PCB Bancorp(PCB) - 2021 Q2 - Quarterly Report

Part I - Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for PCB Bancorp and its subsidiary, including balance sheets, income statements, cash flows, and accompanying notes Consolidated Balance Sheets As of June 30, 2021, total assets grew to $2.06 billion from $1.92 billion at year-end 2020, driven by an increase in net loans, while total liabilities increased due to a significant rise in noninterest-bearing demand deposits to $795.7 million from $538.0 million, and total shareholders' equity saw a modest increase to $238.9 million Consolidated Balance Sheet Highlights (Unaudited) | ($ in thousands) | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,060,003 | $1,922,853 | | Total cash and cash equivalents | $174,621 | $194,098 | | Net loans held-for-investment | $1,694,767 | $1,557,068 | | Total Liabilities | $1,821,062 | $1,689,065 | | Total deposits | $1,797,648 | $1,594,851 | | Noninterest-bearing demand deposits | $795,741 | $538,009 | | Federal Home Loan Bank advances | $10,000 | $80,000 | | Total Shareholders' Equity | $238,941 | $233,788 | Consolidated Statements of Income For Q2 2021, net income surged to $9.8 million from $3.4 million in Q2 2020, driven by higher net interest income, a significant reversal of provision for loan losses, and a large gain on the sale of loans, resulting in diluted EPS of $0.64 compared to $0.22 Key Income Statement Data (Unaudited) | ($ in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $18,996 | $15,363 | $36,815 | $31,929 | | Provision (reversal) for loan losses | $(934) | $3,855 | $(2,081) | $6,751 | | Noninterest income | $5,151 | $2,918 | $8,008 | $4,944 | | Noninterest expense | $11,139 | $9,696 | $20,808 | $20,263 | | Net income | $9,844 | $3,367 | $18,404 | $6,939 | | Diluted EPS | $0.64 | $0.22 | $1.19 | $0.45 | Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash used in investing activities was $146.8 million, primarily due to net loan growth, while net cash provided by financing activities was $120.2 million, driven by increased deposits, resulting in an overall decrease of $19.5 million in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (Unaudited) | ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,205 | $4,810 | | Net cash used in investing activities | $(146,834) | $(112,127) | | Net cash provided by financing activities | $120,152 | $268,692 | | Net (decrease) increase in cash and cash equivalents | $(19,477) | $161,375 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial instruments, COVID-19 related loan modifications, PPP loans, and regulatory capital - As of June 30, 2021, the Company had $16.2 million in loans under modified terms related to the COVID-19 pandemic, all of which were accounted for under the CARES Act and not considered Troubled Debt Restructurings (TDRs)[31] - The company held $181.0 million in SBA Paycheck Protection Program (PPP) loans as of June 30, 2021. During the first six months of 2021, it funded $107.0 million in new PPP loans and recognized $65.6 million in loan forgiveness[32][33] - On April 8, 2021, the Board approved a new stock repurchase program for up to 775,000 shares. As of June 30, 2021, 646,334 shares were repurchased for $10.3 million at a weighted-average price of $15.99 per share[93] - Both the Company and its subsidiary bank, Pacific City Bank, met all capital adequacy requirements as of June 30, 2021, with capital conservation buffers of 8.43% and 8.13%, respectively, well above the 2.50% requirement[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting increased net income, asset and deposit growth, improved asset quality, and robust liquidity and capital resources Executive Summary and Financial Highlights The company reported strong Q2 2021 results with net income of $9.8 million, a 192.4% increase from Q2 2020, driven by a $(934) thousand reversal of provision for loan losses and a $4.0 million gain on sale of loans, with total assets growing 7.1% to $2.06 billion and deposits increasing 12.7% to $1.80 billion Q2 2021 Financial Highlights vs. Q2 2020 | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Income | $9.8 million | $3.4 million | | Provision (reversal) for loan losses | $(934) thousand | $3.9 million | | Net Interest Income | $19.0 million | $15.4 million | | Gain on sale of loans | $4.0 million | $1.5 million | Balance Sheet Highlights (June 30, 2021 vs. Dec 31, 2020) | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2.06 billion | $1.92 billion | | Loans held-for-investment | $1.72 billion | $1.58 billion | | Total Deposits | $1.80 billion | $1.59 billion | | SBA PPP Loans | $181.0 million | $135.7 million | | Loans under COVID-19 modification | $16.2 million | $36.1 million | Results of Operations For Q2 2021, net interest income increased 23.6% year-over-year to $19.0 million, driven by a 70.8% drop in interest expense, while the company recorded a loan loss provision reversal of $934 thousand, and noninterest income grew 76.5% to $5.2 million largely due to a 164.8% increase in gain on sale of loans - Net interest income for Q2 2021 increased by $3.6 million (23.6%) compared to Q2 2020, primarily due to a $2.6 million (70.8%) decrease in total interest expense[138] - The company recorded a reversal for loan losses of $934 thousand in Q2 2021, a significant shift from the $3.9 million provision in Q2 2020, attributed to improving economic conditions[151] - Gain on sale of loans surged to $4.0 million in Q2 2021 from $1.5 million in Q2 2020, driven by higher premiums and increased sales volume of SBA loans[155] - Salaries and employee benefits expense increased by $1.4 million (23.7%) in Q2 2021, mainly because direct loan origination costs related to SBA PPP loans, which offset salary expenses, were much lower ($62 thousand) compared to the prior year ($1.1 million)[162] Financial Condition As of June 30, 2021, the company's financial condition strengthened with total assets reaching $2.06 billion, a loan portfolio of $1.72 billion, significantly improved asset quality with nonperforming assets decreasing 68.3% to $1.5 million, and total deposits growing by $202.8 million, while shareholders' equity increased to $238.9 million - Loans held-for-investment increased by $136.1 million (8.6%) to $1.72 billion in the first six months of 2021, with SBA PPP and commercial property loans being the primary drivers of growth[179] - Total nonperforming assets decreased significantly to $1.5 million (0.07% of total assets) at June 30, 2021, from $4.6 million (0.24% of total assets) at December 31, 2020[195] - Total deposits increased by $202.8 million (12.7%) since year-end 2020, largely due to a 47.9% increase in noninterest-bearing demand deposits, which were boosted by funds from government programs like PPP[198] - Shareholders' equity increased by $5.2 million to $238.9 million in the first half of 2021. The growth from net income ($18.4 million) was partially offset by stock repurchases ($10.3 million) and dividends ($3.1 million)[203] Liquidity and Capital Resources The company maintained a strong liquidity position with $174.6 million in cash and cash equivalents as of June 30, 2021, supported by $502.7 million in additional FHLB borrowing capacity and $65.0 million in unsecured federal funds lines, with all regulatory capital ratios significantly exceeding 'well-capitalized' standards - The company has substantial available liquidity, including $502.7 million in additional borrowing capacity from the FHLB and $65.0 million in unused federal funds lines as of June 30, 2021[213] Regulatory Capital Ratios as of June 30, 2021 | Ratio | Pacific City Bank | Well Capitalized Requirement | | :--- | :--- | :--- | | Common tier 1 capital (to risk-weighted assets) | 14.88% | 6.5% | | Total capital (to risk-weighted assets) | 16.13% | 10.0% | | Tier 1 capital (to risk-weighted assets) | 14.88% | 8.0% | | Tier 1 capital (to average assets) | 11.53% | 5.0% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company actively manages interest rate risk using NII at Risk and EVE models, with its balance sheet positioned as asset-sensitive, projecting a 10.8% increase in NII and an 8.0% increase in EVE from a hypothetical immediate 100 basis point rate rise Interest Rate Risk Sensitivity Analysis (as of June 30, 2021) | Simulated Rate Change | Net Interest Income Sensitivity | Economic Value of Equity Sensitivity | | :--- | :--- | :--- | | +300 bps | +32.3% | +18.6% | | +200 bps | +21.6% | +14.2% | | +100 bps | +10.8% | +8.0% | - The company's balance sheet is positioned to be asset-sensitive, indicating that net interest income is expected to rise if short-term interest rates increase[228] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting during Q2 2021 - The CEO and CFO concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[232] - No material changes were made to the internal control over financial reporting during the three months ended June 30, 2021[233] Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal claims arising in the normal course of business, which management does not expect to have a material effect on the consolidated financial statements, with no accrued loss contingencies for legal claims at June 30, 2021 - The Company is involved in various legal claims in the normal course of business but does not expect them to have a material financial impact[235] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the risk factors disclosed in the 2020 Annual Report on Form 10-K were reported[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities for the quarter, but repurchased 646,334 shares of common stock at an average price of $15.99 per share under a program approved on April 8, 2021 Share Repurchase Activity (Q2 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2021 | 12,737 | $15.89 | | May 2021 | 619,904 | $15.99 | | June 2021 | 13,693 | $15.98 | | Total | 646,334 | $15.99 | - A new stock repurchase program was approved on April 8, 2021, authorizing the repurchase of up to 775,000 shares through September 7, 2021[238] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, along with various corporate documents and XBRL data files[242]