PCB Bancorp(US:PCB)2025-08-08 20:06Part I - Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for PCB Bancorp as of June 30, 2025, and for the three and six-month periods then ended Consolidated Balance Sheets As of June 30, 2025, total assets increased to $3.31 billion from $3.06 billion at year-end 2024, primarily driven by a $162.0 million increase in net loans Consolidated Balance Sheet Highlights (Unaudited) | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,305,589 | $3,063,971 | | Net loans held-for-investment | $2,761,755 | $2,598,759 | | Total cash and cash equivalents | $263,567 | $198,792 | | Total Liabilities | $2,929,089 | $2,700,157 | | Total deposits | $2,822,915 | $2,615,791 | | Federal Home Loan Bank advances | $45,000 | $0 | | Total Shareholders' Equity | $376,500 | $363,814 | Consolidated Statements of Income For the second quarter of 2025, net income available to common shareholders was $9.0 million, a 46.3% increase from $6.1 million in the same period of 2024 Key Income Statement Data (Unaudited) | ($ in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $25,990 | $21,735 | $50,273 | $42,734 | | Provision for credit losses | $1,787 | $259 | $3,385 | $1,349 | | Noninterest income | $3,297 | $2,485 | $5,877 | $5,430 | | Noninterest expense | $14,829 | $15,175 | $29,303 | $31,527 | | Net income | $9,071 | $6,281 | $16,806 | $10,966 | | Net income available to common shareholders | $8,984 | $6,139 | $16,679 | $10,824 | | Earnings per common share, diluted | $0.62 | $0.43 | $1.15 | $0.75 | Consolidated Statements of Comprehensive Income Total comprehensive income for the second quarter of 2025 was $9.6 million, compared to $6.2 million in the prior year's quarter Comprehensive Income (Unaudited) | ($ in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,071 | $6,281 | $16,806 | $10,966 | | Other comprehensive income (loss), net of tax | $516 | $(72) | $2,791 | $(1,227) | | Total comprehensive income | $9,587 | $6,209 | $19,597 | $9,739 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased from $363.8 million at the beginning of 2025 to $376.5 million at June 30, 2025 - For the six months ended June 30, 2025, the company repurchased 149,304 shares of common stock for $2.7 million17 - Cash dividends declared on common stock totaled $5.7 million ($0.40 per share) for the first six months of 2025, an increase from $5.1 million ($0.36 per share) in the same period of 202417 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, cash and cash equivalents increased by $64.8 million Cash Flow Summary (Unaudited) | ($ in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,244 | $22,876 | | Net cash used in investing activities | $(172,174) | $(133,884) | | Net cash provided by financing activities | $229,705 | $46,296 | | Net increase (decrease) in cash | $64,775 | $(64,712) | Notes to Consolidated Financial Statements (Unaudited) The notes provide detailed information supporting the financial statements, including loan portfolio composition, allowance for credit losses, fair value measurements, and regulatory capital ratios - The Allowance for Credit Losses (ACL) on loans increased to $33.6 million at June 30, 2025, from $30.6 million at year-end 202454 - Nonaccrual loans increased significantly to $8.9 million at June 30, 2025, from $4.7 million at December 31, 202465 - The company has an option agreement to repurchase its Series C Preferred Stock issued under the ECIP program, potentially at a discount, but must meet certain lending thresholds899091 - Both PCB Bancorp and PCB Bank met all capital adequacy requirements as of June 30, 2025, with capital conservation buffers of 6.64% and 6.47%, respectively, well above the 2.50% requirement106 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial performance and condition, highlighting a 46.3% increase in Q2 2025 net income year-over-year, driven by a 19.6% rise in net interest income Q2 2025 Financial Highlights | Metric | Q2 2025 | Change from Q2 2024 | | :--- | :--- | :--- | | Net Income (common) | $9.0 million | +46.3% | | Net Interest Income | $26.0 million | +19.6% | | Net Interest Margin | 3.33% | +17 bps | | Provision for Credit Losses | $1.8 million | +$1.5 million | | Gain on Sale of Loans | $1.5 million | +92.0% | Balance Sheet Highlights (vs. Dec 31, 2024) | Metric | June 30, 2025 | Change from Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3.31 billion | +7.9% | | Loans Held-for-Investment | $2.80 billion | +6.3% | | Total Deposits | $2.82 billion | +7.9% | | ACL to Loans Ratio | 1.20% | +4 bps | Results of Operations Q2 2025 net interest income rose 19.6% year-over-year to $26.0 million, benefiting from a 13.1% increase in average earning assets - The increase in net interest income for Q2 2025 was primarily driven by a $6.3 million positive volume impact on loans, offsetting a $1.9 million negative rate impact143 - The provision for credit losses increased significantly in Q2 2025 primarily due to growth in loans held-for-investment, an increase in substandard and nonaccrual loans, and a worsened economic forecast156180 - Gain on sale of loans increased to $1.5 million in Q2 2025 from $763 thousand in Q2 2024, due to a higher volume of SBA loans sold ($26.9 million vs. $13.6 million)158 - Noninterest expense decreased in Q2 2025, with professional fees and data processing costs declining due to the completion of a core system conversion in April 2024163164 Financial Condition As of June 30, 2025, the company's financial condition strengthened, with total assets reaching $3.31 billion Loan Portfolio Composition | ($ in thousands) | June 30, 2025 | % of Total | Dec 31, 2024 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Total commercial real estate | $1,886,460 | 67.6% | $1,752,552 | 66.7% | | Commercial and industrial | $492,857 | 17.6% | $472,763 | 18.0% | | Total consumer | $415,992 | 14.8% | $404,072 | 15.3% | | Total Loans Held-for-Investment | $2,795,309 | 100.0% | $2,629,387 | 100.0% | Deposit Composition | ($ in thousands) | June 30, 2025 | % of Total | Dec 31, 2024 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Noninterest-bearing demand | $575,905 | 20.4% | $547,853 | 20.9% | | Savings, NOW & money market | $551,493 | 19.5% | $466,887 | 17.9% | | Time deposits | $1,695,517 | 60.1% | $1,601,051 | 61.2% | | Total Deposits | $2,822,915 | 100.0% | $2,615,791 | 100.0% | - Nonperforming assets increased to $8.9 million (0.27% of total assets) at June 30, 2025, from $4.7 million (0.15% of total assets) at December 31, 2024, a 90.3% increase184 Liquidity and Capital Resources The company maintained a strong liquidity position, with cash and cash equivalents increasing to $263.6 million and total available borrowing capacity rising to $1.59 billion Available Liquidity Sources | ($ in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $263,567 | $198,792 | | FHLB advances capacity | $750,671 | $722,439 | | Federal Reserve Discount Window | $774,881 | $586,525 | | Overnight federal funds lines | $65,000 | $50,000 | | Total Available Liquidity | $1,854,119 | $1,557,756 | - The company repurchased 149,304 shares of common stock for $2.7 million during the first six months of 2025202 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company actively manages interest rate risk through its Asset Liability Committee (ALCO) using Net Interest Income (NII) at Risk and Economic Value of Equity (EVE) models Interest Rate Sensitivity Analysis (June 30, 2025) | Simulated Rate Change (bps) | Net Interest Income Sensitivity | Economic Value of Equity Sensitivity | | :--- | :--- | :--- | | +200 | +7.9% | -3.6% | | +100 | +4.0% | -1.3% | | -100 | -5.9% | -1.3% | | -200 | -12.3% | -5.4% | - The company's net interest income sensitivity analysis shows an asset sensitive profile, primarily due to a large proportion of variable-rate loans linked to the Prime Rate223 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025, due to a material weakness in internal control over financial reporting - A material weakness was identified in the company's internal control over financial reporting related to the evaluation of unusual or infrequent derivative contracts for proper accounting treatment226 - Due to this material weakness, management concluded that disclosure controls and procedures were ineffective as of June 30, 2025226 - Management is implementing a remediation plan which includes enhanced review by the disclosure committee and engaging third-party assistance for complex accounting matters227 Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal claims arising in the normal course of business, with $190 thousand accrued for loss contingencies as of June 30, 2025 - The company has accrued $190 thousand for legal claim loss contingencies as of June 30, 2025229 Item 1A. Risk Factors This section highlights material changes to risk factors, focusing on a new material weakness in internal controls and the risk of not meeting ECIP repurchase conditions - A new risk factor has been identified concerning the material weakness in internal control over financial reporting, which could cause investors to lose confidence in the company's financial information231232 - The company may not satisfy the lending and other requirements necessary to exercise its option to repurchase the Series C Preferred Stock issued under the ECIP, potentially at a substantial discount233234 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities in Q2 2025, but the company repurchased 98,628 shares of common stock during the quarter Share Repurchase Activity (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 98,228 | $17.94 | | May 2025 | 0 | $0.00 | | June 2025 | 400 | $18.98 | | Total Q2 2025 | 98,628 | $17.95 | Item 3. Defaults Upon Senior Securities None - There were no defaults upon senior securities during the reporting period238 Item 4. Mine Safety Disclosures Not applicable - This item is not applicable to the company239 Item 5. Other Information During the second quarter of 2025, no officer or director of the company adopted or terminated a Rule 10b5-1 trading plan or any other non-Rule 10b5-1 trading arrangement - No new Rule 10b5-1 trading plans were adopted or terminated by officers or directors in Q2 2025240 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, various agreements, and certifications by the CEO and CFO