PCB Bancorp — 2023 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021. PCB Bancorp operates PCB Bank, a single-segment California-chartered commercial bank serving businesses and individuals through 16 branches and seven loan production offices. Its lending is concentrated in commercial real estate, commercial and industrial, and residential mortgages.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $88.5 million | $89.6 million |
| Net income | $30.7 million | $35.0 million |
| Diluted earnings per share | $2.12 | $2.31 |
| Net interest margin | 3.57% | 4.08% |
| Noninterest income | $10.7 million | $14.5 million |
| Noninterest expense | $56.1 million | $51.1 million |
| Total assets at year-end | $2.79 billion | $2.42 billion |
| Loans held for investment at year-end | $2.32 billion | $2.05 billion |
| Deposits at year-end | $2.35 billion | $2.05 billion |
| Cash and cash equivalents at year-end | $242.3 million | $147.0 million |
- Profit and margins: Net income fell 12.2%. Higher funding costs more than offset growth in interest income: interest expense rose to $62.7 million from $12.1 million, while net interest income declined 1.3%. Deposit cost increased to 2.87% from 0.62%; the efficiency ratio rose to 56.52% from 49.10%.
- Revenue and expenses: Loan interest income rose 43.1%, but gain on loan sales fell 55.3% to $3.6 million, contributing to lower noninterest income. Noninterest expense increased 9.6%, including higher occupancy, professional fees and regulatory assessments.
- Cash flow: Net cash from operating activities was $63.3 million; investing activities used $275.3 million, primarily reflecting net loan growth; financing activities provided $307.2 million, mainly from $305.6 million of deposit growth. Cash increased $95.3 million during the year.
- Credit quality: The provision for credit losses was a $132,000 reversal, versus $3.6 million expense in 2022. Nonperforming loans were $3.9 million, or 0.17% of loans held for investment; nonperforming assets were $6.5 million, or 0.23% of assets. The allowance for credit losses on loans was $27.5 million, 1.19% of loans.
- Funding and liquidity: Core deposits were 62.6% of deposits; wholesale deposits were $363.7 million, or 15.5%. The company reported $1.20 billion of available borrowing capacity and cash plus available borrowing capacity equal to 151.9% of uninsured deposits. Year-end FHLB advances were $39.0 million.
- Capital and shareholder returns: PCB Bank’s common equity Tier 1 ratio was 14.85% and total capital ratio was 16.07%; both exceeded well-capitalized thresholds. Shareholders’ equity was $348.9 million, including $69.1 million of Series C preferred stock. Common dividends were $0.69 per share, and the company repurchased $8.8 million of common stock.
Material changes versus 2022
- Assets grew 15.3%, loans held for investment 13.6%, and deposits 14.9%.
- Funding shifted toward higher-cost time deposits: their share of deposits increased to 56.8% from 38.9%, while noninterest-bearing demand deposits declined to 25.3% from 35.9%.
- Net interest margin contracted by 51 basis points as funding costs rose sharply. The company’s securities portfolio had $12.9 million of net unrealized losses at year-end, improved from $15.1 million in 2022.
- Commercial real estate loans were 67.6% of loans held for investment. CRE concentration under regulatory guidance rose to 280.7% of risk-based capital from 253.9%.
- The company adopted CECL on January 1, 2023, recording a $1.9 million after-tax reduction to opening retained earnings. Prior-period credit-loss figures use the former accounting model, limiting direct comparability.
Outlook, risks and unusual items
- The filing provides no specific earnings, loan-growth or margin guidance. Management describes ongoing monitoring of liquidity, interest-rate exposure, credit concentrations and funding mix; actual outcomes remain subject to economic conditions and customer behavior.
- Key risks include deposit competition and migration to higher-cost funding, broader banking-sector confidence and liquidity pressures, interest-rate changes, and exposure to real estate markets. Real estate represented approximately 84.4% of loans held for investment as primary or secondary collateral.
- Interest-rate modeling estimated net interest income sensitivity of +3.6% for a 100-basis-point rise and -4.3% for a 100-basis-point decline. Management cautions that model results depend on deposit-pricing, customer-behavior and loan-prepayment assumptions.
- The company reported a 2021 ransomware incident involving customer information. It agreed to a $700,000 class settlement in 2023, subject to final court approval; it expects insurance to cover the full settlement. The claims deadline was extended to March 21, 2024, and no final approval hearing date had been set in the filing.
- Management and the auditor reported effective internal control over financial reporting. The auditor identified the CECL allowance estimate as a critical audit matter because of forecast, model and qualitative-reserve judgments.
- A $0.18-per-share first-quarter 2024 dividend was declared after year-end and paid February 16, 2024. Management also planned to relocate a regional office and consolidate two Orange County branches into one location in 2024.
Important facts for investors to verify
- Whether deposit retention and pricing stabilize, particularly as the enlarged portfolio of time deposits renews; $1.33 billion of time deposits were scheduled to mature in 2024.
- Whether loan growth and asset quality remain sound, especially in CRE and other real-estate-collateralized lending, and how the 280.7% regulatory CRE concentration develops.
- Whether net interest margin and earnings recover or face further pressure from deposit costs, interest-rate movements and reduced loan-sale gains.
- Whether securities unrealized losses remain recoverable without forced sales, and whether reported borrowing capacity is accessible under stress.
- Final resolution and insurance coverage of the ransomware-related settlement, along with any material developments in other legal contingencies.
- How CECL assumptions, qualitative adjustments and changing economic forecasts affect future credit-loss allowances and provisions.