PCB Bancorp — 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with 2019. PCB Bancorp is the holding company for Pacific City Bank, a community bank serving businesses and individuals through branches in California, New York and New Jersey and loan production offices in multiple states.
Financial performance and condition
| Metric | 2020 | 2019 |
|---|---|---|
| Net interest income | $66.2 million | $69.0 million |
| Provision for loan losses | $13.2 million | $4.2 million |
| Noninterest income | $11.7 million | $11.9 million |
| Noninterest expense | $41.7 million | $42.3 million |
| Net income | $16.2 million | $24.1 million |
| Diluted earnings per share | $1.04 | $1.49 |
| Net interest margin | 3.53% | 4.11% |
- Balance sheet: Total assets were $1.923 billion, up 10.1%; loans held for investment were $1.584 billion, up 9.1%; deposits were $1.595 billion, up 7.8%.
- Cash flow: Net cash provided by operating activities was $17.1 million; investing activities used $132.8 million, principally reflecting loan growth; financing activities provided $163.6 million. Cash and cash equivalents ended the year at $194.1 million.
- Credit and reserves: Allowance for loan losses was $26.5 million, or 1.67% of loans held for investment, versus $14.4 million, or 0.99%, in 2019. Net charge-offs were $1.1 million. Nonperforming loans were $3.2 million, or 0.20% of loans; nonperforming assets were $4.6 million, or 0.24% of assets.
- Funding and liquidity: FHLB advances were $80.0 million, compared with $20.0 million a year earlier. The company reported $526.1 million of available borrowing capacity. Core deposits were 78.1% of deposits; wholesale deposits were $204.9 million, or 12.8% of deposits.
- Capital: The Bank’s common Tier 1, total capital and Tier 1 leverage ratios were 15.70%, 16.95% and 11.74%, respectively, all above the applicable well-capitalized thresholds.
- Shareholder returns: Cash dividends declared were $0.40 per share, compared with $0.25 in 2019. The company completed a $6.5 million share repurchase program in March 2020.
Changes versus the prior year
- Net income declined 32.9%, mainly because the loan-loss provision increased and net interest income fell. Lower market rates reduced asset yields; the net interest margin narrowed by 58 basis points to 3.53%.
- Interest expense fell 43.2%, partially offsetting a 14.2% decline in interest income. Loan growth included $135.7 million of PPP loans, which carry a 1% interest rate.
- The allowance rose substantially in response to pandemic-related economic uncertainty and increased special-mention and substandard loans. Real estate loans remained 77.0% of loans held for investment.
- Deposits grew, including a marked increase in noninterest-bearing demand deposits; time deposits declined. Cash and cash equivalents rose from $146.2 million to $194.1 million.
- Loans under COVID-19-related modified terms fell from $484.0 million at June 30, 2020 to $36.1 million at year-end. These loans were current and accruing at December 31, 2020, according to the filing.
Outlook, risks and notable items
- The company provided no quantified earnings or financial guidance. Management said it could not estimate the pandemic’s long-term impact and expected COVID-19 conditions to continue to affect business, results and financial condition negatively.
- As of December 31, 2020, the Bank had 1,585 PPP loans totaling $135.7 million. By February 28, 2021, it had funded 819 additional-round PPP loans totaling $88.1 million. PPP loans are SBA-guaranteed and may be forgiven if eligibility conditions are met.
- Commercial real estate concentration was 256.1% of risk-based capital under regulatory definitions, below the cited 300% supervisory indicator; management said it was actively managing the concentration. Commercial lending and real-estate collateral leave results exposed to borrower performance and property values.
- On June 30, 2020, the company transferred $18.8 million of held-to-maturity securities to available-for-sale to support liquidity. The transfer produced a $787,000 pretax increase to accumulated other comprehensive income and limits its ability to assert intent to hold securities to maturity for up to two years.
- The BSA/AML consent order was terminated by the FDIC and CDFPI on September 30, 2020 after the Bank met its requirements. Management reported no accrued loss contingencies for legal claims; additional losses were described as reasonably possible but not estimable, and not expected to be material.
- The company planned to adopt CECL on January 1, 2023. Management noted the transition could require a higher allowance, but the filing does not provide a quantified estimate.
- Management identified pandemic-related credit deterioration, expiring deferrals, low interest rates, funding and deposit volatility, CRE and broader real-estate exposure, SBA program changes, cyber and operational risks, and geographic and customer concentration as important risks.
Important facts for investors to verify
- Track delinquencies, nonperforming loans, risk-rated credits, charge-offs and reserve adequacy as pandemic assistance and loan modifications expire.
- Assess whether loan growth and deposit mix can support earnings while low rates and PPP lending pressure asset yields and margins.
- Review CRE concentration, real-estate collateral exposure, and the performance of small-business and hospitality borrowers.
- Monitor liquidity sources and funding concentration, including FHLB advances, brokered deposits and California State Treasurer deposits.
- Confirm subsequent PPP production and forgiveness, CECL implementation effects, and the sustainability of dividends and repurchases. The filing reports an unqualified audit opinion and management’s conclusion that disclosure controls and internal control over financial reporting were effective.