PCB Bancorp (the "Company") (NASDAQ:PCB), the holding company of Pacific City Bank (the "Bank"), today reported net income of $11.0 million, or $0.73 per diluted common share for the third quarter of 2021, compared with $9.8 million, or $0.64 per diluted common share, for the previous quarter and $3.4 million, or $0.22 per diluted common share, for the year-ago quarter.

Q3 2021 Highlights

Net income totaled $11.0 million or $0.73 per diluted common share;
- The Company recorded a provision (reversal) for loan losses of $(1.1) million for the current quarter compared with $(934) thousand for the previous quarter and $4.3 million for the year-ago quarter.
- Allowance for loan losses to loans held-for-investment ⁽¹⁾ ratio was 1.39% at September 30, 2021 compared with 1.45% at June 30, 2021 and 1.55% at September 30, 2020. Adjusted allowance for loan losses to loans held-for-investment ratio ⁽²⁾ was 1.48% at September 30, 2021 compared with 1.62% at June 30, 2021 and 1.70% at September 30, 2020.
- Net interest income was $20.2 million for the current quarter compared with $19.0 million for the previous quarter and $16.9 million for the year-ago quarter. Net interest margin was 3.93% for the third quarter of 2021 compared with 3.83% for the previous quarter and 3.43% for the year-ago quarter.
- Gain on sale of loans was $4.3 million for the current quarter compared with $4.0 million for the previous quarter and $821 thousand for the year-ago quarter.
Total assets were $2.10 billion at September 30, 2021, an increase of $44.7 million, or 2.2%, from $2.06 billion at June 30, 2021 and an increase of $83.5 million, or 4.1%, from $2.02 billion at September 30, 2020;
Loans held-for-investment were $1.71 billion at September 30, 2021, a decrease of $11.8 million, or 0.7%, from $1.72 billion at June 30, 2021, but an increase of $129.1 million, or 8.2%, from $1.58 billion at September 30, 2020;
- SBA PPP loans totaled $101.9 million and $181.0 million at September 30, 2021 and June 30, 2021, respectively.
- The Company had no loans under modified terms related to COVID-19 at September 30, 2021.
Total deposits were $1.83 billion at September 30, 2021, an increase of $35.0 million from $1.80 billion at June 30, 2021 and an increase of $185.6 million, or 11.3%, from $1.65 billion at September 30, 2020;
The Company repurchased and retired 680,269 shares of common stock totaling $10.9 million for a weighted-average price of $15.99 per share under the repurchase program announced on April 8, 2021 that expired on September 7, 2021; and
A cash dividend of $0.12 per share was declared on October 28, 2021. This represents the 27th consecutive quarterly dividend paid by PCB Bancorp.

Henry Kim, President and Chief Executive Officer, commented, "We are pleased to announce another record quarter with net income of $11.0 million for the third quarter of 2021. Our total loans reached a record $1.74 billion as of September 30, 2021. Total loans increased by 19.7% annualized from June 30, 2021, and by 11.5% from September 30, 2020, excluding the changes in the balances of Paycheck Protection Program loans."

"Total deposits increased at an annualized rate of 7.8% during the quarter to a record $1.83 billion as of September 30, 2021 driven by $36.5 million growth in noninterest-bearing demand deposits that now make up 45.4% of the total balances, compared with 35.0% a year ago."

Mr. Kim continued, "In addition to the healthy organic loan and deposit growth, our net interest margin improved by ten basis points to 3.93% in the third quarter of 2021 as compared to the second quarter of 2021 and our credit quality remains solid as evidenced by nonperformance assets to total assets ratio of 0.05% at September 30, 2021."

"The momentum in our loan pipeline continues to be strong with equally healthy liquidity to expand our net interest income. We are looking forward to finishing the year strong and remain positive in our outlook in delivering excellent financial performance for the year and heading into 2022."

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(1)		Loans held-for-investment are presented net of deferred fees and costs in this press release.
(2)		Adjusted allowance for loan losses to loans held-for-investment ratio is a non-GAAP measure, which excludes U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans from loans held-for-investment. See "Non-GAAP Measures" for reconciliation of this measure to its most comparable GAAP measure.

Financial Highlights (Unaudited)
($ in thousands, except per share data)	Three Months Ended													Nine Months Ended
($ in thousands, except per share data)	9/30/2021			6/30/2021			% Change		9/30/2020			% Change		9/30/2021			9/30/2020			% Change
Net income	$	11,023		$	9,844		12.0	%	$	3,449		219.6	%	$	29,427		$	10,388		183.3	%
Diluted earnings per common share	$	0.73		$	0.64		14.1	%	$	0.22		231.8	%	$	1.92		$	0.67		186.6	%

Net interest income	$	20,227		$	18,996		6.5	%	$	16,853		20.0	%	$	57,042		$	48,782		16.9	%
Provision (reversal) for loan losses	(1,053		)	(934		)	12.7	%	4,326			(124.3	)%	(3,134		)	11,077			(128.3	)%
Noninterest income	5,588			5,151			8.5	%	2,272			146.0	%	13,596			7,216			88.4	%
Noninterest expense	11,232			11,139			0.8	%	9,886			13.6	%	32,040			30,149			6.3	%

Return on average assets ⁽¹⁾	2.11		%	1.96		%			0.69		%			1.94		%	0.73		%
Return on average shareholders' equity ^{(1), (2)}	17.98		%	16.49		%			5.98		%			16.40		%	6.10		%
Net interest margin ⁽¹⁾	3.93		%	3.83		%			3.43		%			3.82		%	3.49		%
Efficiency ratio ⁽³⁾	43.51		%	46.13		%			51.69		%			45.36		%	53.84		%

($ in thousands, except per share data)	9/30/2021			6/30/2021			% Change		12/31/2020			% Change		9/30/2020			% Change
Total assets	$	2,104,699		$	2,060,003		2.2	%	$	1,922,853		9.5	%	$	2,021,187		4.1	%
Net loans held-for-investment	1,684,071			1,694,767			(0.6	)%	1,557,068			8.2	%	1,554,258			8.4	%
Total deposits	1,832,666			1,797,648			1.9	%	1,594,851			14.9	%	1,647,107			11.3	%
Book value per common share ^{(2), (4)}	$	16.68		$	16.09		3.7	%	$	15.19		9.8	%	$	14.91		11.9	%
Tier 1 leverage ratio (consolidated)	11.91		%	11.76		%			11.94		%			11.40		%
Total shareholders' equity to total assets ⁽²⁾	11.76		%	11.60		%			12.16		%			11.35		%

(1)		Ratios are presented on an annualized basis.
(2)		The Company did not have any intangible equity components for the presented periods.
(3)		The ratios are calculated by dividing noninterest expense by the sum of net interest income and noninterest income.
(4)		Calculated by dividing total shareholders' equity by the number of outstanding common shares.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on recent global economic and market conditions, including significant disruption of, and volatility in, financial markets; global supply chain disruptions; and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company's operations and a large majority of its customers are located. While California's and New York's shelter-at-home limits were largely lifted in June 2021, the local economies in the Company's primary markets have not yet fully recovered.

Since the beginning of the crisis, the Company has taken a number of steps to protect the safety of its employees and to support its customers. The Company has enabled its staff to work remotely and established safety measures within its bank premises and branches for both employees and customers. In order to support its customers, the Company has been in close contact with them, assessing the level of impact on their businesses, and putting a process in place to evaluate each client's specific situation and provide relief programs where appropriate.

In addition, the Company has been monitoring its liquidity and capital closely. As of September 30, 2021, the Company maintained $215.0 million, or 10.2% of total assets, of cash and cash equivalents and $606.9 million, or 28.8% of total assets, of available borrowing capacity. All regulatory capital ratios were also well above the regulatory well-capitalized requirements as of September 30, 2021.

At this time, the Company cannot estimate the long term impact of the COVID-19 pandemic, but these conditions are expected to impact its business, results of operations, and financial condition negatively.

Network and Data Incident

As previously disclosed, on August 30, 2021, the Bank identified unusual activity on its network, 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, and on September 7, 2021, determined that an external actor had accessed or acquired certain data on its network. 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 what clients were impacted. The investigation, which is continuing, revealed that this incident impacted files containing certain Bank customer information, including in some cases personal information of customers and customers' employees. The Bank has notified or will notify all individuals identified to date, consistent with applicable laws, whose information may have been impacted. All impacted individuals will be offered free Equifax Complete Premier credit monitoring and identity theft protection services. The Bank has notified law enforcement and appropriate authorities of the incident.

Result of Operations (Unaudited)

Net Interest Income and Net Interest Margin

The following table presents the components of net interest income for the periods indicated:

	Three Months Ended													Nine Months Ended
($ in thousands)	9/30/2021			6/30/2021			% Change		9/30/2020			% Change		9/30/2021			9/30/2020			% Change
Interest income/expense on
Loans	$	20,537		$	19,511		5.3	%	$	18,938		8.4	%	$	58,792		$	57,617		2.0	%
Investment securities	437			375			16.5	%	515			(15.1	)%	1,172			1,698			(31.0	)%
Other interest-earning assets	194			165			17.6	%	167			16.2	%	513			938			(45.3	)%
Total interest-earning assets	21,168			20,051			5.6	%	19,620			7.9	%	60,477			60,253			0.4	%
Interest-bearing deposits	885			1,000			(11.5	)%	2,599			(65.9	)%	3,196			11,000			(70.9	)%
Borrowings	56			55			1.8	%	168			(66.7	)%	239			471			(49.3	)%
Total interest-bearing liabilities	941			1,055			(10.8	)%	2,767			(66.0	)%	3,435			11,471			(70.1	)%
Net interest income	$	20,227		$	18,996		6.5	%	$	16,853		20.0	%	$	57,042		$	48,782		16.9	%
Average balance of
Loans	$	1,715,106		$	1,691,704		1.4	%	$	1,564,704		9.6	%	$	1,683,084		$	1,524,628		10.4	%
Investment securities	136,874			132,249			3.5	%	128,212			6.8	%	131,039			122,371			7.1	%
Other interest-earning assets	188,137			164,710			14.2	%	260,426			(27.8	)%	180,663			221,698			(18.5	)%
Total interest-earning assets	$	2,040,117		$	1,988,663		2.6	%	$	1,953,342		4.4	%	$	1,994,786		$	1,868,697		6.7	%
Interest-bearing deposits	$	1,000,332		$	1,026,937		(2.6	)%	$	1,063,962		(6.0	)%	$	1,026,842		$	1,100,855		(6.7	)%
Borrowings	18,152			19,012			(4.5	)%	130,000			(86.0	)%	37,363			95,276			(60.8	)%
Total interest-bearing liabilities	$	1,018,484		$	1,045,949		(2.6	)%	$	1,193,962		(14.7	)%	$	1,064,205		$	1,196,131		(11.0	)%
Total funding ⁽¹⁾	$	1,812,649		$	1,766,054		2.6	%	$	1,746,217		3.8	%	$	1,772,005		$	1,661,765		6.6	%
Annualized average yield/cost of
Loans	4.75		%	4.63		%			4.81		%			4.67		%	5.05		%
Investment securities	1.27		%	1.14		%			1.60		%			1.20		%	1.85		%
Other interest-earning assets	0.41		%	0.40		%			0.26		%			0.38		%	0.57		%
Total interest-earning assets	4.12		%	4.04		%			4.00		%			4.05		%	4.31		%
Interest-bearing deposits	0.35		%	0.39		%			0.97		%			0.42		%	1.33		%
Borrowings	1.22		%	1.16		%			0.51		%			0.86		%	0.66		%
Total interest-bearing liabilities	0.37		%	0.40		%			0.92		%			0.43		%	1.28		%
Net interest margin	3.93		%	3.83		%			3.43		%			3.82		%	3.49		%
Cost of total funding ⁽¹⁾	0.21		%	0.24		%			0.63		%			0.26		%	0.92		%
Supplementary information
Net accretion of discount on loans	$	932		$	1,012		(7.9	)%	$	743		25.4	%	$	2,689		$	2,301		16.9	%
Net amortization of deferred loan fees	$	1,983		$	1,459		35.9	%	$	1,218		62.8	%	$	4,662		$	1,988		134.5	%

(1)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Loans. The increase in average yield for the current quarter compared with the previous quarter was primarily due to an increase in net amortization of deferred loan fees from an increased forgiveness of SBA PPP loans, partially offset by a decrease in net accretion of discount on loans. The decreases in average yield for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to a decrease in overall interest rates on loans from lower market rates, partially offset by increases in net accretion of discount on loans and net amortization of deferred loan fees.

The following table presents a composition of total loans by interest rate type accompanied with the weighted-average contractual rates as of the dates indicated:

	9/30/2021				6/30/2021				12/31/2020				9/30/2020
	% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate		% to Total Loans		Weighted-Average Contractual Rate
Fixed rate loans	29.9	%	3.86	%	33.9	%	3.56	%	31.7	%	3.86	%	40.6	%	4.12	%
Hybrid rate loans	26.4	%	4.28	%	22.5	%	4.52	%	20.8	%	4.82	%	12.2	%	4.98	%
Variable rate loans	43.7	%	3.96	%	43.6	%	3.99	%	47.5	%	4.06	%	47.2	%	4.10	%

Investment Securities. The increase in average yield for the current quarter compared with the previous quarter was primarily due to a decrease in net amortization of premiums on mortgage-backed securities and collateralized mortgage obligations. The decreases in average yield for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to new investment securities purchased at lower market rates.

Other Interest-Earning Assets. The increase in average yield for the current quarter compared with the year-ago quarters was primarily due to an increase in dividend income on Federal Home Loan Bank stock. The decrease in average yield for the current year-to-date period compared with the previous year-to-date period was primarily due to lower market rates. The decreases in average balance for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to an increase in loans, partially offset by an increase in deposits. The Company maintains most of its cash at the Federal Reserve Bank account. For additional detail, please see the discussion in "Loans" and "Deposits" under the "Balance Sheet" discussion.

Interest-Bearing Deposits. The decreases in average cost for the current quarter and year-to-date period were primarily due to the decreases in market rates.

Borrowings. The increases in average cost for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to matured borrowings with lower interest rates during the current year-to-date period. Matured FHLB advances totaled $70.0 million with a weighted-average rate of 0.47% for the current year-to-date period. At September 30, 2021, the Company had a term FHLB advance of $10.0 million with an interest rate of 2.07% that matures on June 29, 2022.

Provision (reversal) for Loan Losses

Provision (reversal) for loan losses was $(1.1) million for the current quarter compared with $(934) thousand for the previous quarter and $4.3 million for the year-ago quarter. For the current and previous year-to-date periods, provision (reversal) for loan losses was $(3.1) million and $11.1 million, respectively. The reversals for the current and previous quarters were primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions. The Company recorded net charge-offs (recoveries) of $30 thousand for the current quarter compared with $(309) thousand for the previous quarter and $28 thousand for the year-ago quarter. For the current and previous year-to-date periods, net charge-offs (recoveries) were $(431) thousand and $911 thousand, respectively.

Adjusted allowance for loan losses to loans held-for-investment ratio⁽¹⁾ was 1.48%, 1.62%, 1.83% and 1.70% at September 30, 2021, June 30, 2021, December 31, 2020 and September 30, 2020, respectively.

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(1)		Adjusted allowance for loan losses to loans held-for-investment ratio is a non-GAAP measure, which excludes SBA PPP loans from loans held-for-investment. See "Non-GAAP Measures" for reconciliation of this measure to its most comparable GAAP measure.

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2021		6/30/2021		% Change		9/30/2020		% Change		9/30/2021		9/30/2020		% Change
Gain on sale of loans	$	4,269	$	3,967	7.6	%	$	821	420.0	%	$	9,558	$	3,044	214.0	%
Service charges and fees on deposits	292		302		(3.3	)%	280		4.3	%	887		945		(6.1	)%
Loan servicing income	655		545		20.2	%	856		(23.5	)%	2,082		2,312		(9.9	)%
Other income	372		337		10.4	%	315		18.1	%	1,069		915		16.8	%
Total noninterest income	$	5,588	$	5,151	8.5	%	$	2,272	146.0	%	$	13,596	$	7,216	88.4	%

Gain on Sale of Loans. The following table presents information on gain on sale of loans for the periods indicated:

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2021		6/30/2021		% Change		9/30/2020		% Change		9/30/2021		9/30/2020		% Change
Gain on sale of SBA loans
Sold loan balance	$	45,048	$	34,107	32.1	%	$	8,582	424.9	%	$	90,074	$	47,363	90.2	%
Premium received	4,879		4,172		16.9	%	917		432.1	%	10,360		4,015		158.0	%
Gain recognized	4,263		3,954		7.8	%	689		518.7	%	9,412		2,841		231.3	%
Gain on sale of residential property loans
Sold loan balance	$	301	$	1,615	(81.4	)%	$	16,585	(98.2	)%	$	9,823	$	24,782	(60.4	)%
Gain recognized	2		13		(84.6	)%	132		(98.5	)%	142		203		(30.0	)%

The Company also sold certain commercial property loans of $3.5 million and $5.2 million during the current quarter and year-to-date period, respectively.

Loan Servicing Income. The following table presents information on loan servicing income for the periods indicated:

	Three Months Ended													Nine Months Ended
($ in thousands)	9/30/2021			6/30/2021			% Change		9/30/2020			% Change		9/30/2021			9/30/2020			% Change
Loan servicing income
Servicing income received	$	1,180		$	1,124		5.0	%	$	1,244		(5.1	)%	$	3,577		$	3,696		(3.2	)%
Servicing assets amortization	(525		)	(579		)	(9.3	)%	(388		)	35.3	%	(1,495		)	(1,384		)	8.0	%
Loan servicing income	$	655		$	545		20.2	%	$	856		(23.5	)%	$	2,082		$	2,312		(9.9	)%
Underlying loans at end of period	$	511,930		$	492,130		4.0	%	$	484,651		5.6	%	$	511,930		$	484,651		5.6	%

The Company services SBA loans and certain residential property loans that are sold to the secondary market. The increase for the current quarter compared with the previous quarter was primarily due to a decrease in servicing asset amortization from a decrease in loan payoffs and an increase in servicing income received. The decreases for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to a decrease in servicing income received and an increase in servicing asset amortization from an increase in loan payoffs.

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:

	Three Months Ended										Nine Months Ended
($ in thousands)	9/30/2021		6/30/2021		% Change		9/30/2020		% Change		9/30/2021		9/30/2020		% Change
Salaries and employee benefits	$	7,606	$	7,125	6.8	%	$	6,438	18.1	%	$	20,913	$	18,750	11.5	%
Occupancy and equipment	1,399		1,388		0.8	%	1,416		(1.2	)%	4,158		4,196		(0.9	)%
Professional fees	422		658		(35.9	)%	325		29.8	%	1,574		1,631		(3.5	)%
Marketing and business promotion	416		516		(19.4	)%	193		115.5	%	1,070		920		16.3	%
Data processing	391		396		(1.3	)%	373		4.8	%	1,164		1,097		6.1	%
Director fees and expenses	144		151		(4.6	)%	125		15.2	%	433		453		(4.4	)%
Regulatory assessments	12		179		(93.3	)%	267		(95.5	)%	399		728		(45.2	)%
Other expenses	842		726		16.0	%	749		12.4	%	2,329		2,374		(1.9	)%
Total noninterest expense	$	11,232	$	11,139	0.8	%	$	9,886	13.6	%	$	32,040	$	30,149	6.3	%

Salaries and Employee Benefits. The increase for the current quarter compared the previous quarter was primarily due to the incentive tied to the sales of Loan Production Offices ("LPO") originated SBA loans and the incentive for SBA PPP loan production paid during the current quarter. The increase for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to increases in wages, bonus accrual, and the incentives for LPO originated SBA loan sales and SBA PPP loan production, partially offset by decreases in vacation and stock compensation expense.

Professional Fees. The decrease for the current quarter compared with the previous quarter were primarily due to a decrease in expenses related to internal audit. The decrease for the current year-to-date period compared with the previous year-to-date period was primarily due to decreases in expenses related to the Bank's Bank Secrecy Act and Anti-Money Laundering ("BSA/AML") compliance enhancements.

Director fees and expense. The increase for the current quarter compared with the year-ago quarter was primarily due to the Board of Directors' decision to temporarily decrease fees during the year-ago quarter. The decrease for the current year-to-date period compared with the previous year-to-date period was primarily due to a severance payment for a former director in the first quarter of 2020.

Regulatory Assessments. The decrease for the current quarter compared with the previous quarter was primarily due to an adjustment made for the assessment rate decrease for the previous quarter. The decreases for the current quarter and year-to-date period compared with the same periods of 2020 were primarily due to a decrease in assessment rate, partially offset by an increase in balance sheet growth.

Balance Sheet (Unaudited)

Total assets were $2.10 billion at September 30, 2021, an increase of $44.7 million, or 2.2%, from $2.06 billion at June 30, 2021 and an increase of $83.5 million, or 4.1%, from $2.02 billion at September 30, 2020. The increase for the current quarter was primarily due to increases in loans held-for-sale and cash and cash equivalents, partially offset by a decrease in net loans held-for-investment. The increase for the current year-to-date period was primarily due to increases in loans held-for-investment, loans-held-for-sale, investment securities, and cash and cash equivalents.

The following table presents a composition of total loans (includes both loans held-for-sale and loans held-for-investment) as of the dates indicated:

($ in thousands)	9/30/2021		6/30/2021		% Change		12/31/2020		% Change		9/30/2020		% Change
Real estate loans
Commercial property	$	1,054,351	$	997,918	5.7	%	$	880,736	19.7	%	$	853,708	23.5	%
Residential property	201,635		196,983		2.4	%	198,431		1.6	%	212,804		(5.2	)%
SBA property	127,845		124,251		2.9	%	126,570		1.0	%	128,038		(0.2	)%
Construction	6,572		13,475		(51.2	)%	15,199		(56.8	)%	19,803		(66.8	)%
Commercial and industrial loans
Commercial term	74,390		74,503		(0.2	)%	87,250		(14.7	)%	90,867		(18.1	)%
Commercial lines of credit	101,456		90,286		12.4	%	96,087		5.6	%	92,222		10.0	%
SBA commercial term	18,338		19,614		(6.5	)%	21,878		(16.2	)%	23,011		(20.3	)%
SBA PPP	101,901		181,019		(43.7	)%	135,654		(24.9	)%	136,418		(25.3	)%
Other consumer loans	21,390		21,607		(1.0	)%	21,773		(1.8	)%	21,933		(2.5	)%
Loans held-for-investment	1,707,878		1,719,656		(0.7	)%	1,583,578		7.8	%	1,578,804		8.2	%
Loans held-for-sale	29,020		11,255		157.8	%	1,979		1,366.4	%	30,878		(6.0	)%
Total loans

PCB Bancorp Reports Record Earnings of $11.0 Million for Q3 2021