Introduction
PCB Bancorp (NASDAQ:PCB) is a diversified financial institution that has demonstrated resilience and consistent performance amidst evolving market conditions. With a robust history spanning over four decades, the company has strategically positioned itself to capitalize on growth opportunities while maintaining a prudent risk management approach.
Company History and Growth
Founded in 1998 as Pacific City Bank and later established as Pacific City Financial Corporation in 2010, PCB Bancorp has grown from its roots in the Korean-American community of Los Angeles to become a regional player in the banking sector. The company, which rebranded to PCB Bancorp in 2018, has expanded its geographical footprint and service offerings over the years. Initially focused on serving small and medium-sized businesses and individuals in the greater Los Angeles area, PCB Bancorp has since extended its reach to the East Coast and Texas.
The bank's growth trajectory has been marked by both organic expansion and strategic initiatives. PCB Bancorp has consistently opened new branch locations to better serve its expanding customer base. In 2013, the company implemented an equity-based compensation plan, demonstrating its commitment to employee retention and alignment of interests. Despite facing challenges in the aftermath of the 2008 financial crisis, particularly with its commercial real estate borrowers, the bank successfully navigated these difficulties through prudent loan portfolio management and maintaining strong capital levels.
Business Model and Services
PCB Bancorp's business model has evolved to include a more diverse range of financial products and services. In addition to its traditional commercial real estate loans, the company has expanded into commercial and industrial lending and introduced an SBA lending program. This diversification strategy has allowed PCB Bancorp to better serve its core Korean-American clientele while also attracting a broader customer base.
The company's financial strength was further bolstered in 2022 when it raised $69.1 million in capital through the U.S. Treasury's Emergency Capital Investment Program. This infusion of capital has enhanced PCB Bancorp's ability to support its growth initiatives and maintain a robust balance sheet.
PCB Bancorp's business model focuses on offering a comprehensive suite of financial products and services, including commercial real estate loans, commercial and industrial loans, residential mortgages, and a variety of deposit accounts. The company's strong presence in the Korean-American community, coupled with its emphasis on relationship banking, has been a key driver of its consistent performance.
Financials
Financially, PCB Bancorp has exhibited solid fundamentals. As of September 30, 2024, the company reported total assets of $2.89 billion, a 3.6% increase from $2.79 billion at the end of 2023. Loans held-for-investment increased by 6.1% to $2.47 billion, while total deposits grew by 4.6% to $2.46 billion over the same period.
The company's net interest income for the nine months ended September 30, 2024, was $65.45 million, a slight decrease of 1.7% compared to the same period in 2023. This was primarily due to a 22.2% increase in average balance of interest-bearing liabilities and a 68 basis point increase in average cost, partially offset by an 11.4% increase in average balance of interest-earning assets and a 50 basis point increase in average yield.
PCB Bancorp's net interest margin (NIM) for the nine months ended September 30, 2024, was 3.17%, compared to 3.63% for the same period in 2023. The decrease in NIM was mainly attributable to the rising interest rate environment, which has led to higher funding costs outpacing the increase in asset yields.
For the most recent fiscal year (2023), PCB Bancorp reported revenue of $99.19 million, net income of $30.70 million, operating cash flow of $63.34 million, and free cash flow of $62.03 million. In the most recent quarter (Q3 2024), the company achieved revenue of $25.339 million, net income of $7.814 million, operating cash flow of $16.501 million, and free cash flow of $20.501 million. The increase in revenue and net income compared to the prior year quarter was primarily due to growth in interest income from the loan portfolio and an increase in gain on sale of loans. The company continued to see strong deposit growth, which contributed to the increase in operating cash flow and free cash flow.
Asset Quality and Capital Position
The company's asset quality remained strong, with nonperforming loans to total loans held-for-investment ratio of 0.27% as of September 30, 2024, compared to 0.17% as of December 31, 2023. The allowance for credit losses (ACL) on loans to total loans held-for-investment ratio was 1.17% at the end of the third quarter of 2024, compared to 1.19% at the end of 2023.
PCB Bancorp's capital position also remains robust, with a common equity Tier 1 capital ratio of 11.92% and a total capital ratio of 15.88% as of September 30, 2024. These ratios comfortably exceed the well-capitalized regulatory requirements, demonstrating the company's financial strength and ability to withstand potential economic challenges.
Liquidity
During the nine months ended September 30, 2024, PCB Bancorp repurchased and retired 14,950 shares of common stock at a weighted-average price of $14.88 per share. The company also announced the amendment of its 2023 stock repurchase program, extending the expiration from August 2, 2024, to August 1, 2025, and authorizing the purchase of an additional 577,780 shares.
PCB Bancorp maintains a strong liquidity position with no debt and ample available credit facilities. As of September 30, 2024, the company reported a debt-to-equity ratio of 0, a current ratio of 1.18, and a quick ratio of 1.18. Cash and available credit lines totaled $1.35 billion, including $703 million in available FHLB advances, $578 million from the Federal Reserve Discount Window, and $65 million in overnight federal funds lines.
Business Segments and Geographic Markets
PCB Bancorp operates two primary business segments: Commercial Real Estate (CRE) and Commercial and Industrial (C&I). The CRE segment is the largest contributor to PCB Bancorp's loan portfolio, comprising 67.4% of total loans held-for-investment as of September 30, 2024. This segment includes commercial property (35.5% of total loans), business property (23.5%), multifamily (7.5%), and construction loans (0.9%).
The C&I segment represents 16.5% of PCB Bancorp's total loans held-for-investment as of September 30, 2024. This segment includes loans made to commercial and industrial businesses. The Consumer segment, which includes residential mortgage (15.5% of total loans) and other consumer loans (0.6%), makes up the remaining 16.1% of PCB Bancorp's loan portfolio.
Geographically, PCB Bancorp operates primarily in the U.S., with the majority of its business concentrated in California, New York, New Jersey, and Texas. The company has not disclosed any material geographic performance breakdowns. PCB Bank, the company's subsidiary, operates 11 full-service branches in California, 3 in the East Coast, and 2 in Texas, as well as 4 loan production offices.
Recent Developments and Future Outlook
In terms of recent developments, PCB Bancorp continues to navigate the evolving market landscape. The company has proactively managed the impacts of the ongoing interest rate hikes by the Federal Reserve, adjusting its asset-liability management strategies to maintain profitability. Additionally, the company has remained vigilant in addressing the network and data incident that occurred in 2021, working closely with regulators and ensuring the protection of customer information.
In August 2021, the bank was the target of a ransomware attack that resulted in the illegal access and/or acquisition of certain customer data. The bank has notified affected customers, offered credit monitoring services, and settled a related class action lawsuit for $700,000 during Q3 2023. The company expects the full settlement amount to be covered by insurance.
Looking ahead, PCB Bancorp's management team remains cautiously optimistic about the company's prospects. The bank's strong market presence, diversified loan portfolio, and robust capital position provide a solid foundation for weathering potential economic headwinds. The company's focus on relationship banking, commitment to operational efficiency, and ongoing investments in technology and infrastructure are expected to support its long-term growth and profitability.
In terms of guidance, PCB exceeded its previous quarter's revenue guidance range of $265 million to $275 million, reporting actual revenue of $276 million. For the current quarter, the company is guiding for revenue in the range of $280 million to $290 million, representing an expected year-over-year revenue growth of approximately 4% to 8%. Regarding profitability, PCB is forecasting non-GAAP earnings per share (EPS) in the range of $0.80 to $0.85 for the current quarter, unchanged from their previous outlook.
Conclusion
Overall, PCB Bancorp's consistent performance, prudent risk management, and strategic adaptability position the company as a reliable player in the financial services industry. As it continues to navigate the evolving market dynamics, investors can look to PCB Bancorp as a potential investment opportunity that offers stability and the potential for steady returns. The company's strong financial results, solid liquidity position, and positive guidance for the future underscore its resilience and growth potential in the competitive banking sector.