PCB Bancorp — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021 unless noted. PCB Bancorp is a bank holding company whose subsidiary, Pacific City Bank, serves small and middle-market businesses and individuals. The unaudited results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net interest income | $20.0 million | $17.8 million; up 12.2% |
| Net interest margin | 3.87% | 3.70% |
| Noninterest income | $5.3 million | $2.9 million; up 85.0% |
| Noninterest expense | $12.1 million | $9.7 million; up 24.8% |
| Net income / diluted EPS | $10.2 million / $0.67 | $8.6 million / $0.55 |
| Efficiency ratio | 47.75% | 46.76% |
| Operating cash flow | $29.2 million | $8.8 million |
- Loan-sale gains rose to $3.8 million from $1.3 million, reflecting higher SBA loan sales. The bank sold $39.7 million of SBA loans in Q1 2022.
- Salary and employee-benefit expense increased 39.0% to $8.6 million; management cited higher staffing, merit increases, incentives, and lower loan-origination cost offsets.
- Return on average assets was 1.92%, versus 1.75%; return on average equity was 16.01%, versus 14.66%.
- Other comprehensive loss was $3.9 million after tax, primarily reflecting a $5.5 million unrealized loss on available-for-sale securities. Accumulated other comprehensive loss was $3.7 million at quarter-end.
Financial position, credit and liquidity
- Total assets were $2.20 billion, up 2.3% from year-end. Loans held for investment were $1.74 billion, up 0.6%; deposits were $1.91 billion, up 2.3%.
- Loans were concentrated in real estate: 86.3% of held-for-investment loans, including commercial property loans of $1.15 billion (66.1% of the portfolio). SBA PPP loans fell to $22.9 million from $65.3 million.
- The allowance for loan losses was $21.2 million, or 1.22% of loans, down from 1.29% at year-end. The quarter included a $1.2 million reversal, attributed primarily to improving economic conditions and lower historical-loss and qualitative-factor allocations.
- Nonaccrual loans were $1.4 million, or 0.08% of loans, compared with $1.0 million at year-end. Nonperforming assets were 0.06% of total assets. No COVID-modified loans remained outstanding, though $352.5 million of loans previously modified had reverted to contractual terms.
- Cash and cash equivalents totaled $250.2 million, 11.4% of assets. The bank had $10.0 million of FHLB advances, maturing June 29, 2022, and reported additional FHLB borrowing capacity of $527.4 million, unused Federal Reserve discount-window capacity of $26.5 million, and approximately $65.0 million in available federal-funds lines.
- Deposits included $891.8 million of noninterest-bearing demand balances. Deposits not covered by deposit insurance totaled $1.02 billion. The loan-to-deposit ratio was 92.20%.
- The Bank’s March 31 capital ratios included common equity Tier 1 of 14.43%, total capital of 15.63%, and Tier 1 leverage of 11.94%; each exceeded the stated well-capitalized thresholds.
Changes, outlook and risks
- Net interest income benefited from higher average earning-asset balances and lower funding costs; net interest margin increased 17 basis points year over year. Interest expense fell 37.4% while interest income rose 8.5%.
- Management accepted an offer for up to $69.1 million of non-dilutive ECIP senior perpetual preferred capital and expected the investment to close in Q2 2022. This was an expectation, not a completed transaction as of the report.
- The Board declared a quarterly common dividend of $0.15 per share on April 28, 2022, payable on or about May 13 to holders of record May 20.
- No specific earnings or operating guidance was provided. Management said COVID-19, supply-chain disruption, and high inflation could continue to negatively affect the business, but it could not estimate the pandemic’s long-term impact.
- Interest-rate exposure was modeled as asset-sensitive: an immediate +100 basis-point shock was projected to increase net interest income 8.8% and economic value of equity 4.5%; these estimates exclude management actions and depend on assumptions.
- A 2021 network/data incident involved unauthorized access to files containing some customer information. A putative class-action lawsuit was filed; the company reported no additional incident expense in Q1, anticipated future expenses, and said cyber-liability insurance should provide coverage. Management could not estimate possible additional litigation losses, although it did not expect them to be material.
- Other notable exposures include real-estate concentration, borrower credit quality, interest-rate and liquidity risk, and the upcoming implementation of the expected-credit-loss standard (CECL) on January 1, 2023. Management said the one-time adoption adjustment could potentially be material, but did not provide an amount.
Important facts for investors to verify
- Whether the expected $69.1 million ECIP investment closed in Q2 2022, and its final terms and capital impact.
- Whether loan growth, SBA loan-sale gains, and the reversal of credit-loss reserves are sustainable; monitor commercial-property concentration and nonaccrual loans.
- How rising rates affect deposit pricing, net interest margin, securities values, and liquidity; note the unrealized securities losses and pledged securities of $110.7 million.
- The outcome and costs of the customer-data litigation, including the scope of insurance coverage and any further incident-related expenses.
- The CECL adoption impact, which the filing states could potentially be material but does not quantify.