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What changed in PCB BANCORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PCB BANCORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+389 added−513 removedSource: 10-K (2024-03-12) vs 10-K (2023-03-09)

Top changes in PCB BANCORP's 2023 10-K

389 paragraphs added · 513 removed · 265 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

106 edited+32 added−131 removed104 unchanged
Biggest changeThe Bank must maintain the following minimum capital ratios: • 4.0% Tier 1 leverage ratio; • 4.5% CET1 to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%; • 6.0% Tier 1 capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum Tier 1 capital ratio of at least 8.5%; and • 8.0% total capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum total capital ratio of at least 10.5%. 14 The Basel III Capital Rules provide for a number of deductions from and adjustments to CET1.
Biggest changeAs fully phased-in on January 1, 2019,The Basel III Capital Rules subject banks to the following risk-based capital requirements: • a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer, or 7%; • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, or 8.5%; • a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, or 10.5%; and • a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposure.
The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches in on the East Coast (Bayside, New York; and Englewood Cliffs and Palisade Park, New Jersey), two full-service branches in Texas (Carrollton and Dallas), and seven loan production offices (“LPOs”) located in Los Angeles and Orange Counties, California; Annandale, Virginia; Atlanta, Georgia; Aurora, Colorado; Bellevue, Washington; and Carrollton, Texas.
The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches on the East Coast (Bayside, New York; and Englewood Cliffs and Palisade Park, New Jersey), two full-service branches in Texas (Carrollton and Dallas), and seven loan production offices (“LPOs”) located in Los Angeles and Orange Counties, California; Annandale, Virginia; Atlanta, Georgia; Aurora, Colorado; Bellevue, Washington; and Carrollton, Texas.
Anti-Money Laundering and Office of Foreign Assets Control Regulation The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“Patriot Act”), is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.
Anti-Money Laundering and Office of Foreign Assets Control Regulation The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”), is designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. 25 Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
Subsidiary Name Change On August 25, 2022, the Company’s subsidiary changed its name to “PCB Bank” from “Pacific City Bank.” In addition, the Company introduced a new logo, which was also utilized by the Bank after its name change. In accordance with the name change, the Bank updated its website, branch signage and marketing collateral.
Subsidiary Name Change On August 25, 2022, the Bank changed its name to “PCB Bank” from “Pacific City Bank.” In addition, the Company introduced a new logo, which was also utilized by the Bank after its name change. In accordance with the name change, the Bank updated its website, branch signage and marketing collateral.
Treasury, and mortgage related rules, including with respect to loan securitization and servicing by the U.S. Department of Housing and Urban Development (“HUD”), and agencies such as Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), have an impact on the Company’s business.
Treasury, and mortgage related rules, including with respect to loan securitization and servicing by the U.S. Department of Housing and Urban Development (“HUD”), and agencies such as the U.S. SBA, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), have an impact on the Company’s business.
While residential property loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan.
While residential mortgage loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan.
Additional aspects of the Basel III Capital Rules that are relevant to the Company and the Bank include: • consistent with the Basel I risk-based capital rules, assigning exposures secured by single-family residential properties to either a 50% risk weight for first-lien mortgages that meet prudent underwriting standards or a 100% risk weight category for all other mortgages; • providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (set at 0% under the Basel I risk-based capital rules); • assigning a 150% risk weight to all exposures that are nonaccrual or 90 days or more past due (set at 100% under the Basel I risk-based capital rules), except for those secured by single-family residential properties, which will be assigned a 100% risk weight, consistent with the Basel I risk-based capital rules; • applying a 150% risk weight instead of a 100% risk weight for certain high volatility CRE acquisition, development and construction loans; and • applying a 250% risk weight to the portion of mortgage servicing rights and deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks that are not deducted from CET1 capital (set at 100% under the Basel I risk-based capital rules).
Some of aspects of the Basel III Capital Rules risk weighting standards that are relevant to the Company and the Bank include: • assigning exposures secured by single-family residential properties to either a 50% risk weight for first-lien mortgages that meet prudent underwriting standards or a 100% risk weight category for all other mortgages; • providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (set at 0% under the Basel I risk-based capital rules); • assigning a 150% risk weight to all exposures that are nonaccrual or 90 days or more past due (set at 100% under the Basel I risk-based capital rules), except for those secured by single-family residential properties, which will be assigned a 100% risk weight, consistent with the Basel I risk-based capital rules; • applying a 150% risk weight instead of a 100% risk weight for certain high volatility CRE acquisition, development and construction loans; and • applying a 250% risk weight to the portion of mortgage servicing rights and deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks that are not deducted from CET1 capital (set at 100% under the Basel I risk-based capital rules).
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders if: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders and shares repurchases if: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the bank holding company’s capital needs and overall current and prospective financial condition; or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The underwriting analysis may also include credit verification, reviews of appraisals, environmental hazard reports, the borrower’s liquidity and leverage, management experience of the owners or principals, economic conditions and industry trends. Also, tertiary sources of repayment in the form of personal guarantees from responsible parties are generally required on loans secured by CRE.
The underwriting analysis may also include credit verification, reviews of appraisals, environmental hazard reports, the borrower’s liquidity and leverage, management experience of the owners or principals, economic conditions and industry trends. Also, tertiary sources of repayment in the form of personal guarantees from responsible parties are generally required on CRE loans.
In addition, the collateral securing C&I loans generally includes moveable properties such as equipment and inventory, which may decline in value more rapidly than anticipated exposing us to increased credit risks. As a result of these additional complexities, variables and risks, C&I loans require extensive underwriting and servicing. Other Consumer Loans .
In addition, the collateral securing C&I loans generally includes moveable properties such as equipment and inventory, which may decline in value more rapidly than anticipated exposing us to increased credit risks. As a result of these additional complexities, variables and risks, C&I loans require extensive underwriting and servicing. 7 Consumer Loans .
In underwriting loans secured by CRE, the Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s age, condition, operating history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.
In underwriting CRE loans, the Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s age, condition, operating history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.
The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and its subsidiary, the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.
The following is a summary of the supervisory and regulatory framework applicable to the Company and its subsidiary, the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described.
Under the revised PCA provisions of the FDIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated: 15 PCA category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio CET 1 Risk-Based Capital Ratio Tier 1 Leverage Ratio Well capitalized 10.0% 8.0% 6.5% 5.0% Adequately capitalized 8.0% 6.0% 4.5% 4.0% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity / Total Assets ≤ 2.0% An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Under the prompt correction action provisions of the FDIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated: PCA category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio CET 1 Risk-Based Capital Ratio Tier 1 Leverage Ratio Well capitalized 10.0% 8.0% 6.5% 5.0% Adequately capitalized 8.0% 6.0% 4.5% 4.0% Undercapitalized Significantly undercapitalized Critically undercapitalized Tangible Equity / Total Assets ≤ 2.0% An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios, if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits. As of December 31, 2022, the Bank was eligible to accept brokered deposits without a waiver from FDIC.
Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits. As of December 31, 2023, the Bank was eligible to accept brokered deposits without a waiver from FDIC.
The Company and the Bank may, however, incur costs if they are required to adopt additional policies and systems to ensure compliance with certain provisions of the Volcker Rule in the future. 26
The Company and the Bank may, however, incur costs if they are required to adopt additional policies and systems to ensure compliance with certain provisions of the Volcker Rule in the future. 20
Loans to One Borrower With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for loan loss, and any capital notes and debentures of the bank.
Loans to One Borrower With certain limited exceptions, the maximum amount that a California bank may lend to any borrower at any one time (including the obligations to the bank of certain related entities of the borrower) may not exceed 25% (and unsecured loans may not exceed 15%) of the bank’s shareholders’ equity, allowance for credit loss on loans, and any capital notes and debentures of the bank.
Dividend Payments, Stock Redemptions and Stock Repurchases The Company’s ability to pay dividends to its shareholders may be affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding companies.
Dividend Payments, Stock Redemptions and Stock Repurchases The Company’s ability to pay dividends to its shareholders or repurchase shares may be affected by both general corporate law considerations and the policies of the Federal Reserve applicable to bank holding companies.
As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (“CDFPI”), the Federal Reserve System (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), and the Bureau of Consumer Financial Protection (“CFPB”).
As a result, the growth and earnings performance of the Company and its subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the California Department of Financial Protection and Innovation (“CDFPI”), the Federal Reserve System (“Federal Reserve”), the FDIC, and the Bureau of Consumer Financial Protection (“CFPB”).
ALCOs are responsible for ensuring compliance and implementation of investment policy guidelines. Investment activities are actively monitored on an ongoing basis to identify any material changes in the securities and also evaluated for potential other-than-temporary impairment (“OTTI”) at least quarterly. Limits for investment transactions are based on total transaction amount and require approval if they exceed designated thresholds.
ALCOs are responsible for ensuring compliance and implementation of investment policy guidelines. Investment activities are actively monitored on an ongoing basis to identify any material changes in the securities and also evaluated for impairment at least quarterly. Limits for investment transactions are based on total transaction amount and require approval if they exceed designated thresholds.
In addition, the Federal Reserve policy requires that bank holding companies consult with and inform the Federal Reserve in advance of (i) redeeming or repurchasing capital instruments when experiencing financial weakness and (ii) redeeming or repurchasing common stock and perpetual preferred stock if the result will be a net reduction in the amount of such capital instruments outstanding for the quarter in which the reduction occurs.
In addition, the Federal Reserve policy requires that bank holding companies consult with and inform the Federal Reserve in advance of (i) redeeming or repurchasing capital instruments when experiencing financial weakness and (ii) redeeming or repurchasing common stock and perpetual preferred stock if the result will be a net reduction in the amount of such capital instruments outstanding for the quarter in which the reduction occurs. 15 The Bank General The Bank is a California-chartered bank.
As the Company has grown, it has invested in and developed a credit culture that will support future growth and expansion efforts while maintaining outstanding asset quality. The Company’s credit departments have robust internal controls and lending policies with conservative underwriting standards.
As the Company has grown, it has invested in and developed a credit culture designed to support future growth and expansion efforts while maintaining outstanding asset quality. The Company’s credit departments have robust internal controls and lending policies with conservative underwriting standards.
SBA 7(a) loans are typically term loans with maturities up to 10 years for loans not secured by real estate and up to 25 years for real estate secured loans. SBA loans are fully amortizing with monthly payments of principal and interest. SBA 7(a) loans are typically floating rate loans that are secured by business assets and/or real estate.
SBA 7(a) loans are typically term loans with maturities up to 10 years for C&I SBA loans and up to 25 years for CRE SBA loans. SBA loans are fully amortizing with monthly payments of principal and interest. SBA 7(a) loans are typically floating rate loans that are secured by business assets and/or real estate.
Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Change in Control Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
Business Overview Lending Activities The Company’s core lending strategy is, through the Bank, to build and maintain a diversified loan portfolio based on the type of customers (e.g., businesses versus individuals), loan products (e.g., real estate loans, C&I loans, other consumer loans), geographical locations, and different industries in which its business customers are engaged (e.g., manufacturing, wholesale and retail trade, hospitality, etc.).
Business Overview Lending Activities The Company’s core lending strategy is, through the Bank, to build and maintain a diversified loan portfolio based on the type of customers (e.g., businesses versus individuals), loan products (e.g., commercial real estate (“CRE”) loans, commercial and industrial (“C&I”) loans, and consumer loans), geographical locations, and different industries in which its business customers are engaged (e.g., manufacturing, wholesale and retail trade, hospitality, etc.).
While the Company believes it is well positioned within this highly competitive industry, the industry could become even more competitive as a result of legislative, regulatory, economic, and technological changes, as well as continued consolidation within the industry. 10 Human Capital As of December 31, 2022, the Company had a total of 267 full-time employees and 7 part-time employees.
While the Company believes it is well positioned within this highly competitive industry, the industry could become even more competitive as a result of legislative, regulatory, economic, and technological changes, as well as continued consolidation within the industry. Human Capital As of December 31, 2023, the Company had a total of 268 full-time employees and 3 part-time employees.
The Company strives to retain an attractive deposit mix from both large and small customers as well as a broad market reach. As of December 31, 2022, the Company’s top 10 customers, excluding wholesale deposits, accounted for 15.1% of total deposits.
The Company strives to retain an attractive deposit mix from both large and small customers as well as a broad market reach. As of December 31, 2023, the Company’s top 10 customers, excluding wholesale deposits, accounted for 8.7% of total deposits.
As of December 31, 2022, using regulatory definitions in the CRE Concentration Guidance, the Bank’s CRE loans represented 253.9% of total risk-based capital, as compared to 269.8%, 256.1% and 243.6% as of December 31, 2021, 2020 and 2019, respectively.
As of December 31, 2023, using regulatory definitions in the CRE Concentration Guidance, the Bank’s CRE loans represented 280.7% of total risk-based capital, as compared to 253.9%, 269.8% and 256.1% as of December 31, 2022, 2021 and 2020, respectively.
Core deposits, defined as all deposits except for time deposits exceeding $250,000 and internet or brokered deposits, are the primary and most valuable low-cost funding source for the lending business, and represented 75.5% of total deposits as of December 31, 2022.
Core deposits, defined as all deposits except for time deposits exceeding $250,000 and internet or brokered deposits, are the primary and most valuable low-cost funding source for the lending business, and represented 62.6% of total deposits as of December 31, 2023.
Subject to exceptions for well-capitalized and well-managed holding companies, the Federal Reserve regulations also require approval of holding company purchases and redemptions of its securities if the gross consideration paid exceeds 10% of consolidated net worth for any 12-month period.
See “Supervision and Regulation - Regulatory Capital Requirements” above. Subject to exceptions for well-capitalized and well-managed holding companies, the Federal Reserve regulations also require approval of holding company purchases and redemptions of its securities if the gross consideration paid exceeds 10% of consolidated net worth for any 12-month period.
The Company offers adjustable-rate mortgage (“ARM”) loans with the interest rate fixed for the first five or seven years followed by rate adjustments each year with terms up to 30 years.
The Company offers adjustable-rate mortgage (“ARM”) loans with the interest rate fixed for the first five or seven years followed by rate adjustments every six months with terms up to 30 years.
The largest aggregate carrying value of loans that the Bank had outstanding to any one borrower and related entities was $55.0 million, which were performing at December 31, 2022. Risk Governance The Company maintains a conservative credit culture with strict underwriting standards.
As of December 31, 2023, the largest aggregate carrying value of loans that the Bank had outstanding to any one borrower and related entities was $45.9 million, which were performing at that date. Risk Governance The Company maintains a conservative credit culture with strict underwriting standards.
The CRA then requires bank regulators to take into account the bank’s record in meeting the needs of its community when considering certain applications by a bank, including applications to establish a banking center or to conduct certain mergers or acquisitions.
The regulators examine banks and assign each bank a public CRA rating. The CRA then requires bank regulators to take into account the bank’s record in meeting the needs of its community when considering certain applications by a bank, including applications to establish a banking center or to conduct certain mergers or acquisitions.
For example, the Bank may not extend credit, lease or sell property, or furnish any service, or fix or vary the consideration for any of the foregoing on the condition that (i) the customer must obtain or provide some additional credit, property or service from or to the Bank other than a loan, discount, deposit or trust service, (ii) the customer must obtain or provide some additional credit, property or service from or to the Company, or (iii) the customer must not obtain some other credit, property or service from competitors, except reasonable requirements to assure soundness of credit extended. 19 Deposit Insurance As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC.
For example, the Bank may not extend credit, lease or sell property, or furnish any service, or fix or vary the consideration for any of the foregoing on the condition that (i) the customer must obtain or provide some additional credit, property or service from or to the Bank other than a loan, discount, deposit or trust service, (ii) the customer must obtain or provide some additional credit, property or service from or to the Company, or (iii) the customer must not obtain some other credit, property or service from competitors, except reasonable requirements to assure soundness of credit extended.
Excluding PPP loans, SBA 7(a) loans are typically extended for working capital needs, purchase of inventory, purchases of machinery and equipment, debt refinance, business acquisitions, start-up financing or the purchase or construction of owner-occupied commercial property.
The Bank primarily extends SBA loans known as SBA 7(a) loans and SBA 504 loans. SBA 7(a) loans are typically extended for working capital needs, purchase of inventory, purchases of machinery and equipment, debt refinance, business acquisitions, start-up financing or the purchase or construction of owner-occupied commercial property.
As of December 31, 2022, the Company had outstanding overnight FHLB advances of $20.0 million and maintained additional borrowing capacity of $561.7 million. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
As of December 31, 2023, the Company had outstanding term FHLB advances of $39.0 million and maintained additional borrowing capacity of $603.0 million. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Wholesale deposits are also utilized to supplement core retail deposits for funding purposes, including brokered accounts and State California Treasurer’s time deposits. As of December 31, 2022, wholesale deposits totaled $147.0 million, or 7.2% of total deposits.
Wholesale deposits are also utilized to supplement core retail deposits for funding purposes, including brokered accounts and California State Treasurer’s time deposits. As of December 31, 2023, wholesale deposits totaled $363.7 million, or 15.5% of total deposits.
As a registered bank holding company, the Company is subject to regulation by the Federal Reserve.
As a registered bank holding company, the Company is subject to regulation by the Federal Reserve. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve.
These regulations affect how consumer information is transmitted through financial services companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.
The rules provide for an exemption from most of these requirements for “small servicers,” which are defined as loan servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own.
The rules provide for an exemption from most of these requirements for “small servicers,” which are defined as loan servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. 19 Enforcement Powers of Federal and State Banking Agencies The federal bank regulatory agencies have broad enforcement powers.
These underwriting standards are designed to determine the maximum loan amount that a borrower has the capacity to repay based upon the type of collateral securing the loan and the borrower’s income. Such loan policies include maximum amortization schedules and loan terms for each category of loans collateralized by liens on real estate.
The Company’s loan policies generally include additional underwriting guidelines for loans collateralized by real estate. These underwriting standards are designed to determine the maximum loan amount that a borrower has the capacity to repay based upon the type of collateral securing the loan and the borrower’s income.
Under the California Financial Code, the Bank is permitted to pay a dividend in the following circumstances: (i) without the consent of either the CDFPI or the Bank’s shareholders, in an amount not exceeding the lesser of (a) the retained earnings of the Bank; or (b) the net income of the Bank for its last three fiscal years, less the amount of any distributions made during the prior period; (ii) with the prior approval of the CDFPI, in an amount not exceeding the greatest of: (a) the retained earnings of the Bank; (b) the net income of the Bank for its last fiscal year; or (c) the net income for the Bank for its current fiscal year; and (iii) with the prior approval of the CDFPI and the Bank’s shareholders (i.e., the Company) in connection with a reduction of its contributed capital.
Under the California Financial Code, the Bank is permitted to pay a dividend in the following circumstances: (i) without the consent of either the CDFPI or the Bank’s shareholders, in an amount not exceeding the lesser of (a) the retained earnings of the Bank; or (b) the net income of the Bank for its last three fiscal years, less the amount of any distributions made during the prior period; (ii) with the prior approval of the CDFPI, in an amount not exceeding the greatest of: (a) the retained earnings of the Bank; (b) the net income of the Bank for its last fiscal year; or (c) the net income for the Bank for its current fiscal year; and (iii) with the prior approval of the CDFPI and the Bank’s shareholders (i.e., the Company) in connection with a reduction of its contributed capital. 16 The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
For commercial property loans, the maturities are generally up to seven years with payments determined on the basis of principal amortization schedules of up to 25 years with a balloon payment due at maturity. SBA property loans and residential property loans are typically fully amortized with terms up to 25 years and 30 years respectively.
Small Business Administration (“SBA”) and construction loans, the maturities are generally up to seven years with payments determined on the basis of principal amortization schedules of up to 25 years with a balloon payment due at maturity. CRE SBA loans are typically fully amortized with terms up to 25 years.
Real estate loans consist of commercial property loans, which are secured by CRE (e.g., retail shopping centers, industrial/manufacturing properties, multifamily residential properties, office buildings, etc.), SFR real estate loans, SBA property loans, and construction loans. A majority of real estate lending activities originate from businesses and individuals within the Company’s primary lending areas.
CRE loans consist of loans secured by commercial real estate properties (e.g., retail shopping centers, industrial/manufacturing properties, multifamily residential properties, office buildings, multi-tenant residential real properties etc.) and construction loans. A majority of CRE lending activities originate from businesses within the Company’s primary lending areas. For CRE loans, other than loans guaranteed by the U.S.
A bank’s capital category is determined solely for the purpose of applying PCA regulations and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations and an institution’s capital category may not accurately represent the institution’s overall financial condition or prospects for other purposes.
During the year ended December 31, 2022, the Bank paid $597 thousand in aggregate FDIC deposit insurance premiums.
During the year ended December 31, 2023, the Bank paid $1.1 million in aggregate FDIC deposit insurance premiums.
The Company attempts to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses inherent in the loan portfolio.
The Company attempts to identify potential problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary charge-offs promptly and maintain adequate levels of ACL on loans and off-balance sheet credit exposures.
In addition, the loan policies provide guidelines for: personal guarantees; an environmental review; loans to employees, executive officers and directors; problem loan identification; maintenance of an adequate allowance for loan losses and other matters relating to lending practices.
In addition, the loan policies provide guidelines for: personal guarantees; an environmental review; loans to employees, executive officers and directors; problem loan identification; maintenance of an adequate allowance for credit losses and other matters relating to lending practices. 5 Loan Category The Company’s loan portfolio consists primarily of three major categories: CRE loans, C&I and consumer loans.
The Bank is actively working to manage its CRE concentration and the management has discussed the CRE Concentration Guidance with the FDIC and believes that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance.
The Bank is actively working to manage its CRE concentration and the management has discussed the CRE Concentration Guidance with the FDIC and believes that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are currently sufficient to address the CRE Concentration Guidance. 18 Consumer Financial Services Banks and other financial institutions are subject to numerous laws and regulations intended to protect consumers in their transactions with banks.
The premiums fund the DIF. The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the institution and may also impose special assessments in emergency situations.
The FDIC assesses a quarterly deposit insurance premium on each insured institution based on the assets levels and risk characteristics of the institution. The FDIC may impose special assessments in emergency situations or based on the adequacy of the reserves of the Deposit Insurance Fund. As a result, the Bank’s FDIC deposit insurance premiums could increase.
The FDIA includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The Basel III Capital Rules, revised the PCA requirements effective January 1, 2015.
The FDIA specifies five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” A depository institution’s capital tier depends upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation.
Source of Strength Doctrine The Federal Reserve policy historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement.
Source of Strength Doctrine The Dodd-Frank Act codified the Federal Reserve’s long-standing policy that bank holding companies must act as a source of financial and managerial strength to their subsidiary banks.
Market Area and Competition The Company is headquartered in Los Angeles, California and operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches in on the East Coast (Bayside, New York; and Englewood Cliffs and Palisade Park, New Jersey), two full-service branches in Texas (Carrollton and Dallas), and seven loan production offices (“LPOs”) located in Los Angeles and Orange Counties, California; Annandale, Virginia; Atlanta, Georgia; Aurora, Colorado; Bellevue, Washington; and Carrollton, Texas.
Future services may also be significantly influenced by improvements and developments in technology and evolving state and federal laws and regulations. 10 Market Area and Competition The Company is headquartered in Los Angeles, California and operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches on the East Coast (Bayside, New York; and Englewood Cliffs and Palisade Park, New Jersey), two full-service branches in Texas (Carrollton and Dallas), and seven LPOs located in Los Angeles and Orange Counties, California; Annandale, Virginia; Atlanta, Georgia; Aurora, Colorado; Bellevue, Washington; and Carrollton, Texas.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC and failure of a financial institution to maintain and implement adequate OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. 22 Concentrations in Commercial Real Estate Concentration risk exists when financial institutions deploy too many assets to any one industry or segment.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC and failure of a financial institution to maintain and implement adequate OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.
Item 1. Business General PCB Bancorp (collectively, with its consolidated subsidiary, the “Company,” “we,” “us” or “our”) is a California corporation incorporated in 2007 as a registered bank holding company subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), to serve as the holding company for PCB Bank (the “Bank”), which was founded in 2003.
Item 1. Business General PCB Bancorp is a California corporation incorporated in 2007 as a registered bank holding company subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), to serve as the holding company for PCB Bank (the “Bank”), which was founded in 2003. The Company has no material operations other than those of the Bank.
In reviewing applications seeking approval of merger and acquisition transactions, the Federal Reserve considers, among other things, the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the Community Reinvestment Act of 1977 (“CRA”), the applicant’s compliance with fair housing and other consumer protection laws and the effectiveness of all organizations involved in combating money laundering activities.
As a bank holding company, the Company must obtain prior approval of the Federal Reserve before taking any action that causes a bank to become a controlled subsidiary of the bank holding company, acquiring direct or indirect ownership of 5% of the outstanding shares of any class of voting securities of another bank or bank holding company, acquiring all or substantially all the assets of a bank or merging or consolidating with another bank holding company. 14 In reviewing applications seeking approval of merger and acquisition transactions, the Federal Reserve considers, among other things, the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the Community Reinvestment Act of 1977 (“CRA”), the applicant’s compliance with fair housing and other consumer protection laws and the effectiveness of all organizations involved in combating money laundering activities.
As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2022. Transactions with Affiliates Transactions between depository institutions and their affiliates, including transactions between the Bank and the Company, are governed by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W promulgated thereunder.
Transactions with Affiliates Transactions between depository institutions and their affiliates, including transactions between the Bank and the Company, are governed by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W promulgated thereunder.
Commercial term loans (usually five to seven years) normally provide for monthly payments of both principal and interest. Commercial lines of credit (generally payable within one year) typically provide for periodic interest payments, with principal payable at maturity. SBA commercial term loans usually have a longer maturity (seven to ten years).
C&I SBA loans usually have a longer maturity (seven to ten years). Commercial lines of credit (generally payable within one year) typically provide for periodic interest payments, with principal payable at maturity. These C&I loans are reviewed on a periodic basis with the review frequencies commensurate with the size and complexity of the loans.
The Company evaluates its services on an ongoing basis, and will add or remove services based upon the perceived needs and financial requirements of customers, competitive factors and its financial and other capabilities. Future services may also be significantly influenced by improvements and developments in technology and evolving state and federal laws and regulations.
The Company evaluates its services on an ongoing basis, and will add or remove services based upon the perceived needs and financial requirements of customers, competitive factors and its financial and other capabilities.
For additional information, see Note 9 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 9 Borrowings Activities Although deposits are the Company’s primary source of funds, the Company may also borrow funds from the Federal Home Loan Bank of San Francisco (“FHLB”), Federal Reserve Bank’s Discount Window (“Federal Reserve Discount Window”), or its correspondent banking relationships.
Borrowings Activities Although deposits are the Company’s primary source of funds, the Company may also borrow funds from the Federal Home Loan Bank of San Francisco (“FHLB”), the Federal Reserve Bank’s Discount Window (“Federal Reserve Discount Window”), or its correspondent banking relationships.
The C&I loan category includes commercial term loans, commercial lines of credit, SBA commercial term loans, and SBA PPP loans. Commercial term loans are typically extended to finance business acquisitions, permanent working capital needs, and/or equipment purchases. Commercial lines of credit are generally provided to finance short-term working capital needs and warehouse lending credit facilities.
Commercial term loans guaranteed by SBA are provided to small businesses to finance permanent working capital needs and/or equipment purchases. Commercial lines of credit are generally provided to finance short-term working capital needs and warehouse lending credit facilities.
Loan fees on these products, interest rates and other provisions of residential property loans are determined by the Company on the basis of its own pricing criteria and competitive market conditions. Interest rates and payments on ARM loans generally are adjusted annually based on the one-year Constant Maturity Treasury (“CMT”).
Loan fees on these products, interest rates and other provisions of residential mortgage loans are determined by the Company on the basis of its own pricing criteria and competitive market conditions. Interest rates and payments on ARM loans generally are adjusted every six months based on the Secured Overnight Financing Rate (“SOFR”) 30-day average.
The Company and the Bank made this election in the first quarter of 2015’s call reports in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of its available-for-sale investment securities portfolio.
The Company and the Bank made this election in 2015 order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of its available-for-sale investment securities portfolio. The Basel III Capital Rules prescribe risk weights for different assets classes, generally ranging from 0% for U.S.
Lending activities originate through expansion of existing relationships as well as by marketing efforts with an emphasis on providing banking solutions tailored to meet customers’ needs while maintaining the underwriting standards. 4 Legal Lending Limits With certain exceptions, the Bank is permitted under the applicable laws to make unsecured loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of total capital, allowance for loan losses, and certain capital notes and debentures issued by the Bank.
Legal Lending Limits With certain exceptions, the Bank is permitted under the applicable laws to make unsecured loans to single borrowers (including certain related persons and entities) in aggregate amounts of up to 15% of the sum of total capital, allowance for credit losses (“ACL”) on loans, and certain capital notes and debentures issued by the Bank.
The increased risk in C&I loans derives from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful.
Most C&I loans are collateralized by perfected security interests on business assets. In general, C&I loans may involve increased credit risk and, therefore, typically yield a higher return. The increased risk in C&I loans derives from the expectation that such loans generally are serviced principally from the operations of the business, and those operations may not be successful.
The Bank General The Bank is a California-chartered bank but is not a member of the Federal Reserve (a “non-member bank”). The deposit accounts of the Bank are insured by the FDIC’s DIF to the maximum extent provided under federal law and FDIC regulations.
The deposit accounts of the Bank are insured by the FDIC to the maximum extent provided under federal law and FDIC regulations. As a California-chartered that is not a member of the Federal Reserve, the Bank is subject to examination, supervision, and regulation by the CDFPI, the chartering authority for California banks, and by the FDIC.
Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or at least as favorable to the depository institution and its subsidiaries, as those for similar transactions with non-affiliates. 20 Loans to Directors, Executive Officers and Principal Shareholders The authority of the Bank to extend credit to its directors, executive officers and principal shareholders, including their immediate family members and corporations and other entities that they control, is subject to substantial restrictions and requirements under the Federal Reserve’s Regulation O, as well as the Sarbanes-Oxley Act.
Loans to Directors, Executive Officers and Principal Shareholders The authority of the Bank to extend credit to its directors, executive officers and principal shareholders, including their immediate family members and corporations and other entities that they control, is subject to substantial restrictions and requirements under the Federal Reserve’s Regulation O, as well as the Sarbanes-Oxley Act.
The Bank’s Chief Credit Officer provides company-wide credit oversight and periodically reviews all credit risk portfolios to ensure that the risk identification processes are functioning properly and that the Company’s credit standards are followed.
The Bank’s Chief Credit Officer provides company-wide credit oversight and periodically reviews all credit risk portfolios to ensure that the risk identification processes are functioning properly and that the Company’s credit standards are followed. In addition, third-party loan reviews are performed at least on a semi-annual basis to validate the internal risk rating of loans.
The Company does not participate in syndicated loans (loans made by a group of lenders who share or participate in a specific loan) with a larger regional financial institution as the lead lender.
The Company does not participate in syndicated loans (loans made by a group of lenders who share or participate in a specific loan) with a larger regional financial institution as the lead lender. For additional information on loans, see Note 4 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
In addition, all residential property loans contain due-on-sale clauses providing that the Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan. As of December 31, 2022 and 2021, approximately 90.8% and 85.3%, respectively, of residential property loans were ARM loans. Construction loans are comprised of residential construction and commercial construction.
In addition, all residential mortgage loans contain due-on-sale clauses providing that the Bank may declare the unpaid amount due and payable upon the sale of the property securing the loan.
At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank.
When the Company reaches the $3 billion asset level, the Company will be subject to the Basel III Capital Rules independent of the Bank.
For additional information on loans, see Note 4 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 8 Investment Activities The Company manages its investment securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns.
Investment Activities The Company manages its investment securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns.
Auto loans have relatively lower LTV ratios on average and carry higher interest rates to offset for the inherently higher default risks associated with other consumer loans. Small Business Administration Loans (Reported as either Real Estate Loans or Commercial and Industrial Loans) .
Auto loans have relatively higher LTV ratios on average and carry higher interest rates to offset for the inherently higher default risks associated with other consumer loans. SBA Loans (Reported as either CRE or C&I Loans) . The Bank offers SBA loans for qualifying businesses for amounts up to $5.0 million.
The Company’s employees’ desire for active community involvement enables the Company to sponsor a number of local community events and initiatives, including donating personal protective equipment such as masks and hand wipes to non-profit organizations during the COVID-19 pandemic, hosting annual PCB scholarship that provides financial assistance to local low-to-moderate income community, conducting financial literacy training to seniors in affordable housing facilities, and participating in the Volunteer Income Tax Assistance annually to assist the community in free tax preparation.
The Company’s employees’ desire for active community involvement enables the Company to sponsor a number of local community events and initiatives, including hosting annual PCB scholarship that provides financial assistance to local low-to-moderate income community, conducting financial literacy training to seniors in affordable housing facilities, and participating in the Volunteer Income Tax Assistance annually to assist the community in free tax preparation. 11 Supervision and Regulation General Depository institutions, their holding companies and their affiliates are extensively regulated under U.S. federal and state law.
For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements.
In addition to unsecured loans, the Bank is permitted to make collateral-secured loans in an additional amount of up to 10% (for combined total of 25%) for a total of approximately $92.3 million to one borrower as of December 31, 2023. 4 For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements.
Terms for construction loans vary depending on the complexity and size of the project. On average, construction loans have a term of 18 months. Satisfactory repayments of loans secured by CRE are often dependent on the successful operation of the underlying businesses (in the case of owner occupied) or management of the properties (in the case of non-owner occupied).
Satisfactory repayments of CRE loans, other than construction loans, are often dependent on the successful operation of the underlying businesses (in the case of owner occupied) or management of the properties (in the case of non-owner occupied).
It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.
The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures. It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.
The regulations require commercial financing providers to disclose certain information to assist small businesses in making more informed decisions, including the amount of funding the small business will receive, the Annual Percentage Rate calculated for the transaction, the term, details related to prepayment policies and an average monthly cost. 23 Mortgage and Mortgage-Related Products, Generally Because abuses in connection with residential mortgages were a significant factor contributing to the financial crisis, many new rules issued by the CFPB and required by the Dodd-Frank Act address mortgage and mortgage-related products, their underwriting, origination, servicing and sales.
The regulations require commercial financing providers to disclose certain information to assist small businesses in making more informed decisions, including the amount of funding the small business will receive, the Annual Percentage Rate calculated for the transaction, the term, details related to prepayment policies and an average monthly cost.
Consequently, the Company is subject to examination by, and may be required to file reports with, the CDFPI. Acquisitions, Activities and Change in Control The primary purpose of a bank holding company is to control and manage banks.
Consequently, the Company is subject to examination by, and may be required to file reports with, the CDFPI.
Warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a mortgage that a borrower uses to purchase SFR property or refinance an existing mortgage. SBA commercial term loans are provided to small businesses under the U.S. SBA guarantee program to finance permanent working capital needs and/or equipment purchases.
Warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a mortgage that a borrower uses to purchase SFR property or refinance an existing mortgage. Commercial term loans (usually five to seven years) normally provide for monthly payments of both principal and interest.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe Company anticipates additional expenses will be incurred in future periods; however, the Company does have a cyber-liability insurance policy that should provide insurance coverage for this incident. We have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.
Biggest changeWe have a continuing need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
While we have been experiencing historically low interest rates over the last five years, this low interest rate environment likely will not continue indefinitely. Consequently, when interest rates increase further, our mortgage production may not continue at current levels. 33 Curtailment of government guaranteed loan programs could affect a segment of our business.
While we have been experiencing historically low interest rates over the last five years, this low interest rate environment likely will not continue indefinitely. Consequently, when interest rates increase further, our mortgage production may not continue at current levels. Curtailment of government guaranteed loan programs could affect a segment of our business.
Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted. 32 Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.
Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted. Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.
The FDIC may become concerned about our CRE loan concentrations, and they may inhibit our organic growth by restricting our ability to execute on our strategic plan. Our residential property loan product consists primarily of non-qualified residential mortgage loans which may be considered riskier and less liquid than qualified residential mortgage loans.
The FDIC may become concerned about our CRE loan concentrations, and they may inhibit our organic growth by restricting our ability to execute on our strategic plan. Our residential mortgage loan product consists primarily of non-qualified residential mortgage loans which may be considered riskier and less liquid than qualified residential mortgage loans.
Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. 30 Our business depends on our ability to attract and retain Korean-American immigrants as clients.
Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. Our business depends on our ability to attract and retain Korean-American immigrants as clients.
They increase our cost of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make. 39 Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
They increase our cost of doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or the points and fees on loans that we do make. 32 Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income.
The weakening of these standards for any reason, such as an attempt to attract higher yielding loans, a lack of discipline or diligence by our employees in underwriting and monitoring loans, the inability of our employees to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our ACL, each of which could adversely affect our net income.
If our policies, procedures and systems are deemed deficient, we would be subject to liabilities, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
If our policies, procedures and systems are deemed deficient, we would be subject to liabilities, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed acquisition and certain aspects of our business plan.
Our business and operations are sensitive to general business and economic conditions in the U.S., generally, and particularly the state of California and the Los Angeles/Orange County region, as well as the greater New York City/New Jersey metropolitan area, where our branch offices are located.
Our business and operations are sensitive to general business and economic conditions in the U.S., generally, and particularly the state of California and the Los Angeles/Orange County region, as well as the greater New York City/New Jersey metropolitan area and Dallas, Texas, where our branch offices are located.
Risks Related to Our Allowance for Loan Losses and Other Accounting Estimates Accounting estimates and risk management processes rely on analytical models that may prove inaccurate resulting in a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Allowance for Credit Losses and Other Accounting Estimates Accounting estimates and risk management processes rely on analytical models that may prove inaccurate resulting in a material adverse effect on our business, financial condition and results of operations.
A significant portion of our business is based on successfully attracting and retaining Asian-American immigrants generally, and first and second generation Korean-American immigrants specifically, as clients for our commercial loans, residential property loans, other consumer loans and deposits. We may be limited in our ability to attract Asian-American clients to the extent the U.S. adopts restrictive domestic immigration laws.
A significant portion of our business is based on successfully attracting and retaining Asian-American immigrants generally, and first and second generation Korean-American immigrants specifically, as clients for our commercial loans and consumer loans and deposits. We may be limited in our ability to attract Asian-American clients to the extent the U.S. adopts restrictive domestic immigration laws.
These unexpected losses may arise from a wide variety of specific or systemic factors, many of which are beyond our ability to predict, influence or control. 36 Like all financial institutions, the Bank maintains an allowance for loan losses to provide for loan defaults and non-performance.
These unexpected losses may arise from a wide variety of specific or systemic factors, many of which are beyond our ability to predict, influence or control. Like all financial institutions, the Bank maintains an ACL to provide for loan defaults and non-performance.
Any such failure in our analytical models could result in losses that could have a material adverse effect on our business, financial condition and results of operations. Our allowance for loan losses may not be adequate to cover potential losses in our loan portfolio.
Any such failure in our analytical models could result in losses that could have a material adverse effect on our business, financial condition and results of operations. Our allowance for credit losses may not be adequate to cover actual losses in our loan portfolio.
Real estate construction loans, including land development loans, comprised approximately 0.8% of our total loans held-for-investment portfolio as of December 31, 2022, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
Real estate construction loans, including land development loans, comprised approximately 1.1% of our total loans held-for-investment portfolio as of December 31, 2023, and such lending involves additional risks because funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining real estate markets.
Our net interest income exhibited a positive 3.6% sensitivity to rising interest rates and a negative 4.6% sensitivity to declining interest rates in a twelve-month 100 basis point parallel shock at December 31, 2022. 27 Changes in interest rates also can affect the value of loans, securities and other assets.
Our net interest income exhibited a positive 3.6% sensitivity to rising interest rates and a negative 4.3% sensitivity to declining interest rates in a twelve-month 100 basis point parallel shock at December 31, 2023. 21 Changes in interest rates also can affect the value of loans, securities and other assets.
This could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 28 A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.
A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects.
We are required to comply with these and other AML requirements. The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and IRS.
The federal banking agencies and Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and IRS.
In order to successfully manage credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers (“management” or “employees”) follow those standards.
In order to successfully manage credit risk, we must, among other things, maintain disciplined and prudent underwriting standards and ensure that our bankers follow those standards.
Pursuant to the CRE Concentration Guidelines, loans secured by owner-occupied CRE are not included for purposes of CRE Concentration calculation. As of December 31, 2022, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represented 253.9% of our total risk-based capital, as compared to 269.8%, 256.1% and 243.6% as of December 31, 2021, 2020 and 2019, respectively.
Pursuant to the CRE Concentration Guidelines, loans secured by owner-occupied CRE are not included for purposes of CRE Concentration calculation. As of December 31, 2023, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represented 280.7% of our total risk-based capital, as compared to 253.9%, 269.8% and 256.1% as of December 31, 2022, 2021 and 2020, respectively.
The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks. We originated $141.1 million and $194.4 million, respectively, of SBA loans (total commitment basis) during the years ended December 31, 2022 and 2021.
The non-guaranteed portion of SBA loans that we retain on our balance sheet as well as the guaranteed portion of SBA loans that we sell could expose us to various credit and default risks. We originated $83.0 million and $141.1 million, respectively, of SBA loans (total commitment basis) during the years ended December 31, 2023 and 2022.
If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our probable incurred loan losses are inadequate, the allowance for loan losses may not be sufficient to support future charge-offs.
If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our current expected loan losses are inadequate, the ACL may not be sufficient to support future charge-offs.
At December 31, 2022, approximately 86.7% of our loans held-for-investment portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
At December 31, 2023, approximately 84.4% of our loans held-for-investment portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
The processes we use to estimate probable incurred loan losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical models.
The processes we use to estimate current expected credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depend upon the use of analytical models.
As of December 31, 2022, our residential property loan portfolio amounted to $333.7 million or 16.3% of our total loans held-for-investment portfolio. As of such date, all of our residential property loans consisted of non-qualified residential mortgage loans. Non-qualified loans are residential loans that do not comply with certain standards set by the Dodd-Frank Act and its related regulations.
As of December 31, 2023, our residential mortgage loan portfolio amounted to $389.4 million or 16.8% of our total loans held-for-investment portfolio. As of such date, all of our residential mortgage loans consisted of non-qualified residential mortgage loans. Non-qualified loans are residential loans that do not comply with certain standards set by the Dodd-Frank Act and its related regulations.
During the same time periods, we sold $122.9 million and $126.8 million, respectively, of the guaranteed portion of our SBA loans.
During the same time periods, we sold $82.3 million and $122.9 million, respectively, of the guaranteed portion of our SBA loans.
A general decline in real estate sales and prices across the U.S. or locally in the relevant real estate market, a decline in demand for residential property, economic weakness, high rates of unemployment and reduced availability of mortgage credit are some of the factors that can adversely affect the borrowers’ ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results. 34 Nonperforming assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.
A general decline in real estate sales and prices across the U.S. or locally in the relevant real estate market, a decline in demand for residential property, economic weakness, high rates of unemployment and reduced availability of mortgage credit are some of the factors that can adversely affect the borrowers’ ability to repay their obligations to us and the value of our security interest in collateral, and thereby adversely affect our results of operations and financial results.
Our provision (reversal) for loan losses, was $3.6 million, $(4.6) million and $13.2 million, respectively, for the years ended December 31, 2022, 2021 and 2020. The determination of an appropriate level of allowance for loan losses is an inherently difficult process and is based on numerous assumptions.
Our provision (reversal) for credit losses, was $(132) thousand, $3.6 million and $(4.6) million, respectively, for the years ended December 31, 2023, 2022 and 2021. The determination of an appropriate level of allowance for credit losses is an inherently difficult process and is based on numerous assumptions.
This may adversely impact the recoverability of investments with, or loans made to, such entities. Adverse economic conditions in Asia, and in South Korea in particular, may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region. Severe Weather, Natural Disasters or Other Climate Change Related Matters Could Significantly Impact Our Business.
Adverse economic conditions in Asia, and in South Korea in particular, may also negatively impact asset values and the profitability and liquidity of our customers who operate in this region. 24 Severe Weather, Natural Disasters or Other Climate Change Related Matters Could Significantly Impact Our Business.
In addition, we had $134 thousand in accruing loans that were 30-89 days past due as of December 31, 2022. Our NPAs adversely affect our net income in various ways.
In addition, we had $1.4 million in accruing loans that were 30-89 days past due as of December 31, 2023. Our NPAs adversely affect our net income in various ways.
Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third-parties with whom we do business. On August 30, 2021, the Bank identified unusual activity on its network.
Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third-parties with whom we do business.
Allowance for loan losses, expressed as a percentage of loans held-for-investment, was 1.22%, 1.29% and 1.67%, respectively, at December 31, 2022, 2021 and 2020. Allowance for loan losses is funded from a provision (reversal) for loan losses, which is a charge to our income statement.
ACL on loans, expressed as a percentage of loans held-for-investment, was 1.19%, 1.22% and 1.29%, respectively, at December 31, 2023, 2022 and 2021. ACL is funded from a provision (reversal) for credit losses, which is a charge to our income statement.
The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. Generally, in determining fair value, an orderly disposition of the property is assumed, unless a different disposition strategy is expected.
Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. Generally, in determining fair value, an orderly disposition of the property is assumed, unless a different disposition strategy is expected.
If we fail to maintain capital to meet regulatory requirements or if we fail to raise capital for operations when needed or opportune, our financial condition, liquidity and results of operations would be materially and adversely affected. 38 Company Relies on Dividends from the Bank to Pay Cash Dividends to Shareholders Company is a separate legal entity from its subsidiary, the Bank.
If we fail to maintain capital to meet regulatory requirements or if we fail to raise capital for operations when needed or opportune, our financial condition, liquidity and results of operations would be materially and adversely affected. 31 The Company relies on dividends from the Bank to pay cash dividends, repurchase shares and fund its operating expenses.
As of December 31, 2022, our non-qualified residential mortgage loans had a weighted average LTV of 63.5% and a weighted average Fair Isaac Corporation (“FICO”) score of 762.
As of December 31, 2023, our non-qualified residential mortgage loans had a weighted average LTV of 65.3% and a weighted average Fair Isaac Corporation (“FICO”) score of 761.
For the year ended December 31, 2022, total loans were 85.1% of our average interest-earning assets.
For the year ended December 31, 2023, total loans were 86.3% of our average interest-earning assets.
We originated non-qualified residential mortgage loans of $177.1 million and $93.2 million, respectively, for the years ended December 31, 2022 and 2021. We originated qualified residential mortgage loans of $400 thousand and $9.7 million, respectively, for the years ended December 31, 2022 and 2021.
We originated non-qualified residential mortgage loans of $63.4 million and $177.1 million, respectively, for the years ended December 31, 2023 and 2022. We originated qualified residential mortgage loans of $0 and $400 thousand, respectively, for the years ended December 31, 2023 and 2022.
As of December 31, 2022, we held $169.9 million of SBA loans on our balance sheet, $141.6 million of which consisted of the non-guaranteed portion of SBA loans and $28.3 million or 16.6% consisted of the guaranteed portion of SBA loans.
As of December 31, 2023, we held $150.8 million of SBA loans on our balance sheet, $141.1 million of which consisted of the non-guaranteed portion of SBA loans and $9.6 million or 6.4% consisted of the guaranteed portion of SBA loans.
The recognition of gains on the sale of loans and servicing asset valuations reflect certain assumptions. We expect that gains on the sale of U.S. government guaranteed loans, primarily 7(a) loans, will comprise a significant component of our revenue. The gains on such sales recognized for the year ended December 31, 2022 was $8.0 million.
We expect that gains on the sale of U.S. government guaranteed loans, primarily 7(a) loans, will comprise a significant component of our revenue. The gains on such sales recognized for the year ended December 31, 2023 was $3.6 million.
A decline in economic and business conditions in our market areas or in Korea could have a material impact on our loan portfolio or the demand for our products or services, which in turn may have a material adverse effect on our financial condition and results of operations. 37 Operations in our LPOs have positively affected our results of operations, and sustaining these operations and growing loans may be more difficult than we expect, which could adversely affect our results of operations.
A decline in economic and business conditions in our market areas or in Korea could have a material impact on our loan portfolio or the demand for our products or services, which in turn may have a material adverse effect on our financial condition and results of operations.
For example, bank regulators have issued guidance which refer to as the CRE Concentration Guidance that identifies certain CRE concentration levels that, if exceeded, will expose an institution to additional supervisory analysis with regard to the institution’s CRE concentration risk.
For example, bank regulators have issued guidance which refer to as the CRE Concentration Guidance that identifies certain CRE concentration levels that, if exceeded, will expose an institution to additional supervisory analysis with regard to the institution’s CRE concentration risk. 26 The CRE Concentration Guidance is designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans.
The Bank maintained brokered deposits of $87.0 million and $85.0 million, respectively, and deposits from California State Treasurer of $60.0 million and $100.0 million, respectively, at December 31, 2022 and 2021. Federal banking law and regulation place restrictions on depository institutions regarding brokered deposits.
Our largest depositor relationship accounted for approximately 1.4% of our deposits at December 31, 2023. The Bank maintained brokered deposits of $303.7 million and $87.0 million, respectively, and deposits from California State Treasurer of $60.0 million and $60.0 million, respectively, at December 31, 2023 and 2022. Federal banking law and regulation place restrictions on depository institutions regarding brokered deposits.
Legislative and Regulatory Risks We are subject to extensive government regulation that could limit or restrict our activities, which in turn may adversely impact our ability to increase our assets and earnings.
In addition, as a California bank, the Bank is subject to state law restrictions on the payment of dividends. Legislative and Regulatory Risks We are subject to extensive government regulation that could limit or restrict our activities, which in turn may adversely impact our ability to increase our assets and earnings.
The demand for the deposit products we offer may also be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, regulatory actions that decrease customer access to particular products, or the availability of competing products. 35 A large percentage of our deposits is attributable to a relatively small number of customers, which could adversely affect our liquidity, financial condition and results of operations.
The demand for the deposit products we offer may also be reduced due to a variety of factors, such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, regulatory actions that decrease customer access to particular products, or the availability of competing products.
If we experience increases in NPLs and NPAs, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.
If we experience increases in NPLs and NPAs, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity. 28 Real estate market volatility and future changes in our disposition strategies could result in net proceeds that differ significantly from our other real estate owned fair value appraisals.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations. The BSA, the Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective AML program and to file reports such as suspicious activity reports and currency transaction reports.
The BSA, the Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective AML program and to file reports such as suspicious activity reports and currency transaction reports. We are required to comply with these and other AML requirements.
Company receives substantially all of its revenue from the Bank in the form of dividends, which is Company's principal source of funds to pay cash dividends to Company's common shareholders and cover operational expenses of the holding company. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to Company.
The Company is a separate legal entity from its subsidiary, the Bank. The Company receives substantially all of its revenue from the Bank in the form of dividends, which is the Company’s principal source of funds to pay cash dividends to the Company's shareholders, repurchase shares and cover operational expenses of the holding company.
Risks Related to Our Management We are highly dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our ability to execute on our strategic plan, existing and prospective customer relationships, growth prospects, and results of operations.
Depending on the interest rate environment and competitive factors, low cost deposits may need to be replaced with higher cost funding, resulting in a decrease in net interest income and net income. 29 Risks Related to Our Management We are highly dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our ability to execute on our strategic plan, existing and prospective customer relationships, growth prospects, and results of operations.
The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. In addition to allowing us to better serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.
In addition to allowing us to better serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs.
Moreover, competition for successful business developers and relationship managers in the SBA loan industry is fierce, and we may not be able to attract and retain the personnel we need to profitably operate our LPOs. Unsuccessful operation of our out of state LPOs could negatively impact our financial condition and results of operation.
The strength of these markets could be weakened by anticipated increases in interest rates and any economic downturn. Moreover, competition for successful business developers and relationship managers in the SBA loan industry is fierce, and we may not be able to attract and retain the personnel we need to profitably operate our LPOs.
We have attempted to diversify some of our loan business through LPOs in five other states; however, this diversification strategy may not be effective to reduce our geographic and ethnic concentrations. 31 Risks Related to Our Loans Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Risks Related to Our Loans Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
We have grown our consolidated assets from $1.70 billion as of December 31, 2018 to $2.42 billion as of December 31, 2022, and our deposits from $1.44 billion as of December 31, 2018 to $2.05 billion as of December 31, 2022.
We have grown our consolidated assets from $1.75 billion as of December 31, 2019 to $2.79 billion as of December 31, 2023, and our deposits from $1.48 billion as of December 31, 2019 to $2.35 billion as of December 31, 2023.
Risks Related to Our Growth Strategy We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth because of constrained capital resources or other reasons.
For these reasons, our allowance for credit losses may not be adequate to cover actual loan losses, and future provision for credit losses could materially and adversely affect our business, financial condition, results of operations and cash flows. 30 Risks Related to Our Growth Strategy We may not be able to continue growing our business, particularly if we cannot increase loans and deposits through organic growth because of constrained capital resources or other reasons.
OREO typically consists of properties that we obtain through foreclosure or through an in-substance foreclosure in satisfaction of an outstanding loan. The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value.
As of December 31, 2023, we had OREO of $2.6 million on our books. OREO typically consists of properties that we obtain through foreclosure or through an in-substance foreclosure in satisfaction of an outstanding loan. The Company initially records OREO at fair value at the time of foreclosure.
Sustaining the expansion of loan production through use of these out of state LPOs depends on a number of factors, including the continued strength of the markets in which our offices are located and identifying, hiring and retaining critical personnel. The strength of these markets could be weakened by anticipated increases in interest rates and any economic downturn.
During the year ended December 31, 2023, these LPOs accounted for approximately 11.4% of new loans originated by the Bank. Sustaining the expansion of loan production through use of these out of state LPOs depends on a number of factors, including the continued strength of the markets in which our offices are located and identifying, hiring and retaining critical personnel.
The small- and medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.
The gain on sale of SBA loans was $3.6 million and $8.0 million, respectively, or 33.4% and 55.1%, respectively, of the total noninterest income, for the years ended December 31, 2023 and 2022. 27 The small- and medium-sized businesses that we lend to may have fewer resources to weather adverse business developments, which may impair a borrower’s ability to repay a loan, and such impairment could adversely affect our results of operations and financial condition.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted precisely, but the effects on our financial condition and results of operations could be severely and negatively impacted. The Federal Reserve may require us to commit capital resources to support the Bank.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted precisely, but the effects on our financial condition and results of operations could be severely and negatively impacted. Item 1B. Unresolved Staff Comments None. 33
Commercial loans represented 82.6% of our total loan portfolio at December 31, 2022. Commercial loans are often larger and involve greater risks than other types of lending.
Commercial loans are often larger and involve greater risks than other types of lending.
An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third-party could result in legal liabilities, remediation costs, regulatory actions and reputational harm. 29 As cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents.
An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third-party could result in legal liabilities, remediation costs, regulatory actions and reputational harm.
Other potential attacks have attempted to obtain unauthorized access to confidential information, steal money, or manipulate or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means.
These risks may increase in the future as we continue to increase mobile payments and other internet-based product offerings and expand our internal usage of web-based products and applications. 23 Other potential attacks have attempted to obtain unauthorized access to confidential information, steal money, or manipulate or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means.
If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.
If we foreclose on and take title to such properties, we may be liable for remediation costs, as well as for personal injury and property damage.
In the event that the Bank is unable to pay dividends to Company, Company may not be able to pay dividends to its shareholders and pay interest on the subordinated debentures. As a result, it could have an adverse effect on Company's stock price and investment value.
Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to Company. In the event that the Bank is unable to pay dividends to Company, Company may not be able to pay dividends to its shareholders and pay interest on the subordinated debentures.
At December 31, 2022 we had $1.69 billion of commercial loans, consisting of $1.29 billion of commercial property loans, $134.9 million of SBA property loans, $17.1 million of construction loans, and $249.3 million of C&I loans, including $1.2 million of SBA PPP loans, for which real estate is not the primary source of collateral.
At December 31, 2023 we had $1.91 billion of commercial loans, consisting of $1.57 billion of CRE loans and $342.0 million of C&I loans, for which real estate is not the primary source of collateral. Commercial loans represented 82.4% of our total loan portfolio at December 31, 2023.
As of December 31, 2022, our nonperforming loans (“NPLs”) held-for-investment totaled $3.4 million, or 0.16% of our loans held-for-investment portfolio. We also had NPLs held-for-sale of $4.0 million as of December 31, 2022. Our NPAs, which include NPLs held-for-investment, NPLs held-for-sale and other real estate owned (“OREO”), totaled $7.4 million, or 0.30% of total assets.
Our NPAs, which include NPLs and other real estate owned (“OREO”), totaled $6.5 million, or 0.23% of total assets.
Our cost of deposits increased from 0.23% for the year ended December 31, 2021, to 0.62% for the year ended December 31, 2022. We anticipate further pressure to increase the rate we pay on deposits in 2023, which will negatively impact our profitability and net interest margin.
Our cost of deposits increased from 0.62% for the year ended December 31, 2022, to 2.87% for the year ended December 31, 2023.
Removed
These risks may increase in the future as we continue to increase mobile payments and other internet-based product offerings and expand our internal usage of web-based products and applications.
Added
As a result of increases in interest rates over the past two years, the market values of previously issued government, agency and other debt securities have declined significantly, resulting in unrealized losses in our securities portfolio.
Removed
The Bank responded promptly to disable the activity, investigate its source and monitor the Bank’s network. The Bank subsequently became aware of claims that it had been the target of a ransomware attack. On September 7, 2021, the Bank determined that an external actor had illegally accessed and/or acquired certain data on its network.
Added
While we do not expect or intend to sell these securities, if we were required to sell these securities to meet liquidity needs, we may incur significant losses, which could impair our capital and financial condition and adversely affect our results of operations.
Removed
The Bank has been working with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and/or acquired and who may have been impacted. The investigation revealed that this incident impacted certain files containing certain Bank customer information.
Added
Further, while we have taken actions to maximize our sources of liquidity, there is no guarantee that such sources will be available or sufficient in the event of sudden liquidity needs. We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Removed
Some of these files contained documents related to loan applications, such as tax returns, Form W-2 information of their employees, and payroll records. The Bank has notified all individuals identified as impacted, consistent with applicable laws. All impacted individuals were offered free Equifax Complete Premier credit monitoring and identify theft protection services.
Added
This could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 22 Adverse developments affecting the banking industry could have a material effect on our operations and/or stock price. During 2023, the high-profile failures of several depository institutions negatively impacted customer confidence in the safety and soundness of some regional and community banks.
Removed
The Bank has notified law enforcement and appropriate authorities of the incident. On December 16, 2021, Plaintiff Min Woo Bae, individually and on behalf of all others similarly situated, filed in the Los Angeles County Superior Court a complaint based on the incident for damages, injunctive relief, and equitable relief, styled Min Woo Bae v.
Added
As a result, we face that risk that customers may prefer to maintain deposits with larger financial institutions or invest in fixed income securities instead of deposits with the Bank, either of which could materially adversely impact our liquidity, cost of funding, capital, and results of operations.
Removed
Pacific City Bank , Case Number 21STCV45922 (“the Matter”). In the Matter, Plaintiff seeks to form a class action and alleges causes of action for: (1) negligence; (2) unjust enrichment; (3) violations of California’s Consumer Privacy Act, Civil Code § 1798.150(a); and (4) violations of California’s unfair competition law (Cal. Bus. & Prof. Code § 17200, et seq.).
Added
In response to the failures of other depository institutions, we may face increased regulation and supervisory oversight, higher capital or liquidity requirements or a heightened risk of regulatory enforcement activities, any of which could have a material impact on our business.
Removed
The summons and complaint have been served on the Bank as of the date of this submission. The Bank expresses no opinion on the merits of the Matter. The Bank had timely answered, responded, and will continue to defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law.
Added
Further, our costs of deposit insurance may increase as a result of these bank failures and the resulting losses to the FDIC’s Deposit Insurance Fund.
Removed
Those defenses will be based in part on the fact that the Bank has implemented security procedures, practices, and a robust information security program pursuant to guidance from the applicable financial regulators. The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences.
Added
In addition, concerns about the banking industry’s operating environment and the public trading prices of bank holding companies are often correlated, particularly during times of financial stress, which could adversely impact the trading price of our common stock.

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Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed1 unchanged
Biggest changeThe Bank maintains 16 branch locations, with eight in Los Angeles County (three in Koreatown, Rowland Heights, Downtown Fashion District, Cerritos, Torrance and Little Tokyo), three in Orange County (Fullerton, Buena Park and Irvine), three on the East Coast (Bayside, New York; and Englewood Cliffs and Palisades Park, New Jersey), and two in Texas (Carrollton and Dallas) as of December 31, 2022.
Biggest changeThe Bank maintains 16 branch locations, with eight in Los Angeles County (three in Koreatown, Rowland Heights, Downtown Fashion District, Cerritos, Torrance and Little Tokyo), three in Orange County (Fullerton, Buena Park and Irvine), three on the East Coast (Bayside, New York; and Englewood Cliffs and Palisades Park, New Jersey), and two in Texas (Carrollton and Dallas) as of December 31, 2023.
This office is located in the Wilshire Center/Koreatown District of Los Angeles and houses the Company’s management unit, including compliance and Bank Security Act groups, information technology, SBA lending management, branch management, CRE and C&I lending groups, credit administration and administrative groups. The lease expires in September 2023. The Bank leases all of its LPO and retail branch locations.
This office is located in the Wilshire Center/Koreatown District of Los Angeles and houses the Company’s management unit, including compliance and Bank Security Act groups, information technology, SBA lending management, branch management, CRE and C&I lending groups, credit administration and administrative groups. The lease expires in September 2033. The Bank leases all of its LPO and retail branch locations.
Item 2. Properties As of December 31, 2022, the Company’s headquarters office is located at 3701 Wilshire Boulevard, Suite 900, Los Angeles, California 90010.
Item 2. Properties As of December 31, 2023, the Company’s headquarters office is located at 3701 Wilshire Boulevard, Suite 900, Los Angeles, California 90010.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+3 added−6 removed6 unchanged
Biggest changeThe Company had no accrued loss contingencies for certain legal claims at December 31, 2022. It is reasonably possible the Company may incur losses in addition to the amounts currently accrued.
Biggest changeThe Company had accrued loss contingencies of $40 thousand for certain legal claims at December 31, 2023. It is reasonably possible the Company may incur losses in addition to the amounts currently accrued.
The Bank has been working with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and/or acquired and who may have been impacted. The investigation revealed that this incident impacted certain files containing certain Bank customer information.
The Bank worked with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and/or acquired and who may have been impacted. The investigation revealed that this incident impacted certain files containing certain Bank customer information.
Removed
Pacific City Bank , Case Number 21STCV45922 (“the Matter”). In the Matter, Plaintiff seeks to form a class action and alleges causes of action for: (1) negligence; (2) unjust enrichment; (3) violations of California’s Consumer Privacy Act, Civil Code § 1798.150(a); and (4) violations of California’s unfair competition law (Cal. Bus. & Prof. Code § 17200, et seq.).
Added
Pacific City Bank , Case Number 21STCV45922 (“the Matter”). During the three months ended September 30, 2023, the Bank agreed to settle this matter in exchange for $700 thousand to the putative class members, including costs of settlement administration, and attorneys’ fees and costs.
Removed
The summons and complaint have been served on the Bank as of the date of this submission. The Bank expresses no opinion on the merits of the Matter. The Bank had answered, responded, and will continue to defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law.
Added
The Bank received preliminary court approval of the settlement and notice was provided to members of the proposed class during the three months ended September 30, 2023. However, due to the low claims rate by the members of the proposed class, Plaintiff had requested and the Court had agreed to extend the claims deadline for another 45 days.
Removed
Those defenses will be based in part on the fact that the Bank has implemented security procedures, practices, and a robust information security program pursuant to guidance from the applicable financial regulators. The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences.
Added
March 21, 2024 is now the new claims deadline. No new final approval hearing date has been set by the Court. The Company expects that the full amount of the final settlement will be covered under the Company’s applicable insurance policies. Item 4. Mine Safety Disclosures Not applicable. 35 Part II
Removed
During the year ended December 31, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income, totaled $100 thousand, which represents the retention amount on its insurance claims.
Removed
During the year ended December 31, 2022, the Company incurred additional legal expenses of $220 thousand associated with the on-going legal matters related to the data incident, all of which are included in Professional Fees in Consolidated Statement of Income.
Removed
The Company anticipates additional expenses will be incurred in future periods; however, the Company does have a cyber-liability insurance policy that should provide insurance coverage for this incident. Item 4. Mine Safety Disclosures Not applicable. 41 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+2 added−4 removed6 unchanged
Biggest changeThe following table presents share repurchase activities during the three months ended December 31, 2022: ($ in thousands, except per share data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program From October 1, 2022 to October 31, 2022 53,007 $ 18.72 53,007 $ 574,990 From November 1, 2022 to November 30, 2022 84,803 18.66 84,803 490,187 From December 1, 2022 to December 31, 2022 104,806 18.21 104,806 385,381 Total 242,616 $ 18.48 242,616 On March 28, 2019, the Company’s Board of Directors approved the repurchase of up to $6.5 million of the Company’s common stock through March 27, 2020.
Biggest changeThe following table presents share repurchase activities during the periods indicated: ($ in thousands, except per share data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Number of Shares That May Yet Be Purchased Under the Program From October 1, 2023 to October 31, 2023 59,474 $ 15.39 59,474 $ 593,324 From November 1, 2023 to November 30, 2023 600 14.99 600 592,724 From December 1, 2023 to December 31, 2023 — — — 592,724 Total 60,074 $ 15.39 60,074 On July 28, 2022, the Company’s Board of Directors approved a repurchase program authorizing the repurchase of up to 5% of the Company’s outstanding common stock, which represented 747,938 shares, through February 1, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock (symbol: PCB) is listed on the NASDAQ Global Select Market. The approximate number of holders of record of the Company’s common stock as of December 31, 2022 was 242.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock (symbol: PCB) is listed on the NASDAQ Global Select Market. The approximate number of holders of record of the Company’s common stock as of December 31, 2023 was 236.
Certain shares are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. Dividend Policy The Company’s shareholders are entitled to receive dividends only if, when and as declared by the Board of Directors and out of funds legally available therefore.
Certain shares are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is somewhat greater. Dividend Policy The Company’s shareholders are entitled to receive dividends only if, when and as declared by the Board of Directors and out of funds legally available therefore.
The Company repurchased and retired 680,269 shares of common stock at a weighted-average price of $15.99 per share under this repurchase program.
The Company repurchased and retired 747,938 shares of common stock at a weighted-average price of $18.15 per share, totaling $13.6 million under this repurchase program under this program.
On July 28, 2022, the Company’s Board of Directors approved a repurchase program authorizing for the repurchase of up to 5% of the Company’s outstanding common stock as of the date of the board meeting, which represented 747,938 shares, through February 1, 2023.
On August 2, 2023, the Company’s Board of Directors approved a new repurchase program authorizing the repurchase of up to 5% of the Company’s outstanding common stock, which represented 720,000 shares, through August 2, 2024.
For additional information, see “Supervision and Regulation - The Bank - Dividend Payments” included in Item 1 and Note 17 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 42 Issuer Purchase of Equity Securities Except for the preferred stock discussed below, there were no unregistered sales of equity securities during the year ended December 31, 2022.
For additional information, see “Supervision and Regulation - The Company - Dividend Payments, Stock Redemptions and Stock Repurchases” included in Item 1 and Note 17 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
The Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $18.57 per share, totaling $6.7 million under this repurchase program as of December 31, 2022. On January 26, 2023, the Company announced the amendment of the repurchase program, which extended the program expiration from February 1, 2023 to February 1, 2024. 43 Item 6. Reserved
The Company repurchased and retired 127,276 shares of common stock at a weighted-average price of $15.58 per share, totaling $2.0 million under this repurchase program through December 31, 2023. 36 Item 6. Reserved
Removed
On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock for the capital investment of $69.1 million from the U.S. Treasury under the ECIP. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
Added
Issuer Purchase of Equity Securities There were no unregistered sales of equity securities during the year ended December 31, 2023.
Removed
During the year ended December 31, 2019, the Company completed the repurchase program, and repurchased and retired 396,715 shares of common stock at a weighted-average price of $16.33 per share.
Added
On January 26, 2023, the Company announced that it has extended the program expiration from February 1, 2023 to February 1, 2024. The Company completed the repurchase of all shares under this program during the three months ended March 31, 2023.
Removed
On January 23, 2020, the Company announced that on November 22, 2019, its Board of Directors approved a $6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021. The Company completed the repurchase program in March 2020.
Removed
The Company repurchased and retired 428,474 shares of common stock at a weighted-average price of $15.14 per share. On April 8, 2021, the Company’s Board of Directors approved a repurchase program authorizing the repurchase of up to 5% of the Company’s outstanding common stock as of the date of the board meeting, which represented 775,000 shares, through September 7, 2021.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

2 edited+0 added−0 removed0 unchanged
Biggest changeFinancial Statements and Supplementary Data 73 Index to Consolidated Financial Statements 73 Report of Independent Registered Public Accounting Firm 74 Consolidated Balance Sheets as of December 31, 202 2 and 202 1 75 Consolidated Statements of Income for the Years Ended December 31, 202 2 , 202 1 and 20 20 76 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021 and 2020 77 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2022, 2021 and 2020 78 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021 and 2020 79 Notes to Consolidated Financial Statements 81
Biggest changeFinancial Statements and Supplementary Data 67 Index to Consolidated Financial Statements 67 Report of Independent Registered Public Accounting Firm 68 Consolidated Balance Sheets as of December 31, 202 3 and 202 2 71 Consolidated Statements of Income for the Years Ended December 31, 202 3 , 202 2 and 202 1 72 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 202 3 , 202 2 and 202 1 73 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 202 3 , 202 2 and 20 21 74 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 3 , 202 2 and 202 1 75 Notes to Consolidated Financial Statements 77
Item 6. Reserved 44 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 72 Item 8.
Item 6. Reserved 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 65 Item 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

77 edited+59 added−61 removed43 unchanged
Biggest changeThe increase for the year ended December 31, 2020 was primarily due to increased risks associated with economic and business conditions, as well as increases in special mention and substandard loans, as a result of the COVID-19 pandemic. 62 The following tables present net charge-offs as a percentage to the average loan held for investment balances in each of the loan categories for the periods indicated: For the Year Ended December 31, 2022 2021 2020 ($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Real estate loans: Commercial property $ 1,201,405 $ — — % $ 983,129 $ — — % $ 826,288 $ — — % Residential property 261,576 — — % 197,741 — — % 221,296 — — % SBA property 115,488 — — % 125,051 (39) (0.03) % 124,996 117 0.09 % Construction 12,202 — — % 12,715 — — % 20,285 — — % Total real estate loans 1,590,671 — — % 1,318,636 (39) (0.01) % 1,192,865 117 0.01 % Commercial and industrial loans: Commercial term 74,934 (8) (0.01) % 77,383 (200) (0.26) % 97,247 (96) (0.10) % Commercial lines of credit 111,864 1,063 0.95 % 92,874 (146) (0.16) % 100,154 709 0.71 % SBA commercial term 16,262 (21) (0.13) % 19,390 (104) (0.54) % 23,868 255 1.07 % SBA PPP 13,732 — — % 150,043 — — % 92,818 — — % Total commercial and industrial loans 216,792 1,034 0.48 % 339,690 (450) (0.13) % 314,087 868 0.28 % Other consumer loans 21,991 7 0.03 % 21,101 22 0.10 % 22,033 104 0.47 % Total loans held-for-investment $ 1,829,454 $ 1,041 0.06 % $ 1,679,427 $ (467) (0.03) % $ 1,528,985 $ 1,089 0.07 % For the Year Ended December 31, 2019 2018 ($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Real estate loans: Commercial property $ 744,513 $ — — % $ 683,739 $ 4 0.01 % Residential property 237,825 — — % 200,061 — — % SBA property 125,785 25 0.02 % 129,472 164 0.13 % Construction 22,384 — — % 26,907 — — % Total real estate loans 1,130,507 25 0.01 % 1,040,179 168 0.02 % Commercial and industrial loans: Commercial term 104,427 179 0.17 % 86,168 (170) (0.20) % Commercial lines of credit 93,344 2,597 2.78 % 69,080 (28) (0.04) % SBA commercial term 25,911 196 0.76 % 28,950 114 0.39 % Total commercial and industrial loans 223,682 2,972 1.33 % 184,198 (84) (0.05) % Other consumer loans 22,884 27 0.12 % 30,135 204 0.68 % Total loans held-for-investment $ 1,377,073 $ 3,024 0.22 % $ 1,254,512 $ 288 0.02 % 63 Loans 30 to 89 Days Past Due and Still Accruing The following table presents a summary of loans 30 to 89 days past due and still accruing as of the dates indicated: December 31, ($ in thousands) 2022 2021 2020 2019 2018 Real estate loans: Residential property $ — $ 461 $ 182 $ 697 $ 95 SBA property — — — 794 183 Total real estate loans — 461 182 1,491 278 Commercial and industrial loans: SBA commercial term — — — 189 — Total commercial and industrial loans — — — 189 — Other consumer loans 134 93 156 138 99 Total $ 134 $ 554 $ 338 $ 1,818 $ 377 Nonperforming Loans and Nonperforming Assets The following table presents a summary of total NPLs and NPAs as of the dates indicated: December 31, ($ in thousands) 2022 2021 2020 2019 2018 Nonaccrual loans held-for-investment: Real estate loans: Commercial property $ 2,400 $ — $ 524 $ — $ — Residential property 372 — 189 — 302 SBA property 585 746 885 442 540 Total real estate loans 3,357 746 1,598 442 842 Commercial and industrial loans: Commercial lines of credit — — 904 1,888 — SBA commercial term — 213 595 159 203 Total commercial and industrial loans — 213 1,499 2,047 203 Other consumer loans 3 35 66 48 16 Total nonaccrual loans held-for-investment 3,360 994 3,163 2,537 1,061 Loans past due 90 days or more still on accrual — — — 287 — NPLs held-for-investment 3,360 994 3,163 2,824 1,061 NPLs held-for-sale 4,000 — — — — Total NPLs 7,360 994 3,163 2,824 1,061 Other real estate owned — — 1,401 — — NPAs $ 7,360 $ 994 $ 4,564 $ 2,824 $ 1,061 Nonaccrual loans held-for-investment to loans held-for-investment 0.16 % 0.06 % 0.20 % 0.17 % 0.08 % NPLs held-for-investment to loans held-for-investment 0.16 % 0.06 % 0.20 % 0.19 % 0.08 % Allowance for loan losses to: Nonaccrual loans held-for-investment 742.32 % 2,251.61 % 838.13 % 566.81 % 1,241.00 % NPLs held-for-investment 742.32 % 2,251.61 % 838.13 % 509.21 % 1,241.00 % NPAs to total assets 0.30 % 0.05 % 0.24 % 0.16 % 0.06 % Total nonaccrual loans held-for-investment were $3.4 million at December 31, 2022, an increase of $2.4 million, or 238.0%, from $994 thousand at December 31, 2021.
Biggest changeThe following table present net charge-offs as a percentage to the average loan held for investment balances in each of the loan categories for the period indicated: Year Ended December 31, 2023 ($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Commercial real estate: Commercial property $ 794,642 $ — — % Business property 537,044 (5) -0.01 % Multifamily 127,338 — — % Construction 18,565 — — % Total commercial real estate 1,477,589 (5) -0.01 % Commercial and industrial 263,447 (1,062) -0.40 % Consumer: Residential mortgage 358,303 — — % Other consumer 21,602 40 0.19 % Total consumer 379,905 40 0.01 % Total loans held-for-investment $ 2,120,941 $ (1,027) -0.05 % 56 The following tables present net charge-offs as a percentage to the average loan held for investment balances in each of the legacy loan categories for the periods indicated: For the Year Ended December 31, 2022 2021 ($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Real estate loans: Commercial property $ 1,201,405 $ — — % $ 983,129 $ — — % Residential property 261,576 — — % 197,741 — — % SBA property 115,488 — — % 125,051 (39) (0.03) % Construction 12,202 — — % 12,715 — — % Total real estate loans 1,590,671 — — % 1,318,636 (39) (0.01) % Commercial and industrial loans: Commercial term 74,934 (8) (0.01) % 77,383 (200) (0.26) % Commercial lines of credit 111,864 1,063 0.95 % 92,874 (146) (0.16) % SBA commercial term 16,262 (21) (0.13) % 19,390 (104) (0.54) % SBA PPP 13,732 — — % 150,043 — — % Total commercial and industrial loans 216,792 1,034 0.48 % 339,690 (450) (0.13) % Other consumer loans 21,991 7 0.03 % 21,101 22 0.10 % Total loans held-for-investment $ 1,829,454 $ 1,041 0.06 % $ 1,679,427 $ (467) (0.03) % For the Year Ended December 31, 2020 2019 ($ in thousands) Average Balance Net Charge-offs (Recoveries) Percentage Average Balance Net Charge-offs (Recoveries) Percentage Real estate loans: Commercial property $ 826,288 $ — — % $ 744,513 $ — — % Residential property 221,296 — — % 237,825 — — % SBA property 124,996 117 0.09 % 125,785 25 0.02 % Construction 20,285 — — % 22,384 — — % Total real estate loans 1,192,865 117 0.01 % 1,130,507 25 0.01 % Commercial and industrial loans: Commercial term 97,247 (96) (0.10) % 104,427 179 0.17 % Commercial lines of credit 100,154 709 0.71 % 93,344 2,597 2.78 % SBA commercial term 23,868 255 1.07 % 25,911 196 0.76 % SBA PPP 92,818 — — % — — — % Total commercial and industrial loans 314,087 868 0.28 % 223,682 2,972 1.33 % Other consumer loans 22,033 104 0.47 % 22,884 27 0.12 % Total loans held-for-investment $ 1,528,985 $ 1,089 0.07 % $ 1,377,073 $ 3,024 0.22 % 57 Loans 30 to 89 Days Past Due and Still Accruing The following table presents a summary of loans 30 to 89 days past due and still accruing as of the dates indicated: December 31, ($ in thousands) 2023 2022 2021 2020 2019 Commercial real estate: SBA property (1) $ — $ — $ — $ — $ 794 Business property 560 N/A N/A N/A N/A Total commercial real estate 560 — — — 794 Commercial and industrial 217 — — — 189 Consumer: Residential mortgage 604 — 461 182 697 Other consumer 47 134 93 156 138 Total consumer 651 134 554 338 835 Total $ 1,428 $ 134 $ 554 $ 338 $ 1,818 (1) Under the legacy loan segments.
The increase in average cost was primarily due to the rising market rates. For the years ended December 31, 2022 and 2021, average cost on total interest-bearing deposits was 1.08% and 0.40%, respectively. Interest expense on other borrowings increased primarily due to a 122 basis point increase in average cost, partially offset by a 79.9% decrease in average balance.
The increase in average cost was primarily due to the rising market rates. For the years ended December 31, 2022 and 2021, average cost on total interest-bearing deposits was 1.08% and 0.40%, respectively. 46 Interest expense on other borrowings increased primarily due to a 122 basis point increase in average cost, partially offset by a 79.9% decrease in average balance.
For the years ended December 31, 2022 and 2021, average yield on total investment securities was 2.19% and 1.24%, respectively. 51 Interest income on other interest-earning assets increased primarily due to a 156 basis point increase in average yield and an 8.3% increase in average balance. The increase in average yield was primarily due to the rising market rates.
For the years ended December 31, 2022 and 2021, average yield on total investment securities was 2.19% and 1.24%, respectively. Interest income on other interest-earning assets increased primarily due to a 156 basis point increase in average yield and an 8.3% increase in average balance. The increase in average yield was primarily due to the rising market rates.
The number of full-time equivalent employees averaged 268.3 for the year ended December 31, 2022 compared to 247.9 for the year ended December 31, 2021. Occupancy and equipment expense increased primarily due to new branch openings. The Company opened 3 new branches in Dallas and Carrollton, Texas, and Palisades Park, New Jersey during the year ended December 31, 2022.
The number of full-time equivalent employees averaged 268.3 for the year ended December 31, 2022 compared to 247.9 for the year ended December 31, 2021. Occupancy and equipment expense increased primarily due to new branch openings. The Company opened three new branches in Dallas and Carrollton, Texas, and Palisades Park, New Jersey during the year ended December 31, 2022.
During the year ended December 31, 2021, the Company sold SBA loans of $126.8 million with a gain of $12.8 million and residential property loans of $10.4 million with a gain of $151 thousand and certain commercial property loans of $8.6 million with a gain of $6 thousand.
During the year ended December 31, 2021, the Company sold SBA loans of $126.8 million with a gain of $12.8 million and residential mortgage loans of $10.4 million with a gain of $151 thousand and certain commercial property loans of $8.6 million with a gain of $6 thousand.
Management believes that these limitations will not impact the Company’s ability to meet its ongoing short- and long-term cash obligations. 70 Off-Balance Sheet Arrangements The Company has limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on financial condition, results of operations, liquidity, capital expenditures or capital resources.
Management believes that these limitations will not impact the Company’s ability to meet its ongoing short- and long-term cash obligations. 63 Off-Balance Sheet Arrangements The Company has limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on financial condition, results of operations, liquidity, capital expenditures or capital resources.
Management expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs. 71
Management expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs. 64
The Company sold SBA loans of $122.9 million with a gain of $8.0 million and residential property loans of $858 thousand with a gain of $8 thousand during the year ended December 31, 2022.
The Company sold SBA loans of $122.9 million with a gain of $8.0 million and residential mortgage loans of $858 thousand with a gain of $8 thousand during the year ended December 31, 2022.
Net amortization of deferred loan fees (cost) of $2.2 million, $6.1 million and $2.9 million, respectively, and net accretion of discount on loans of $3.6 million, $3.5 million and $3.3 million, respectively, are included in the interest income for the years ended December 31, 2022, 2021 and 2020, respectively.
Net amortization of deferred loan fees (cost) of $1.1 million, $2.2 million and $6.1 million, respectively, and net accretion of discount on loans of $2.2 million, $3.6 million and $3.5 million, respectively, are included in the interest income for the years ended December 31, 2023, 2022 and 2021, respectively.
The CRE concentration contingency plan contains overview of the Bank’s strategies to mitigate and manage the concentration risks including the plans to maintain stable capital levels, having access to additional capital, maintaining adequate amount of allowance for loan losses, potentially implementing more conservative growth/lending strategies if necessary, maintaining liquidity within the CRE portfolio, and strengthening the loan workout infrastructure.
The CRE concentration contingency plan contains overview of the Bank’s strategies to mitigate and manage the concentration risks including the plans to maintain stable capital levels, having access to additional capital, maintaining adequate amount of ACL, potentially implementing more conservative growth/lending strategies if necessary, maintaining liquidity within the CRE portfolio, and strengthening the loan workout infrastructure.
Additional income of approximately $305 thousand would have been recorded during the year ended December 31, 2022, had these loans been paid in accordance with their original terms throughout the periods indicated. CRE Concentration The Bank has policies and procedures in place to monitor compliance with the CRE Concentration Guidance.
Additional income of approximately $356 thousand would have been recorded during the year ended December 31, 2023, had these loans been paid in accordance with their original terms throughout the periods indicated. CRE Concentration The Bank has policies and procedures in place to monitor compliance with the CRE Concentration Guidance.
As of December 31, 2022, using regulatory definitions in the CRE Concentration Guidance, CRE loans represented 253.9% of total risk-based capital, as compared to 269.8%, 256.1%, 243.6% and 253.6% as of December 31, 2021, 2020, 2019 and 2018, respectively.
As of December 31, 2023, using regulatory definitions in the CRE Concentration Guidance, CRE loans represented 280.7% of total risk-based capital, as compared to 253.9%, 269.8%, 256.1% and 243.6% as of December 31, 2022, 2021, 2020 and 2019, respectively.
Interest and fees on loans increased primarily due to a 10.0% increase in average balance and a 43 basis point increase in average yield. The increase in average balance was primarily due to an increase in commercial and residential property loans, and commercial lines of credit, partially offset by a decrease in commercial term loans.
Interest and fees on loans increased primarily due to a 10.0% increase in average balance and a 43 basis point increase in average yield. The increase in average balance was primarily due to an increase in commercial real estate and residential mortgage loans, and commercial lines of credit, partially offset by a decrease in commercial term loans.
(5) Cost of funds is calculated by dividing interest expense on deposits by the sum of interest-bearing and noninterest-bearing demand deposits. 50 The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.
(5) Cost of funds is calculated by dividing total interest expense by the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. 44 The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.
PCB Bancorp PCB Bank Minimum Regulatory Requirements Well Capitalized Requirements (Bank) December 31, 2022 Common tier 1 capital (to risk-weighted assets) 13.29 % 16.30 % 4.5 % 6.5 % Total capital (to risk-weighted assets) 17.83 % 17.52 % 8.0 % 10.0 % Tier 1 capital (to risk-weighted assets) 16.62 % 16.30 % 6.0 % 8.0 % Tier 1 capital (to average assets) 14.33 % 14.05 % 4.0 % 5.0 % December 31, 2021 Common tier 1 capital (to risk-weighted assets) 14.79 % 14.48 % 4.5 % 6.5 % Total capital (to risk-weighted assets) 16.04 % 15.73 % 8.0 % 10.0 % Tier 1 capital (to risk-weighted assets) 14.79 % 14.48 % 6.0 % 8.0 % Tier 1 capital (to average assets) 12.11 % 11.85 % 4.0 % 5.0 % The Company and the Bank’s capital conservation buffer was 8.79% and 9.52%, respectively, as of December 31, 2022, and 8.04% and 7.73%, respectively, as of December 31, 2021.
PCB Bancorp PCB Bank Minimum Regulatory Requirements Well Capitalized Requirements (Bank) December 31, 2023 Common tier 1 capital (to risk-weighted assets) 12.23 % 14.85 % 4.5 % 6.5 % Total capital (to risk-weighted assets) 16.39 % 16.07 % 8.0 % 10.0 % Tier 1 capital (to risk-weighted assets) 15.16 % 14.85 % 6.0 % 8.0 % Tier 1 capital (to average assets) 13.43 % 13.16 % 4.0 % 5.0 % December 31, 2022 Common tier 1 capital (to risk-weighted assets) 13.29 % 16.30 % 4.5 % 6.5 % Total capital (to risk-weighted assets) 17.83 % 17.52 % 8.0 % 10.0 % Tier 1 capital (to risk-weighted assets) 16.62 % 16.30 % 6.0 % 8.0 % Tier 1 capital (to average assets) 14.33 % 14.05 % 4.0 % 5.0 % The Company and the Bank’s capital conservation buffer was 7.73% and 8.07%, respectively, as of December 31, 2023, and 8.79% and 9.52%, respectively, as of December 31, 2022.
When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to allowance for loan losses.
When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to ACL on loans.
The Bank’s construction and land development loans remain a small portion of the loan portfolio and as a percentage of total capital (as defined by the federal bank regulators) were 6.2% and 5.8%, respectively, at December 31, 2022 and 2021.
The Bank’s construction and land development loans remain a small portion of the loan portfolio and as a percentage of total capital (as defined by the federal bank regulators) were 7.4% and 6.2%, respectively, at December 31, 2023 and 2022.
The increase in average balance of interest-earning assets was primarily due to growth in the loan and investment securities, supported by deposit growth. The decreases in average yield on interest-earning assets and average cost of interest-bearing liabilities were primarily due to the lower market rates during the year ended December 31, 2021.
The increase in average balance of interest-earning assets was primarily due to growth in loans and investment securities, supported by deposit growth. The increases in average yield on interest-earning assets and average cost of interest-bearing liabilities were primarily due to the rising market rates during the year ended December 31, 2023.
The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of December 31, 2022 and 2021. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated.
Municipal and corporate bonds had an investment grade rating upon purchase. The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of December 31, 2023. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated.
Other income included wire and remittance fees of $596 thousand and $530 thousand, respectively, and debit card interchange fees of $306 thousand and $252 thousand, respectively, for the years ended December 31, 2021 and 2020. 54 Noninterest Expense Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of noninterest expense for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Salaries and employee benefits $ 33,056 $ 27,974 $ 5,082 18.2 % Occupancy and equipment 6,481 5,575 906 16.3 % Professional fees 2,239 2,159 80 3.7 % Marketing and business promotion 2,150 1,656 494 29.8 % Data processing 1,706 1,572 134 8.5 % Director fees and expenses 706 594 112 18.9 % Regulatory assessments 597 537 60 11.2 % Other expenses 4,191 3,141 1,050 33.4 % Total noninterest expense $ 51,126 $ 43,208 $ 7,918 18.3 % Salaries and employee benefits increased primarily due to increases in wages, vacation accrual, and other employee benefits, partially offset by decreases in incentives tied to LPO originated SBA loan sales and loan origination cost, which offsets the recognition of salaries.
Other expense included other loan related legal expenses of $534 thousand and $389 thousand, respectively, armed guard expense of $798 thousand and $656 thousand, respectively, office expenses of $2.2 million and $1.9 million, respectively, and provision for off-balance sheet credit exposures was $85 thousand for the year ended December 31, 2022. 49 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of noninterest expense for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Salaries and employee benefits $ 33,056 $ 27,974 $ 5,082 18.2 % Occupancy and equipment 6,481 5,575 906 16.3 % Professional fees 2,239 2,159 80 3.7 % Marketing and business promotion 2,150 1,656 494 29.8 % Data processing 1,706 1,572 134 8.5 % Director fees and expenses 706 594 112 18.9 % Regulatory assessments 597 537 60 11.2 % Other expenses 4,191 3,141 1,050 33.4 % Total noninterest expense $ 51,126 $ 43,208 $ 7,918 18.3 % Salaries and employee benefits increased primarily due to increases in wages, vacation accrual, and other employee benefits, partially offset by decreases in incentives tied to LPO originated SBA loan sales and loan origination cost, which offsets the recognition of salaries.
The Company is committed to making corporate decisions that directly benefit its shareholders, and during the year ended December 31, 2022, increased its dividend per common share by $0.16, or 36.4%, to $0.60 from $0.44 for the year ended December 31, 2021.
The Company is committed to making corporate decisions that directly benefit its shareholders, and during the year ended December 31, 2023, increased its dividend per common share by $0.09, or 15.0%, to $0.69 from $0.60 for the year ended December 31, 2022.
See further discussion in “Loans Held-For-Investment and Allowance for Loan Losses.” Noninterest Income Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of noninterest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Service charges and fees on deposits $ 1,326 $ 1,195 $ 131 11.0 % Loan servicing income 2,969 2,770 199 7.2 % Bank-owned life insurance income 706 108 598 553.7 % Gain on sale of loans 7,990 12,932 (4,942) (38.2) % Other income 1,508 1,429 79 5.5 % Total noninterest income $ 14,499 $ 18,434 $ (3,935) (21.3) % Service charges and fees on deposits increased primarily due to an increase in fee-based transactions.
Other income included wire and remittance fees of $625 thousand and $643 thousand, respectively, and debit card interchange fees of $339 thousand and $335 thousand, respectively, for the years ended December 31, 2023 and 2022. 47 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of noninterest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Service charges and fees on deposits $ 1,326 $ 1,195 $ 131 11.0 % Loan servicing income 2,969 2,770 199 7.2 % Bank-owned life insurance income 706 108 598 553.7 % Gain on sale of loans 7,990 12,932 (4,942) (38.2) % Other income 1,508 1,429 79 5.5 % Total noninterest income $ 14,499 $ 18,434 $ (3,935) (21.3) % Service charges and fees on deposits increased primarily due to an increase in fee-based transactions.
The decrease in average yield was primarily due to the lower market rates, partially offset by increases in net amortization of deferred fees on SBA PPP loans and net accretion of discount. Interest on investment securities decreased primarily due to a 49 basis point decrease in average yield, partially offset by a 6.3% increase in average balance.
The increase in average yield was primarily due to the rising market rates, partially offset by a decrease in net amortization of deferred fees on SBA PPP loans. Interest on investment securities increased primarily due to a 114 basis point increase in average yield and a 6.1% increase in average balance.
December 31, ($ in thousands) 2022 2021 2020 2019 2018 Loans held-for-investment $ 2,046,063 $ 1,732,205 $ 1,583,578 $ 1,450,831 $ 1,338,682 Less: SBA PPP loans 1,197 65,329 135,654 — — Loans held-for-investment, excluding SBA PPP loans $ 2,044,866 $ 1,666,876 $ 1,447,924 $ 1,450,831 $ 1,338,682 Allowance for loan losses $ 24,942 $ 22,381 $ 26,510 $ 14,380 $ 13,167 Allowance for loan losses to loans held-for-investment 1.22 % 1.29 % 1.67 % 0.99 % 0.98 % Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans 1.22 % 1.34 % 1.83 % 0.99 % 0.98 % 46 Five-Year Summary of Selected Financial Data The following table presents certain selected financial data as of the dates or for the periods indicated: As of or For the Year Ended December 31, ($ in thousands, except per share data) 2022 2021 2020 2019 2018 Selected balance sheet data: Cash and cash equivalents $ 147,031 $ 203,285 $ 194,098 $ 146,228 $ 162,273 Securities available-for-sale 141,863 123,198 120,527 97,566 146,991 Securities held-to-maturity — — — 20,154 21,760 Loans held-for-sale 22,811 37,026 1,979 1,975 5,781 Loans held-for-investment 2,046,063 1,732,205 1,583,578 1,450,831 1,338,682 Allowance for loan losses (24,942) (22,381) (26,510) (14,380) (13,167) Total assets 2,420,036 2,149,735 1,922,853 1,746,328 1,697,028 Total deposits 2,045,983 1,867,134 1,594,851 1,479,307 1,443,753 Shareholders’ equity 335,442 256,286 233,788 226,834 210,296 Selected income statement data: Interest income $ 101,751 $ 81,472 $ 79,761 $ 92,945 $ 83,699 Interest expense 12,119 4,335 13,572 23,911 17,951 Net interest income 89,632 77,137 66,189 69,034 65,748 Provision for loan losses 3,602 (4,596) 13,219 4,237 1,231 Noninterest income 14,499 18,434 11,740 11,869 10,454 Noninterest expense 51,126 43,208 41,699 42,315 40,226 Income before income taxes 49,403 56,959 23,011 34,351 34,745 Income tax expense 14,416 16,856 6,836 10,243 10,444 Net income 34,987 40,103 16,175 24,108 24,301 Per share data: Earnings per common share, basic $ 2.35 $ 2.66 $ 1.05 $ 1.52 $ 1.69 Earnings per common share, diluted 2.31 2.62 1.04 1.49 1.65 Book value per common share (1) 22.94 17.24 15.19 14.44 13.16 Tangible common equity per common share (8) 18.21 17.24 15.19 14.44 13.16 Cash dividends declared per common share 0.60 0.44 0.40 0.25 0.12 Outstanding share data: Number of common shares outstanding 14,625,474 14,865,825 15,385,878 15,707,016 15,977,754 Weighted-average common shares outstanding, basic 14,822,018 15,017,637 15,384,231 15,873,383 14,397,075 Weighted-average common shares outstanding, diluted 15,065,175 15,253,820 15,448,892 16,172,282 14,691,370 Selected performance ratios: Return on average assets 1.54 % 1.96 % 0.84 % 1.40 % 1.53 % Return on average shareholders’ equity 11.42 % 16.52 % 7.08 % 10.88 % 14.26 % Return on average tangible common equity (8) 13.23 % 16.52 % 7.08 % 10.88 % 14.26 % Dividend payout ratio (2) 25.53 % 16.54 % 38.10 % 16.45 % 7.10 % Efficiency ratio (3) 49.10 % 45.21 % 53.51 % 52.30 % 52.79 % Yield on average interest-earning assets 4.63 % 4.05 % 4.25 % 5.53 % 5.38 % Cost of average interest-bearing liabilities 1.08 % 0.41 % 1.15 % 2.09 % 1.65 % Net interest spread 3.55 % 3.64 % 3.10 % 3.44 % 3.73 % Net interest margin (4) 4.08 % 3.83 % 3.53 % 4.11 % 4.23 % Total loans to total deposits ratio (5) 101.12 % 94.76 % 99.42 % 98.21 % 93.12 % 47 As of or For the Year Ended December 31, ($ in thousands, except per share data) 2022 2021 2020 2019 2018 Asset quality: Loans 30 to 89 days past due and still accruing $ 134 $ 554 $ 338 $ 1,818 $ 377 Loans past due 90 days or more and still accruing — — — 287 — Nonaccrual loans held-for-investment 3,360 994 3,163 2,537 1,061 NPLs held-for-investment 3,360 994 3,163 2,824 1,061 NPLs held-for-sale 4,000 — — — — Total NPLs 7,360 994 3,163 2,824 1,061 NPAs (6) 7,360 994 4,564 2,824 1,061 Net charge-offs (recoveries) 1,041 (467) 1,089 3,024 288 Loans 30 to 89 days past due and still accruing to loans held-for-investment 0.01 % 0.03 % 0.02 % 0.13 % 0.03 % Nonaccrual loans held-for-investment to loans held-for-investment 0.16 % 0.06 % 0.20 % 0.17 % 0.08 % Nonaccrual loans held-for-investment to allowance for loan losses 13.47 % 4.44 % 11.93 % 17.64 % 8.06 % NPLs held-for-investment to loans held-for-investment 0.16 % 0.06 % 0.20 % 0.19 % 0.08 % NPLs held-for-investment to allowance for loan losses 13.47 % 4.44 % 11.93 % 19.64 % 8.06 % NPAs to total assets 0.30 % 0.05 % 0.24 % 0.16 % 0.06 % Allowance for loan losses to loans held-for-investment 1.22 % 1.29 % 1.67 % 0.99 % 0.98 % Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (7) 1.22 % 1.34 % 1.83 % 0.99 % 0.98 % Allowance for loan losses to nonaccrual loans held-for-investment 742.32 % 2,251.61 % 838.13 % 566.81 % 1,241.00 % Allowance for loan losses to NPLs held-for-investment 742.32 % 2,251.61 % 838.13 % 509.21 % 1,241.00 % Net charge-offs (recoveries) to average loans held-for-investment 0.06 % -0.03 % 0.07 % 0.22 % 0.02 % Capital ratios: Shareholders’ equity to total assets 13.86 % 11.92 % 12.16 % 12.99 % 12.39 % Tangible common equity to total assets (8) 11.00 % 11.92 % 12.16 % 12.99 % 12.39 % Average equity to average assets 13.49 % 11.86 % 11.94 % 12.88 % 10.72 % PCB Bancorp Common tier 1 capital (to risk-weighted assets) 13.29 % 14.79 % 15.97 % 15.87 % 16.28 % Total capital (to risk-weighted assets) 17.83 % 16.04 % 17.22 % 16.90 % 17.31 % Tier 1 capital (to risk-weighted assets) 16.62 % 14.79 % 15.97 % 15.87 % 16.28 % Tier 1 capital (to average assets) 14.33 % 12.11 % 11.94 % 13.23 % 12.60 % PCB Bank Common tier 1 capital (to risk-weighted assets) 16.30 % 14.48 % 15.70 % 15.68 % 16.19 % Total capital (to risk-weighted assets) 17.52 % 15.73 % 16.95 % 16.71 % 17.21 % Tier 1 capital (to risk-weighted assets) 16.30 % 14.48 % 15.70 % 15.68 % 16.19 % Tier 1 capital (to average assets) 14.05 % 11.85 % 11.74 % 13.06 % 12.53 % (1) Shareholders' equity divided by common shares outstanding (2) Dividends declared per common share divided by basic earnings per common share.
Year Ended December 31, ($ in thousands) 2023 2022 2021 2020 2019 Average total shareholders' equity $ 340,508 $ 306,440 $ 242,766 $ 228,553 $ 221,576 Less: average preferred stock 69,141 42,053 — — — Average tangible common equity $ 271,367 $ 264,387 $ 242,766 $ 228,553 $ 221,576 Net income $ 30,705 $ 34,987 $ 40,103 $ 16,175 $ 24,108 Return on average shareholders' equity 9.02 % 11.42 % 16.52 % 7.08 % 10.88 % Return on average tangible common equity 11.31 % 13.23 % 16.52 % 7.08 % 10.88 % December 31, ($ in thousands, except per share data) 2023 2022 2021 2020 2019 Total shareholders' equity $ 348,872 $ 335,442 $ 256,286 $ 233,788 $ 226,834 Less: preferred stock 69,141 69,141 — — — Tangible common equity $ 279,731 $ 266,301 $ 256,286 $ 233,788 $ 226,834 Outstanding common shares 14,260,440 14,625,474 14,865,825 15,385,878 15,707,016 Book value per common share $ 24.46 $ 22.94 $ 17.24 $ 15.19 $ 14.44 Tangible common equity per common share $ 19.62 $ 18.21 $ 17.24 $ 15.19 $ 14.44 Total assets $ 2,789,506 $ 2,420,036 $ 2,149,735 $ 1,922,853 $ 1,746,328 Total shareholders' equity to total assets 12.51 % 13.86 % 11.92 % 12.16 % 12.99 % Tangible common equity to total assets 10.03 % 11.00 % 11.92 % 12.16 % 12.99 % 40 Five-Year Summary of Selected Financial Data The following table presents certain selected financial data as of the dates or for the periods indicated: As of or For the Year Ended December 31, ($ in thousands, except per share data) 2023 2022 2021 2020 2019 Selected balance sheet data: Cash and cash equivalents $ 242,342 $ 147,031 $ 203,285 $ 194,098 $ 146,228 Securities available-for-sale 143,323 141,863 123,198 120,527 97,566 Securities held-to-maturity — — — — 20,154 Loans held-for-sale 5,155 22,811 37,026 1,979 1,975 Loans held-for-investment 2,323,452 2,046,063 1,732,205 1,583,578 1,450,831 ACL on loans (1) (27,533) (24,942) (22,381) (26,510) (14,380) Total assets 2,789,506 2,420,036 2,149,735 1,922,853 1,746,328 Total deposits 2,351,612 2,045,983 1,867,134 1,594,851 1,479,307 Shareholders’ equity 348,872 335,442 256,286 233,788 226,834 Selected income statement data: Interest income $ 151,177 $ 101,751 $ 81,472 $ 79,761 $ 92,945 Interest expense 62,673 12,119 4,335 13,572 23,911 Net interest income 88,504 89,632 77,137 66,189 69,034 Provision (reversal) for credit losses (1) (132) 3,602 (4,596) 13,219 4,237 Noninterest income 10,683 14,499 18,434 11,740 11,869 Noninterest expense 56,057 51,126 43,208 41,699 42,315 Income before income taxes 43,262 49,403 56,959 23,011 34,351 Income tax expense 12,557 14,416 16,856 6,836 10,243 Net income 30,705 34,987 40,103 16,175 24,108 Per share data: Earnings per common share, basic $ 2.14 $ 2.35 $ 2.66 $ 1.05 $ 1.52 Earnings per common share, diluted 2.12 2.31 2.62 1.04 1.49 Book value per common share (2) 24.46 22.94 17.24 15.19 14.44 Tangible common equity per common share (8) 19.62 18.21 17.24 15.19 14.44 Cash dividends declared per common share 0.69 0.60 0.44 0.40 0.25 Outstanding share data: Number of common shares outstanding 14,260,440 14,625,474 14,865,825 15,385,878 15,707,016 Weighted-average common shares outstanding, basic 14,301,691 14,822,018 15,017,637 15,384,231 15,873,383 Weighted-average common shares outstanding, diluted 14,417,938 15,065,175 15,253,820 15,448,892 16,172,282 Selected performance ratios: Return on average assets 1.20 % 1.54 % 1.96 % 0.84 % 1.40 % Return on average shareholders’ equity 9.02 % 11.42 % 16.52 % 7.08 % 10.88 % Return on average tangible common equity (8) 11.31 % 13.23 % 16.52 % 7.08 % 10.88 % Dividend payout ratio (3) 32.24 % 25.53 % 16.54 % 38.10 % 16.45 % Efficiency ratio (4) 56.52 % 49.10 % 45.21 % 53.51 % 52.30 % Yield on average interest-earning assets 6.10 % 4.63 % 4.05 % 4.25 % 5.53 % Cost of average interest-bearing liabilities 4.05 % 1.08 % 0.41 % 1.15 % 2.09 % Net interest spread 2.05 % 3.55 % 3.64 % 3.10 % 3.44 % Net interest margin (5) 3.57 % 4.08 % 3.83 % 3.53 % 4.11 % Total loans to total deposits ratio (6) 99.02 % 101.12 % 94.76 % 99.42 % 98.21 % 41 As of or For the Year Ended December 31, ($ in thousands, except per share data) 2023 2022 2021 2020 2019 Asset quality: Loans 30 to 89 days past due and still accruing $ 1,428 $ 134 $ 554 $ 338 $ 1,818 Loans past due 90 days or more and still accruing — — — — 287 Nonaccrual loans held-for-investment 3,916 3,360 994 3,163 2,537 NPLs held-for-investment 3,916 3,360 994 3,163 2,824 NPLs held-for-sale — 4,000 — — — Total NPLs 3,916 7,360 994 3,163 2,824 NPAs (7) 6,474 7,360 994 4,564 2,824 Net charge-offs (recoveries) (1,027) 1,041 (467) 1,089 3,024 Loans 30 to 89 days past due and still accruing to loans held-for-investment 0.06 % 0.01 % 0.03 % 0.02 % 0.13 % Nonaccrual loans held-for-investment to loans held-for-investment 0.17 % 0.16 % 0.06 % 0.20 % 0.17 % Nonaccrual loans held-for-investment to ACL on loans (1) 14.22 % 13.47 % 4.44 % 11.93 % 17.64 % NPLs held-for-investment to loans held-for-investment 0.17 % 0.16 % 0.06 % 0.20 % 0.19 % NPLs held-for-investment to ACL on loans (1) 14.22 % 13.47 % 4.44 % 11.93 % 19.64 % NPAs to total assets 0.23 % 0.30 % 0.05 % 0.24 % 0.16 % ACL on loans (1) to loans held-for-investment 1.19 % 1.22 % 1.29 % 1.67 % 0.99 % ACL on loans (1) to nonaccrual loans held-for-investment 703.09 % 742.32 % 2,251.61 % 838.13 % 566.81 % ACL on loans (1) to NPLs held-for-investment 703.09 % 742.32 % 2,251.61 % 838.13 % 509.21 % Net charge-offs (recoveries) to average loans held-for-investment (0.05) % 0.06 % (0.03) % 0.07 % 0.22 % Capital ratios: Shareholders’ equity to total assets 12.51 % 13.86 % 11.92 % 12.16 % 12.99 % Tangible common equity to total assets (8) 10.03 % 11.00 % 11.92 % 12.16 % 12.99 % Average equity to average assets 13.35 % 13.49 % 11.86 % 11.94 % 12.88 % PCB Bancorp Common tier 1 capital (to risk-weighted assets) 12.23 % 13.29 % 14.79 % 15.97 % 15.87 % Total capital (to risk-weighted assets) 16.39 % 17.83 % 16.04 % 17.22 % 16.90 % Tier 1 capital (to risk-weighted assets) 15.16 % 16.62 % 14.79 % 15.97 % 15.87 % Tier 1 capital (to average assets) 13.43 % 14.33 % 12.11 % 11.94 % 13.23 % PCB Bank Common tier 1 capital (to risk-weighted assets) 14.85 % 16.30 % 14.48 % 15.70 % 15.68 % Total capital (to risk-weighted assets) 16.07 % 17.52 % 15.73 % 16.95 % 16.71 % Tier 1 capital (to risk-weighted assets) 14.85 % 16.30 % 14.48 % 15.70 % 15.68 % Tier 1 capital (to average assets) 13.16 % 14.05 % 11.85 % 11.74 % 13.06 % (1) ACL and provision (reversal) for credit losses for the year ended December 31, 2023 are presented under ASC 326, while prior period comparisons continue to be presented under legacy ASC 450 and ASC 310.
Emergency Capital Investment Program On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock for the capital investment of $69.1 million from the U.S. Treasury under the ECIP. ECIP investment is treated as tier 1 capital for the regulatory capital treatment.
Emergency Capital Investment Program On May 24, 2022, the Company issued 69,141 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference of $1,000 per share (“Series C Preferred Stock”) for the capital investment of $69.1 million from the U.S. Treasury under the ECIP. The ECIP investment is treated as tier 1 capital for regulatory capital purposes.
During the year ended December 31, 2022, the Company also repurchased 362,557 shares of common stock, totaling $6.7 million. Overall, the Company returned 44.8% of its earnings to common shareholders through dividends and common share repurchases during the year ended December 31, 2022.
During the year ended December 31, 2023, the Company also repurchased 512,657 shares of common stock, totaling $8.8 million. Overall, the Company returned 61.0% of its earnings to common shareholders through dividends and common share repurchases during the year ended December 31, 2023.
The increase was primarily due to loans placed on nonaccrual status during the year ended December 31, 2022 of $7.4 million, partially offset by payoffs and paydowns of $966 thousand, loans transferred to loans held-for-sale of $4.0 million and charge-offs of $35 thousand. 64 Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection.
The increase was primarily due to loans placed on nonaccrual status during the year ended December 31, 2023 of $2.5 million, partially offset by payoffs and paydowns of $1.3 million, a loan transferred to OREO of $593 thousand and charge-offs of $45 thousand. 58 Loans are generally placed on nonaccrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection.
As of December 31, 2022 and 2021, total deposits were comprised of 35.9% and 44.5%, respectively, of noninterest-bearing demand accounts, 25.2% and 22.6%, respectively, of savings, NOW and money market accounts and 38.9% and 32.9%, respectively, of time deposits.
As of December 31, 2023 and 2022, total deposits were comprised of 25.3% and 35.9%, respectively, of noninterest-bearing demand accounts, 17.9% and 25.2%, respectively, of savings, NOW and money market accounts and 56.8% and 38.9%, respectively, of time deposits.
The following table presents the composition of the Company’s loans held-for-sale as of the dates indicated: December 31, ($ in thousands) 2022 2021 2020 2019 2018 Real estate loans: Residential property $ — — $ 300 $ 760 $ — SBA property 16,473 33,603 1,411 150 5,481 Commercial and industrial loans: Commercial lines of credit 4,000 — — — — SBA commercial term 2,338 3,423 268 1,065 300 Loans held-for-sale $ 22,811 37,026 $ 1,979 $ 1,975 $ 5,781 Loans held-for-sale were $22.8 million at December 31, 2022, a decrease of $14.2 million, or 38.4%, from $37.0 million at December 31, 2021.
The following table presents the composition of the Company’s loans held-for-sale as of the dates indicated: December 31, ($ in thousands) 2023 2022 2021 2020 2019 Commercial real estate: SBA property (1) N/A $ 16,473 $ 33,603 $ 1,411 $ 150 Business property $ 2,802 N/A N/A N/A N/A Total commercial real estate 2,802 16,473 33,603 1,411 150 Commercial and industrial 2,353 6,338 3,423 268 1,065 Consumer: Residential mortgage — — — 300 760 Total consumer — — — 300 760 Loans held-for-sale $ 5,155 $ 22,811 $ 37,026 $ 1,979 $ 1,975 (1) Under the legacy loan segments Loans held-for-sale were $5.2 million at December 31, 2023, a decrease of $17.7 million, or 77.4%, from $22.8 million at December 31, 2022.
The increase was primarily due to the net income of $35.0 million, issuance of preferred stock of $69.1 million and stock options exercised of $840 thousand, partially offset by repurchase of common stock of $6.7 million, cash dividends declared on common stock of $8.9 million and an increase in other comprehensive loss from the fair value change in securities available-for-sale of $10.7 million.
The increase was primarily due to the net income of $30.7 million, a decrease in other comprehensive loss from the fair value change in securities available-for-sale of $1.6 million and stock options exercised of $488 thousand, partially offset by repurchase of common stock of $8.8 million, cash dividends declared on common stock of $9.9 million, and cumulative effect adjustment upon adoption of ASC 326 of $1.9 million.
The increase was primarily due to purchases of $57.4 million, partially offset by principal paydowns and calls of $23.2 million, a decrease in fair value of securities available-for-sale of $15.1 million and net premium amortization of $367 thousand.
The increase was primarily due to purchases of $17.3 million and an increase in fair value of securities available-for-sale of $2.3 million, partially offset by principal paydowns and calls of $17.9 million, and net premium amortization of $209 thousand.
Net interest income is affected by changes in the balances of interest-earning assets and interest-bearing liabilities and changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities. 49 The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their correspondent yields and costs expressed both in dollars and rates for the periods indicated: Year Ended December 31, 2022 2021 2020 ($ in thousands) Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Interest-earning assets: Total loans (1) $ 1,872,557 $ 95,054 5.08 % $ 1,702,073 $ 79,155 4.65 % $ 1,541,740 $ 76,546 4.96 % Mortgage-backed securities 89,066 1,826 2.05 % 89,693 989 1.10 % 68,496 1,260 1.84 % Collateralized mortgage obligation 23,479 545 2.32 % 22,633 221 0.98 % 35,299 462 1.31 % SBA loan pool securities 10,309 208 2.02 % 10,515 189 1.80 % 13,120 255 1.94 % Municipal securities - tax exempt (2) 4,874 140 2.87 % 5,755 146 2.54 % 5,811 150 2.58 % Corporate bonds 4,810 188 3.91 % 1,841 68 3.69 % — — — % Interest-bearing deposits in other financial institutions 184,502 3,212 1.74 % 170,814 220 0.13 % 204,708 631 0.31 % FHLB and other bank stock 9,703 578 5.96 % 8,539 484 5.67 % 8,416 457 5.43 % Total interest-earning assets 2,199,300 101,751 4.63 % 2,011,863 81,472 4.05 % 1,877,590 79,761 4.25 % Noninterest-earning assets: Cash and cash equivalents 20,735 19,676 17,542 Allowances for loan losses (22,125) (25,270) (19,693) Other assets 73,951 41,187 39,385 Total noninterest-earning assets 72,561 35,593 37,234 Total assets $ 2,271,861 $ 2,047,456 $ 1,914,824 Interest-bearing liabilities: Deposits: NOW and money market accounts $ 504,275 4,970 0.99 % $ 400,446 1,242 0.31 % $ 371,315 2,385 0.64 % Savings 14,068 9 0.06 % 12,302 6 0.05 % 8,543 9 0.11 % Time deposits 593,106 7,005 1.18 % 609,351 2,795 0.46 % 708,306 10,564 1.49 % Other borrowings 6,290 135 2.15 % 31,302 292 0.93 % 94,319 614 0.65 % Total interest-bearing liabilities 1,117,739 12,119 1.08 % 1,053,401 4,335 0.41 % 1,182,483 13,572 1.15 % Noninterest-bearing liabilities: Demand deposits 831,621 737,216 486,820 Other liabilities 16,061 14,073 16,968 Total noninterest-bearing liabilities 847,682 751,289 503,788 Total liabilities 1,965,421 1,804,690 1,686,271 Shareholders’ equity 306,440 242,766 228,553 Total liabilities and shareholders’ equity $ 2,271,861 $ 2,047,456 $ 1,914,824 Net interest income $ 89,632 $ 77,137 $ 66,189 Net interest spread (3) 3.55 % 3.64 % 3.10 % Net interest margin (4) 4.08 % 3.83 % 3.53 % Cost of funds (5) 0.62 % 0.24 % 0.81 % (1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans.
Net interest income is affected by changes in the balances of interest-earning assets and interest-bearing liabilities and changes in the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities. 43 The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their correspondent yields and costs expressed both in dollars and rates for the periods indicated: Year Ended December 31, 2023 2022 2021 ($ in thousands) Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Average Balance Interest Yield/Cost Interest-earning assets: Total loans (1) $ 2,137,851 $ 136,029 6.36 % $ 1,872,557 $ 95,054 5.08 % $ 1,702,073 $ 79,155 4.65 % Mortgage-backed securities 98,903 3,001 3.03 % 89,066 1,826 2.05 % 89,693 989 1.10 % Collateralized mortgage obligation 25,466 1,039 4.08 % 23,479 545 2.32 % 22,633 221 0.98 % SBA loan pool securities 8,166 325 3.98 % 10,309 208 2.02 % 10,515 189 1.80 % Municipal securities - tax exempt (2) 3,788 126 3.33 % 4,874 140 2.87 % 5,755 146 2.54 % Corporate bonds 4,273 188 4.40 % 4,810 188 3.91 % 1,841 68 3.69 % Interest-bearing deposits in other financial institutions 186,850 9,621 5.15 % 184,502 3,212 1.74 % 170,814 220 0.13 % FHLB and other bank stock 11,959 848 7.09 % 9,703 578 5.96 % 8,539 484 5.67 % Total interest-earning assets 2,477,256 151,177 6.10 % 2,199,300 101,751 4.63 % 2,011,863 81,472 4.05 % Noninterest-earning assets: Cash and due from banks 21,565 20,735 19,676 ACL on loans (25,495) (22,125) (25,270) Other assets 76,444 73,951 41,187 Total noninterest-earning assets 72,514 72,561 35,593 Total assets $ 2,549,770 $ 2,271,861 $ 2,047,456 Interest-bearing liabilities: Deposits: NOW and money market accounts $ 470,750 16,190 3.44 % $ 504,275 4,970 0.99 % $ 400,446 1,242 0.31 % Savings 7,499 18 0.24 % 14,068 9 0.06 % 12,302 6 0.05 % Time deposits 1,059,985 45,957 4.34 % 593,106 7,005 1.18 % 609,351 2,795 0.46 % Other borrowings 9,192 508 5.53 % 6,290 135 2.15 % 31,302 292 0.93 % Total interest-bearing liabilities 1,547,426 62,673 4.05 % 1,117,739 12,119 1.08 % 1,053,401 4,335 0.41 % Noninterest-bearing liabilities: Demand deposits 629,774 831,621 737,216 Other liabilities 32,061 16,061 14,073 Total noninterest-bearing liabilities 661,835 847,682 751,289 Total liabilities 2,209,261 1,965,421 1,804,690 Shareholders’ equity 340,509 306,440 242,766 Total liabilities and shareholders’ equity $ 2,549,770 $ 2,271,861 $ 2,047,456 Net interest income $ 88,504 $ 89,632 $ 77,137 Net interest spread (3) 2.05 % 3.55 % 3.64 % Net interest margin (4) 3.57 % 4.08 % 3.83 % Cost of funds (5) 2.88 % 0.62 % 0.24 % Cost of deposits 2.87 % 0.62 % 0.23 % (1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans.
(3) Noninterest expenses divided by the sum of net interest income and noninterest income. (4) Net interest income divided by average total interest-earning assets. (5) Total loans include both loans held-for-sale and loans held-for-investment, net of unearned loan costs (fees).
(3) Dividends declared per common share divided by basic earnings per common share. (4) Noninterest expenses divided by the sum of net interest income and noninterest income. (5) Net interest income divided by average total interest-earning assets. (6) Total loans include both loans held-for-sale and loans held-for-investment.
The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis.
The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis. The Company therefore determined that the investment securities with unrealized losses did not warrant an ACL as of December 31, 2023.
Contractual Obligations The following table presents supplemental information regarding total contractual obligations as of the dates indicated: ($ in thousands) Within One Year One to Three Years Three to Five Years Over Five Years Total December 31, 2022 Time deposits $ 785,056 $ 11,046 $ 151 $ — $ 796,253 FHLB advances 20,000 — — — 20,000 Operating leases 2,718 2,484 1,282 845 7,329 Total $ 807,774 $ 13,530 $ 1,433 $ 845 $ 823,582 December 31, 2021 Time deposits $ 603,014 $ 10,850 $ 361 $ — $ 614,225 FHLB advances 10,000 — — — 10,000 Operating leases 2,706 3,023 1,235 710 7,674 Total $ 615,720 $ 13,873 $ 1,596 $ 710 $ 631,899 Management believes that the Company will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels.
Contractual Obligations The following table presents supplemental information regarding total contractual obligations as of the dates indicated: ($ in thousands) Within One Year One to Three Years Three to Five Years Over Five Years Total December 31, 2023 Time deposits $ 1,330,271 $ 5,279 $ 186 $ — $ 1,335,736 FHLB advances 39,000 — — — 39,000 Operating leases 3,385 6,233 4,959 10,695 25,272 Total $ 1,372,656 $ 11,512 $ 5,145 $ 10,695 $ 1,400,008 December 31, 2022 Time deposits $ 785,056 $ 11,046 $ 151 $ — $ 796,253 FHLB advances 20,000 — — — 20,000 Operating leases 2,718 2,484 1,282 845 7,329 Total $ 807,774 $ 13,530 $ 1,433 $ 845 $ 823,582 Management believes that the Company will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels.
Year Ended December 31, 2022 vs. 2021 Year Ended December 31, 2021 vs. 2020 Increase (Decrease) Due to Net Increase (Decrease) Increase (Decrease) Due to Net Increase (Decrease) ($ in thousands) Volume Rate Volume Rate Interest earned on: Total loans $ 7,928 $ 7,971 $ 15,899 $ 7,960 $ (5,351) $ 2,609 Investment securities 26 1,268 1,294 134 (648) (514) Other interest-earning assets 58 3,028 3,086 (172) (212) (384) Total interest income 8,012 12,267 20,279 7,922 (6,211) 1,711 Interest paid on: Savings, NOW, and money market deposits 319 3,412 3,731 207 (1,353) (1,146) Time deposits (75) 4,285 4,210 (1,476) (6,293) (7,769) Other borrowings (233) 76 (157) (410) 88 (322) Total interest expense 11 7,773 7,784 (1,679) (7,558) (9,237) Change in net interest income $ 8,001 $ 4,494 $ 12,495 $ 9,601 $ 1,347 $ 10,948 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of net interest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Interest income: Interest and fees on loans $ 95,054 $ 79,155 $ 15,899 20.1 % Interest on investment securities 2,907 1,613 1,294 80.2 % Interest and dividends on other interest-earning assets 3,790 704 3,086 438.4 % Total interest income 101,751 81,472 20,279 24.9 % Interest expense: Interest on deposits 11,984 4,043 7,941 196.4 % Interest on other borrowings 135 292 (157) (53.8) % Total interest expense 12,119 4,335 7,784 179.6 % Net interest income $ 89,632 $ 77,137 $ 12,495 16.2 % Net interest income increased primarily due to a 9.3% increase in average balance of interest-earning assets and a 58 basis point increase in average yield on interest-earning assets, partially offset by a 6.1% increase in average balance of interest-bearing liabilities and a 67 basis point increase in average cost of interest-bearing liabilities.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents the components of net interest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Interest income: Interest and fees on loans $ 95,054 $ 79,155 $ 15,899 20.1 % Interest on investment securities 2,907 1,613 1,294 80.2 % Interest and dividends on other interest-earning assets 3,790 704 3,086 438.4 % Total interest income 101,751 81,472 20,279 24.9 % Interest expense: Interest on deposits 11,984 4,043 7,941 196.4 % Interest on borrowings 135 292 (157) (53.8) % Total interest expense 12,119 4,335 7,784 179.6 % Net interest income $ 89,632 $ 77,137 $ 12,495 16.2 % Net interest income increased primarily due to a 9.3% increase in average balance of interest-earning assets and a 58 basis point increase in average yield on interest-earning assets, partially offset by a 6.1% increase in average balance of interest-bearing liabilities and a 67 basis point increase in average cost of interest-bearing liabilities.
The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated: December 31, 2022 2021 ($ in thousands) Amortized Cost Fair Value Unrealized Gain (Loss) Amortized Cost Fair Value Unrealized Gain (Loss) Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 109,497 $ 96,900 $ (12,597) $ 85,346 $ 84,713 $ (633) Collateralized mortgage obligations 28,515 26,956 (1,559) 18,990 19,056 66 SBA loan pool securities 9,704 9,298 (406) 8,520 8,672 152 Municipal bonds 4,262 4,186 (76) 5,329 5,686 357 Corporate bonds 5,000 4,523 (477) 5,000 5,071 71 Total securities available-for-sale $ 156,978 $ 141,863 $ (15,115) $ 123,185 $ 123,198 $ 13 Total carrying value of investment securities were $141.9 million at December 31, 2022, an increase of $18.7 million, or 15.2%, from $123.2 million at December 31, 2021.
The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated: December 31, 2023 2022 ($ in thousands) Amortized Cost Fair Value Unrealized Gain (Loss) Amortized Cost Fair Value Unrealized Gain (Loss) Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 114,485 $ 104,091 $ (10,394) $ 109,497 $ 96,900 $ (12,597) Collateralized mortgage obligations 25,611 24,173 (1,438) 28,515 26,956 (1,559) SBA loan pool securities 7,773 7,450 (323) 9,704 9,298 (406) Municipal bonds 3,306 3,329 23 4,262 4,186 (76) Corporate bonds 5,000 4,280 (720) 5,000 4,523 (477) Total securities available-for-sale $ 156,175 $ 143,323 $ (12,852) $ 156,978 $ 141,863 $ (15,115) Total carrying value of investment securities were $143.3 million at December 31, 2023, an increase of $1.5 million, or 1.0%, from $141.9 million at December 31, 2022.
The decrease was primarily due to sales of $123.7 million, partially offset by originations of $105.6 million and transfers from loans held-for-investment of $4.5 million. 66 Deposits The Bank gathers deposits primarily through its branch locations. The Bank offers a variety of deposit products including demand deposits accounts, NOW and money market accounts, savings accounts and time deposits.
The decrease was primarily due to sales of $82.3 million and pay-downs and pay-offs of $4.4 million, partially offset by originations of $69.0 million. 59 Deposits The Bank gathers deposits primarily through its branch locations. The Bank offers a variety of deposit products including demand deposits accounts, NOW and money market accounts, savings accounts and time deposits.
Loan servicing income represents fees received on loans that the Company services, net of amortization of servicing assets. The increase was primarily due to an increase in servicing income received, partially offset by an increase in amortization of servicing assets from increased prepayments of loans being serviced. The Company purchased bank-owned life insurance of $29.3 million in November 2021.
Loan servicing income represents fees received on loans that the Company services, net of amortization of servicing assets. The increase was primarily due to an increase in servicing income received and a decrease in amortization of servicing assets from lower prepayments of loans being serviced. Bank-owned life insurance income represents the increase in cash surrender value of the insurance policy.
For the years ended December 31, 2021 and 2020, yield on total other interest-earning assets was 0.39% and 0.51%, respectively. Interest expense on deposits decreased primarily due to a 6.1% decrease in average balance of interest-bearing deposits and a 79 basis point decrease in average cost of interest-bearing deposits.
For the years ended December 31, 2023 and 2022, yield on total other interest-earning assets was 5.27% and 1.95%, respectively. Interest expense on deposits increased primarily due to a 38.4% increase in average balance of interest-bearing deposits and a 296 basis point increase in average cost of interest-bearing deposits.
The increase in retail time deposits was primarily due to new accounts of $636.7 million, renewals of the matured accounts of $602.9 million, and balance increases of $23.4 million, partially offset by matured and closed accounts of $1.04 billion.
The increase in retail time deposits was primarily due to new accounts of $657.0 million, renewals of the matured accounts of $555.3 million and balance increases of $26.7 million, partially offset by matured and closed accounts of $916.2 million.
Shareholders’ equity was $335.4 million at December 31, 2022, an increase of $79.2 million, or 30.9%, from $256.3 million at December 31, 2021.
Shareholders’ equity was $348.9 million at December 31, 2023, an increase of $13.4 million, or 4.0%, from $335.4 million at December 31, 2022.
During the year ended December 31, 2020, the Company sold SBA loans of $89.8 million with a gain of $6.0 million and residential property loans of $51.9 million with a gain of $489 thousand.
During the year ended December 31, 2022, SBA loans of $122.9 million with a gain of $8.0 million and residential mortgage loans of $858 thousand with a gain of $8 thousand.
See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure. 48 Executive Summary Financial Highlights • Net income was $35.0 million for the year ended December 31, 2022, a decrease of $5.1 million, or 12.8%, from $40.1 million for the year ended December 31, 2021, but an increase of $18.8 million, or 116.3%, from $16.2 million for the year ended December 31, 2020; ◦ Provision (reversal) for loan losses was $3.6 million, $(4.6) million and $13.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. ◦ Diluted earnings per common share was $2.31, $2.62 and $1.04 for the years ended December 31, 2022, 2021 and 2020, respectively. ◦ Net interest margin was 4.08%, 3.83% and 3.53% for the years ended December 31, 2022, 2021 and 2020, respectively. • Total assets were $2.42 billion at December 31, 2022, an increase of $270.3 million, or 12.6%, from $2.15 billion at December 31, 2021; • Loans held-for-investment were $2.05 billion at December 31, 2022, an increase of $313.9 million, or 18.1%, from $1.73 billion at December 31, 2021.
See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure. 42 Executive Summary Financial Highlights • Net income was $30.7 million for the year ended December 31, 2023, a decrease of $4.3 million, or 12.2%, from $35.0 million for the year ended December 31, 2022 and a decrease of $9.4 million, or 23.4%, from $40.1 million for the year ended December 31, 2021; ◦ Provision (reversal) for credit losses (1) was $(132) thousand, $3.6 million and $(4.6) million for the years ended December 31, 2023, 2022 and 2021, respectively. ◦ Diluted earnings per common share was $2.12, $2.31 and $2.62 for the years ended December 31, 2023, 2022 and 2021, respectively. ◦ Net interest margin was 3.57%, 4.08% and 3.83% for the years ended December 31, 2023, 2022 and 2021, respectively. • Total assets were $2.79 billion at December 31, 2023, an increase of $369.5 million, or 15.3%, from $2.42 billion at December 31, 2022; • Loans held-for-investment were $2.32 billion at December 31, 2023, an increase of $277.4 million, or 13.6%, from $2.05 billion at December 31, 2022; • Total deposits were $2.35 billion at December 31, 2023, an increase of $305.6 million, or 14.9%, from $2.05 billion at December 31, 2022; • The Company declared and paid cash dividends of $0.69, $0.60, and $0.44 per common share for the years ended December 31, 2023, 2022 and 2021, respectively; and • The Company purchased and retired 512,657, 362,557 and 680,269 shares of common stock for the years ended December 31, 2023, 2022 and 2021, respectively.
Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially low-income and underserved communities, including persistent poverty counties, that may be disproportionately impacted by the economic effect of the COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions. 68 Stock Repurchase On March 28, 2019, the Company’s Board of Directors approved the repurchase of up to $6.5 million of the Company’s common stock through March 27, 2020.
Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially low-income and underserved communities, including persistent poverty counties, that may be disproportionately impacted by the economic effect of the COVID-19 pandemic by providing direct and indirect capital investments in low- and moderate-income community financial institutions. 61 Stock Repurchases During the year ended December 31, 2023, the Company repurchased and retired 512,657 shares of common stock at a weighted-average price of $17.22 per share under a stock repurchase program approved by the Board of Directors on August 2, 2023 and a legacy stock repurchase program approved on July 28, 2022.
Regulatory Capital Requirements The following table presents a summary of the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective as of the dates indicated. For comparison purpose, the Company’s ratios are included as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.
For comparison purpose, the Company’s ratios are included as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital consolidated minimums.
(6) NPAs include total NPLs (nonaccrual loans plus loans past due 90 days or more and still accruing) and other real estate owned. (7) This ratio is not presented in accordance with GAAP. See "Non-GAAP measure" for reconciliation of this measure to its most comparable GAAP measure. (8) Non-GAAP measure.
(7) NPAs include total NPLs (nonaccrual loans plus loans past due 90 days or more and still accruing) and other real estate owned. (8) Non-GAAP measure.
The following table presents the maturity of time deposits as of the dates indicated: ($ in thousands) Three Months or Less Three to Six Months Six Months to One Year One to Three Years Total December 31, 2022 Time deposits of $250,000 or less $ 71,740 $ 71,808 $ 229,127 $ 9,702 $ 382,377 Time deposits of more than $250,000 137,312 35,812 239,257 1,495 413,876 Total $ 209,052 $ 107,620 $ 468,384 $ 11,197 $ 796,253 Not covered by deposit insurance $ 112,437 $ 26,749 $ 153,209 $ 1,556 $ 293,951 December 31, 2021 Time deposits of $250,000 or less $ 143,594 $ 60,686 $ 129,627 $ 8,049 $ 341,956 Time deposits of more than $250,000 156,502 57,301 55,304 3,162 272,269 Total $ 300,096 $ 117,987 $ 184,931 $ 11,211 $ 614,225 Not covered by deposit insurance $ 136,219 $ 38,229 $ 38,780 $ 3,041 $ 216,269 67 Shareholders’ Equity and Regulatory Capital Capital Resources Shareholders’ equity is influenced primarily by earnings, dividends paid on common stock and preferred stock, sales and redemptions of common stock and preferred stock, and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on securities available-for-sale.
The following table presents the maturity of time deposits as of the dates indicated: ($ in thousands) Three Months or Less Three to Six Months Six Months to One Year Over One Year Total December 31, 2023 Time deposits of $250,000 or less $ 316,356 $ 165,091 $ 276,145 $ 2,442 $ 760,034 Time deposits of more than $250,000 207,539 140,583 224,557 3,023 575,702 Total $ 523,895 $ 305,674 $ 500,702 $ 5,465 $ 1,335,736 Not covered by deposit insurance $ 147,680 $ 107,482 $ 151,070 $ 2,405 $ 408,637 December 31, 2022 Time deposits of $250,000 or less $ 71,740 $ 71,808 $ 229,127 $ 9,702 $ 382,377 Time deposits of more than $250,000 137,312 35,812 239,257 1,495 413,876 Total $ 209,052 $ 107,620 $ 468,384 $ 11,197 $ 796,253 Not covered by deposit insurance $ 112,437 $ 26,749 $ 153,209 $ 1,556 $ 293,951 60 Shareholders’ Equity and Regulatory Capital Capital Resources Shareholders’ equity is influenced primarily by earnings, dividends paid on common stock and preferred stock, sales and redemptions of common stock and preferred stock, and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on securities available-for-sale.
The decrease in average yield was primarily due to new investment securities purchased at lower market rates. The Company purchased $47.3 million and $39.4 million, respectively, of investment securities during the years ended December 31, 2021 and 2020. For the years ended December 31, 2021 and 2020, average yield on total investment securities was 1.24% and 1.73%, respectively.
The increase in average yield was primarily due to new investment securities purchased at higher market rates and a decrease in net amortization. The Company purchased $17.3 million and $57.4 million, respectively, of investment securities during the years ended December 31, 2023 and 2022.
Interest and fees on loans increased primarily due to a 10.4% increase in average balance, partially offset by a 31 basis point decrease in average yield. The increase in average balance was primarily due to an increase in commercial property loans, partially offset by decreases in commercial term and SBA PPP loans.
Interest and fees on loans increased primarily due to a 14.2% increase in average balance and a 128 basis point increase in average yield. The increase in average balance was primarily due to an increase in commercial real estate, commercial and industrial, and residential mortgage loans, partially offset by a decrease in other consumer loans.
December 31, 2022 Within One Year More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Total ($ in thousands) Amortized Cost Weighted-Average Yield Amortized Cost Weighted-Average Yield Amortized Cost Weighted-Average Yield Amortized Cost Weighted-Average Yield Amortized Cost Weighted-Average Yield Securities available-for-sale: U.S. government agency and U.S. government sponsored enterprise securities: Mortgage-backed securities $ 33 1.00 % $ 1,410 1.67 % $ 9,011 1.96 % $ 99,043 2.51 % $ 109,497 2.45 % Collateralized mortgage obligations — — % 1,529 4.17 % 6,479 4.49 % 20,507 3.27 % 28,515 3.60 % SBA loan pool securities — — % 234 2.58 % 3,153 3.12 % 6,317 2.73 % 9,704 2.86 % Municipal bonds 960 2.13 % 870 3.26 % 81 2.99 % 2,351 3.53 % 4,262 3.15 % Corporate bonds — — % — — % 5,000 3.75 % — — % 5,000 3.75 % Total securities available-for-sale $ 993 2.10 % $ 4,043 3.01 % $ 23,724 3.19 % $ 128,218 2.66 % $ 156,978 2.75 % 58 Loans Held-For-Investment and Allowance for Loan Losses The following table presents the composition of the Company’s loans held-for-investment as of the dates indicated: December 31, 2022 2021 2020 2019 2018 ($ in thousands) Amount Percentage to Total Amount Percentage to Total Amount Percentage to Total Amount Percentage to Total Amount Percentage to Total Real estate loans: Commercial property 1,288,392 63.0 % 1,105,843 63.9 % 880,736 55.5 % 803,014 55.4 % 709,409 53.1 % Residential property 333,726 16.3 % 209,485 12.1 % 198,431 12.5 % 235,046 16.3 % 233,816 17.5 % SBA property 134,892 6.6 % 129,661 7.5 % 126,570 8.0 % 129,837 8.9 % 120,939 9.0 % Construction 17,054 0.8 % 8,252 0.5 % 15,199 1.0 % 19,164 1.3 % 27,323 2.0 % Total real estate loans 1,774,064 86.7 % 1,453,241 84.0 % 1,220,936 77.0 % 1,187,061 81.9 % 1,091,487 81.6 % Commercial and industrial loans: Commercial term 77,700 3.8 % 73,438 4.2 % 87,250 5.5 % 103,380 7.1 % 102,133 7.6 % Commercial lines of credit 154,142 7.5 % 100,936 5.8 % 96,087 6.1 % 111,768 7.7 % 91,994 6.9 % SBA commercial term 16,211 0.8 % 17,640 1.0 % 21,878 1.4 % 25,332 1.7 % 27,147 2.0 % SBA PPP 1,197 0.1 % 65,329 3.8 % 135,654 8.6 % — — % — — % Total commercial and industrial loans 249,250 12.2 % 257,343 14.8 % 340,869 21.6 % 240,480 16.5 % 221,274 16.5 % Other consumer loans 22,749 1.1 % 21,621 1.2 % 21,773 1.4 % 23,290 1.6 % 25,921 1.9 % Loans held-for-investment 2,046,063 100.0 % 1,732,205 100.0 % 1,583,578 100.0 % 1,450,831 100.0 % 1,338,682 100.0 % Allowance for loan losses (24,942) (22,381) (26,510) (14,380) (13,167) Net loans held-for-investment $ 2,021,121 $ 1,709,824 $ 1,557,068 $ 1,436,451 $ 1,325,515 Loans held-for-investment were $2.05 billion at December 31, 2022, an increase of $313.9 million, or 18.1%, from $1.73 billion at December 31, 2021.
The following table presents the composition of the Company’s loans held-for-investment as of the dates indicated: December 31, 2023 January 1, 2023 ($ in thousands) Amount Percentage to Total Amount Percentage to Total Commercial real estate: Commercial property $ 855,270 36.8 % $ 772,020 37.8 % Business property 558,772 24.0 % 526,513 25.7 % Multifamily 132,500 5.7 % 124,751 6.1 % Construction 24,843 1.1 % 17,054 0.8 % Total commercial real estate 1,571,385 67.6 % 1,440,338 70.4 % Commercial and industrial 342,002 14.7 % 249,250 12.2 % Consumer: Residential mortgage 389,420 16.8 % 333,726 16.3 % Other consumer 20,645 0.9 % 22,749 1.1 % Total consumer 410,065 17.7 % 356,475 17.4 % Loans held-for-investment $ 2,323,452 100.0 % $ 2,046,063 100.0 % ACL on loans (27,533) (26,009) Net loans held-for-investment $ 2,295,919 $ 2,020,054 The following table presents the composition of the Company’s loans held-for-investment by legacy loan segments as of the dates indicated: December 31, 2022 2021 2020 2019 ($ in thousands) Amount Percentage to Total Amount Percentage to Total Amount Percentage to Total Amount Percentage to Total Real estate loans: Commercial property $ 1,288,392 63.0 % $ 1,105,843 63.9 % $ 880,736 55.5 % $ 803,014 55.4 % Residential property 333,726 16.3 % 209,485 12.1 % 198,431 12.5 % 235,046 16.3 % SBA property 134,892 6.6 % 129,661 7.5 % 126,570 8.0 % 129,837 8.9 % Construction 17,054 0.8 % 8,252 0.5 % 15,199 1.0 % 19,164 1.3 % Total real estate loans 1,774,064 86.7 % 1,453,241 84.0 % 1,220,936 77.0 % 1,187,061 81.9 % Commercial and industrial loans: Commercial term 77,700 3.8 % 73,438 4.2 % 87,250 5.5 % 103,380 7.1 % Commercial lines of credit 154,142 7.5 % 100,936 5.8 % 96,087 6.1 % 111,768 7.7 % SBA commercial term 16,211 0.8 % 17,640 1.0 % 21,878 1.4 % 25,332 1.7 % SBA PPP 1,197 0.1 % 65,329 3.8 % 135,654 8.6 % — — % Total commercial and industrial loans 249,250 12.2 % 257,343 14.8 % 340,869 21.6 % 240,480 16.5 % Other consumer loans 22,749 1.1 % 21,621 1.2 % 21,773 1.4 % 23,290 1.6 % Loans held-for-investment 2,046,063 100.0 % 1,732,205 100.0 % 1,583,578 100.0 % 1,450,831 100.0 % Allowance for loan losses (24,942) (22,381) (26,510) (14,380) Net loans held-for-investment $ 2,021,121 $ 1,709,824 $ 1,557,068 $ 1,436,451 Loans held-for-investment were $2.32 billion at December 31, 2023, an increase of $277.4 million, or 13.6%, from $2.05 billion at December 31, 2022.
PCB Bancorp, on a stand-alone holding company basis, must provide for its own liquidity and its main source of funding is dividends from the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the holding company.
There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the holding company.
The following table presents a summary of the Company’s deposit as of the dates indicated: December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Noninterest-bearing demand deposits $ 734,989 $ 830,383 $ (95,394) (11.5) % Interest-bearing deposits: Savings 8,579 16,299 (7,720) (47.4) % NOW 11,405 20,185 (8,780) (43.5) % Retail money market accounts 494,749 386,041 108,708 28.2 % Brokered money market accounts 8 1 7 700.0 % Retail time deposits of: $250,000 or less 295,354 256,956 38,398 14.9 % More than $250,000 353,876 172,269 181,607 105.4 % Brokered time deposits 87,023 85,000 2,023 2.4 % Time deposits from California State Treasurer 60,000 100,000 (40,000) (40.0) % Total interest-bearing deposits 1,310,994 1,036,751 274,243 26.5 % Total deposits $ 2,045,983 $ 1,867,134 $ 178,849 9.6 % Total deposits not covered by deposit insurance $ 1,062,111 $ 919,584 $ 142,527 15.5 % Time deposits not covered by deposit insurance $ 293,951 $ 216,269 $ 77,682 35.9 % The decrease in noninterest-bearing demand deposits was primarily due to strong deposit market competition and the migration of noninterest-bearing demand deposits to money market accounts and time deposits attributable to the rising market rates.
The following table presents a summary of the Company’s deposit as of the dates indicated: December 31, Amount Change Percentage Change ($ in thousands) 2023 2022 Noninterest-bearing demand deposits $ 594,673 $ 734,989 $ (140,316) (19.1) % Interest-bearing deposits: Savings 6,846 8,579 (1,733) (20.2) % NOW 16,825 11,405 5,420 47.5 % Retail money market accounts 397,531 494,749 (97,218) (19.6) % Brokered money market accounts 1 8 (7) (87.5) % Retail time deposits of: $250,000 or less 456,293 295,354 160,939 54.5 % More than $250,000 515,702 353,876 161,826 45.7 % Brokered time deposits 303,741 87,023 216,718 249.0 % Time deposits from California State Treasurer 60,000 60,000 — — % Total interest-bearing deposits 1,756,939 1,310,994 445,945 34.0 % Total deposits $ 2,351,612 $ 2,045,983 $ 305,629 14.9 % Total deposits not covered by deposit insurance $ 954,591 $ 1,062,111 $ (107,520) (10.1) % Time deposits not covered by deposit insurance $ 408,637 $ 293,951 $ 114,686 39.0 % The decrease in noninterest-bearing demand deposits was primarily due to strong deposit market competition and the migration of noninterest-bearing demand deposits to interest-bearing deposits attributable to the rising market rates.
The Company uses the same credit policies in making commitments as it does for loans reflected in the financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
The Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $18.57 per share, totaling $6.7 million under this repurchase program as of December 31, 2022.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” During the year ended December 31, 2022, the Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $18.57 per share.
The Company does not expect to have a material impact on its consolidated financial statements upon adoption of this ASU. 45 Non-GAAP Measures The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
Please also see Note 1 to the Consolidated Financial Statements included in Item 1 of this Annual Report on Form 10-K for additional discussion. 39 Non-GAAP Measures The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
Other expenses also included office expenses of $1.4 million and $1.4 million, respectively, and reversal for unfunded loan commitments was $24 thousand and $63 thousand, respectively for the years ended December 31, 2021 and 2020, respectively.
Other expense included other loan related legal expenses of $389 thousand and $302 thousand, respectively, armed guard expense of $656 thousand and $546 thousand, respectively, office expenses of $1.9 million and $1.4 million, respectively, and provision (reversal) for off-balance sheet credit exposures was $85 thousand and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021.
The following table presents outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated: December 31, 2022 2021 ($ in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate Unused lines of credit $ 3,117 $ 251,178 $ 8,261 $ 160,739 Unfunded loan commitments 692 38,486 595 29,688 Standby letters of credit 2,989 1,901 3,078 1,431 Commercial letters of credit — 502 91 524 Total $ 6,798 $ 292,067 $ 12,025 $ 192,382 The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.
The following table presents outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated: December 31, 2023 2022 ($ in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate Unused lines of credit $ 2,808 $ 347,652 $ 3,117 $ 251,178 Unfunded loan commitments 4,020 47,038 692 38,486 Standby letters of credit 4,638 1,786 2,989 1,901 Commercial letters of credit — 160 — 502 Total $ 11,466 $ 396,636 $ 6,798 $ 292,067 The Company applies an expected credit loss estimation methodology applied to each respective loan segment for determining the ACL on off-balance sheet credit exposures.
The increase in net income for the year ended December 31, 2021 compared with the year ended December 31, 2020 was primarily due to increases in net interest income and noninterest income and the reversal for loan losses. Net interest income increased primarily due to a decrease in cost of interest-bearing liabilities and an increase in average earning assets.
The decrease in net income for the year ended December 31, 2023 compared with the year ended December 31, 2022 was primarily due to an increase in noninterest expense, decreases in noninterest income and net interest income, partially offset by reversal for credit losses of $132 thousand for the year ended December 31, 2023 compared with provision for credit losses of $3.6 million for the year ended December 31, 2022.
On January 26, 2023, the Company announced an amendment to the repurchase program, which extended the program expiration from February 1, 2023 to February 1, 2024. 69 Liquidity Liquidity refers to the measure of ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting operating, capital and strategic cash flow needs, all at a reasonable cost.
From January 1, 2019 through December 31, 2023, the Company has repurchased and retired at total of 2,380,672 shares of common stock at a weighted-average price of $16.55 per share under several stock repurchase programs. 62 Liquidity Liquidity refers to the measure of ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting operating, capital and strategic cash flow needs, all at a reasonable cost.
The decrease in average balance was primarily due to a decrease in time deposits, partially offset by increases in savings, NOW and money market accounts. The decrease in average cost was primarily due to the lower market rates.
The increase in average balance was primarily due to an increase in time deposits, partially offset by decreases in savings, NOW and money market accounts. The increase in average cost was primarily due to the rising market rates. For the years ended December 31, 2023 and 2022, average cost on total interest-bearing deposits was 4.04% and 1.08%, respectively.
Income Tax Expense Income tax expense was $14.4 million, $16.9 million and $6.8 million, respectively, and the effective tax rate was 29.2%, 29.6% and 29.7%, respectively, for the years ended December 31, 2022, 2021 and 2020. 56 Financial Condition Investment Securities On June 30, 2020, the Company transferred securities held-to-maturity to securities available-for-sale as a part of the Company’s liquidity management plan in response to the COVID-19 pandemic.
Income Tax Expense Income tax expense was $12.6 million, $14.4 million and $16.9 million, respectively, and the effective tax rate was 29.0%, 29.2% and 29.6%, respectively, for the years ended December 31, 2023, 2022 and 2021. 50 Financial Condition Investment Securities The Company’s investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk.
The Company determined that the investment securities with unrealized losses for twelve months or more are not other-than-temporary impaired, and, therefore, no impairment was recognized at December 31, 2022 and 2021. 57 The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of the date indicated.
As of December 31, 2023, the Company recorded no ACL on securities available-for-sale. 51 The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of the date indicated.
The following table presents a summary of the Company’s liquidity position as of the dates indicated: December 31, Amount Change Percentage Change ($ in thousands) 2022 2021 Cash and cash equivalents $ 147,031 $ 203,285 $ (56,254) (27.7) % Cash and cash equivalents to total assets 6.1 % 9.5 % Available borrowing capacity: FHLB advances $ 561,745 $ 516,158 45,587 8.8 % Federal Reserve Discount Window 23,902 29,198 (5,296) (18.1) % Overnight federal funds lines 65,000 65,000 — — % Total $ 650,647 $ 610,356 $ 40,291 6.6 % Total available borrowing capacity to total assets 26.9 % 28.4 % The Company also maintains relationships in the capital markets with brokers and dealers to issue time deposits and money market accounts.
The following table presents a summary of the Company’s liquidity position as of the dates indicated: December 31, Amount Change Percentage Change ($ in thousands) 2023 2022 Cash and cash equivalents $ 242,342 $ 147,031 $ 95,311 64.8 % Cash and cash equivalents to total assets 8.7 % 6.1 % Available borrowing capacity: FHLB advances 602,976 $ 561,745 41,231 7.3 % Federal Reserve Discount Window $ 528,893 23,902 504,991 2,112.8 % Overnight federal funds lines 65,000 65,000 — — % Total $ 1,196,869 $ 650,647 $ 546,222 84.0 % Total available borrowing capacity to total assets 42.9 % 26.9 % During the year ended December 31, 2023, the Company increased cash and cash equivalents by $95.3 million, or 64.8%, to $242.3 million and available borrowing capacity by $546.2 million, or 84.0%, to $1.20 billion.
Data processing expense increased primarily due to an increase in processing costs from a greater number of accounts and transactions. Director fees and expenses decreased primarily due to a severance payment of $45 thousand for a former director during the year ended December 31, 2020.
Data processing expense decreased primarily due to a decrease in processing costs from a decrease in transaction accounts. Director fees and expenses increased primarily due to additional expenses related to stock options issued to directors during the year ended December 31, 2023. Regulatory assessment expense increased primarily due to increases in FDIC assessment rates and balance sheet.
Other expense included other loan related legal expenses of $389 thousand and $302 thousand, respectively, armed guard expense of $656 thousand and $546 thousand, respectively, office expenses of $1.9 million and $1.4 million, respectively, and provision (reversal) for unfunded loan commitments was $85 thousand and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021. 55 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The following table presents the components of noninterest expense for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2021 2020 Salaries and employee benefits $ 27,974 $ 26,147 $ 1,827 7.0 % Occupancy and equipment 5,575 5,620 (45) (0.8) % Professional fees 2,159 2,256 (97) (4.3) % Marketing and business promotion 1,656 1,360 296 21.8 % Data processing 1,572 1,472 100 6.8 % Director fees and expenses 594 599 (5) (0.8) % Regulatory assessments 537 978 (441) (45.1) % Other expenses 3,141 3,267 (126) (3.9) % Total noninterest expense $ 43,208 $ 41,699 $ 1,509 3.6 % Salaries and employee benefits increased primarily due to increases in wages, bonus accrual, and incentives tied to LPO originated SBA loan sales, partially offset by decreases in vacation and stock compensation expense.
Other income included wire and remittance fees of $643 thousand and $596 thousand, respectively, and debit card interchange fees of $335 thousand and $306 thousand, respectively, for the years ended December 31, 2022 and 2021. 48 Noninterest Expense Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table presents the components of noninterest expense for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2023 2022 Salaries and employee benefits $ 34,572 $ 33,056 $ 1,516 4.6 % Occupancy and equipment 7,924 6,481 1,443 22.3 % Professional fees 3,087 2,239 848 37.9 % Marketing and business promotion 2,327 2,150 177 8.2 % Data processing 1,552 1,706 (154) (9.0) % Director fees and expenses 756 706 50 7.1 % Regulatory assessments 1,103 597 506 84.8 % Other expenses 4,736 4,191 545 13.0 % Total noninterest expense $ 56,057 $ 51,126 $ 4,931 9.6 % Salaries and employee benefits increased primarily due to increases in wages and other employee benefits, partially offset by decreases in bonus and vacation accruals, and incentives tied to LPO originated SBA loan sales and loan origination cost, which offsets the recognition of salaries.
Interest income on other interest-earning assets decreased primarily due to a 12 basis point decrease in average yield and a 15.8% decrease in average balance. The decrease in average yield was primarily due to the lower market rates. The decrease in average balance was primarily due to increases in loans and investment securities.
For the years ended December 31, 2023 and 2022, average yield on total investment securities was 3.33% and 2.19%, respectively. 45 Interest income on other interest-earning assets increased primarily due to a 332 basis point increase in average yield and a 2.4% increase in average balance.
Other income included wire and remittance fees of $643 thousand and $596 thousand, respectively, and debit card interchange fees of $335 thousand and $306 thousand, respectively, for the years ended December 31, 2022 and 2021. 53 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The following table presents the components of noninterest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2021 2020 Service charges and fees on deposits $ 1,195 $ 1,256 $ (61) (4.9) % Loan servicing income 2,770 2,710 60 2.2 % Bank-owned life insurance income 108 — 108 — % Gain on sale of loans 12,932 6,527 6,405 98.1 % Other income 1,429 1,247 182 14.6 % Total noninterest income $ 18,434 $ 11,740 $ 6,694 57.0 % Service charges and fees on deposits decreased primarily due to a decrease in fee-based transactions.
See further discussion in “Allowance for Credit Losses.” Noninterest Income Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table presents the components of noninterest income for the periods indicated: Year Ended December 31, Amount Change Percentage Change ($ in thousands) 2023 2022 Service charges and fees on deposits $ 1,475 $ 1,326 $ 149 11.2 % Loan servicing income 3,330 2,969 361 12.2 % Bank-owned life insurance income 753 706 47 6.7 % Gain on sale of loans 3,570 7,990 (4,420) (55.3) % Other income 1,555 1,508 47 3.1 % Total noninterest income $ 10,683 $ 14,499 $ (3,816) (26.3) % Service charges and fees on deposits increased primarily due to an increase in fee-based transactions.
The increase in total assets for the year ended December 31, 2022 was primarily due to an increase in loans held-for-investment. Loans held-for-investment increased primarily due to the increased commercial property and residential property loan production.
The increase in total assets for the year ended December 31, 2023 was primarily due to increases in cash and cash equivalents, loans held-for-investment and operating lease assets. The increase in operating lease assets was primarily due to renewal and expansion of the Company’s headquarters and a new location for relocation of a regional office and branches.
For the years ended December 31, 2021 and 2020, average cost on total interest-bearing deposits was 0.40% and 1.19%, respectively. 52 Interest expense on other borrowings decreased primarily due to a 66.8% decrease in average balance, partially offset by a 28 basis point increase in average cost.
Interest expense on other borrowings increased primarily due to a 46.1% increase in average balance and a 338 basis point increase in average cost. The increase in average cost was primarily due to the rising market rates.
The Company sold SBA loans of $126.8 million with a gain of $12.8 million, residential property loans of $10.4 million with a gain of $151 thousand and certain commercial property loans of $8.6 million with a gain of $6 thousand during the year ended December 31, 2021.
Gain on sale of loans decreased primarily due to decreases in sales volume and gain margin. The Company sold SBA loans of $82.3 million with a gain of $3.6 million during the year ended December 31, 2023.
The additional provision for loan losses for the year ended December 31, 2022 was primarily due to an increase in gross loan balance and changes in qualitative adjustment factors related to current economic conditions.
Provision for credit losses on loans for the year ended December 31, 2023 was primarily due to increases in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement.
The increase in allowance for loan losses for the year ended December 31, 2022 was primarily due to an increase in gross loan balance and changes in qualitative adjustment factors related to current economic conditions.
The increase in ACL for the year ended December 31, 2023 was primarily due to increases in loans held-for-investment and reserve related to qualitative adjustment factors, partially offset by a decrease in quantitatively measured loss reserve requirement. The decrease in the quantitatively measured loss reserve requirement was primarily due to the improved economic forecasts by the FOMC.
The number of full-time equivalent employees averaged 247.9 for the year ended December 31, 2021 compared to 251.8 for the year ended December 31, 2020. Occupancy and equipment expense decreased primarily due to a decrease in depreciation, partially offset by an increase in equipment maintenance expense.
The number of full-time equivalent employees averaged 272.5 for the year ended December 31, 2023 compared to 268.3 for the year ended December 31, 2022. Occupancy and equipment expense increased primarily due to an expansion of headquarters location and relocations of a regional office and branches, as well as three new branch openings during the second half of 2022.
The decrease was primarily due to payoffs and paydowns of $54 thousand and charge-offs of $5 thousand. There were no new TDRs for the year ended December 31, 2022. 65 Loans Held-For-Sale Loans held-for-sale are carried at the lower of cost or fair value.
Loans Held-For-Sale Loans held-for-sale are carried at the lower of cost or fair value.
The Company uses the same credit policies in making commitments as it does for the loans reflected in the consolidated financial statements. The Company maintained reserve for off-balance sheet items of $299 thousand and $214 thousand, respectively, at December 31, 2022 and 2021.
As of December 31, 2023 and 2022, the Company maintained an ACL on off-balance sheet credit exposures of $1.3 million and $299 thousand in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets, respectively.
Provision (reversal) for Loan Losses Provision (reversal) for loan losses was $3.6 million, $(4.6) million and $13.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Provision (reversal) for credit losses on off-balance sheet credit exposures of $85 thousand and $(24) thousand, respectively, for the years ended December 31, 2022 and 2021 was recorded in Other Expense on the Consolidated Income Statement.
Removed
Allowance for Loan Losses Allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance for loan losses when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses.
Added
Allowance for Credit Losses On January 1, 2023, the Company adopted the provisions of ASC 326, “Financial Instruments - Credit Losses (Topic 326)” Instruments . The adoption of ASC 326 changes the way the Company estimates the ACL on certain financial assets.
Removed
The Company estimates the allowance for loan losses required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+10 added−1 removed9 unchanged
Biggest changeThe following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change as of the dates indicated: December 31, 2022 2021 Simulated Rate Changes Net Interest Income Sensitivity Economic Value of Equity Sensitivity Net Interest Income Sensitivity Economic Value of Equity Sensitivity +200 6.9 % (0.5) % 17.5 % 10.6 % +100 3.6 % 0.3 % 8.7 % 6.2 % -100 (4.6) % (1.5) % (11.7) % (6.1) % 72
Biggest changeThe model change incorporated observed pricing and customer behavior in both rising and falling interest rate environments. 65 The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change as of the dates indicated: December 31, 2023 2022 Simulated Rate Changes Net Interest Income Sensitivity Economic Value of Equity Sensitivity Net Interest Income Sensitivity Economic Value of Equity Sensitivity +200 7.0 % (6.8) % 6.9 % (0.5) % +100 3.6 % (3.1) % 3.6 % 0.3 % -100 (4.3) % 1.8 % (4.6) % (1.5) % -200 (9.4) % — % (10.3) % (5.8) % On January 31, 2024, the FOMC kept the upper range of the Fed Funds Target Rate at 5.50% unchanged, a level which the Committee has maintained since July 26, 2023.
Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
Treasuries and London Interbank Offered Rate (“LIBOR”) (basis risk). The Company’s Board ALCO establishes broad policy limits with respect to interest rate risk. Board ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies.
Treasuries and SOFR (basis risk). The Company’s Board ALCO establishes broad policy limits with respect to interest rate risk. The Board ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies. In general, The Company seeks to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities.
As discussed earlier, the Company also has a Management ALCO, which is comprised of senior management team and Chief Executive Officer, to proactively monitor interest rate risk. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
The Board ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits. The Company also has a Management ALCO, which is comprised of the senior management team and the Chief Executive Officer, to proactively monitor interest rate risk.
Removed
In general, The Company seeks to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Board ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits.
Added
Simulation results are highly dependent on input assumptions. To the extent the actual behavior is different from the assumption used in the models, there could be material changes in results. The assumptions applied in the model are documented, supported, and periodically back-tested to assess the reasonableness and effectiveness.
Added
The Company makes appropriate changes to the model as needed and these changes are reviewed by ALCOs. The Company also continuously validates the model, methodology and results. Scenario results do not reflect strategies that the management could employ to limit the impact of changing interest rate expectations.
Added
As part of the Company’s continuous evaluation and periodic enhancements to its NII and EVE calculations, the Company updated its model in the third quarter of 2023 to incorporate deposit repricing assumptions impacting both consumer and wholesale deposits, deposit behavior assumption related to its non-maturity deposits, and prepayment assumptions related to its loan portfolio.
Added
In the accompanying statement, the Committee added that “In considering any adjustments to the target range for the Federal Funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
Added
The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.” The Federal Reserve noted that it remains highly attentive to inflation risk. As of December 31, 2023, the Company’s net interest income sensitivity results exhibit an asset sensitive profile.
Added
Net interest income is expected to increase when interest rates rise, as the Company has a large proportion of variable rate loans in its loan portfolio, primarily linked to Prime Rate indices, that are sensitive to changes in short-term interest rates.
Added
The Company’s deposit portfolio is also sensitive to changes in short-term interest rates, even though a large portion of its deposit mix is composed of non-maturity deposits that are not directly tied to short-term interest rate indices. The modeled results are highly sensitive to reinvestment yield and deposit beta assumptions.
Added
Actual results in net interest income during a period of rising interest rates may vary from the Company’s net interest income sensitivity results, as the actual result reflects earnings asset growth and deposit mix changes based on customer preferences relative to the interest rate environment.
Added
The Company’s EVE sensitivity reflects a slightly liability sensitive profile due to the continuing deposit mix shift from non-maturity deposits to time deposits. The model result is highly sensitive to deposit behaviors as well as loan prepayment assumptions.
Added
Due to the uncertainty of the current economic forecast, and timing and direction of future interest rate movements, actual result may vary from the Company’s EVE sensitivity results. 66

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