021 primarily due to an expansion in loan interest income and a twelve basis point decline on average cost on total interest bearing liabilities. Although there are persistent uncertainties related to the evolving pandemic, our loan pipeline continues to be solid coupled with ample liquidity to expand our net interest income, and we remain positive in our outlook in delivering strong financial performance for the remainder of the year.

Financial Highlights (Unaudited)

($ in thousands, except per share data)	Three Months Ended													Six Months Ended
($ in thousands, except per share data)	6/30/2021			3/31/2021			% Change		6/30/2020			% Change		6/30/2021			6/30/2020			% Change
Net income	$	9,844		$	8,560		15.0	%	$	3,367		192.4	%	$	18,404		$	6,939		165.2	%
Diluted earnings per common share	$	0.64		$	0.55		16.4	%	$	0.22		190.9	%	$	1.19		$	0.45		164.4	%

Net interest income	$	18,996		$	17,819		6.6	%	$	15,363		23.6	%	$	36,815		$	31,929		15.3	%
Provision (reversal) for loan losses	(934		)	(1,147		)	(18.6	)%	3,855			(124.2	)%	(2,081		)	6,751			(130.8	)%
Noninterest income	5,151			2,857			80.3	%	2,918			76.5	%	8,008			4,944			62.0	%
Noninterest expense	11,139			9,669			15.2	%	9,696			14.9	%	20,808			20,263			2.7	%

Return on average assets ⁽¹⁾	1.96		%	1.75		%			0.69		%			1.85		%	0.75		%
Return on average shareholders’ equity ^{(1), (2)}	16.49		%	14.66		%			5.98		%			15.59		%	6.17		%
Net interest margin ⁽¹⁾	3.83		%	3.70		%			3.22		%			3.77		%	3.52		%
Efficiency ratio ⁽³⁾	46.13		%	46.76		%			53.04		%			46.42		%	54.95		%

($ in thousands, except per share data)	6/30/2021			3/31/2021			% Change		12/31/2020			% Change		6/30/2020			% Change
Total assets	$	2,060,003		$	2,050,672		0.5	%	$	1,922,853		7.1	%	$	2,020,777		1.9	%
Net loans held-for-investment	1,694,767			1,660,402			2.1	%	1,557,068			8.8	%	1,533,341			10.5	%
Total deposits	1,797,648			1,753,771			2.5	%	1,594,851			12.7	%	1,646,930			9.2	%
Book value per common share ^{(2), (4)}	$	16.09		$	15.53		3.6	%	$	15.19		5.9	%	$	14.78		8.9	%
Tier 1 leverage ratio (consolidated)	11.76		%	12.03		%			11.94		%			11.49		%
Total shareholders’ equity to total assets ⁽²⁾	11.60		%	11.72		%			12.16		%			11.24		%

(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)		The ratios are 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 recent global economic and market conditions, including significant disruption of, and volatility in, financial markets; global supply chain disruptions; and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company’s operations and a large majority of its customers are located. While California’s and New York’s shelter-at-home limits were largely lifted in June 2021, the local economies in the Company’s primary markets have not yet fully recovered.

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 its customers, 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. SBA PPP loans totaled $181.0 million (1,746 loans) and loans under modified terms related to the COVID-19 pandemic totaled $16.2 million (6 loan customers) as of June 30, 2021. The Company recognized $65.6 million in forgiveness for 1,061 SBA PPP loans as of June 30, 2021. On January 13, 2021, SBA began accepting applications for second draw PPP loans and the Company had funded $107.3 million (1,160 loans), net of origination fees and costs, as of June 30, 2021.

In addition, the Company has been monitoring its liquidity and capital closely. As of June 30, 2021, the Company maintained $174.6 million, or 8.5% of total assets, of cash and cash equivalents and $601.9 million, or 29.2% of total assets, of available borrowing capacity. All regulatory capital ratios were also well above the regulatory well capitalized requirements as of June 30, 2021.

At this time, the Company cannot estimate the long term impact of the COVID-19 pandemic, but these conditions are expected 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													Six Months Ended
($ in thousands)	6/30/2021			3/31/2021			% Change		6/30/2020			% Change		6/30/2021			6/30/2020			% Change
Interest income/expense on
Loans	$	19,511		$	18,744		4.1	%	$	18,273		6.8	%	$	38,255		$	38,679		(1.1	)%
Investment securities	375			360			4.2	%	539			(30.4	)%	735			1,183			(37.9	)%
Other interest-earning assets	165			154			7.1	%	161			2.5	%	319			771			(58.6	)%
Total interest-earning assets	20,051			19,258			4.1	%	18,973			5.7	%	39,309			40,633			(3.3	)%
Interest-bearing deposits	1,000			1,311			(23.7	)%	3,409			(70.7	)%	2,311			8,401			(72.5	)%
Borrowings	55			128			(57.0	)%	201			(72.6	)%	183			303			(39.6	)%
Total interest-bearing liabilities	1,055			1,439			(26.7	)%	3,610			(70.8	)%	2,494			8,704			(71.3	)%
Net interest income	$	18,996		$	17,819		6.6	%	$	15,363		23.6	%	$	36,815		$	31,929		15.3	%
Average balance of
Loans	$	1,691,704		$	1,641,634		3.1	%	$	1,554,011		8.9	%	$	1,666,808		$	1,504,369		10.8	%
Investment securities	132,249			123,851			6.8	%	120,336			9.9	%	128,073			119,419			7.2	%
Other interest-earning assets	164,710			189,153			(12.9	)%	245,447			(32.9	)%	176,864			202,120			(12.5	)%
Total interest-earning assets	$	1,988,663		$	1,954,638		1.7	%	$	1,919,794		3.6	%	$	1,971,745		$	1,825,908		8.0	%
Interest-bearing deposits	$	1,026,937		$	1,053,845		(2.6	)%	$	1,109,307		(7.4	)%	$	1,040,316		$	1,119,503		(7.1	)%
Borrowings	19,012			75,556			(74.8	)%	130,330			(85.4	)%	47,128			77,723			(39.4	)%
Total interest-bearing liabilities	$	1,045,949		$	1,129,401		(7.4	)%	$	1,239,637		(15.6	)%	$	1,087,444		$	1,197,226		(9.2	)%
Total funding ⁽¹⁾	$	1,766,054		$	1,736,477		1.7	%	$	1,713,812		3.0	%	$	1,751,346		$	1,619,073		8.2	%
Annualized average yield/cost of
Loans	4.63		%	4.63		%			4.73		%			4.63		%	5.17		%
Investment securities	1.14		%	1.18		%			1.80		%			1.16		%	1.99		%
Other interest-earning assets	0.40		%	0.33		%			0.26		%			0.36		%	0.77		%
Total interest-earning assets	4.04		%	4.00		%			3.97		%			4.02		%	4.48		%
Interest-bearing deposits	0.39		%	0.50		%			1.24		%			0.45		%	1.51		%
Borrowings	1.16		%	0.69		%			0.62		%			0.78		%	0.78		%
Total interest-bearing liabilities	0.40		%	0.52		%			1.17		%			0.46		%	1.46		%
Net interest margin	3.83		%	3.70		%			3.22		%			3.77		%	3.52		%
Cost of total funding ⁽¹⁾	0.24		%	0.34		%			0.85		%			0.29		%	1.08		%
Supplementary information
Net accretion of discount on loans	$	1,012		$	745		35.8	%	$	530		90.9	%	$	1,757		$	1,558		12.8	%
Net amortization of deferred loan fees (costs)	$	1,459		$	1,220		19.6	%	$	649		124.8	%	$	2,679		$	770		247.9	%

(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. Average yields for the current and previous quarters were maintained at 4.63% as increases in net accretion of discount on loans from an increase in loan payoffs and net amortization of deferred loan fees were mostly offset by an increase in SBA PPP loans and lower interest rates on newly originated loans. Excluding SBA PPP loans, weighted-average interest rates on total loans and new loans funded during the current quarter were 4.31% and 3.77%, respectively, at June 30, 2021. The decreases in average yield for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to an increase in SBA PPP loans and a decrease in overall interest rates on loans from lower market rates, partially offset by increases in net accretion of discount on loans and net amortization of deferred loan fees.

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:

	6/30/2021				3/31/2021				12/31/2020				6/30/2020
	% 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	33.9	%	3.56	%	36.3	%	3.44	%	31.7	%	3.86	%	38.4	%	4.18	%
Hybrid rate loans	22.5	%	4.52	%	19.3	%	4.77	%	20.8	%	4.82	%	13.3	%	4.99	%
Variable rate loans	43.6	%	3.99	%	44.4	%	4.04	%	47.5	%	4.06	%	48.3	%	4.11	%

Investment Securities. The decreases in average yield for the current quarter and year-to-date period were primarily due to new investment securities purchased at lower market rates. During the current quarter and past 12-month period, the Company purchased investment securities of $19.3 million and $54.5 million, respectively.

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 increase in dividend income on Federal Reserve Bank stock. The decrease in average yield for the current year-to-date period compared with the previous year-to-date period was primarily due to lower market rates. The decreases in average balance for the current quarter and year-to-date period were primarily due to an increase in loans, partially offset by an increase in deposits. The Company maintains most of its cash at the Federal Reserve Bank account. For additional detail, please see the discussion in “Loans” and “Deposits” under the “Balance Sheet” discussion.

Interest-Bearing Deposits. The decreases in average cost for the current quarter and year-to-date period were primarily due to the decreases in market rates.

Borrowings. The increases in average cost for the current quarter compared with the previous and year-ago quarters were primarily due to matured borrowings with lower interest rates during the current quarter. Matured FHLB advances totaled $30.0 million and $40.0 million, respectively, with a weighted-average rate of 0.32% and 0.47%, respectively, for the current quarter and year-to-date period. At June 30, 2021, the Company had a term FHLB advance of $10.0 million with an interest rate of 2.07% that matures on June 29, 2022.

Provision (reversal) for Loan Losses

Provision (reversal) for loan losses was $(934) thousand for the current quarter compared with $(1.1) million for the previous quarter and $3.9 million for the year-ago quarter. For the current and previous year-to-date periods, provision (reversal) for loan losses was $(2.1) million and $6.8 million, respectively. The reversals for the current and previous quarters were primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions. The Company recorded net charge-offs (recoveries) of $(309) thousand for the current quarter compared with $(151) thousand for the previous quarter and $281 thousand for the year-ago quarter. For the current and previous year-to-date periods, net charge-offs (recoveries) were $(460) thousand and $883 thousand, respectively.

The following table presents allowance for loan losses to total loans held-for-investment ratio for the dates indicated:

($ in thousands)	6/30/2021			3/31/2021			12/31/2020			6/30/2020
Total loans held-for-investment	$	1,719,656		$	1,685,916		$	1,583,578		$	1,553,589
Less: SBA PPP loans	181,019			218,709			135,654			133,675
Total loans held-for-investment, excluding SBA PPP loans	$	1,538,637		$	1,467,207		$	1,447,924		$	1,419,914
Allowance for loan losses	$	24,889		$	25,514		$	26,510		$	20,248
Allowance for loan losses to total loans held-for-investment	1.45		%	1.51		%	1.67		%	1.30		%
Allowance for loan losses to total loans held-for-investment, excluding SBA PPP loans	1.62		%	1.74		%	1.83		%	1.43		%

Noninterest Income

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

	Three Months Ended										Six Months Ended
($ in thousands)	6/30/2021		3/31/2021		% Change		6/30/2020		% Change		6/30/2021		6/30/2020		% Change
Gain on sale of loans	$	3,967	$	1,322	200.1	%	$	1,498	164.8	%	$	5,289	$	2,223	137.9	%
Service charges and fees on deposits	302		293		3.1	%	275		9.8	%	595		665		(10.5	)%
Loan servicing income	545		882		(38.2	)%	902		(39.6	)%	1,427		1,456		(2.0	)%
Other income	337		360		(6.4	)%	243		38.7	%	697		600		16.2	%
Total noninterest income	$	5,151	$	2,857	80.3	%	$	2,918	76.5	%	$	8,008	$	4,944	62.0	%

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

	Three Months Ended										Six Months Ended
($ in thousands)	6/30/2021		3/31/2021		% Change		6/30/2020		% Change		6/30/2021		6/30/2020		% Change
Gain on sale of SBA loans
Sold loan balance	$	34,107	$	10,919	212.4	%	$	27,066	26.0	%	$	45,026	$	38,781	16.1	%
Premium received	4,172		1,309		218.7	%	2,042		104.3	%	5,481		3,098		76.9	%
Gain recognized	3,954		1,195		230.9	%	1,448		173.1	%	5,149		2,152		139.3	%
Gain on sale of residential property loans
Sold loan balance	$	1,615	$	7,907	(79.6	)%	$	6,118	(73.6	)%	$	9,522	$	8,197	16.2	%
Gain recognized	13		127		(89.8	)%	50		(74.0	)%	140		71		97.2	%

The increases in gain on sale of SBA loans for the current quarter and year-to-date period were primarily due to increased origination and sales of SBA loans and higher premiums from the secondary market. The Company sold certain commercial property loans of $1.7 million at par during the current quarter.

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

	Three Months Ended													Six Months Ended
($ in thousands)	6/30/2021			3/31/2021			% Change		6/30/2020			% Change		6/30/2021			6/30/2020			% Change
Loan servicing income
Servicing income received	$	1,124		$	1,273		(11.7	)%	$	1,294		(13.1	)%	$	2,397		$	2,452		(2.2	)%
Servicing assets amortization	(579		)	(391		)	48.1	%	(392		)	47.7	%	(970		)	(996		)	(2.6	)%
Loan servicing income	$	545		$	882		(38.2	)%	$	902		(39.6	)%	$	1,427		$	1,456		(2.0	)%
Underlying loans at end of period	$	492,130		$	492,981		(0.2	)%	$	494,000		(0.4	)%	$	492,130		$	494,000		(0.4	)%

The Company services SBA loans and certain residential property loans that are sold to the secondary market. The decreases for the current quarter and year-to-date period were primarily due to a decrease in servicing income received and an increase in servicing asset amortization from an increase in loan payoffs.

Noninterest Expense

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

	Three Months Ended										Six Months Ended
($ in thousands)	6/30/2021		3/31/2021		% Change		6/30/2020		% Change		6/30/2021		6/30/2020		% Change
Salaries and employee benefits	$	7,125	$	6,182	15.3	%	$	5,761	23.7	%	$	13,307	$	12,312	8.1	%
Occupancy and equipment	1,388		1,371		1.2	%	1,400		(0.9	)%	2,759		2,780		(0.8	)%
Professional fees	658		494		33.2	%	509		29.3	%	1,152		1,306		(11.8	)%
Marketing and business promotion	516		138		273.9	%	548		(5.8	)%	654		727		(10.0	)%
Data processing	396		377		5.0	%	366		8.2	%	773		724		6.8	%
Director fees and expenses	151		138		9.4	%	107		41.1	%	289		328		(11.9	)%
Regulatory assessments	179		208		(13.9	)%	242		(26.0	)%	387		461		(16.1	)%
Other expenses	726		761		(4.6	)%	763		(4.8	)%	1,487		1,625		(8.5	)%
Total noninterest expense	$	11,139	$	9,669	15.2	%	$	9,696	14.9	%	$	20,808	$	20,263	2.7	%

Salaries and Employee Benefits. The increase for the current quarter compared with the previous quarter was primarily due to a decrease in direct loan origination costs, which offsets the recognition of salaries and benefits expense, and an increase in other employee benefits, partially offset by a decrease in vacation accrual. The increases for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to a decrease in direct loan origination costs and an increase in bonus accrual, partially offset by decreases in vacation accrual and other employee benefits. Direct loan origination costs related to SBA PPP loan production totaled $62 thousand, $750 thousand, and $1.1 million for the current, previous, and year-ago quarters, respectively, and $812 thousand and $1.1 million for the current and previous year-to-date periods, respectively.

Professional Fees. The increases for the current quarter compared with the previous and year-ago quarter were primarily due to increases in expenses related to internal audit. The decrease for the current year-to-date period compared with the previous year-to-date period was primarily due to decreases in expenses related to the Bank’s Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”) compliance enhancements. The consent order related to the BSA/AML compliance was terminated on September 30, 2020.

Marketing and business promotion. The increase for the current quarter compared with the previous quarter was primarily due to an increase in advertisement during the current quarter.

Director fees and expense. The increase for the current quarter compared with the year-ago quarter was primarily due to the Board of Directors’ decision to temporarily decrease fees during the year-ago quarter. The decrease for the current year-to-date period compared with the previous year-to-date period was primarily due to a severance payment for a former director in the first quarter of 2020.

Regulatory Assessments. The decreases for the current quarter and year-to-date period were primarily due to a decrease in assessment rate and the exclusion of SBA PPP loans from the assessment base, partially offset by an increase in balance sheet growth.

Balance Sheet (Unaudited)

Total assets were $2.06 billion at June 30, 2021, an increase of $9.3 million, or 0.5%, from $2.05 billion at March 31, 2021 and an increase of $39.2 million, or 1.9%, from $2.02 billion at June 30, 2020. The increases for the current quarter and year-to-date period were primarily due to increases in loans held-for-investment and investment securities, partially offset by a decrease in cash and cash equivalents.

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

($ in thousands)	6/30/2021		3/31/2021		% Change		12/31/2020		% Change		6/30/2020		% Change
Real estate loans
Commercial property	$	997,918	$	922,536	8.2	%	$	880,736	13.3	%	$	813,409	22.7	%
Residential property	196,983		190,990		3.1	%	198,431		(0.7	)%	223,923		(12.0	)%
SBA property	124,251		125,989		(1.4	)%	126,570		(1.8	)%	122,675		1.3	%
Construction	13,475		13,151		2.5	%	15,199		(11.3	)%	20,432		(34.0	)%
Commercial and industrial loans
Commercial term	74,503		80,361		(7.3	)%	87,250		(14.6	)%	98,936		(24.7	)%
Commercial lines of credit	90,286		91,970		(1.8	)%	96,087		(6.0	)%	96,339		(6.3	)%
SBA commercial term	19,614		21,078		(6.9	)%	21,878		(10.3	)%	22,650		(13.4	)%
SBA PPP	181,019		218,709		(17.2	)%	135,654		33.4	%	133,675		35.4	%
Other consumer loans	21,607		21,132		2.2	%	21,773		(0.8	)%	21,550		0.3	%
Loans held-for-investment	1,719,656		1,685,916		2.0	%	1,583,578		8.6	%	1,553,589		10.7	%
Loans held-for-sale	11,255		3,569		215.4	%	1,979		468.7	%	4,102		174.4	%
Total loans	$	1,730,911	$	1,689,485	2.5	%	$	1,585,557	9.2	%	$	1,557,691	11.1	%