PCB Bancorp(US:PCB)2020-05-11 20:07Part I - Financial Information Consolidated Financial Statements This section presents PCB Bancorp's unaudited consolidated financial statements for Q1 2020, detailing financial position, performance, and cash flows with explanatory notes Consolidated Balance Sheets Total assets increased to $1.80 billion by March 31, 2020, driven by cash and loans, while liabilities rose due to FHLB advances, and equity slightly decreased Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 ($ thousands) | December 31, 2019 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | 1,799,937 | 1,746,328 | 3.1% | | Total cash and cash equivalents | 188,919 | 146,228 | 29.2% | | Net loans held-for-investment | 1,434,364 | 1,436,451 | -0.1% | | Total Liabilities | 1,575,812 | 1,519,494 | 3.7% | | Total deposits | 1,477,442 | 1,479,307 | -0.1% | | Federal Home Loan Bank advances | 80,000 | 20,000 | 300.0% | | Total Shareholders' Equity | 224,125 | 226,834 | -1.2% | Consolidated Statements of Income Net income for Q1 2020 decreased 45.6% to $3.57 million, primarily due to a $2.9 million loan loss provision and lower net interest income Consolidated Income Statement Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2020 ($ thousands) | Three Months Ended Mar 31, 2019 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | 16,566 | 17,153 | -3.4% | | Provision for loan losses | 2,896 | (85) | N/A | | Noninterest Income | 2,026 | 2,409 | -15.9% | | Noninterest Expense | 10,567 | 10,289 | 2.7% | | Net Income | 3,572 | 6,564 | -45.6% | | Diluted EPS | $0.23 | $0.40 | -42.5% | Consolidated Statements of Cash Flows Net cash provided by financing activities totaled $50.7 million in Q1 2020, driven by FHLB advances, leading to a $42.7 million net increase in cash Cash Flow Summary (Unaudited) | Activity | Three Months Ended Mar 31, 2020 ($ thousands) | Three Months Ended Mar 31, 2019 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | (6,378) | 10,035 | | Net cash used in investing activities | (1,643) | (2,142) | | Net cash provided by financing activities | 50,712 | 3,421 | | Net increase in cash and cash equivalents | 42,691 | 11,314 | Notes to Consolidated Financial Statements These notes detail accounting policies, investment and loan composition, the increased allowance for loan losses due to COVID-19, nonperforming assets, capital adequacy, and the BSA/AML consent order - The company operates as a bank holding company with its subsidiary, Pacific City Bank, having 13 full-service branches and 10 loan production offices across several states20 - The company plans to adopt ASU 2016-13 (CECL model) on the delayed effective date of January 1, 202328 - On April 30, 2019, the Bank entered into a consent order with the FDIC and CDBO related to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance, requiring enhanced oversight, processes, and reporting112 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 financial performance, highlighting a 45.6% net income decrease due to a $2.9 million loan loss provision, and analyzes changes in income, expenses, credit quality, deposits, liquidity, and capital Executive Summary Q1 2020 performance was significantly impacted by COVID-19, with net income falling to $3.6 million due to a $2.9 million loan loss provision, despite asset growth and a $6.5 million share repurchase - Net income for Q1 2020 was $3.6 million, a decrease of 45.6% from Q1 2019, primarily due to a $2.9 million provision for loan losses related to COVID-19 economic uncertainty130135 - The company completed a $6.5 million share repurchase program in March 2020, repurchasing 428,474 shares135 - As of April 24, 2020, the company has extended 930 Paycheck Protection Program (PPP) loans totaling $104 million and provided payment deferrals on 461 loans with an aggregate balance of $347 million135 Results of Operations Net interest income decreased 3.4% to $16.6 million in Q1 2020 due to margin compression, while a $2.9 million loan loss provision, lower noninterest income, and increased noninterest expense impacted results Net Interest Margin Analysis | Metric | Three Months Ended Mar 31, 2020 | Three Months Ended Mar 31, 2019 | | :--- | :--- | :--- | | Net Interest Income ($ thousands) | 16,566 | 17,153 | | Net Interest Spread | 3.26% | 3.59% | | Net Interest Margin | 3.85% | 4.22% | - The provision for loan losses was $2.9 million for Q1 2020, a significant increase from a reversal of $85 thousand in Q1 2019, primarily due to adjustments for economic uncertainty from the COVID-19 pandemic148 - Gain on sale of loans decreased by 35.3% to $725 thousand, primarily due to lower sales volume of SBA loans amid reduced premiums in the secondary market149151 Financial Condition As of March 31, 2020, total assets were $1.80 billion, with the allowance for loan losses increasing to 1.15% due to COVID-19, nonperforming assets rising, and shareholders' equity slightly decreasing after a stock buyback - The allowance for loan losses increased to $16.7 million (1.15% of loans held-for-investment) at March 31, 2020, from $14.4 million (0.99%) at year-end 2019, mainly due to a $2.7 million qualitative adjustment for COVID-19 related economic uncertainty172 - Total nonperforming assets increased by 57.9% to $4.5 million at March 31, 2020, from $2.8 million at December 31, 2019177 Loan Segmentation by Business Type Potentially Impacted by COVID-19 (as of March 31, 2020) | Business Type | Total Loan Balance ($ thousands) | | :--- | :--- | | Retail trade | 151,134 | | Accommodation | 66,961 | | Restaurants | 48,243 | | Nursing care | 7,131 | | Travel | 2,893 | | Total | 276,362 | Liquidity and Capital Resources The company maintained strong liquidity and capital, with shareholders' equity at $224.1 million despite repurchases, and the bank remaining well-capitalized with a 15.28% Common Equity Tier 1 ratio and enhanced FHLB borrowing capacity - Shareholders' equity decreased by $2.7 million to $224.1 million in Q1 2020, primarily due to a $6.5 million stock repurchase and $1.5 million in dividends, partially offset by $3.6 million in net income190 Regulatory Capital Ratios (Pacific City Bank) | Ratio | March 31, 2020 | Well Capitalized Requirement | | :--- | :--- | :--- | | Common tier 1 capital | 15.28% | 6.5% | | Total capital | 16.47% | 10.0% | | Tier 1 capital | 15.28% | 8.0% | | Tier 1 leverage | 12.37% | 5.0% | - The company increased its FHLB advances to $80.0 million and had additional borrowing capacity of $356.6 million with the FHLB and $39.4 million from the Federal Reserve Discount Window as of March 31, 2020200201 Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using NII at Risk and EVE models, demonstrating asset sensitivity where a 100 bps rate increase is projected to raise NII by 11.9% and EVE by 7.9% Interest Rate Risk Sensitivity Analysis | Simulated Rate Change (bps) | Net Interest Income Sensitivity (%) | Economic Value of Equity Sensitivity (%) | | :--- | :--- | :--- | | +200 | 23.8 | 13.9 | | +100 | 11.9 | 7.9 | | -100 | (9.5) | (4.4) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020218 - No material changes were made to the internal control over financial reporting during the first quarter of 2020219 Part II - Other Information Legal Proceedings The company is involved in various legal claims in the ordinary course of business, with management not expecting a material impact on financial statements - The company is involved in various legal claims arising in the ordinary course of business, but management does not expect them to have a material impact on financial statements220 Risk Factors This section details new risk factors related to the COVID-19 pandemic, which has adversely affected and will likely continue to impact the company's business, financial condition, and operations - The ongoing COVID-19 pandemic is highlighted as a significant risk factor that has and will likely continue to adversely affect the company's business, financial condition, and results of operations221222 - Specific pandemic-related risks include declining collateral values, reduced demand for services, net interest margin compression from lower rates, and potential disruptions to branch operations and service delivery225226 Unregistered Sales of Equity Securities and Use of Proceeds The company completed its $6.5 million stock repurchase program in March 2020, repurchasing 428,474 shares at a weighted-average price of $15.14 per share Share Repurchase Activity (Q1 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2020 | 105,890 | $15.54 | | Feb 2020 | 281,680 | $15.15 | | Mar 2020 | 40,904 | $14.07 | | Total | 428,474 | $15.14 | Other Information This section updates on the BSA/AML consent order, noting implemented corrective actions and ongoing efforts to address regulator concerns regarding a "look back" review and staff turnover - The company provides an update on the April 2019 consent order related to BSA/AML compliance, noting that while many actions have been taken, regulators have recently raised concerns about a "look back" review and staff turnover, which management is addressing231233 - Management does not expect the costs associated with the consent order to have a material impact on the company's results of operations or financial position234