PCB Bancorp(PCB) - 2019 Q3 - Quarterly Report

Part I - Financial Information Consolidated Financial Statements Presents PCB Bancorp's unaudited consolidated financial statements for Q3 and YTD 2019, covering key statements and accounting policies Consolidated Balance Sheets Total assets reached $1.70 billion as of September 30, 2019, driven by loan growth, with shareholders' equity increasing to $224.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $1,699,446 | $1,697,028 | | Total cash and cash equivalents | $121,912 | $162,273 | | Net loans held-for-investment | $1,376,736 | $1,325,515 | | Total Liabilities | $1,474,803 | $1,486,732 | | Total deposits | $1,432,262 | $1,443,753 | | Federal Home Loan Bank advances | $20,000 | $30,000 | | Total Shareholders' Equity | $224,643 | $210,296 | Consolidated Statements of Income Net income for Q3 2019 increased 3.7% to $6.8 million, and 13.6% to $20.0 million YTD, primarily driven by higher net interest income Income Statement Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $17,529 | $16,716 | $52,374 | $47,892 | | Provision (reversal) for loan losses | $(102) | $417 | $207 | $937 | | Noninterest Income | $2,802 | $2,580 | $8,265 | $8,215 | | Noninterest Expense | $10,777 | $9,520 | $32,050 | $30,091 | | Net Income | $6,785 | $6,543 | $19,950 | $17,569 | | Diluted EPS | $0.42 | $0.44 | $1.23 | $1.25 | Notes to Consolidated Financial Statements (Unaudited) Detailed notes disclose accounting policies, fair value measurements, loan details, and regulatory matters, including a BSA/AML consent order - The company adopted ASU 2016-02, "Leases (Topic 842)," in the first quarter of 2019, recognizing right-of-use lease assets of $9.6 million and liabilities of $10.6 million, with a cumulative effect adjustment of $53 thousand to retained earnings[27] - On April 30, 2019, the FDIC and CDBO issued a consent order related to the Bank's Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program, requiring corrective actions and increased oversight[113] - Subsequent to the quarter end, the company completed its $6.5 million stock repurchase program on October 24, 2019, and the Board declared a quarterly cash dividend of $0.08 per share on October 31, 2019[122][123] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q3 and YTD 2019 financial performance, focusing on net interest income, loan loss provision, noninterest expenses, and financial condition changes Results of Operations Net income for Q3 2019 increased 3.7% to $6.8 million, and 13.6% YTD to $20.0 million, driven by net interest income growth despite higher noninterest expenses Net Interest Income Change Analysis (Q3 2019 vs Q3 2018, in thousands) | Component | Change Due to Volume | Change Due to Rate | Net Change | | :--- | :--- | :--- | :--- | | Total Interest Income | $1,715 | $476 | $2,191 | | Total Loans | $1,786 | $391 | $2,177 | | Total Interest Expense | $68 | $1,310 | $1,378 | | Deposits | $112 | $1,305 | $1,417 | | Change in Net Interest Income | $1,647 | $(834) | $813 | - A loan loss provision reversal of $102 thousand was recorded in Q3 2019, compared to a provision of $417 thousand in Q3 2018. The reversal was attributed to a decrease in loans held-for-investment from the previous quarter, lower historical loss rates, and changes in qualitative factors[163] - Noninterest expense in Q3 2019 increased by 13.2% YoY, driven by higher salaries and a 211.7% surge in professional fees related to public company costs and BSA/AML enhancements[174][175] Financial Condition Total assets were $1.70 billion, with loan growth to $1.39 billion, a strategic shift in deposits, increased nonperforming assets, and strong capital ratios - Loans held-for-investment increased by $51.1 million, or 3.8%, to $1.39 billion at September 30, 2019, from December 31, 2018, driven by new funding of $252.9 million[193] - Total deposits decreased by 0.8% from year-end 2018, reflecting a strategic reduction in time deposits ($64.0 million decrease) offset by growth in noninterest-bearing demand accounts ($24.2 million increase) and savings/money market accounts ($28.4 million increase)[206] Nonperforming Assets (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total nonaccrual loans | $1,843 | $1,061 | | Total nonperforming assets | $1,843 | $1,061 | | Nonperforming assets to total assets | 0.11% | 0.06% | - Shareholders' equity increased by $14.3 million (6.8%) to $224.6 million since year-end 2018, driven by net income of $20.0 million, partially offset by $6.1 million in common stock repurchases and $2.7 million in dividends[212] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk through ALCO, using NII and EVE models, with an asset-sensitive balance sheet projecting increases in a rising rate environment Interest Rate Risk Sensitivity Analysis (September 30, 2019) | Simulated Rate Change (bps) | Net Interest Income Sensitivity | Economic Value of Equity Sensitivity | | :--- | :--- | :--- | | +200 | 21.9% | 9.7% | | +100 | 11.3% | 5.8% | | -100 | (12.7)% | (7.2)% | | -200 | (25.0)% | (10.2)% | - The company's Asset Liability Committee (ALCO) establishes policies and operating guidelines to manage interest rate risk, meeting quarterly to monitor sensitivity and ensure compliance with approved limits[234] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during Q3 2019 - The Principal Executive Officer and Principal Financial Officer concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[240] - There were no changes in the company's internal control over financial reporting during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, these controls[241] Part II - Other Information Legal Proceedings The company is involved in various legal claims, with $9 thousand in accrued loss contingencies, not expected to materially impact financial statements - The Company had accrued loss contingencies of $9 thousand for certain legal claims as of September 30, 2019, and does not expect the outcome of pending litigation to be material to its financial statements[243] Risk Factors No material changes to previously disclosed risk factors from the 2018 Annual Report on Form 10-K are reported, advising investors to consider them - There are no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018[244] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company repurchased 316,518 shares of common stock at an average price of $16.21 per share under its $6.5 million repurchase program Share Repurchase Activity (Q3 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2019 | 88,476 | $16.87 | | August 2019 | 205,194 | $15.88 | | September 2019 | 22,848 | $16.55 | | Total Q3 2019 | 316,518 | $16.21 | - The share repurchases were conducted under a program approved on March 28, 2019, authorizing up to $6.5 million in common stock repurchases through March 27, 2020[245] Other Information Provides further details on the April 2019 BSA/AML consent order, outlining required corrective actions and the Bank's progress, with no material financial impact expected - A consent order from the FDIC and CDBO was issued on April 30, 2019, concerning deficiencies in the Bank's BSA/AML compliance program[249] - Corrective actions required by the order include increased Board oversight, hiring a qualified BSA officer, enhancing risk assessments and customer due diligence, and conducting a "look back" review of certain 2018 transactions[250] - The Bank has completed the required staffing assessment and "look back" review, hired a new BSA officer, and submitted required progress reports to regulators. The associated costs are not expected to materially impact financial results[251][252] Exhibits Lists exhibits filed with Form 10-Q, including corporate governance documents, employment agreements, compensation plans, and required CEO/CFO certifications