PCB Bancorp is the holding company for PCB Bank, a California state-chartered bank that offers a full suite of commercial banking services to small and medium-sized businesses, individuals, and professionals primarily in Southern California and predominantly in Korean-American and other minority communities. The company has a long history of serving its local communities, dating back to its founding in 1980 as Pacific City Bank.
Business Overview
PCB Bancorp operates through a network of 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 Palisades Park, New Jersey), and two full-service branches in Texas (Carrollton and Dallas), as well as seven loan production offices in various locations. The bank's primary focus is on providing commercial real estate loans, commercial and industrial loans, and consumer loans, including residential mortgages and other consumer products.The company's diversified loan portfolio is a key strength, with commercial real estate loans accounting for 67.3% of total loans held-for-investment as of June 30, 2024, commercial and industrial loans at 15.5%, and consumer loans, including residential mortgages, at 17.2%. This balanced mix of loan types helps to mitigate risk and provides the bank with multiple avenues for growth.
PCB Bancorp has a strong presence in the Korean-American and other minority communities it serves, leveraging its cultural and language expertise to build deep relationships with its customers. This focus on relationship banking has been a key driver of the company's success, allowing it to attract and retain a loyal customer base.
Financial Performance
For the full year 2023, PCB Bancorp reported net income of $30.7 million, with annual revenue of $161.9 million and annual operating cash flow of $45.0 million. The company's annual free cash flow was $43.6 million. These strong financial results demonstrate the bank's ability to generate consistent profitability and cash flow, even in the face of challenging economic conditions.In the second quarter of 2024, the company reported net income of $6.3 million, or $0.43 per diluted common share, compared to $4.7 million, or $0.33 per diluted common share, in the previous quarter and $7.5 million, or $0.52 per diluted common share, in the year-ago quarter. The increase in net income for the current quarter was primarily due to a 3.5% increase in net interest income and a 76.2% decrease in the provision for credit losses, partially offset by a 15.6% decrease in noninterest income.
Net interest income for the second quarter of 2024 was $21.7 million, up from $21.0 million in the previous quarter and $21.7 million in the year-ago quarter. The net interest margin improved to 3.16% in the current quarter, compared to 3.10% in the previous quarter and 3.55% in the year-ago quarter. The increase in net interest margin was primarily due to higher yields on the loan portfolio, driven by increases in overall interest rates and net accretion of discounts on loans.
Loan Growth and Asset Quality
PCB Bancorp's loan portfolio continued to grow, with loans held-for-investment increasing 2.1% to $2.45 billion as of June 30, 2024, compared to $2.40 billion as of March 31, 2024, and $2.12 billion as of June 30, 2023. The growth was primarily driven by new funding and advances on lines of credit, particularly in the commercial real estate and commercial and industrial loan segments.The company's asset quality remains strong, with nonperforming loans to total loans held-for-investment at 0.31% as of June 30, 2024, compared to 0.21% as of March 31, 2024, and 0.18% as of June 30, 2023. The allowance for credit losses on loans to total loans held-for-investment ratio was 1.17% as of June 30, 2024, compared to 1.18% as of March 31, 2024, and 1.17% as of June 30, 2023.
Deposit Growth and Funding
Total deposits grew to $2.41 billion as of June 30, 2024, up from $2.40 billion as of March 31, 2024, and $2.19 billion as of June 30, 2023. The increase in deposits was primarily driven by growth in retail time deposits, which increased 3.8% year-over-year. The company's focus on relationship banking has allowed it to maintain a stable deposit base, with noninterest-bearing deposits accounting for 22.6% of total deposits as of June 30, 2024.PCB Bancorp's funding position remains strong, with a total loan to total deposit ratio of 101.9% as of June 30, 2024. The company has ample liquidity, with cash and cash equivalents of $177.6 million, or 6.2% of total assets, as of June 30, 2024. Additionally, the bank has $1.33 billion in available borrowing capacity from the Federal Home Loan Bank, the Federal Reserve Discount Window, and overnight federal funds lines, representing 46.7% of total assets.
Geographic and Segment Diversification
PCB Bancorp's geographic diversification is a key strength, with 57.1% of its loan portfolio concentrated in Southern California, 21.1% in the East Coast markets, and 21.8% in Texas as of June 30, 2024. This diversification helps to mitigate regional economic risks and provides the company with multiple avenues for growth.In terms of loan portfolio composition, commercial real estate loans accounted for 67.3% of total loans held-for-investment as of June 30, 2024, commercial and industrial loans were 15.5%, and consumer loans, including residential mortgages, were 17.2%. This balanced mix of loan types helps to diversify the company's revenue streams and risk profile.
Risks and Challenges
While PCB Bancorp has demonstrated strong financial performance and growth, the company faces several risks and challenges that investors should be aware of. These include:1. Interest rate risk: The company's net interest margin and profitability are sensitive to changes in interest rates, which could impact its ability to maintain its current level of financial performance.
2. Concentration risk: A significant portion of the company's loan portfolio is concentrated in commercial real estate, which could expose it to risks associated with fluctuations in the commercial real estate market.
3. Regulatory environment: As a regulated financial institution, PCB Bancorp is subject to various laws and regulations that could change over time, potentially impacting the company's operations and profitability.
4. Competition: The banking industry is highly competitive, and the company faces competition from larger national banks as well as smaller community banks in its local markets.
Outlook and Guidance
PCB Bancorp has provided the following guidance for the remainder of 2024:- The company expects to continue its strong loan growth, targeting a mid-to-high single-digit percentage increase in loans held-for-investment for the full year. - Net interest margin is expected to remain stable, with the potential for modest improvement as the company continues to benefit from rising interest rates. - The provision for credit losses is expected to remain at relatively low levels, reflecting the company's strong credit quality and conservative underwriting practices. - Noninterest income is expected to be impacted by a decline in gain on sale of loans, as the company anticipates a slowdown in SBA loan originations and sales. - Noninterest expense is expected to increase, driven by continued investments in technology, infrastructure, and personnel to support the company's growth initiatives.