PCB Bancorp Reports Earnings of $4.2 million for Q4 2019 and Announces Stock Repurchase

PCB Bancorp (the “Company”) (NASDAQ: PCB), the holding company of Pacific City Bank (the “Bank”), today reported net income of $4.2 million, or $0.26 per diluted common share for the fourth quarter of 2019, compared with $6.8 million, or $0.42 per diluted common share, for the previous quarter and $6.7 million, or $0.41 per diluted common share, for the year-ago quarter.

Q4 2019 Financial Highlights

• Net income totaled $4.2 million or $0.26 per diluted common share;
  • The Company recorded a provision for loan losses of $4.0 million for the fourth quarter of 2019.
• Total assets were $1.75 billion at December 31, 2019, an increase of $46.9 million, or 2.8%, from $1.70 billion at September 30, 2019, and an increase of $49.3 million, or 2.9%, from $1.70 billion at December 31, 2018;
• Loans held-for-investment, net of deferred costs (fees), were $1.45 billion at December 31, 2019, an increase of $61.0 million, or 4.4%, from $1.39 billion at September 30, 2019, and an increase of $112.1 million, or 8.4%, from $1.34 billion at December 31, 2018;
• Total deposits were $1.48 billion at December 31, 2019, an increase of $47.0 million, or 3.3%, from $1.43 billion at September 30, 2019, and an increase of $35.6 million, or 2.5%, from $1.44 billion at December 31, 2018;
• The Company completed the publicly announced $6.5 million share repurchase program in October 2019 (repurchased 396,715 shares of its common stock since its commencement in March 2019) and the Board of Directors approved a new repurchase program of $6.5 million to commence shortly following issuance of this press release and continuing until November 20, 2021; and
• The Company declared a cash dividend of $0.08 per common share for the fourth quarter of 2019 compared with $0.06 per common share for the third quarter of 2019 and $0.03 per common share for the fourth quarter of 2018.

“We are pleased to report a disciplined loan and deposit growth. During the fourth quarter of 2019, our loan portfolio increased $61.4 million or 17.6% annualized to $1.45 billion and our deposit balance increased $47.0 million or 13.1% annualized to $1.48 billion,” stated Henry Kim, President and Chief Executive Officer. “Our net income decreased $2.6 million to $4.2 million compared with third quarter of 2019 and the fourth quarter of 2018 primarily due to a $2.5 million charge-off related to a single credit relationship.”

Financial Highlights (Unaudited)

		Three Months Ended																		Year Ended
($ in thousands, except per share data)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Net income		$	4,158			$	6,785			(38.7	)%		$	6,732			(38.2	)%		$	24,108			$	24,301			(0.8	)%
Diluted earnings per common share		$	0.26			$	0.42			(38.1	)%		$	0.41			(36.6	)%		$	1.49			$	1.65			(9.7	)%
Net interest income		$	16,660			$	17,529			(5.0	)%		$	17,856			(6.7	)%		$	69,034			$	65,748			5.0	%
Provision (reversal) for loan losses		4,030				(102		)		NM			294				1,270.7	%		4,237				1,231				244.2	%
Noninterest income		3,604				2,802				28.6	%		2,239				61.0	%		11,869				10,454				13.5	%
Noninterest expense		10,265				10,777				(4.8	)%		10,135				1.3	%		42,315				40,226				5.2	%
Return on average assets (1)		0.96		%		1.55		%					1.60		%					1.40		%		1.53		%
Return on average shareholders’ equity (1), (2)		7.25		%		12.02		%					12.92		%					10.88		%		14.26		%
Net interest margin (1)		3.96		%		4.11		%					4.33		%					4.11		%		4.23		%
Efficiency ratio (3)		50.66		%		53.01		%					50.44		%					52.30		%		52.79		%

($ in thousands, except per share data)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change
Total assets		$	1,746,328			$	1,699,446			2.8	%		$	1,697,028			2.9	%
Net loans held-for-investment		1,436,451				1,376,736				4.3	%		1,325,515				8.4	%
Total deposits		1,479,307				1,432,262				3.3	%		1,443,753				2.5	%
Book value per common share (2), (4)		$	14.44			$	14.30			1.0	%		$	13.16			9.7	%
Tier 1 leverage ratio (consolidated)		13.23		%		12.87		%					12.60		%
Total shareholders’ equity to total assets (2)		12.99		%		13.22		%					12.39		%

(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.

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)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Interest income/expense on:
Loans		$	20,888			$	21,876			(4.5	)%		$	21,088			(0.9	)%		$	85,667			$	76,837			11.5	%
Investment securities		823				978				(15.8	)%		1,076				(23.5	)%		3,956				3,724				6.2	%
Other interest-earning assets		565				833				(32.2	)%		1,067				(47.0	)%		3,322				3,138				5.9	%
Total interest-earning assets		22,276				23,687				(6.0	)%		23,231				(4.1	)%		92,945				83,699				11.0	%
Interest-bearing deposits		5,514				6,060				(9.0	)%		5,239				5.2	%		23,439				17,340				35.2	%
Borrowings		102				98				4.1	%		136				(25.0	)%		472				611				(22.7	)%
Total interest-bearing liabilities		5,616				6,158				(8.8	)%		5,375				4.5	%		23,911				17,951				33.2	%
Net interest income		$	16,660			$	17,529			(5.0	)%		$	17,856			(6.7	)%		$	69,034			$	65,748			5.0	%
Average balance of:
Loans		$	1,415,781			$	1,396,437			1.4	%		$	1,319,403			7.3	%		$	1,383,562			$	1,264,166			9.4	%
Investment securities		146,454				161,528				(9.3	)%		165,554				(11.5	)%		160,803				154,266				4.2	%
Other interest-earning assets		108,919				135,774				(19.8	)%		152,894				(28.8	)%		134,870				137,627				(2.0	)%
Total interest-earning assets		$	1,671,154			$	1,693,739			(1.3	)%		$	1,637,851			2.0	%		$	1,679,235			$	1,556,059			7.9	%
Interest-bearing deposits		$	1,097,957			$	1,126,376			(2.5	)%		$	1,100,517			(0.2	)%		$	1,120,880			$	1,053,773			6.4	%
Borrowings		21,141				20,326				4.0	%		30,000				(29.5	)%		25,388				34,904				(27.3	)%
Total interest-bearing liabilities		$	1,119,098			$	1,146,702			(2.4	)%		$	1,130,517			(1.0	)%		$	1,146,268			$	1,088,677			5.3	%
Annualized average yield/cost of:
Loans		5.85		%		6.22		%					6.34		%					6.19		%		6.08		%
Investment securities		2.23		%		2.40		%					2.58		%					2.46		%		2.41		%
Other interest-earning assets		2.06		%		2.43		%					2.77		%					2.46		%		2.28		%
Total interest-earning assets		5.29		%		5.55		%					5.63		%					5.53		%		5.38		%
Interest-bearing deposits		1.99		%		2.13		%					1.89		%					2.09		%		1.65		%
Borrowings		1.91		%		1.91		%					1.80		%					1.86		%		1.75		%
Total interest-bearing liabilities		1.99		%		2.13		%					1.89		%					2.09		%		1.65		%
Net interest margin		3.96		%		4.11		%					4.33		%					4.11		%		4.23		%
Supplementary information
Net accretion of discount (premium) on loans included in interest on loans		$	938			$	1,031			(9.0	)%		$	1,340			(30.0	)%		$	4,022			$	4,397			(8.5	)%

Loans. The decreases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to the lower market rates. The increase in average yield for the current year compared with the previous year was primarily due to the rising interest rate environment in 2018 and higher average market rates in 2019. The Company had benefited from its high proportion of variable rate loans that had repriced along with such interest rate environment; however, the Company strategically had increased the proportion of fixed rate loans throughout the current year in order to better-position its balance sheet to match the current and potential future interest rate environment.

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

		12/31/2019						9/30/2019						12/31/2018
		% to Total Loans			Weighted- Average Contractual Rate			% to Total Loans			Weighted- Average Contractual Rate			% to Total Loans			Weighted- Average Contractual Rate
Fixed rate loans		43.4	%		5.20	%		40.5	%		5.26	%		34.4	%		5.13	%
Variable rate loans		56.6	%		5.51	%		59.5	%		5.88	%		65.6	%		6.30	%

Investment Securities. The decreases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to an increase in premium amortization from a higher prepayment trend in the current quarter. The increase in average yield for the current year compared with the previous year was primarily due to additional purchases of investment securities along with the higher average market rates in 2019. During the current year, the Company purchased $14.1 million of investment securities.

Other Interest-Earning Assets. The average yield on other interest-bearing assets is closely related to the changes in market rates, as the Company maintains most of its cash at the Federal Reserve Bank account. The decreases in average yield for the current quarter compared with the previous and year-ago quarters were primarily due to the lower market rates. The increase in average yield for the current year compared with the previous year was primarily due to the rising interest rate environment in 2018 and higher average market rates in 2019. The average balance for the current quarter decreased as loan growth was mainly supported by the Company’s cash on deposit at the Federal Reserve Bank.

Interest-Bearing Deposits. The decrease in average cost for the current quarter compared with the previous quarter was primarily due to the recent decreases in market rates; however, the impact was smaller than the change in average yield on interest-earning assets due to high competition in the Company’s deposit target markets. The increase in average cost for the current year compared with the previous year was primarily due to the higher average market rates in 2019.

Borrowings. The Company had fixed rate term advances from FHLB of $20.0 million with a weighted average rate of 1.92% and original maturity terms ranging from 3 to 5 years at December 31, 2019.

Provision (Reversal) for Loan Losses

Provision (reversal) for loan losses was $4.0 million for the current quarter compared with $(102) thousand for the previous quarter and $294 thousand for the year-ago quarter. For the current and previous years, the Company recognized provision for loan losses of $4.2 million and $1.2 million, respectively. The increase was primarily due to an increase in charge-offs in the current quarter with the increase in associated historical loss rates and organic loan growth for the current quarter.

During the current quarter, due to the borrower's financial hardship, the Company recorded a charge-off of $2.5 million on a commercial line of credit, which was originated in 2011, with an outstanding balance of $4.0 million at the time of charge-off. This line had an outstanding balance of $1.6 million at December 31, 2019 and the management believes that the remaining outstanding balance is well collateralized. Due to the increased charge-offs, the reserve for unfunded commitments also increased to $301 thousand at December 31, 2019 from $146 thousand at September 30, 2019 and $139 thousand at December 31, 2018. Provision for unfunded loan commitments was $155 thousand for the current quarter compared with $5 thousand for the previous quarter and $17 thousand for the year-ago quarter. For the current and previous years, the Company recognized provision for unfunded loan commitments of $162 thousand and $18 thousand, respectively.

The Company recorded net charge-offs of $2.7 million for the current quarter compared with $132 thousand for the previous quarter and $223 thousand for the year-ago quarter. For the current and previous years, the Company recorded net charge-offs of $3.0 million and $288 thousand, respectively.

Allowance for loan losses to total loans held-for-investment ratio was 0.99% at December 31, 2019, 0.94% at September 30, 2019, and 0.98% at December 31, 2018. The increase in this ratio was primarily due to an increase in historical loss rates due to the aforementioned charge-off.

Noninterest Income

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

		Three Months Ended																		Year Ended
($ in thousands)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Gain on sale of loans		1,445				1,540				(6.2	)%		1,083				33.4	%		5,996				5,560				7.8	%
Gain on sale of securities available-for-sale		786				—				—	%		—				—	%		786				—				—	%
Service charges and fees on deposits		407				405				0.5	%		398				2.3	%		1,544				1,500				2.9	%
Loan servicing income		652				534				22.1	%		371				75.7	%		2,309				2,160				6.9	%
Other income		314				323				(2.8	)%		387				(18.9	)%		1,234				1,234				—	%
Total noninterest income		$	3,604			$	2,802			28.6	%		$	2,239			61.0	%		$	11,869			$	10,454			13.5	%

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)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Gain on sale of SBA loans
Sold loan balance		$	27,072			$	22,186			22.0	%		$	26,158			3.5	%		$	99,609			$	91,700			8.6	%
Premium received		2,067				2,061				0.3	%		1,630				26.8	%		8,355				7,671				8.9	%
Gain recognized		1,428				1,498				(4.7	)%		1,059				34.8	%		5,915				5,278				12.1	%
Gain on sale of residential property loans
Sold loan balance		$	2,636			$	4,661			(43.4	)%		$	702			275.5	%		$	10,068			$	11,601			(13.2	)%
Gain recognized		17				42				(59.5	)%		6				183.3	%		81				220				(63.2	)%
Gain on sale of other loans
Sold loan balance		$	—			$	—			—	%		$	1,028			(100.0	)%		$	—			$	2,112			(100.0	)%
Gain recognized		—				—				—	%		18				(100.0	)%		—				62				(100.0	)%

Gain on Sale of Securities Available-For-Sale. The Company sold securities available-for-sale of $32.8 million during the current quarter.

Service Charges and Fees on Deposits. The increases were primarily due to increases in the balance of transaction based deposit accounts.

Loan Servicing Income. The Company services SBA loans and certain residential property loans that are sold to the secondary market. The increase for the current quarter compared with the previous quarter was primarily due to a decrease in servicing asset amortization due to slow-down of prepayment speed. The following table presents information on loan servicing income for the periods indicated.

		Three Months Ended																		Year Ended
($ in thousands)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Loan servicing income
Servicing income received		$	1,159			$	1,195			(3.0	)%		$	1,206			(3.9	)%		$	4,691			$	4,925			(4.8	)%
Servicing assets amortization		(507		)		(661		)		(23.3	)%		(835		)		(39.3	)%		(2,382		)		(2,765		)		(13.9	)%
Loan servicing income		$	652			$	534			22.1	%		$	371			75.7	%		$	2,309			$	2,160			6.9	%
Underlying loans at end of period		$	498,616			$	493,923			1.0	%		$	506,657			(1.6	)%		$	498,616			$	506,657			(1.6	)%

Noninterest Expense

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

		Three Months Ended																		Year Ended
($ in thousands)		12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Salaries and employee benefits		$	6,016			$	6,901			(12.8	)%		$	6,234			(3.5	)%		$	26,139			$	24,473			6.8	%
Occupancy and equipment		1,417				1,408				0.6	%		1,358				4.3	%		5,545				4,992				11.1	%
Professional fees		622				664				(6.3	)%		452				37.6	%		2,730				2,176				25.5	%
Marketing and business promotion		501				292				71.6	%		526				(4.8	)%		1,550				2,010				(22.9	)%
Data processing		361				348				3.7	%		309				16.8	%		1,365				1,220				11.9	%
Director fees and expenses		189				188				0.5	%		281				(32.7	)%		751				942				(20.3	)%
Regulatory assessments		126				—				—	%		75				68.0	%		551				544				1.3	%
Other expenses		1,033				976				5.8	%		900				14.8	%		3,684				3,869				(4.8	)%
Total noninterest expense		$	10,265			$	10,777			(4.8	)%		$	10,135			1.3	%		$	42,315			$	40,226			5.2	%

Salaries and Employee Benefits. The decrease for the current quarter compared with the previous quarter was primarily due to a decrease in bonus accrual of $896 thousand during the current quarter. The increases for the current quarter and year compared with the same periods of 2018 were primarily due to increases in salary and employee benefits, partially offset by a decrease in bonus accrual of $836 thousand. Overall increases in salaries and employee benefits were primarily due to the hiring of new experienced employees with higher salaries in order to support the expansion of the Company's infrastructure for being a public company and to enhance the controls and processes on Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”) compliance.

Occupancy and Equipment. The increases for the current quarter and year were primarily due to an establishment of new loan production office in Artesia, California in December 2018 and an increase in equipment maintenance expense.

Professional Fees. The decrease for the current quarter compared with the previous quarter was primarily due to a decrease in expense related to the Bank's BSA/AML compliance review, partially offset by increases in audit and other professional fees. The increases for the current quarter and year compared with the same periods of 2018 were primarily due to increases in audit and other professional fees for being a public company and expense related to enhancement of the Bank's controls and processes on BSA/AML compliance programs, partially offset by decreases in legal and professional fees attributed to the portion of expenses related the Company's initial public offering in 2018 that were not capitalized.

Director Fees and Expenses. The decrease was primarily due to a fewer number of directors for the current year.

Regulatory Assessments. The increase for the current year compared with the previous year was primary due to an increase in assessment rate from the consent order relating to the Bank’s compliance with BSA/AML, partially offset by a small bank assessment credit from the FDIC during the current year. The Company would have recognized regulatory assessments expense of $242 thousand and $228 thousand, respectively, for the current and previous quarters without the small bank assessment credit.

Other Expenses. The decrease in the current year compared with the previous year was primarily due to a $577 thousand reimbursement paid to the SBA in 2018, partially offset by increases in other loan related legal and office expenses as well as an increase in provision for unfunded loan commitments.

Balance Sheet (Unaudited)

Loans

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)		12/31/2019						9/30/2019						% Change				12/31/2018						% Change
Real estate loans:
Commercial property		$			803,014			$			759,881			5.7		%		$			709,409			13.2		%
Residential property		235,046						236,382						(0.6		)%		233,816						0.5		%
SBA property		129,837						126,347						2.8		%		120,939						7.4		%
Construction		19,164						17,175						11.6		%		27,323						(29.9		)%
Commercial and industrial loans:
Commercial term		103,380						105,433						(1.9		)%		102,133						1.2		%
Commercial lines of credit		111,768						95,997						16.4		%		91,994						21.5		%
SBA commercial term		25,332						25,326						—		%		27,147						(6.7		)%
Other consumer loans		23,290						23,289						—		%		25,921						(10.2		)%
Loans held-for-investment		1,450,831						1,389,830						4.4		%		1,338,682						8.4		%
Loans held-for-sale		1,975						1,583						24.8		%		5,781						(65.8		)%
Total loans		$			1,452,806			$			1,391,413			4.4		%		$			1,344,463			8.1		%

The increase in loans held-for-investment for the current quarter was primarily due to new funding of $128.1 million and advances on lines of credit of $26.6 million, partially offset by pay-downs and pay-offs of $90.6 million. The increase for the current year was primarily due to new funding of $381.0 million and advances on lines of credit of $109.2 million, partially offset by pay-downs and pay-offs of $373.6 million.

The increase in loans held-for-sale for the current quarter was primarily due to new funding of $30.1 million, partially offset by sales of $29.7 million. The decrease in loans held-for-sale for the current year was primarily due to sales of $109.7 million, partially offset by new funding of $105.2 million and a loan transferred from loans held-for-investment of $824 thousand.

Credit Quality

The following table presents compositions of non-performing loans and non-performing assets as of the dates indicated:

($ in thousands)			12/31/2019						9/30/2019						% Change				12/31/2018						% Change
Nonaccrual loans:
Real estate loans:
Residential property			$			—			$			—			—		%		$			302			(100.0		)%
SBA property			442						1,441						(69.3		)%		540						(18.1		)%
Commercial and industrial loans:
Commercial lines of credit			1,888						327						477.4		%		—						—		%
SBA commercial term			159						68						133.8		%		203						(21.7		)%
Consumer loans			48						7						585.7		%		16						200.0		%
Total nonaccrual loans held-for-investment			2,537						1,843						37.7		%		1,061						139.1		%
Loans past due 90 days or more and still accruing			287						—						—		%		—						—		%
Non-performing loans (“NPLs”)			2,824						1,843						53.2		%		1,061						166.2		%
Other real estate owned (“OREO”)			—						—						—		%		—						—		%
Non-performing assets (“NPAs”)			$			2,824			$			1,843			53.2		%		$			1,061			166.2		%
Loans past due and still accruing:
Loans past due 30 to 59 days and still accruing			$			893			$			664			34.5		%		$			368			142.7		%
Loans past due 60 to 89 days and still accruing			925						59						1,467.8		%		9						10,177.8		%
Loans past due 90 days or more and still accruing			287						—						—		%		—						—		%
Total loans past due and still accruing			$			2,105			$			723			191.1		%		377						458.4		%
Troubled debt restructurings (“TDRs”):
Accruing TDRs			$			700			$			713			(1.8		)%		$			432			62.0		%
Nonaccrual TDRs			121						249						(51.4		)%		131						(7.6		)%
Total TDRs			$			821			$			962			(14.7		)%		$			563			45.8		%
NPLs to loans held-for-investment			0.19				%		0.13				%						0.08				%
NPAs to total assets			0.16				%		0.11				%						0.06				%

The increase of nonaccrual commercial lines of credit was primarily due to the line with an outstanding balance of $1.6 million, which had the charge-off of $2.5 million during the current quarter.

The increase of total loans past due and still accruing during the current quarter was primarily due to two SBA property loans with an aggregated outstanding balance of $793 thousand and a residential property loan with a outstanding balance of $698 thousand that became past due during the current quarter. The Company also had a SBA commercial term loan past due 90 days or more and still accruing, which management believes that the loan is well secured and the Bank is in the process of collection.

Classified Assets

Classified loans were $8.9 million at December 31, 2019, an increase of $984 thousand, or 12.5%, from $7.9 million at September 30, 2019 and an increase of $2.0 million, or 29.1%, from $6.9 million at December 31, 2018.

Classified assets, which consist of classified loans and OREO, and the classified assets to total assets ratios were $8.9 million and 0.51%, respectively, at December 31, 2019, $7.9 million and 0.46%, respectively, at September 30, 2019, and $6.9 million and 0.40%, respectively, at December 31, 2018.

Investment Securities

Total investment securities were $117.7 million at December 31, 2019, a decrease of $38.5 million, or 24.6%, from $156.2 million at September 30, 2019 and a decrease of $51.0 million, or 30.2%, from $168.8 million at December 31, 2018. The decrease for the current quarter was primarily due to the sale of $32.8 million of securities available-for-sale, as well as principal pay-downs and calls of $10.2 million and net premium amortization of $242 thousand, and a decrease in fair value of securities available-for-sale of $1.0 million, partially offset by purchases of $5.7 million. The decrease for the current year was primarily due to the sale of $32.8 million of securities available-for-sale, as well as principal pay-downs and calls of $33.7 million and net premium amortization of $883 thousand, partially offset by purchases of $14.1 million and an increase in fair value of securities available-for-sale of $2.3 million.

Deposits

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

		12/31/2019							9/30/2019							12/31/2018
($ in thousands)		Amount				% to Total			Amount				% to Total			Amount				% to Total
Noninterest-bearing demand deposits		$	360,039			24.3	%		$	353,448			24.7	%		$	329,270			22.8	%
Interest-bearing deposits:
NOW		17,673				1.2	%		16,108				1.1	%		24,683				1.7	%
Money market accounts		307,980				20.8	%		307,663				21.5	%		280,733				19.4	%
Savings		6,492				0.4	%		8,206				0.6	%		8,194				0.6	%
Time deposits of $250,000 or less		405,004				27.5	%		417,549				29.1	%		477,134				33.0	%
Time deposits of more than $250,000		199,726				13.5	%		206,785				14.4	%		181,239				12.6	%
State and brokered deposits		182,393				12.3	%		122,503				8.6	%		142,500				9.9	%
Total interest-bearing deposits		1,119,268				75.7	%		1,078,814				75.3	%		1,114,483				77.2	%
Total deposits		$	1,479,307			100.0	%		$	1,432,262			100.0	%		$	1,443,753			100.0	%

The increase for the current quarter was primarily due to new accounts of $232.0 million and net balance increases of $10.9 million on existing accounts, partially offset by closed accounts of $195.9 million. The increase for the current year was primarily due to new accounts of $552.5 million and net balance increases of $766 thousand on existing accounts, partially offset by closed accounts of $493.5 million. The Company began utilizing brokered money market accounts in order to diversify its funding source during the previous quarter and had a total outstanding balance of $10.0 million and $30.0 million, respectively, at September 30, 2019 and December 31, 2019.

Operating Lease Assets and Liabilities

On January 1, 2019, the Company adopted Accounting Standard Update (“ASU”) 2016-02, “Leases (Topic 842),” and all subsequent ASUs that are related to Topic 842. The Company adopted this ASU using the optional transition method with a cumulative effect adjustment to retained earnings without restating prior financial statements for comparable amounts. As a result, the Company recognized right-of-use assets and liabilities of $9.6 million and $10.6 million, respectively, with a cumulative effect adjustment of $53 thousand to retained earnings at the date of adoption.

Shareholders’ Equity

Shareholders’ equity was $226.8 million at December 31, 2019, an increase of $2.2 million, or 1.0%, from $224.6 million at September 30, 2019 and an increase of $16.5 million, or 7.9%, from $210.3 million at December 31, 2018. The increase for the current quarter was primarily due to retention of earnings, an increase in stock options exercised, partially offset by repurchase of common stock, cash dividends paid on common stock and a decrease in accumulated other comprehensive income (loss). The increases for the current year were primarily due to retention of earnings and increases in accumulated other comprehensive income and stock options exercised, partially offset by repurchase of common stock and cash dividends paid on common stock.

On March 28, 2019, the Company’s Board of Directors approved the repurchase of up to $6.5 million of the Company’s common stock through March 27, 2020. The Company completed this program in October 2019 and had repurchased 396,715 shares.

On November 22, 2019, the Company’s Board of Directors approved a new $6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021.

Under the stock repurchase program, the Company may purchase shares of its common stock through various means such as open market transactions, including block purchases, and privately negotiated transactions. The number of shares repurchased and the timing, manner, price and amount of any repurchases will be determined at the Company’s discretion. Factors include, but are not limited to, stock price, trading volume and general market conditions, along with the Company’s and market’s general business conditions. The program may be suspended or discontinued at any time and does not obligate the company to acquire any specific number of shares of its common stock.

As part of the stock repurchase program, the Company intends to enter into a trading plan adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The 10b5-1 trading plan would permit common stock to be repurchased at a time that the Company might otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions. The 10b5-1 trading plan will be administered by an independent broker and will be subject to price, market volume and timing restrictions.

Capital Ratios

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

		12/31/2019				9/30/2019				12/31/2018
PCB Bancorp
Common tier 1 capital (to risk-weighted assets)		15.87		%		16.30		%		16.28		%
Total capital (to risk-weighted assets)		16.90		%		17.27		%		17.31		%
Tier 1 capital (to risk-weighted assets)		15.87		%		16.30		%		16.28		%
Tier 1 capital (to average assets)		13.23		%		12.87		%		12.60		%
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)		15.68		%		16.11		%		16.19		%
Total capital (to risk-weighted assets)		16.71		%		17.08		%		17.21		%
Tier 1 capital (to risk-weighted assets)		15.68		%		16.11		%		16.19		%
Tier 1 capital (to average assets)		13.06		%		12.72		%		12.53		%

About PCB Bancorp

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

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as ‘‘may,’’ “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. These and other important factors are detailed in various securities law filings made periodically by the Company, copies of which are available from the Company without charge. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements. Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.

PCB Bancorp and Subsidiary Consolidated Balance Sheets (Unaudited) ($ in thousands, except share and per share data)
		12/31/2019						9/30/2019						% Change				12/31/2018						% Change
Assets
Cash and due from banks		$			17,808			$			22,546			(21.0		)%		$			24,121			(26.2		)%
Interest-bearing deposits in financial institutions		128,420						99,366						29.2		%		138,152						(7.0		)%
Total cash and cash equivalents		146,228						121,912						19.9		%		162,273						(9.9		)%
Securities available-for-sale, at fair value		97,566						134,602						(27.5		)%		146,991						(33.6		)%
Securities held-to-maturity		20,154						21,601						(6.7		)%		21,760						(7.4		)%
Total investment securities		117,720						156,203						(24.6		)%		168,751						(30.2		)%
Loans held-for-sale		1,975						1,583						24.8		%		5,781						(65.8		)%
Loans held-for-investment, net of deferred loan costs (fees)		1,450,831						1,389,830						4.4		%		1,338,682						8.4		%
Allowance for loan losses		(14,380				)		(13,094				)		9.8		%		(13,167				)		9.2		%
Net loans held-for-investment		1,436,451						1,376,736						4.3		%		1,325,515						8.4		%
Premises and equipment, net		3,760						4,008						(6.2		)%		4,588						(18.0		)%
Federal Home Loan Bank and other bank stock		8,345						8,345						—		%		7,433						12.3		%
Deferred tax assets, net		5,288						3,389						56.0		%		3,377						56.6		%
Servicing assets		6,798						6,899						(1.5		)%		7,666						(11.3		)%
Operating lease assets		8,991						9,561						(6.0		)%		—						—		%
Accrued interest receivable and other assets		10,772						10,810						(0.4		)%		11,644						(7.5		)%
Total assets		$			1,746,328			$			1,699,446			2.8		%		$			1,697,028			2.9		%
Liabilities
Deposits:
Noninterest-bearing demand		$			360,039			$			353,448			1.9		%		$			329,270			9.3		%
Savings, NOW and money market accounts		362,179						341,980						5.9		%		313,610						15.5		%
Time deposits of $250,000 or less		467,363						440,049						6.2		%		519,634						(10.1		)%
Time deposits of more than $250,000		289,726						296,785						(2.4		)%		281,239						3.0		%
Total deposits		1,479,307						1,432,262						3.3		%		1,443,753						2.5		%
Federal Home Loan Bank advances		20,000						20,000						—		%		30,000						(33.3		)%
Operating lease liabilities		9,990						10,574						(5.5		)%		—						—		%
Accrued interest payable and other liabilities		10,197						11,967						(14.8		)%		12,979						(21.4		)%
Total liabilities		1,519,494						1,474,803						3.0		%		1,486,732						2.2		%
Commitments and contingent liabilities
Shareholders’ equity
Common stock, no par value		169,221						169,224						—		%		174,366						(3.0		)%
Retained earnings		57,670						54,768						5.3		%		37,577						53.5		%
Accumulated other comprehensive income (loss), net		(57				)		651						(108.8		)%		(1,647				)		(96.5		)%
Total shareholders’ equity		226,834						224,643						1.0		%		210,296						7.9		%
Total liabilities and shareholders’ equity		$			1,746,328			$			1,699,446			2.8		%		$			1,697,028			2.9		%
Outstanding common shares		15,707,016						15,710,287										15,977,754
Book value per common share (1)		$			14.44			$			14.30							$			13.16
Total loan to total deposit ratio		98.21				%		97.15				%						93.12				%
Noninterest-bearing deposits to total deposits		24.34				%		24.68				%						22.81				%

(1)

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

PCB Bancorp and Subsidiary Consolidated Statements of Income (Unaudited) ($ in thousands, except share and per share data)
	Three Months Ended																		Year Ended
	12/31/2019				9/30/2019				% Change			12/31/2018				% Change			12/31/2019				12/31/2018				% Change
Interest income:
Interest and fees on loans	$	20,888			$	21,876			(4.5	)%		$	21,088			(0.9	)%		$	85,667			$	76,837			11.5	%
Interest on investment securities	823				978				(15.8	)%		1,076				(23.5	)%		3,956				3,724				6.2	%
Interest and dividend on other interest-earning assets	565				833				(32.2	)%		1,067				(47.0	)%		3,322				3,138				5.9	%
Total interest income	22,276				23,687				(6.0	)%		23,231				(4.1	)%		92,945				83,699				11.0	%
Interest expense:
Interest on deposits	5,514				6,060				(9.0	)%		5,239				5.2	%		23,439				17,340				35.2	%
Interest on other borrowings	102				98				4.1	%		136				(25.0	)%		472				611				(22.7	)%
Total interest expense	5,616				6,158				(8.8	)%		5,375				4.5	%		23,911				17,951				33.2	%
Net interest income	16,660				17,529				(5.0	)%		17,856				(6.7	)%		69,034				65,748				5.0	%
Provision (reversal) for loan losses	4,030				(102		)		NM			294				1,270.7	%		4,237				1,231				244.2	%
Net interest income after provision (reversal) for loan losses	12,630				17,631				(28.4	)%		17,562				(28.1	)%		64,797				64,517				0.4	%
Noninterest income:
Gain on sale of loans	1,445				1,540				(6.2	)%		1,083				33.4	%		5,996				5,560				7.8	%
Gain on sale of securities available-for-sale	786				—				—	%		—				—	%		786				—				—	%
Service charges and fees on deposits	407				405				0.5	%		398				2.3	%		1,544				1,500				2.9	%
Servicing income	652				534				22.1	%		371				75.7	%		2,309				2,160				6.9	%
Other income	314				323				(2.8	)%		387				(18.9	)%		1,234				1,234				—	%
Total noninterest income	3,604				2,802				28.6	%		2,239				61.0	%		11,869				10,454				13.5	%
Noninterest expense:
Salaries and employee benefits	6,016				6,901				(12.8	)%		6,234				(3.5	)%		26,139				24,473				6.8	%
Occupancy and equipment	1,417				1,408				0.6	%		1,358				4.3	%		5,545				4,992				11.1	%
Professional fees	622				664				(6.3	)%		452				37.6	%		2,730				2,176				25.5	%
Marketing and business promotion	501				292				71.6	%		526				(4.8	)%		1,550				2,010				(22.9	)%
Data processing	361				348				3.7	%		309				16.8	%		1,365				1,220				11.9	%
Director fees and expenses	189				188				0.5	%		281				(32.7	)%		751				942				(20.3	)%
Regulatory assessments	126				—				—	%		75				68.0	%		551				544				1.3	%
Other expenses	1,033				976				5.8	%		900				14.8	%		3,684				3,869				(4.8	)%
Total noninterest expense	10,265				10,777				(4.8	)%		10,135				1.3	%		42,315				40,226				5.2	%
Income before income taxes	5,969				9,656				(38.2	)%		9,666				(38.2	)%		34,351				34,745				(1.1	)%
Income tax expense	1,811				2,871				(36.9	)%		2,934				(38.3	)%		10,243				10,444				(1.9	)%
Net income	$	4,158			$	6,785			(38.7	)%		$	6,732			(38.2	)%		$	24,108			$	24,301			(0.8	)%
Earnings per common share
Basic	$	0.26			$	0.43						$	0.42						$	1.52			$	1.69
Diluted	$	0.26			$	0.42						$	0.41						$	1.49			$	1.65
Average common shares outstanding
Basic	15,665,010				15,816,269							15,975,387							15,873,383				14,397,075
Diluted	15,948,793				16,099,598							16,244,837							16,172,282				14,691,370
Dividend paid per common share	$	0.08			$	0.06						$	0.03						$	0.25			$	0.12
Return on average assets (1)	0.96		%		1.55		%					1.60		%					1.40		%		1.53		%
Return on average shareholders’ equity (1), (2)	7.25		%		12.02		%					12.92		%					10.88		%		14.26		%
Efficiency ratio (3)	50.66		%		53.01		%					50.44		%					52.30		%		52.79		%

(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.

PCB Bancorp and Subsidiary Average Balance, Average Yield, and Average Rate (Unaudited) ($ in thousands)
		Three Months Ended
		12/31/2019											9/30/2019											12/31/2018
		Average Balance				Interest Income/ Expense				Avg. Yield/ Rate			Average Balance				Interest Income/ Expense				Avg. Yield/ Rate			Average Balance				Interest Income/ Expense				Avg. Yield/ Rate
Assets
Interest-earning assets:
Total loans (1)		$	1,415,781			$	20,888			5.85	%		$	1,396,437			$	21,876			6.22	%		$	1,319,403			$	21,088			6.34	%
Mortgage-backed securities		75,121				452				2.39	%		84,052				521				2.46	%		80,967				534				2.62	%
Collateralized mortgage obligation		47,032				216				1.82	%		50,891				286				2.23	%		55,666				359				2.56	%
SBA loan pool securities		18,572				116				2.48	%		20,751				133				2.54	%		23,029				144				2.48	%
Municipal bonds (2)		5,729				39				2.70	%		5,834				38				2.58	%		5,892				39				2.63	%
Other interest-earning assets		108,919				565				2.06	%		135,774				833				2.43	%		152,894				1,067				2.77	%
Total interest-earning assets		1,671,154				22,276				5.29	%		1,693,739				23,687				5.55	%		1,637,851				23,231				5.63	%
Noninterest-earning assets:
Cash and cash equivalents		18,507											18,927											18,882
Allowance for loan losses		(13,232		)									(13,273		)									(12,935		)
Other assets		33,941											35,564											25,972
Total noninterest-earning assets		39,216											41,218											31,919
Total assets		$	1,710,370										$	1,734,957										$	1,669,770
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Deposits:
NOW and money market accounts		$	349,282			1,259				1.43	%		$	351,581			1,432				1.62	%		$	301,700			1,110				1.46	%
Savings		7,227				4				0.22	%		7,043				6				0.34	%		8,364				8				0.38	%
Time deposits		741,448				4,251				2.27	%		767,752				4,622				2.39	%		790,453				4,121				2.07	%
Total interest-bearing deposits		1,097,957				5,514				1.99	%		1,126,376				6,060				2.13	%		1,100,517				5,239				1.89	%
Federal Home Loan Bank advances		21,141				102				1.91	%		20,326				98				1.91	%		30,000				136				1.80	%
Total interest-bearing liabilities		1,119,098				5,616				1.99	%		1,146,702				6,158				2.13	%		1,130,517				5,375				1.89	%
Noninterest-bearing liabilities
Noninterest-bearing demand		341,683											341,858											320,232
Other liabilities		22,117											22,465											12,281
Total noninterest-bearing liabilities		363,800											364,323											332,513
Total liabilities		1,482,898											1,511,025											1,463,030
Total shareholders’ equity		227,472											223,932											206,740
Total liabilities and shareholders’ equity		$	1,710,370										$	1,734,957										$	1,669,770
Net interest income						$	16,660										$	17,529										$	17,856
Net interest spread (3)										3.30	%										3.42	%										3.74	%
Net interest margin (4)										3.96	%										4.11	%										4.33	%
Total deposits		$	1,439,640			$	5,514			1.52	%		$	1,468,234			$	6,060			1.64	%		$	1,420,749			$	5,239			1.46	%
Total funding (5)		$	1,460,781			$	5,616			1.53	%		$	1,488,560			$	6,158			1.64	%		$	1,450,749			$	5,375			1.47	%

(1)		Total loans include both loans held-for-sale and loans held-for-investment, net of deferred loan costs (fees).
(2)		The yield on municipal bonds has not been computed on a tax-equivalent basis
(3)		Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
(4)		Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.
(5)		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.

PCB Bancorp and Subsidiary Average Balance, Average Yield, and Average Rate (Unaudited) ($ in thousands)
		Year Ended
		12/31/2019											12/31/2018
		Average Balance				Interest Income/ Expense				Avg. Yield/ Rate			Average Balance				Interest Income/ Expense				Avg. Yield/ Rate
Assets
Interest-earning assets:
Total loans (1)		$	1,383,562			$	85,667			6.19	%		$	1,264,166			$	76,837			6.08	%
Mortgage-backed securities		82,848				2,081				2.51	%		70,971				1,717				2.42	%
Collateralized mortgage obligation		51,441				1,185				2.30	%		53,312				1,272				2.39	%
SBA loan pool securities		20,681				536				2.59	%		23,671				576				2.43	%
Municipal bonds (2)		5,833				154				2.64	%		6,312				159				2.52	%
Other interest-earning assets		134,870				3,322				2.46	%		137,627				3,138				2.28	%
Total interest-earning assets		1,679,235				92,945				5.53	%		1,556,059				83,699				5.38	%
Noninterest-earning assets:
Cash and cash equivalents		18,614											19,079
Allowance for loan losses		(13,197		)									(12,632		)
Other assets		35,010											26,827
Total noninterest-earning assets		40,427											33,274
Total assets		$	1,719,662										$	1,589,333
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Deposits:
NOW and money market accounts		$	329,562			5,162				1.57	%		$	287,131			3,477				1.21	%
Savings		7,965				32				0.40	%		8,613				26				0.30	%
Time deposits		783,353				18,245				2.33	%		758,029				13,837				1.83	%
Total interest-bearing deposits		1,120,880				23,439				2.09	%		1,053,773				17,340				1.65	%
Federal Home Loan Bank advances		25,388				472				1.86	%		34,904				611				1.75	%
Total interest-bearing liabilities		1,146,268				23,911				2.09	%		1,088,677				17,951				1.65	%
Noninterest-bearing liabilities
Noninterest-bearing demand		329,731											319,832
Other liabilities		22,087											10,395
Total noninterest-bearing liabilities		351,818											330,227
Total liabilities		1,498,086											1,418,904
Total shareholders’ equity		221,576											170,429
Total liabilities and shareholders’ equity		$	1,719,662										$	1,589,333
Net interest income						$	69,034										$	65,748
Net interest spread (3)										3.44	%										3.73	%
Net interest margin (4)										4.11	%										4.23	%
Total deposits		$	1,450,611			$	23,439			1.62	%		$	1,373,605			$	17,340			1.26	%
Total funding (5)		$	1,475,999			$	23,911			1.62	%		$	1,408,509			$	17,951			1.27	%

(1)		Total loans include both loans held-for-sale and loans held-for-investment, net of deferred loan costs (fees).
(2)		The yield on municipal bonds has not been computed on a tax-equivalent basis.
(3)		Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
(4)		Net interest margin is calculated by dividing annualized net interest income by average interest-earning assets.
(5)		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.

 

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