PCB Bancorp, headquartered in Los Angeles, California, is the bank holding company for PCB Bank, a California state-chartered commercial bank. Founded in 2003, the Bank has grown to become a well-respected financial institution serving the diverse needs of small and medium-sized businesses, as well as individuals, primarily within the Korean-American community.
Business Overview and History
PCB Bancorp's origins can be traced back to 2003, when a group of Korean-American business leaders and professionals came together to establish Pacific City Bank. The founders' vision was to create a community-focused bank that would cater to the unique financial requirements of the Korean-American population in Southern California. Over the years, the Bank has expanded its footprint, opening additional branches in Los Angeles and Orange Counties, as well as on the East Coast in New York, New Jersey, and Texas.
The company has successfully navigated various challenges over the years, including the 2008 financial crisis and the economic impacts of the COVID-19 pandemic. Through disciplined risk management and a focus on serving its core customer base, PCB Bancorp has maintained strong asset quality and profitability. The company has also adapted to changing technologies, investing in digital banking capabilities to meet the evolving needs of its customers.
PCB Bancorp operates as a single operating segment, providing a range of banking products and services predominantly to small and middle market businesses and individuals. The company's community banking model leverages its expertise in the Korean-American market and relationships with small businesses to deliver a comprehensive suite of financial products and services.
Financial Performance and Ratios
Financials
PCB Bancorp has demonstrated solid financial performance over the years, weathering the challenges posed by the COVID-19 pandemic and the recent economic uncertainties. As of December 31, 2024, the Company reported total assets of $3.06 billion, an increase of 9.8% from the prior year's $2.79 billion. This growth was largely driven by a 13.2% increase in the loan portfolio, which reached $2.63 billion, with strong performances across the commercial real estate, commercial and industrial, and consumer loan segments.
The Company's net income available to common shareholders for the year ended December 31, 2024, was $25.0 million, or $1.74 per diluted common share, compared to $30.7 million, or $2.12 per diluted common share, in the previous year. The decrease in net income was primarily due to a $3.4 million provision for credit losses in 2024, compared to a $132,000 reversal in 2023, as well as a $3.9 million increase in noninterest expenses, partially offset by a $3.8 million increase in noninterest income and a $113,000 increase in net interest income.
For the most recent fiscal year, PCB Bancorp reported annual revenue of $180.82 million and annual net income of $25.81 million. In the most recent quarter, the Company achieved revenue of $25.34 million, representing a 19.6% year-over-year growth. This increase was primarily attributed to a 12.7% increase in the average balance of interest-earning assets and a 37 basis point increase in the average yield on interest-earning assets. The quarterly net income stood at $7.81 million.
PCB Bancorp's financial ratios remain strong, reflecting its prudent risk management practices and disciplined approach to growth. As of December 31, 2024, the Company's common equity Tier 1 capital ratio was 11.44%, its total risk-based capital ratio was 15.24%, and its Tier 1 leverage ratio was 12.45%. These ratios exceed the regulatory requirements for a well-capitalized institution, providing a solid foundation for the Bank's continued expansion and ability to withstand potential economic headwinds.
Liquidity
The Company's liquidity position is robust, with cash and cash equivalents totaling $198.8 million as of December 31, 2024, and an additional $1.36 billion in available borrowing capacity from the Federal Home Loan Bank and the Federal Reserve Discount Window. This ample liquidity, coupled with the Company's strong capital ratios, positions PCB Bancorp to navigate the current economic environment and capitalize on future growth opportunities.
PCB Bancorp maintains a healthy balance sheet with a debt-to-equity ratio of 0.0667, indicating a low level of leverage. The Company's current ratio and quick ratio both stand at 0.1827, reflecting its ability to meet short-term obligations.
Shareholder Returns and Dividends
PCB Bancorp has demonstrated a commitment to returning capital to its shareholders through a consistent dividend payout. In 2024, the Company declared and paid a quarterly cash dividend of $0.72 per common share, an increase from the previous year's $0.69 per share. This translates to a dividend yield of approximately 3.9% based on the Company's current stock price.
Moreover, the Company has been actively repurchasing its common stock, a testament to management's confidence in the long-term prospects of the business. During the year ended December 31, 2024, PCB Bancorp repurchased and retired 14,950 shares of common stock at a weighted-average price of $14.88 per share. The Company's disciplined approach to capital allocation and shareholder returns has been well-received by the investment community, as evidenced by the stock's performance.
Risks and Challenges
Like any financial institution, PCB Bancorp faces a range of risks and challenges that require diligent management and oversight. One of the primary risks is the Company's concentration in commercial real estate (CRE) loans, which accounted for 66.7% of the total loan portfolio as of December 31, 2024. While the Bank's underwriting standards and risk management practices are robust, a significant downturn in the CRE market could adversely impact the quality of the loan portfolio and the Company's financial performance.
Additionally, the Bank's reliance on the Korean-American community for a significant portion of its customer base introduces geographical and demographic concentration risks. Any economic or social factors that disproportionately affect the Korean-American population in the Bank's key markets could have a material impact on the Company's operations and financial results.
The banking industry as a whole is also grappling with the evolving regulatory landscape, technological advancements, and the need to maintain a competitive edge in an increasingly crowded marketplace. PCB Bancorp must continually invest in its infrastructure, talent, and product offerings to ensure it remains relevant and responsive to the changing needs of its customers.
Lending Activities and Loan Portfolio
PCB Bancorp's loan portfolio is diversified across three major categories: commercial real estate (CRE) loans, commercial and industrial (CI) loans, and consumer loans. As of December 31, 2024, CRE loans represented 66.7% of the total loan portfolio, with commercial property loans being the largest component at 35.9% of total loans. CI loans accounted for 18.0% of the total loan portfolio, while consumer loans represented 15.3%.
The Company's CRE loans include commercial property loans, business property loans, multifamily loans, and construction loans. These loans are primarily underwritten based on the cash flows of the underlying properties and the borrowers' ability to service the debt. PCB Bancorp focuses on high-quality credits with low loan-to-value ratios and strong collateral profiles.
CI loans typically finance business acquisitions, permanent working capital needs, and equipment purchases. The primary risk associated with CI loans is the difference between expected and actual cash flows of the borrowers, as well as the recoverability of the Company's investment based on the type of collateral securing the loans.
Consumer loans include residential mortgage loans and other consumer loans, such as automobile loans and unsecured lines of credit and term loans to high net worth individuals. The primary risks associated with residential mortgage loans include the borrowers' inability to pay, decreases in the value of the underlying collateral, and increases in interest rates that may reduce the borrowers' capacity to pay.
Loan Quality and Allowance for Credit Losses
PCB Bancorp closely monitors the credit quality of its loan portfolio and maintains an allowance for credit losses (ACL) to provide for expected lifetime credit losses. As of December 31, 2024, the ACL on loans was $30.63 million, or 1.16% of total loans held-for-investment. The Company's nonperforming loans (NPLs) to total loans held-for-investment ratio was 0.18% as of the same date.
The Company's ACL methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions using reasonable and supportable forecasts. The ACL also includes qualitative adjustments for risk factors not fully captured by the quantitative component.
Deposits and Funding
As of December 31, 2024, PCB Bancorp had total deposits of $2.62 billion, an increase of 11.2% from the prior year. The deposit base consisted of 20.9% noninterest-bearing demand deposits, 17.9% savings, NOW, and money market accounts, and 61.2% time deposits. The Company also utilizes wholesale deposits, including brokered accounts and California State Treasurer's time deposits, which represented 19.2% of total deposits as of the end of 2024.
In addition to deposits, the Company has access to other funding sources, such as borrowings from the Federal Home Loan Bank and the Federal Reserve Discount Window, to support its balance sheet growth and liquidity needs. As of December 31, 2024, the Company had $1.36 billion in available borrowing capacity, representing 44.4% of total assets.
Human Capital
As of December 31, 2024, PCB Bancorp had a total of 263 full-time and part-time employees. The Company is committed to attracting and retaining a talented and motivated workforce, offering competitive compensation and benefits programs, as well as opportunities for ongoing training and development. PCB Bancorp also encourages its employees to participate in community outreach initiatives to better integrate with the local communities it serves.
Geographic Markets and Performance
PCB Bancorp operates primarily in California, with additional locations in New York, New Jersey, and Texas. The Company has a significant concentration of customers from the Korean-American community. This geographic and demographic focus has allowed PCB Bancorp to develop deep relationships within its target market and leverage its understanding of the unique financial needs of its customer base.
Industry Trends and Competitive Landscape
The banking industry has seen increased competition for deposits and a rise in interest rates, which has impacted PCB Bancorp's net interest margin. The Company has managed these challenges through prudent risk management and diversification of its loan portfolio. PCB Bancorp's net interest margin was 3.17% in 2024, down from 3.57% in 2023, reflecting the impact of rising interest rates on the Company's interest-earning assets and interest-bearing liabilities.
Conclusion
PCB Bancorp has established itself as a resilient and well-capitalized community bank, serving the diverse financial needs of its target markets. The Company's strong credit profile, consistent financial performance, and commitment to shareholder returns have garnered the attention of the investment community. As PCB Bancorp navigates the challenges posed by the current economic environment and industry-wide shifts, its experienced management team, prudent risk management practices, and community-focused approach position the Bank for continued success in the years to come. With a solid foundation in place and a clear strategy for growth, PCB Bancorp is well-equipped to capitalize on opportunities in its core markets while maintaining its commitment to serving the Korean-American community and small to medium-sized businesses.