PB Bankshares(PBBK) - 2022 Q4 - Annual Report

Part I Business PB Bankshares, Inc. is a community-oriented bank holding company focused on shifting its loan portfolio towards commercial real estate and industrial loans, with consolidated assets of $386.3 million as of December 31, 2022 - PB Bankshares, Inc. is the holding company for Presence Bank, formed in March 2021 following the bank's mutual to stock conversion on July 14, 2021[17] - The bank's strategy, under leadership hired in 2019, is to transition from a traditional thrift to a commercial lender, focusing on commercial real estate and commercial & industrial loans[21] - The primary lending market includes Chester, Lancaster, Dauphin, Lebanon, and Cumberland Counties in Pennsylvania, with four banking offices and two loan production offices[20] Consolidated Financial Position (as of Dec 31, 2022) | Metric | Value (in millions) | | :--- | :--- | | Total Consolidated Assets | $386.3 | | Total Deposits | $289.5 | | Total Stockholders' Equity | $46.0 | Lending Activities The bank strategically shifted its lending focus to commercial real estate, industrial, and construction loans, growing total gross loans to $305.4 million in 2022 - The bank's legal lending limit to a single borrower is approximately $6.3 million as of December 31, 2022, with the largest credit relationship at that time being $5.0 million[74] - The bank purchases commercial loan participations, with an outstanding balance of $12.6 million (4.1% of the loan portfolio) at year-end 2022, all of which were performing[73] Loan Portfolio Composition (December 31) | Loan Type | 2022 Amount (in thousands) | 2022 Percent | 2021 Amount (in thousands) | 2021 Percent | | :--- | :--- | :--- | :--- | :--- | | One- to four-family residential | $110,387 | 36.14% | $106,024 | 41.91% | | Commercial Real Estate | $148,567 | 48.64% | $118,266 | 46.75% | | Construction | $20,406 | 6.68% | $13,751 | 5.44% | | Commercial and industrial | $17,874 | 5.85% | $11,880 | 4.70% | | Consumer and other | $8,203 | 2.69% | $3,038 | 1.20% | | Total Gross Loans | $305,437 | 100.00% | $252,959 | 100.00% | Delinquencies, Non-Performing Assets and Classified Assets Asset quality improved in 2022, with total non-performing assets decreasing to $1.0 million (0.27% of total assets) from $1.7 million in 2021 - The decrease in non-performing loans was mainly due to a $394,000 reduction in non-performing construction loans and a $329,000 reduction in non-performing one- to four-family residential loans[87] Non-Performing Assets (December 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Total non-accrual loans | $1,049 | $1,653 | | Foreclosed assets | $0 | $0 | | Total non-performing assets | $1,049 | $1,653 | | Total non-performing assets to total assets | 0.27% | 0.52% | | Total non-performing loans to total loans | 0.34% | 0.65% | Classified and Special Mention Loans (December 31) | Classification | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Substandard loans | $2,661 | $2,618 | | Doubtful loans | $0 | $0 | | Loss loans | $0 | $0 | | Total classified loans | $2,661 | $2,618 | | Special mention loans | $607 | $625 | Allowance for Loan Losses The allowance for loan losses increased to $4.0 million (1.31% of total loans) in 2022, driven by a $1.2 million provision due to loan growth and economic factors - The provision for loan losses increased by $913,000 (318.1%) in 2022, mainly due to qualitative factor adjustments for rising interest rates and growth in commercial loan segments[97] - The allowance allocation reflects the portfolio shift, with 49.5% of the allowance attributed to commercial real estate loans in 2022, up from 45.4% in 2021[99] Activity in Allowance for Loan Losses (Year Ended Dec 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Beginning Allowance | $3,145 | $2,854 | | Provision for loan losses | $1,200 | $287 | | Net (charge-offs) recoveries | ($353) | $4 | | Ending Allowance | $3,992 | $3,145 | Regulation and Supervision The company and Presence Bank are extensively regulated, with Presence Bank considered "well capitalized" at 10.00% CBLR as of December 31, 2022, and the company benefiting from "emerging growth company" status - Presence Bank is regulated by the Pennsylvania Department of Banking and the FDIC, while the holding company, PB Bankshares, is regulated by the Federal Reserve Board[125][128] - The Bank has elected to use the Community Bank Leverage Ratio (CBLR) framework for capital adequacy[148] - At December 31, 2022, Presence Bank's CBLR was 10.00%, exceeding the 9.0% requirement, and was therefore considered "well capitalized" for regulatory purposes[155] - The Company qualifies as an "emerging growth company" under the JOBS Act, allowing for scaled disclosure and an extended transition period for new accounting standards[185][186] Risk Factors This section is not required for smaller reporting companies, therefore no information is provided - Not required for smaller reporting companies[203] Properties As of December 31, 2022, the company's properties, including three owned branches and three leased offices, had a total net book value of $1.1 million Office Properties (as of Dec 31, 2022) | Location | Type | Ownership | Net Book Value | | :--- | :--- | :--- | :--- | | Coatesville | Main Office | Leased | $ — | | New Holland | Branch | Owned | $517,000 | | Oxford | Branch | Owned | $138,000 | | Christiana | Branch | Owned | $487,000 | | Harrisburg | LPO | Leased | $ — | | Elizabethtown | LPO | Leased | $ — | Legal Proceedings Management believes no pending legal proceedings will have a material adverse effect on the company's financial condition or operations as of December 31, 2022 - As of December 31, 2022, the company does not believe any pending legal proceedings will have a material adverse effect on its business or financial condition[208] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, with a stock repurchase program authorized in August 2022 for up to 277,725 shares - The company's common stock is listed on The Nasdaq Capital Market under the symbol "PBBK" since July 14, 2021[210] - On August 5, 2022, the Company announced a stock repurchase program authorizing the repurchase of up to 277,725 shares, or approximately 10% of its then outstanding shares[217] Share Repurchases (Q4 2022) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2022 | 0 | N/A | | Nov 2022 | 2,500 | $12.65 | | Dec 2022 | 0 | N/A | | Total | 2,500 | $12.65 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights significant financial growth in 2022, with total assets growing to $386.6 million and net income rising to $2.1 million Comparison of Balance Sheets Total assets increased by $71.6 million (22.7%) to $386.5 million at year-end 2022, primarily fueled by a $51.7 million increase in net loans receivable - Total assets increased by $71.6 million, or 22.7%, to $386.5 million at December 31, 2022[246] - Net loans receivable increased by $51.7 million (20.7%), driven by growth in commercial real estate (+$30.3 million), construction (+$6.7 million), and commercial and industrial loans (+$6.0 million)[248] - Total deposits increased by $38.4 million (15.3%), and FHLB borrowings increased by $31.0 million (185.6%) to fund asset growth[252][255] Comparison of Operating Results Net income for 2022 was $2.1 million, a $1.3 million increase from 2021, driven by a $3.0 million rise in net interest income - Net interest margin increased 28 basis points to 2.97% for 2022 from 2.69% for 2021[266] - Noninterest income was significantly boosted by an $821,000 gain on the sale and leaseback of the company's corporate headquarters[273] - Noninterest expense increased primarily due to a new $330,000 Pennsylvania shares tax, higher salaries and benefits (+$291,000), and increased professional fees (+$257,000)[275] Key Operating Results (Year Ended Dec 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $10,864 | $7,862 | +38.2% | | Provision for Loan Losses | $1,200 | $287 | +318.1% | | Noninterest Income | $1,417 | $795 | +78.2% | | Noninterest Expense | $8,436 | $7,415 | +13.8% | | Net Income | $2,114 | $785 | +169.3% | Liquidity and Capital Resources The company maintains strong liquidity with $155.6 million in FHLB borrowing capacity and Presence Bank considered "well capitalized" as of December 31, 2022 - Primary sources of liquidity are deposits, loan and security payments, and FHLB borrowings[284] - At December 31, 2022, the company had approximately $155.6 million in borrowing capacity from the FHLB of Pittsburgh, with $47.6 million outstanding[284] - Presence Bank was considered "well capitalized" under regulatory guidelines as of December 31, 2022[289] - Outstanding commitments to originate loans totaled $41.2 million at year-end 2022[290] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for PB Bankshares, Inc. for 2022 and 2021, including balance sheets, income statements, and detailed notes Consolidated Financial Statements The consolidated financial statements show total assets of $386.5 million and net income of $2.1 million for 2022, a significant increase from 2021 Consolidated Balance Sheet Highlights (Dec 31, 2022) | Account | Value (in thousands) | | :--- | :--- | | Total Assets | $386,547 | | Net Loans Receivable | $300,855 | | Total Deposits | $289,495 | | Total Borrowings | $47,638 | | Total Stockholders' Equity | $45,987 | Consolidated Income Statement Highlights (Year Ended Dec 31, 2022) | Account | Value (in thousands) | | :--- | :--- | | Net Interest Income | $10,864 | | Provision for Loan Losses | $1,200 | | Noninterest Income | $1,417 | | Noninterest Expense | $8,436 | | Net Income | $2,114 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, loan portfolio composition, employee benefits, and the upcoming adoption of the CECL model in 2023 - The company adopted lease accounting standard ASU 2016-02 on January 1, 2022, resulting in the recognition of right-of-use assets and lease liabilities of $247,000[379] - The company will adopt the CECL credit loss standard (ASU 2016-13) on January 1, 2023, with the initial adjustment not expected to be significant to the overall allowance for credit losses[373] - The company's defined benefit pension plan was terminated as of April 1, 2021, with all assets dispersed during that year[423] - In 2022, the company established the 2022 Equity Incentive Plan, authorizing 388,815 shares for future grants of stock options and restricted stock awards[432] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[483] - Based on an assessment using the COSO framework, management determined that internal control over financial reporting was effective as of December 31, 2022[487] - The annual report does not include an attestation report from the independent registered public accounting firm on internal controls because the company is an emerging growth company[490] Part III Directors, Executive Officers, and Corporate Governance Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders[492] Executive Compensation Details on executive compensation are incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders[493] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details securities authorized under equity compensation plans, with 266,072 issuable upon option exercise as of December 31, 2022 - Information on security ownership of beneficial owners and management is incorporated by reference from the upcoming Proxy Statement[496] Equity Compensation Plan Information (as of Dec 31, 2022) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 266,072 | $12.28 | 11,653 (options) + 2,975 (restricted stock) | Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders[497] Principal Accountant Fees and Services Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders - Information for this item is incorporated by reference from the upcoming Proxy Statement for the 2023 Annual Meeting of Stockholders[499] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including corporate governance documents and certifications - Lists all financial statements and exhibits filed with the report[500] - Exhibits include Articles of Incorporation, Bylaws, Employment Agreements, the 2022 Equity Incentive Plan, and required CEO/CFO certifications[503][506]