PCB Bancorp — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. PCB Bancorp is a bank holding company whose subsidiary, Pacific City Bank, serves businesses and individuals through branches and loan production offices in multiple U.S. markets.
Financial performance and condition
| Metric | Q3 2021 / September 30, 2021 | Comparable period / change |
|---|---|---|
| Net income | $11.0 million; diluted EPS $0.73 | $3.4 million and $0.22 in Q3 2020 |
| Net interest income | $20.2 million | $16.9 million in Q3 2020, up 20.0% |
| Net interest margin | 3.93% | 3.43% in Q3 2020 |
| Noninterest income | $5.6 million | $2.3 million in Q3 2020; loan-sale gains were $4.3 million versus $0.8 million |
| Noninterest expense | $11.2 million | $9.9 million in Q3 2020; efficiency ratio was 43.51% versus 51.69% |
| Loans held for investment | $1.71 billion | Up 7.8% from December 31, 2020 |
| Total deposits | $1.83 billion | Up 14.9% from December 31, 2020; noninterest-bearing deposits rose to $832.2 million |
| Cash and cash equivalents | $215.0 million | 10.2% of total assets; management reported $606.9 million of available borrowing capacity |
| FHLB advances | $10.0 million | Down from $80.0 million at December 31, 2020 |
| Shareholders’ equity | $247.6 million | Up 5.9% from December 31, 2020 |
For the nine months ended September 30, 2021, net income was $29.4 million versus $10.4 million in 2020, and diluted EPS was $1.92 versus $0.67. Net interest income increased 16.9% to $57.0 million. The company recorded a $3.1 million provision reversal, compared with an $11.1 million provision in 2020. Operating cash flow was a use of $0.3 million; investing cash flow was a use of $131.9 million, while financing activities provided $153.1 million.
Material changes and key drivers
- Q3 net income benefited from a lower loan-loss provision (a $1.1 million reversal versus a $4.3 million provision), higher net interest income, and increased loan-sale gains.
- Lower deposit and borrowing costs supported margin expansion. Q3 cost of funds declined to 0.21% from 0.63% a year earlier.
- Loan-sale gains rose with higher SBA loan sale volume and premiums. The company sold $45.0 million of SBA loans in Q3, recognizing $4.3 million in gains.
- Loans grew, led by commercial property lending. Real estate loans were 81.3% of loans held for investment, with commercial property loans representing 61.6%.
- Asset quality measures improved: nonperforming loans were $1.1 million, or 0.07% of loans, versus $3.2 million at year-end 2020. The allowance was $23.8 million, or 1.39% of loans, down from 1.67% at year-end.
- Shareholders’ equity increased despite $10.9 million of share repurchases and $4.9 million in declared dividends. The company repurchased 680,269 shares during the first nine months.
Outlook, risks, contingencies, and unusual items
- No specific earnings or financial guidance was provided. Management said it could not estimate the long-term impact of COVID-19 and noted that economic conditions in its primary markets had not fully recovered.
- COVID-related loan modifications had fallen to none at September 30, 2021, from $36.1 million at year-end 2020. Management cited improving economic conditions as a factor in lower historical-loss and qualitative allowance estimates.
- A ransomware/data incident was identified in August 2021; the Bank determined an external actor accessed or acquired certain network data. Affected files included customer information and, in some cases, personal information. The company recorded $100,000 of incident expense in Q3, expects additional costs, and said cyber-liability insurance should provide coverage. Financial, legal, and reputational consequences remained under evaluation; no related litigation had resulted as of the filing.
- Risks include COVID-19-related economic effects, credit quality and real-estate concentration, interest-rate changes, liquidity and securities valuation, regulatory requirements, and cybersecurity. Management reported regulatory capital ratios above “well-capitalized” thresholds.
- Off-balance-sheet commitments totaled $195.2 million, primarily unused lines of credit and unfunded loan commitments. Management stated that many commitments may expire undrawn.
- On October 28, 2021, the board declared a $0.12-per-share dividend, payable in November. Management said pending litigation was not expected to materially affect the financial statements, while noting additional losses were reasonably possible but not estimable.
Important facts for investors to verify
- Whether strong earnings persist if loan-sale gains and provision reversals normalize; these contributed materially to year-over-year profit growth.
- Future credit performance and allowance adequacy, particularly in the commercial real-estate portfolio as pandemic-related support and modifications recede.
- The scope, remediation costs, insurance recovery, and potential legal or reputational effects of the cybersecurity incident.
- Deposit composition and funding costs, and sensitivity of net interest income and economic value to changes in rates. The filing’s modeled sensitivity showed higher NII and EVE under the presented rising-rate scenarios.
- Capital and liquidity after continued loan growth, dividends, and repurchases, including the availability and terms of borrowing capacity.