UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20212022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38621
PCB BANCORP
(Exact name of registrant as specified in its charter)
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California | 20-8856755 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
3701 Wilshire Boulevard, Suite 900, Los Angeles, California 90010
(Address of principal executive offices) (Zip Code)
(213) 210-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, no par value | PCB | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company | ☒ |
| | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of October 29, 2021,July 28, 2022, the registrant had outstanding 14,841,62614,958,760 shares of common stock.
PCB Bancorp and Subsidiary
Quarterly Report on Form 10-Q
SeptemberJune 30, 20212022
Table of Contents
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Part I - Financial Information |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part II - Other Information |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which reflect current views of PCB Bancorp, formerly known as Pacific City Financial Corporation, (collectively, with its consolidated subsidiary, the “Company,” “we,” “us” or “our”) with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “aim,” “would,” and “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, but are not limited to, the following:
•business and economic conditions, particularly those affecting the financial services industry and our primary market areas and arising from current COVID-19 pandemicrecent inflationary pressures and governmental and societal responses thereto;
•our ability to successfully manage our credit risk and the sufficiency of our allowance for loan loss;
•factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance and our borrowers' actual payment performance as loan deferrals related to the COVID-19 pandemic expire;
•governmental monetary and fiscal policies, and changes in market interest rates;
•the current inflationary environment and government and regulatory responses thereto;
•compliance with governmental and regulatory requirements, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act of 2020, (the “Economic Aid Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act, (the “Dodd-Frank Act”), the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) and others relating to banking, consumer protection, securities and tax matters including, but not limited to the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance;
•the significant portion of our loan portfolio that is comprised of real estate loans;
•our ability to attract and retain Korean-American customers;
•our ability to identify and address cyber-security risks, fraud and systems errors;
•our ability to effectively execute our strategic plan and manage our growth;
•changes in our senior management team and our ability to attract, motivate and retain qualified personnel;
•cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
•liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary;
•costs and obligations associated with operating as a public company;
•the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
•the effects of severe weather, natural disasters, acts of war or terrorism, health epidemics or pandemics (or expectations about them) and other external events on our business;
•the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; and
•changes in federal tax law or policy.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements and the risks described under “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202021 and our other documents filed with the United States (“U.S.”) Securities Exchange Commission (“SEC”). Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is initially made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Part I - Financial Information
Item 1 - Consolidated Financial Statements
PCB Bancorp and Subsidiary
Consolidated Balance Sheets
($ in thousands, except share data)
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | (Unaudited) | | | | (Unaudited) | | |
Assets | Assets | | Assets | |
Cash and due from banks | Cash and due from banks | | $ | 19,688 | | | $ | 19,605 | | Cash and due from banks | | $ | 23,125 | | | $ | 15,222 | |
Interest-bearing deposits in other financial institutions | Interest-bearing deposits in other financial institutions | | 195,285 | | | 174,493 | | Interest-bearing deposits in other financial institutions | | 276,785 | | | 188,063 | |
Total cash and cash equivalents | Total cash and cash equivalents | | 214,973 | | | 194,098 | | Total cash and cash equivalents | | 299,910 | | | 203,285 | |
Securities available-for-sale, at fair value | Securities available-for-sale, at fair value | | 133,102 | | | 120,527 | | Securities available-for-sale, at fair value | | 139,067 | | | 123,198 | |
| Loans held-for-sale | Loans held-for-sale | | 29,020 | | | 1,979 | | Loans held-for-sale | | 9,627 | | | 37,026 | |
Loans held-for-investment, net of deferred loan costs (fees) | Loans held-for-investment, net of deferred loan costs (fees) | | 1,707,878 | | | 1,583,578 | | Loans held-for-investment, net of deferred loan costs (fees) | | 1,833,010 | | | 1,732,205 | |
Allowance for loan losses | Allowance for loan losses | | (23,807) | | | (26,510) | | Allowance for loan losses | | (21,071) | | | (22,381) | |
Net loans held-for-investment | Net loans held-for-investment | | 1,684,071 | | | 1,557,068 | | Net loans held-for-investment | | 1,811,939 | | | 1,709,824 | |
Premises and equipment, net | Premises and equipment, net | | 3,306 | | | 4,048 | | Premises and equipment, net | | 3,633 | | | 3,098 | |
Federal Home Loan Bank and other restricted stock, at cost | Federal Home Loan Bank and other restricted stock, at cost | | 8,577 | | | 8,447 | | Federal Home Loan Bank and other restricted stock, at cost | | 10,183 | | | 8,577 | |
Other real estate owned, net | Other real estate owned, net | | — | | | 1,401 | | Other real estate owned, net | | 808 | | | — | |
Bank-owned life insurance | | Bank-owned life insurance | | 29,705 | | | 29,358 | |
Deferred tax assets, net | Deferred tax assets, net | | 7,519 | | | 8,120 | | Deferred tax assets, net | | 11,869 | | | 10,824 | |
Servicing assets | Servicing assets | | 7,009 | | | 6,400 | | Servicing assets | | 7,716 | | | 7,269 | |
Operating lease assets | Operating lease assets | | 7,164 | | | 7,616 | | Operating lease assets | | 6,512 | | | 6,786 | |
Accrued interest receivable | Accrued interest receivable | | 5,494 | | | 9,334 | | Accrued interest receivable | | 5,212 | | | 5,368 | |
Other assets | Other assets | | 4,464 | | | 3,815 | | Other assets | | 8,379 | | | 5,122 | |
Total assets | Total assets | | $ | 2,104,699 | | | $ | 1,922,853 | | Total assets | | $ | 2,344,560 | | | $ | 2,149,735 | |
Liabilities and Shareholders’ Equity | Liabilities and Shareholders’ Equity | | | | | Liabilities and Shareholders’ Equity | | | | |
Deposits: | Deposits: | | Deposits: | |
Noninterest-bearing demand | Noninterest-bearing demand | | $ | 832,240 | | | $ | 538,009 | | Noninterest-bearing demand | | $ | 988,454 | | | $ | 830,383 | |
Savings, NOW and money market accounts | Savings, NOW and money market accounts | | 410,092 | | | 408,826 | | Savings, NOW and money market accounts | | 492,173 | | | 422,526 | |
Time deposits of $250,000 or less | Time deposits of $250,000 or less | | 327,207 | | | 379,333 | | Time deposits of $250,000 or less | | 270,956 | | | 341,956 | |
Time deposits of more than $250,000 | Time deposits of more than $250,000 | | 263,127 | | | 268,683 | | Time deposits of more than $250,000 | | 246,024 | | | 272,269 | |
Total deposits | Total deposits | | 1,832,666 | | | 1,594,851 | | Total deposits | | 1,997,607 | | | 1,867,134 | |
Federal Home Loan Bank advances | Federal Home Loan Bank advances | | 10,000 | | | 80,000 | | Federal Home Loan Bank advances | | — | | | 10,000 | |
Operating lease liabilities | Operating lease liabilities | | 7,862 | | | 8,455 | | Operating lease liabilities | | 7,067 | | | 7,444 | |
Accrued interest payable and other liabilities | Accrued interest payable and other liabilities | | 6,573 | | | 5,759 | | Accrued interest payable and other liabilities | | 5,511 | | | 8,871 | |
Total liabilities | Total liabilities | | 1,857,101 | | | 1,689,065 | | Total liabilities | | 2,010,185 | | | 1,893,449 | |
Commitments and contingencies | Commitments and contingencies | | 0 | | 0 | Commitments and contingencies | | 0 | | 0 |
Preferred stock, 10,000,000 shares authorized, no par value, no issued and outstanding shares | | — | | | — | | |
Common stock, 60,000,000 shares authorized, no par value; 14,841,626 and 15,385,878 shares issued and outstanding, respectively, and included 55,284 and 30,300 shares of unvested restricted stock, respectively, at September 30, 2021 and December 31, 2020 | | 154,618 | | | 164,140 | | |
Preferred stock, 10,000,000 shares authorized, no par value: | | Preferred stock, 10,000,000 shares authorized, no par value: | |
Series C, senior non-cumulative perpetual, $1,000 per share liquidation preference, 69,141 and 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively. | | Series C, senior non-cumulative perpetual, $1,000 per share liquidation preference, 69,141 and 0 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively. | | 69,141 | | | — | |
Common stock, 60,000,000 shares authorized, no par value; 14,956,760 and 14,865,825 shares issued and outstanding, respectively, and included 68,822 and 55,284 shares of unvested restricted stock, respectively, at June 30, 2022 and December 31, 2021 | | Common stock, 60,000,000 shares authorized, no par value; 14,956,760 and 14,865,825 shares issued and outstanding, respectively, and included 68,822 and 55,284 shares of unvested restricted stock, respectively, at June 30, 2022 and December 31, 2021 | | 155,842 | | | 154,992 | |
Retained earnings | Retained earnings | | 92,248 | | | 67,692 | | Retained earnings | | 115,992 | | | 101,140 | |
Accumulated other comprehensive income, net | | 732 | | | 1,956 | | |
Accumulated other comprehensive income (loss), net | | Accumulated other comprehensive income (loss), net | | (6,600) | | | 154 | |
Total shareholders’ equity | Total shareholders’ equity | | 247,598 | | | 233,788 | | Total shareholders’ equity | | 334,375 | | | 256,286 | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 2,104,699 | | | $ | 1,922,853 | | Total liabilities and shareholders’ equity | | $ | 2,344,560 | | | $ | 2,149,735 | |
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See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Income (Unaudited)
($ in thousands, except share and per share data)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Interest and dividend income: | Interest and dividend income: | | | | | | | | | Interest and dividend income: | | | | | | | | |
Loans, including fees | Loans, including fees | | $ | 20,537 | | | $ | 18,938 | | | $ | 58,792 | | | $ | 57,617 | | Loans, including fees | | $ | 21,243 | | | $ | 19,511 | | | $ | 41,433 | | | $ | 38,255 | |
Tax-exempt investment securities | Tax-exempt investment securities | | 36 | | | 37 | | | 109 | | | 113 | | Tax-exempt investment securities | | 37 | | | 37 | | | 73 | | | 73 | |
Taxable investment securities | Taxable investment securities | | 401 | | | 478 | | | 1,063 | | | 1,585 | | Taxable investment securities | | 631 | | | 338 | | | 1,071 | | | 662 | |
Other interest-earning assets | Other interest-earning assets | | 194 | | | 167 | | | 513 | | | 938 | | Other interest-earning assets | | 535 | | | 165 | | | 763 | | | 319 | |
Total interest income | Total interest income | | 21,168 | | | 19,620 | | | 60,477 | | | 60,253 | | Total interest income | | 22,446 | | | 20,051 | | | 43,340 | | | 39,309 | |
Interest expense: | Interest expense: | | Interest expense: | |
Deposits | Deposits | | 885 | | | 2,599 | | | 3,196 | | | 11,000 | | Deposits | | 1,041 | | | 1,000 | | | 1,891 | | | 2,311 | |
Other borrowings | Other borrowings | | 56 | | | 168 | | | 239 | | | 471 | | Other borrowings | | 54 | | | 55 | | | 105 | | | 183 | |
Total interest expense | Total interest expense | | 941 | | | 2,767 | | | 3,435 | | | 11,471 | | Total interest expense | | 1,095 | | | 1,055 | | | 1,996 | | | 2,494 | |
Net interest income | Net interest income | | 20,227 | | | 16,853 | | | 57,042 | | | 48,782 | | Net interest income | | 21,351 | | | 18,996 | | | 41,344 | | | 36,815 | |
Provision (reversal) for loan losses | | (1,053) | | | 4,326 | | | (3,134) | | | 11,077 | | |
Net interest income after provision (reversal) for loan losses | | 21,280 | | | 12,527 | | | 60,176 | | | 37,705 | | |
Reversal for loan losses | | Reversal for loan losses | | (109) | | | (934) | | | (1,300) | | | (2,081) | |
Net interest income after reversal for loan losses | | Net interest income after reversal for loan losses | | 21,460 | | | 19,930 | | | 42,644 | | | 38,896 | |
Noninterest income: | Noninterest income: | | Noninterest income: | |
Service charges and fees on deposits | Service charges and fees on deposits | | 292 | | | 280 | | | 887 | | | 945 | | Service charges and fees on deposits | | 330 | | | 302 | | | 633 | | | 595 | |
Loan servicing income | Loan servicing income | | 655 | | | 856 | | | 2,082 | | | 2,312 | | Loan servicing income | | 755 | | | 545 | | | 1,455 | | | 1,427 | |
Bank-owned life insurance income | | Bank-owned life insurance income | | 175 | | | — | | | 347 | | | — | |
Gain on sale of loans | Gain on sale of loans | | 4,269 | | | 821 | | | 9,558 | | | 3,044 | | Gain on sale of loans | | 2,039 | | | 3,967 | | | 5,816 | | | 5,289 | |
| Other income | Other income | | 372 | | | 315 | | | 1,069 | | | 915 | | Other income | | 349 | | | 337 | | | 683 | | | 697 | |
Total noninterest income | Total noninterest income | | 5,588 | | | 2,272 | | | 13,596 | | | 7,216 | | Total noninterest income | | 3,648 | | | 5,151 | | | 8,934 | | | 8,008 | |
Noninterest expense: | Noninterest expense: | | Noninterest expense: | |
Salaries and employee benefits | Salaries and employee benefits | | 7,606 | | | 6,438 | | | 20,913 | | | 18,750 | | Salaries and employee benefits | | 8,125 | | | 7,125 | | | 16,720 | | | 13,307 | |
Occupancy and equipment | Occupancy and equipment | | 1,399 | | | 1,416 | | | 4,158 | | | 4,196 | | Occupancy and equipment | | 1,537 | | | 1,388 | | | 2,934 | | | 2,759 | |
Professional fees | Professional fees | | 422 | | | 325 | | | 1,574 | | | 1,631 | | Professional fees | | 642 | | | 658 | | | 1,045 | | | 1,152 | |
Marketing and business promotion | Marketing and business promotion | | 416 | | | 193 | | | 1,070 | | | 920 | | Marketing and business promotion | | 310 | | | 516 | | | 517 | | | 654 | |
Data processing | Data processing | | 391 | | | 373 | | | 1,164 | | | 1,097 | | Data processing | | 441 | | | 396 | | | 845 | | | 773 | |
Director fees and expenses | Director fees and expenses | | 144 | | | 125 | | | 433 | | | 453 | | Director fees and expenses | | 182 | | | 151 | | | 351 | | | 289 | |
Regulatory assessments | Regulatory assessments | | 12 | | | 267 | | | 399 | | | 728 | | Regulatory assessments | | 147 | | | 179 | | | 288 | | | 387 | |
Other expenses | | 842 | | | 749 | | | 2,329 | | | 2,374 | | |
Other expense | | Other expense | | 861 | | | 726 | | | 1,616 | | | 1,487 | |
Total noninterest expense | Total noninterest expense | | 11,232 | | | 9,886 | | | 32,040 | | | 30,149 | | Total noninterest expense | | 12,245 | | | 11,139 | | | 24,316 | | | 20,808 | |
Income before income taxes | Income before income taxes | | 15,636 | | | 4,913 | | | 41,732 | | | 14,772 | | Income before income taxes | | 12,863 | | | 13,942 | | | 27,262 | | | 26,096 | |
Income tax expense | Income tax expense | | 4,613 | | | 1,464 | | | 12,305 | | | 4,384 | | Income tax expense | | 3,771 | | | 4,098 | | | 7,930 | | | 7,692 | |
Net income | Net income | | $ | 11,023 | | | $ | 3,449 | | | $ | 29,427 | | | $ | 10,388 | | Net income | | $ | 9,092 | | | $ | 9,844 | | | $ | 19,332 | | | $ | 18,404 | |
| Earnings per common share, basic | Earnings per common share, basic | | $ | 0.74 | | | $ | 0.22 | | | $ | 1.94 | | | $ | 0.67 | | Earnings per common share, basic | | $ | 0.61 | | | $ | 0.65 | | | $ | 1.29 | | | $ | 1.20 | |
Earnings per common share, diluted | Earnings per common share, diluted | | $ | 0.73 | | | $ | 0.22 | | | $ | 1.92 | | | $ | 0.67 | | Earnings per common share, diluted | | $ | 0.60 | | | $ | 0.64 | | | $ | 1.27 | | | $ | 1.19 | |
| Weighted-average common shares outstanding, basic | Weighted-average common shares outstanding, basic | | 14,779,707 | | | 15,343,888 | | | 15,090,989 | | | 15,395,475 | | Weighted-average common shares outstanding, basic | | 14,883,768 | | | 15,115,561 | | | 14,865,990 | | | 15,249,210 | |
Weighted-average common shares outstanding, diluted | Weighted-average common shares outstanding, diluted | | 15,031,558 | | | 15,377,531 | | | 15,298,065 | | | 15,466,207 | | Weighted-average common shares outstanding, diluted | | 15,122,452 | | | 15,309,873 | | | 15,138,493 | | | 15,425,308 | |
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See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
($ in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Net income | Net income | | $ | 11,023 | | | $ | 3,449 | | | $ | 29,427 | | | $ | 10,388 | | Net income | | $ | 9,092 | | | $ | 9,844 | | | $ | 19,332 | | | $ | 18,404 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Unrealized gain (loss) on securities available-for-sale arising during the period | Unrealized gain (loss) on securities available-for-sale arising during the period | | (581) | | | (9) | | | (1,734) | | | 2,045 | | Unrealized gain (loss) on securities available-for-sale arising during the period | | (4,117) | | | 403 | | | (9,584) | | | (1,153) | |
Unrealized gain arising from the reclassification of securities held-to-maturity to securities available-for-sale | | — | | | — | | | — | | | 787 | | |
| Income tax benefit (expense) related to items of other comprehensive income (loss) | Income tax benefit (expense) related to items of other comprehensive income (loss) | | 170 | | | 3 | | | 510 | | | (839) | | Income tax benefit (expense) related to items of other comprehensive income (loss) | | 1,215 | | | (118) | | | 2,830 | | | 340 | |
Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | | (411) | | | (6) | | | (1,224) | | | 1,993 | | Total other comprehensive income (loss), net of tax | | (2,902) | | | 285 | | | (6,754) | | | (813) | |
Total comprehensive income | Total comprehensive income | | $ | 10,612 | | | $ | 3,443 | | | $ | 28,203 | | | $ | 12,381 | | Total comprehensive income | | $ | 6,190 | | | $ | 10,129 | | | $ | 12,578 | | | $ | 17,591 | |
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See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
($ in thousands, except share and per share data)
| | | | Three Months Ended |
| | Shareholders’ Equity | | Shares Outstanding | | Shareholders’ Equity |
| | Common Stock Outstanding Shares | | Common Stock | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Preferred Stock | | Common Stock | | Preferred Stock | | Common Stock | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance at July 1, 2020 | | 15,377,935 | | | $ | 163,759 | | | | $ | 61,532 | | | $ | 1,942 | | | $ | 227,233 | | |
Balance at April 1, 2021 | | Balance at April 1, 2021 | | — | | | 15,468,242 | | | $ | — | | | $ | 164,698 | | | | $ | 74,707 | | | $ | 858 | | | $ | 240,263 | |
Comprehensive income | | Comprehensive income | | | |
Net income | | Net income | | — | | | — | | | — | | | — | | | | 9,844 | | | — | | | 9,844 | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | | — | | | 285 | | | 285 | |
| Repurchase of common stock | | Repurchase of common stock | | — | | | (646,334) | | | (10,333) | | | | — | | | — | | | (10,333) | |
Share-based compensation expense | | Share-based compensation expense | | — | | | — | | | — | | | 117 | | | | — | | | — | | | 117 | |
Stock options exercised | | Stock options exercised | | — | | | 32,407 | | | — | | | 314 | | | | — | | | — | | | 314 | |
Cash dividends declared on common stock ($0.10 per share) | | Cash dividends declared on common stock ($0.10 per share) | | — | | | — | | | — | | | — | | | | (1,549) | | | — | | | (1,549) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | — | | | 14,854,315 | | | $ | — | | | $ | 154,796 | | | | $ | 83,002 | | | $ | 1,143 | | | $ | 238,941 | |
| Balance at April 1, 2022 | | Balance at April 1, 2022 | | — | | | 14,944,663 | | | $ | — | | | $ | 155,614 | | | | $ | 109,142 | | | $ | (3,698) | | | $ | 261,058 | |
Comprehensive income (loss) | Comprehensive income (loss) | | | | Comprehensive income (loss) | | | |
Net income | Net income | | — | | | — | | | | 3,449 | | | — | | | 3,449 | | Net income | | — | | | — | | | — | | | — | | | | 9,092 | | | — | | | 9,092 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | — | | | — | | | | — | | | (6) | | | (6) | | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | | — | | | (2,902) | | | (2,902) | |
Issuance of preferred stock | | Issuance of preferred stock | | 69,141 | | | — | | | 69,141 | | | — | | | | — | | | — | | | 69,141 | |
| Issuance of restricted stock | | 900 | | | — | | | | — | | | — | | | — | | |
Restricted stock surrendered due to employee tax liability | | (165) | | | (2) | | | | — | | | — | | | (2) | | |
| | Share-based compensation expense | Share-based compensation expense | | — | | | 200 | | | | — | | | — | | | 200 | | Share-based compensation expense | | — | | | — | | | — | | | 142 | | | | — | | | — | | | 142 | |
Stock options exercised | Stock options exercised | | 868 | | | 3 | | | | — | | | — | | | 3 | | Stock options exercised | | — | | | 12,097 | | | — | | | 86 | | | | — | | | — | | | 86 | |
Cash dividends declared on common stock ($0.10 per share) | | — | | | — | | | | (1,538) | | | — | | | (1,538) | | |
Balance at September 30, 2020 | | 15,379,538 | | | $ | 163,960 | | | | $ | 63,443 | | | $ | 1,936 | | | $ | 229,339 | | |
Cash dividends declared on common stock ($0.15 per share) | | Cash dividends declared on common stock ($0.15 per share) | | — | | | — | | | — | | | — | | | | (2,242) | | | — | | | (2,242) | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | 69,141 | | | 14,956,760 | | | $ | 69,141 | | | $ | 155,842 | | | | $ | 115,992 | | | $ | (6,600) | | | $ | 334,375 | |
| Balance at July 1, 2021 | | 14,854,315 | | | $ | 154,796 | | | | $ | 83,002 | | | $ | 1,143 | | | $ | 238,941 | | |
Comprehensive income (loss) | | | | |
Net income | | — | | | — | | | | 11,023 | | | — | | | 11,023 | | |
Other comprehensive loss, net of tax | | — | | | — | | | | — | | | (411) | | | (411) | | |
| Issuance of restricted stock | | 1,800 | | | — | | | | — | | | — | | | — | | |
Forfeiture of restricted stock | | (300) | | | — | | | | — | | | — | | | — | | |
Restricted stock surrendered due to employee tax liability | | (231) | | | (4) | | | | — | | | — | | | (4) | | |
Repurchase of common stock | | (33,935) | | | (543) | | | | — | | | — | | | (543) | | |
Share-based compensation expense | | — | | | 116 | | | | — | | | — | | | 116 | | |
Stock options exercised | | 19,977 | | | 253 | | | | — | | | — | | | 253 | | |
Cash dividends declared on common stock ($0.12 per share) | | — | | | — | | | | (1,777) | | | — | | | (1,777) | | |
Balance at September 30, 2021 | | 14,841,626 | | | $ | 154,618 | | | | $ | 92,248 | | | $ | 732 | | | $ | 247,598 | | |
|
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
($ in thousands, except share and per share data)
| | | Shareholders’ Equity | | Six Months Ended |
| | Common Stock Outstanding Shares | | Common Stock | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total | | Shares Outstanding | | Shareholders’ Equity |
Balance at January 1, 2020 | | 15,707,016 | | | $ | 169,221 | | | | $ | 57,670 | | | $ | (57) | | | $ | 226,834 | | |
Comprehensive income | | | | |
Net income | | — | | | — | | | | 10,388 | | | — | | | 10,388 | | |
Other comprehensive income, net of tax | | — | | | — | | | | — | | | 1,993 | | | 1,993 | | |
| Issuance of restricted stock | | 1,900 | | | — | | | | — | | | — | | | — | | |
Restricted stock surrendered due to employee tax liability | | (165) | | | (2) | | | | — | | | — | | | (2) | | |
Repurchase of common stock | | (428,474) | | | (6,487) | | | | — | | | — | | | (6,487) | | |
Share-based compensation expense | | — | | | 592 | | | | — | | | — | | | 592 | | |
Stock options exercised | | 99,261 | | | 636 | | | | — | | | — | | | 636 | | |
Cash dividends declared on common stock ($0.30 per share) | | — | | | — | | | | (4,615) | | | — | | | (4,615) | | |
Balance at September 30, 2020 | | 15,379,538 | | | $ | 163,960 | | | | $ | 63,443 | | | $ | 1,936 | | | $ | 229,339 | | |
| | | | | | | | | | | | | Preferred Stock | | Common Stock | | Preferred Stock | | Common Stock | | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total |
Balance at January 1, 2021 | Balance at January 1, 2021 | | 15,385,878 | | | $ | 164,140 | | | | $ | 67,692 | | | $ | 1,956 | | | $ | 233,788 | | Balance at January 1, 2021 | | — | | | 15,385,878 | | | $ | — | | | $ | 164,140 | | | | $ | 67,692 | | | $ | 1,956 | | | $ | 233,788 | |
Comprehensive income (loss) | Comprehensive income (loss) | | | | Comprehensive income (loss) | | | |
Net income | Net income | | — | | | — | | | | 29,427 | | | — | | | 29,427 | | Net income | | — | | | — | | | — | | | — | | | | 18,404 | | | — | | | 18,404 | |
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | | — | | | — | | | | — | | | (1,224) | | | (1,224) | | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | | — | | | (813) | | | (813) | |
| Issuance of restricted stock | Issuance of restricted stock | | 35,584 | | | — | | | | — | | | — | | | — | | Issuance of restricted stock | | — | | | 33,784 | | | — | | | — | | | | — | | | — | | | — | |
Forfeiture of restricted stock | Forfeiture of restricted stock | | (1,300) | | | — | | | | — | | | — | | | — | | Forfeiture of restricted stock | | — | | | (1,000) | | | — | | | — | | | | — | | | — | | | — | |
Restricted stock surrendered due to employee tax liability | | (231) | | | (4) | | | | — | | | — | | | (4) | | |
| Repurchase of common stock | Repurchase of common stock | | (680,269) | | | (10,876) | | | | — | | | — | | | (10,876) | | Repurchase of common stock | | — | | | (646,334) | | | — | | | (10,333) | | | | — | | | — | | | (10,333) | |
Share-based compensation expense | Share-based compensation expense | | — | | | 323 | | | | — | | | — | | | 323 | | Share-based compensation expense | | — | | | — | | | — | | | 207 | | | | — | | | — | | | 207 | |
Stock options exercised | Stock options exercised | | 101,964 | | | 1,035 | | | | — | | | — | | | 1,035 | | Stock options exercised | | — | | | 81,987 | | | — | | | 782 | | | | — | | | — | | | 782 | |
Cash dividends declared on common stock ($0.32 per share) | | — | | | — | | | | (4,871) | | | — | | | (4,871) | | |
Balance at September 30, 2021 | | 14,841,626 | | | $ | 154,618 | | | | $ | 92,248 | | | $ | 732 | | | $ | 247,598 | | |
Cash dividends declared on common stock ($0.20 per share) | | Cash dividends declared on common stock ($0.20 per share) | | — | | | — | | | — | | | — | | | | (3,094) | | | — | | | (3,094) | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | — | | | 14,854,315 | | | $ | — | | | $ | 154,796 | | | | $ | 83,002 | | | $ | 1,143 | | | $ | 238,941 | |
| Balance at January 1, 2022 | | Balance at January 1, 2022 | | — | | | 14,865,825 | | | $ | — | | | $ | 154,992 | | | | $ | 101,140 | | | $ | 154 | | | $ | 256,286 | |
Comprehensive income (loss) | | Comprehensive income (loss) | | | |
Net income | | Net income | | — | | | — | | | — | | | — | | | | 19,332 | | | — | | | 19,332 | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | | — | | | (6,754) | | | (6,754) | |
Issuance of preferred stock | | Issuance of preferred stock | | 69,141 | | | — | | | 69,141 | | | — | | | | — | | | — | | | 69,141 | |
| Issuance of restricted stock | | Issuance of restricted stock | | — | | | 25,000 | | | — | | | — | | | | — | | | — | | | — | |
Forfeiture of restricted stock | | Forfeiture of restricted stock | | — | | | (200) | | | — | | | — | | | | — | | | — | | | — | |
| Share-based compensation expense | | Share-based compensation expense | | — | | | — | | | — | | | 283 | | | | — | | | — | | | 283 | |
Stock options exercised | | Stock options exercised | | — | | | 66,135 | | | — | | | 567 | | | | — | | | — | | | 567 | |
Cash dividends declared on common stock ($0.30 per share) | | Cash dividends declared on common stock ($0.30 per share) | | — | | | — | | | — | | | — | | | | (4,480) | | | — | | | (4,480) | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | 69,141 | | | 14,956,760 | | | $ | 69,141 | | | $ | 155,842 | | | | $ | 115,992 | | | $ | (6,600) | | | $ | 334,375 | |
|
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
($ in thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows from operating activities | Cash flows from operating activities | | | | | Cash flows from operating activities | | | | |
Net income | Net income | | $ | 29,427 | | | $ | 10,388 | | Net income | | $ | 19,332 | | | $ | 18,404 | |
Adjustments to reconcile net income to net cash used in operating activities: | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation of premises and equipment | Depreciation of premises and equipment | | 1,053 | | | 1,118 | | Depreciation of premises and equipment | | 651 | | | 719 | |
Net amortization of premiums on securities | Net amortization of premiums on securities | | 811 | | | 656 | | Net amortization of premiums on securities | | 232 | | | 590 | |
Net accretion of discounts on loans | Net accretion of discounts on loans | | (2,689) | | | (2,301) | | Net accretion of discounts on loans | | (1,815) | | | (1,757) | |
Net accretion of deferred loan fees | Net accretion of deferred loan fees | | (4,662) | | | (1,988) | | Net accretion of deferred loan fees | | (1,771) | | | (2,679) | |
Amortization of servicing assets | Amortization of servicing assets | | 1,496 | | | 1,385 | | Amortization of servicing assets | | 1,061 | | | 970 | |
Provision (reversal) for loan losses | | (3,134) | | | 11,077 | | |
Deferred tax expense (benefit) | | 1,111 | | | (3,005) | | |
Reversal for loan losses | | Reversal for loan losses | | (1,300) | | | (2,081) | |
Bank-owned life insurance income | | Bank-owned life insurance income | | (347) | | | — | |
Deferred tax expense | | Deferred tax expense | | 1,785 | | | 568 | |
Stock-based compensation | Stock-based compensation | | 323 | | | 592 | | Stock-based compensation | | 283 | | | 207 | |
| Gain on sale of loans | Gain on sale of loans | | (9,558) | | | (3,044) | | Gain on sale of loans | | (5,816) | | | (5,289) | |
Originations of loans held-for-sale | Originations of loans held-for-sale | | (126,774) | | | (100,507) | | Originations of loans held-for-sale | | (51,106) | | | (63,646) | |
Proceeds from sales of and principal collected on loans held-for-sale | Proceeds from sales of and principal collected on loans held-for-sale | | 109,409 | | | 75,389 | | Proceeds from sales of and principal collected on loans held-for-sale | | 84,802 | | | 59,576 | |
Change in accrued interest receivable and other assets | Change in accrued interest receivable and other assets | | 3,191 | | | (4,911) | | Change in accrued interest receivable and other assets | | (3,094) | | | 2,390 | |
Change in accrued interest payable and other liabilities | Change in accrued interest payable and other liabilities | | (319) | | | (3,944) | | Change in accrued interest payable and other liabilities | | (4,119) | | | (767) | |
Net cash used in operating activities | | (315) | | | (19,095) | | |
Net cash provided by operating activities | | Net cash provided by operating activities | | 38,778 | | | 7,205 | |
Cash flows from investing activities | Cash flows from investing activities | | | | | Cash flows from investing activities | | | | |
Purchase of securities available-for-sale | Purchase of securities available-for-sale | | (47,306) | | | (36,640) | | Purchase of securities available-for-sale | | (38,033) | | | (39,538) | |
Proceeds from maturities and paydowns of securities available-for-sale | Proceeds from maturities and paydowns of securities available-for-sale | | 32,186 | | | 26,245 | | Proceeds from maturities and paydowns of securities available-for-sale | | 12,348 | | | 22,843 | |
| Proceeds from maturities and paydowns of securities held-to-maturity | | — | | | 1,309 | | |
| Proceeds from sale of loans held-for-sale previously classified as held-for-investment | Proceeds from sale of loans held-for-sale previously classified as held-for-investment | | 5,355 | | | 664 | | Proceeds from sale of loans held-for-sale previously classified as held-for-investment | | — | | | 1,899 | |
Net change in loans held-for-investment | Net change in loans held-for-investment | | (123,698) | | | (129,337) | | Net change in loans held-for-investment | | (99,369) | | | (134,455) | |
Purchase of loans held-for-investment | Purchase of loans held-for-investment | | (1,439) | | | — | | Purchase of loans held-for-investment | | — | | | (636) | |
Purchase of Federal Home Loan Bank stock | Purchase of Federal Home Loan Bank stock | | (130) | | | (102) | | Purchase of Federal Home Loan Bank stock | | (1,606) | | | (130) | |
Proceeds from sale of other real estate owned | Proceeds from sale of other real estate owned | | 3,434 | | | 2,490 | | Proceeds from sale of other real estate owned | | — | | | 3,434 | |
Purchases of premises and equipment | Purchases of premises and equipment | | (315) | | | (1,714) | | Purchases of premises and equipment | | (1,194) | | | (251) | |
Net cash used in investing activities | Net cash used in investing activities | | (131,913) | | | (137,085) | | Net cash used in investing activities | | (127,854) | | | (146,834) | |
Cash flows from financing activities | Cash flows from financing activities | | | | | Cash flows from financing activities | | | | |
Net change in deposits | Net change in deposits | | 237,815 | | | 167,800 | | Net change in deposits | | 130,473 | | | 202,797 | |
| Proceeds from long-term Federal Home Loan Bank advances | | — | | | 140,000 | | |
| Repayment of long-term Federal Home Loan Bank advances | Repayment of long-term Federal Home Loan Bank advances | | (70,000) | | | (30,000) | | Repayment of long-term Federal Home Loan Bank advances | | (10,000) | | | (70,000) | |
Stock options exercised | Stock options exercised | | 1,035 | | | 636 | | Stock options exercised | | 567 | | | 782 | |
Issuance of preferred stock | | Issuance of preferred stock | | 69,141 | | | — | |
| Repurchase of common stock | Repurchase of common stock | | (10,876) | | | (6,487) | | Repurchase of common stock | | — | | | (10,333) | |
Cash dividends paid on common stock | Cash dividends paid on common stock | | (4,871) | | | (4,615) | | Cash dividends paid on common stock | | (4,480) | | | (3,094) | |
Net cash provided by financing activities | Net cash provided by financing activities | | 153,103 | | | 267,334 | | Net cash provided by financing activities | | 185,701 | | | 120,152 | |
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | | 20,875 | | | 111,154 | | Net increase (decrease) in cash and cash equivalents | | 96,625 | | | (19,477) | |
Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | | 194,098 | | | 146,228 | | Cash and cash equivalents at beginning of period | | 203,285 | | | 194,098 | |
Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | | $ | 214,973 | | | $ | 257,382 | | Cash and cash equivalents at end of period | | $ | 299,910 | | | $ | 174,621 | |
|
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued (Unaudited)
($ in thousands)
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | | | | Supplemental disclosures of cash flow information: | | | | |
Interest paid | Interest paid | | $ | 4,916 | | | $ | 14,849 | | Interest paid | | $ | 2,165 | | | $ | 3,872 | |
Income taxes paid | Income taxes paid | | 9,027 | | | 6,621 | | Income taxes paid | | 11,409 | | | 5,777 | |
Supplemental disclosures of non-cash investment activities: | Supplemental disclosures of non-cash investment activities: | | Supplemental disclosures of non-cash investment activities: | |
Loans transferred to loans held-for-sale | Loans transferred to loans held-for-sale | | $ | 5,351 | | | $ | 1,355 | | Loans transferred to loans held-for-sale | | $ | — | | | $ | 1,899 | |
Loans transferred to other real estate owned | Loans transferred to other real estate owned | | 905 | | | 2,544 | | Loans transferred to other real estate owned | | 151 | | | 905 | |
Reclassification of securities held-to-maturity to securities available-for-sale | | — | | | 18,777 | | |
| Right of use assets obtained in exchange for lease obligations | Right of use assets obtained in exchange for lease obligations | | 1,247 | | | 105 | | Right of use assets obtained in exchange for lease obligations | | 964 | | | 136 | |
| |
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
PCB Bancorp and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Nature of Operations
PCB Bancorp is a bank holding company whose subsidiary is Pacific City Bank (the “Bank”). The Bank, which is a single operating segment that operatessegment. As of June 30, 2022, the Bank operated 11 full-service branches in Los Angeles and Orange counties, California, 1 full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and 10 loan production offices (“LPOs”) in Irvine, Artesia, and Los Angeles, California; Annandale, Virginia; Atlanta, Georgia; Chicago, Illinois; Bellevue, Washington; Aurora, Colorado; and Carrollton, Texas; and New York, New York.Texas. The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These interim statements should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 20202021 filed by the Company with the SEC. The December 31, 20202021 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC, but does not include all of the disclosures required by GAAP for complete financial statements.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. The results of operations for the three and ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.
Principles of Consolidation
The consolidated financial statements include the accounts of PCB Bancorp and its wholly owned subsidiary as of SeptemberJune 30, 20212022 and December 31, 2020,2021, and for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021. Significant inter-company accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiary.
Significant Accounting Policies
The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. The Company has not made any significant changes in its critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 20202021 filed with the SEC.
Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are subject to change and such change could have a material effect on the consolidated financial statements. Actual results may differ from those estimates.
Reclassification of Securities Held-To-Maturity to Securities Available-For-Sale
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. Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve the Company’s liquidity position. Accordingly, the Company was no longer able to assert that it had the intent to hold these securities until maturity and the Company’s ability to assert that it has the intent and ability to hold to maturity debt securities will be limited for up to two years from the date of transfer. The Company transferred all securities held-to-maturity of $18.8 million to securities available-for-sale, which resulted in a pre-tax increase to accumulated other comprehensive income of $787 thousand.
Loan Modifications Related to the COVID-19 Pandemic
As a part of the CARES Act, the temporary relief from troubled debt restructurings (“TDRs”) provided an option for financial institutions to suspend the GAAP requirements and regulatory determinations for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from March 1, 2020, through the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or December 31, 2020, if the loan was not more than 30 days past due as of December 31, 2019.
On April 7, 2020, the federal banking regulators also issued the Interagency Statement to encourage banks to work prudently with borrowers and describe the banking regulators’ interpretation of how accounting rules for TDR apply to certain modifications related to the COVID-19 pandemic.
On December 27, 2020, the Economic Aid Act was signed into law, which extended the applicable period of the temporary relief from TDRs under the CARES Act to the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or January 1, 2022.
As of SeptemberJune 30, 20212022 and December 31, 2020, total2021, the Company had no loans under modified terms related to the COVID-19 pandemic were none and $36.1 million, respectively.pandemic. All loans under modified terms related to the COVID-19 pandemic were accounted for under section 4013 of the CARES Act and not considered TDRs. All types of modifications had initial modification terms of 6-months or less and loans that were granted modifications related to the COVID-19 pandemic in excess of 6 months, on a cumulative basis, were classified as special mention or substandard. In addition, all loans under modified terms related to the COVID-19 pandemic were current and on accrual status as of December 31, 2020; however, allAll of these loans were monitored on an ongoing basis in accordance with each loan’s covenants and conditions for potential downgradechanges in risk rating or change in accrual status.
Small Business Administration Paycheck Protection Program
The Small Business Administration (“SBA”) launched the Paycheck Protection Program (“PPP”) to provide a direct incentive for small businesses to keep their workers on the payroll in response to the COVID-19 pandemic. The SBA guarantees 100% of the PPP loans made to eligible borrowers, and the loans are eligible to be forgiven if certain conditions are met, at which point the SBA will make payments to the Bank for the forgiven amounts. These loans are included in the commercial and industrial loans portfolio and have an interest rate of 1%. The substantial majority of the SBA PPP loans funded in 2020 in the Company’s portfolio have a maturity of two years. On January 13, 2021, the SBA began accepting applications for second draw PPP loans. During the nine months ended September 30, 2021, the Company had funded 1,153 SBA PPP loans totaling $107.0 million, net of unamortized deferred fees and costs. SBA PPP loans funded in 2021 have a maturity of five years.
As of September 30, 2021, the Company had 800 SBA PPP loans totaling $101.9 million, net of unamortized deferred fees and costs, and recognized $145.4 million in forgiveness for 1,992 SBA PPP loans. The Company defers loan origination fees on SBA PPP loans and amortizes these deferred fees and costs without prepayment assumption using the contractual lives of SBA PPP loans. As of June 30, 2022 and December 31, 2021, the Company had SBA PPP loans of $1.6 million and $65.3 million, respectively.
The SBA guarantee on PPP loans cannot be separated from the loan and therefore is not a separate unit of account. The Company considered the SBA guarantee in the allowance for loan losses evaluation and determined that it is not required to reserve an allowance on SBA PPP loans at SeptemberJune 30, 20212022 and December 31, 2020.2021.
Adopted Accounting Pronouncements
During the ninesix months ended SeptemberJune 30, 2021,2022, there were no significant accounting pronouncements applicable to the Company that became effective.
Recent Accounting Pronouncements Not Yet Adopted
The following is recently issued accounting pronouncements applicable to the Company that has not yet been adopted:
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326).” The amendments in this ASU require that entities change the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. It includes financial assets such as loan receivables, held-to-maturity debt securities, net investment in leases that are not accounted for at fair value through net income, and certain off-balance sheet credit exposures. This ASU was effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In 2019, the FASB amended this ASU, which delays the effective date to 2023 for certain SEC filers that are Smaller Reporting Companies, which would apply to the Company. The Company plans to adopt this ASU, as well as any subsequent ASUs related to this ASU, at the delayed effective date of January 1, 2023.
The Company has formed a committee, developed an implementation plan, and engaged a software vendor to assist the Company to build a model. The Company is in the process of completing a readiness assessment and is engaged in the implementation phase of the project. The Company is working on: (i) developing a new expected loss model with supportable assumptions; (ii) identifying data, reporting, and disclosure gaps; (iii) assessing updates to accounting and credit risk policies; and (iv) documenting new processes and controls. Based on the Company’s initial assessment of this ASU, the Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses which could potentially have a material impact on its consolidated financial statements as of the beginning of the first reporting period in which this ASU is effective.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326) - Troubled Debt Restructuring and Vintage Disclosures.” The amendments in this ASU eliminates the accounting guidance for TDRs by creditors in ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors,” while enhancing disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty. This Update also requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The Company will adopt this ASU at January1, 2023, the effective date of ASU 2016-13.
Note 2 - Fair Value Measurements
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
•Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Fair value is measured on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate certain assets or liabilities for impairment or for disclosure purposes. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records securities available-for-sale at fair value on a recurring basis. Certain other assets, such as loans held-for-sale, impaired loans, servicing assets and other real estate owned (“OREO”) are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Investment securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management reviews the valuation techniques and assumptions used by the provider and determines that the provider uses widely accepted valuation techniques based on observable market inputs appropriate for the type of security being measured. Securities held-to-maturity are not measured at fair value on a recurring basis.
Loans held-for-sale: The Company records SBA loans held-for-sale, residential property loans held-for-sale and certain non-residential real estate loans held-for-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2.
Impaired loans: Certain collateral-dependent impaired loans are recognized at fair value when they reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired loans are obtained from real estate brokers or other third-party consultants, and are classified as Level 3.
Other real estate owned: 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. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification due to the unobservable inputs used for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value.
Servicing Assets: Servicing assets represent the value associated with servicing loans that have been sold. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for servicing assets. Servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of dates indicated:
| | | Fair Value Measurement Level | | | Fair Value Measurement Level | |
($ in thousands) | ($ in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | ($ in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
September 30, 2021 | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | — | | | $ | 91,485 | | | $ | — | | | $ | 91,485 | | Residential mortgage-backed securities | | $ | — | | | $ | 93,510 | | | $ | — | | | $ | 93,510 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | — | | | 21,198 | | | — | | | 21,198 | | Residential collateralized mortgage obligations | | — | | | 24,680 | | | — | | | 24,680 | |
SBA loan pool securities | SBA loan pool securities | | — | | | 9,667 | | | — | | | 9,667 | | SBA loan pool securities | | — | | | 10,792 | | | — | | | 10,792 | |
Municipal bonds | Municipal bonds | | — | | | 5,708 | | | — | | | 5,708 | | Municipal bonds | | — | | | 5,272 | | | — | | | 5,272 | |
Corporate bonds | Corporate bonds | | — | | | 5,044 | | | — | | | 5,044 | | Corporate bonds | | — | | | 4,813 | | | — | | | 4,813 | |
Total securities available-for-sale | Total securities available-for-sale | | — | | | 133,102 | | | — | | | 133,102 | | Total securities available-for-sale | | — | | | 139,067 | | | — | | | 139,067 | |
Total assets measured at fair value on a recurring basis | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 133,102 | | | $ | — | | | $ | 133,102 | | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 139,067 | | | $ | — | | | $ | 139,067 | |
Total liabilities measured at fair value on a recurring basis | Total liabilities measured at fair value on a recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Total liabilities measured at fair value on a recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
December 31, 2020 | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | — | | | $ | 76,154 | | | $ | — | | | $ | 76,154 | | Residential mortgage-backed securities | | $ | — | | | $ | 84,713 | | | $ | — | | | $ | 84,713 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | — | | | 26,467 | | | — | | | 26,467 | | Residential collateralized mortgage obligations | | — | | | 19,056 | | | — | | | 19,056 | |
SBA loan pool securities | SBA loan pool securities | | — | | | 12,080 | | | — | | | 12,080 | | SBA loan pool securities | | — | | | 8,672 | | | — | | | 8,672 | |
Municipal bonds | Municipal bonds | | — | | | 5,826 | | | — | | | 5,826 | | Municipal bonds | | — | | | 5,686 | | | — | | | 5,686 | |
Corporate bonds | | Corporate bonds | | — | | | 5,071 | | | — | | | 5,071 | |
Total securities available-for-sale | Total securities available-for-sale | | — | | | 120,527 | | | — | | | 120,527 | | Total securities available-for-sale | | — | | | 123,198 | | | — | | | 123,198 | |
Total assets measured at fair value on a recurring basis | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 120,527 | | | $ | — | | | $ | 120,527 | | Total assets measured at fair value on a recurring basis | | $ | — | | | $ | 123,198 | | | $ | — | | | $ | 123,198 | |
Total liabilities measured at fair value on a recurring basis | Total liabilities measured at fair value on a recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Total liabilities measured at fair value on a recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of dates indicated:
| | | Fair Value Measurement Level | | | Fair Value Measurement Level | |
($ in thousands) | ($ in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total | ($ in thousands) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
September 30, 2021 | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | |
| Total assets measured at fair value on a non-recurring basis | Total assets measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Total assets measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total liabilities measured at fair value on a non-recurring basis | Total liabilities measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Total liabilities measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
December 31, 2020 | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | |
Impaired loans: | Impaired loans: | | Impaired loans: | |
SBA property | SBA property | | $ | — | | | $ | — | | | $ | 218 | | | $ | 218 | | SBA property | | $ | — | | | $ | — | | | $ | 17 | | | $ | 17 | |
Commercial lines of credit | | — | | | — | | | 904 | | | 904 | | |
SBA commercial term | | — | | | — | | | 255 | | | 255 | | |
| Total impaired loans | Total impaired loans | | — | | | — | | | 1,377 | | | 1,377 | | Total impaired loans | | — | | | — | | | 17 | | | 17 | |
Total assets measured at fair value on a non-recurring basis | Total assets measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | 1,377 | | | $ | 1,377 | | Total assets measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | 17 | | | $ | 17 | |
Total liabilities measured at fair value on a non-recurring basis | Total liabilities measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Total liabilities measured at fair value on a non-recurring basis | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
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The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of the datesdate indicated:
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($ in thousands) | | Fair Value | | Valuation Technique(s) | | Unobservable Input(s) | | Range (Weighted-Average) |
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December 31, 20202021 | | | | | | | | |
Impaired loans: | | | | | | | | |
SBA property | | $ | 21817 | | | Fair value of collateral | | NM | | NM |
Commercial lines of credit | | $ | 904 | | | Sales comparison approach | | Adjustment for differences between the comparable estate sales | | 5% to 9% (7.6%) |
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SBA commercial term | | $ | 255 | | | Fair value of collateral | | NM | | NM | |
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For assets measured at fair value, the following table presents the total net gains (losses), which include charge-offs, recoveries, and specific reserves recorded for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Collateral dependent impaired loans: | Collateral dependent impaired loans: | | | | | | | | | Collateral dependent impaired loans: | | | | | | | | |
| SBA property | SBA property | | $ | — | | | $ | (9) | | | $ | 32 | | | $ | (147) | | SBA property | | $ | — | | | $ | 15 | | | $ | — | | | $ | (2) | |
Commercial lines of credit | Commercial lines of credit | | — | | | (79) | | | (136) | | | (799) | | Commercial lines of credit | | — | | | — | | | — | | | 136 | |
SBA commercial term | SBA commercial term | | — | | | — | | | (30) | | | (164) | | SBA commercial term | | — | | | — | | | — | | | (5) | |
| Other real estate owned | Other real estate owned | | — | | | — | | | 74 | | | — | | Other real estate owned | | — | | | (1) | | | — | | | 74 | |
Net gains (losses) recognized | Net gains (losses) recognized | | $ | — | | | $ | (88) | | | $ | (60) | | | $ | (1,110) | | Net gains (losses) recognized | | $ | — | | | $ | 14 | | | $ | — | | | $ | 203 | |
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Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on financial instruments both on and off the consolidated balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments.
Financial assets: The carrying amounts of interest-bearing deposits with other financial institutions and accrued interest receivable are considered to approximate fair value. The fair values of investment securities are generally based on matrix pricing (Level 2). The fair value of loans is estimated based on a discounted cash flow approach under an exit price notion. The fair value reflects the estimated yield that would be negotiated with a willing market participant. Because sale transactions of such loans are not readily observable, as many of the loans have unique risk characteristics, the valuation is based on significant unobservable inputs (Level 3). It is not practical to determine the fair value of Federal Home Loan Bank (“FHLB”) and other restricted stock due to restrictions placed on its transferability.
Financial liabilities: The carrying amounts of accrued interest payable are considered to approximate fair value. The fair value of deposits is estimated based on discounted cash flows. The discount rate is derived from the interest rates currently being offered for similar remaining maturities. Non-maturity deposits are estimated based on their historical decaying experiences (Level 3). The fair value of FHLB advances is estimated based on discounted cash flows. The discount rate is derived from the current market rates for borrowings with similar remaining maturities (Level 2).
Off-balance-sheet financial instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material and is excluded from the table below.
The following table presents the carrying value and estimated fair values of financial assets and liabilities as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value | | Fair Value | | Fair Value Measurements |
($ in thousands) | | | | Level 1 | | Level 2 | | Level 3 |
September 30, 2021 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Interest-bearing deposits in other financial institutions | | $ | 195,285 | | | $ | 195,285 | | | $ | 195,285 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 133,102 | | | 133,102 | | | — | | | 133,102 | | | — | |
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Loans held-for-sale | | 29,020 | | | 32,003 | | | — | | | 32,003 | | | — | |
Net loans held-for-investment | | 1,684,071 | | | 1,698,852 | | | — | | | — | | | 1,698,852 | |
FHLB and other restricted stock | | 8,577 | | | N/A | | N/A | | N/A | | N/A |
Accrued interest receivable | | 5,515 | | | 5,515 | | | 7 | | | 280 | | | 5,228 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 1,832,666 | | | $ | 1,753,463 | | | $ | — | | | $ | — | | | $ | 1,753,463 | |
FHLB advances | | 10,000 | | | 10,142 | | | — | | | 10,142 | | | — | |
Accrued interest payable | | 745 | | | 745 | | | — | | | 1 | | | 744 | |
December 31, 2020 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Interest-bearing deposits in other financial institutions | | $ | 174,493 | | | $ | 174,493 | | | $ | 174,493 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 120,527 | | | 120,527 | | | — | | | 120,527 | | | — | |
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Loans held-for-sale | | 1,979 | | | 2,112 | | | — | | | 2,112 | | | — | |
Net loans held-for-investment | | 1,557,068 | | | 1,574,063 | | | — | | | — | | | 1,574,063 | |
FHLB and other restricted stock | | 8,447 | | | N/A | | N/A | | N/A | | N/A |
Accrued interest receivable | | 9,334 | | | 9,334 | | | 1 | | | 322 | | | 9,011 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 1,594,851 | | | $ | 1,594,112 | | | $ | — | | | $ | — | | | $ | 1,594,112 | |
FHLB advances | | 80,000 | | | 80,321 | | | — | | | 80,321 | | | — | |
Accrued interest payable | | 2,226 | | | 2,226 | | | — | | | 2 | | | 2,224 | |
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| | Carrying Value | | Fair Value | | Fair Value Measurements |
($ in thousands) | | | | Level 1 | | Level 2 | | Level 3 |
June 30, 2022 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Interest-bearing deposits in other financial institutions | | $ | 276,785 | | | $ | 276,785 | | | $ | 276,785 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 139,067 | | | 139,067 | | | — | | | 139,067 | | | — | |
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Loans held-for-sale | | 9,627 | | | 10,275 | | | — | | | 10,275 | | | — | |
Net loans held-for-investment | | 1,811,830 | | | 1,790,987 | | | — | | | — | | | 1,790,987 | |
Federal Home Loan Bank (“FHLB”) and other restricted stock | | 10,183 | | | N/A | | N/A | | N/A | | N/A |
Accrued interest receivable | | 5,212 | | | 5,212 | | | 13 | | | 400 | | | 4,799 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 1,997,607 | | | $ | 1,993,792 | | | $ | — | | | $ | — | | | $ | 1,993,792 | |
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Accrued interest payable | | 602 | | | 602 | | | — | | | — | | | 602 | |
December 31, 2021 | | | | | | | | | | |
Financial assets: | | | | | | | | | | |
Interest-bearing deposits in other financial institutions | | $ | 188,063 | | | $ | 188,063 | | | $ | 188,063 | | | $ | — | | | $ | — | |
Securities available-for-sale | | 123,198 | | | 123,198 | | | — | | | 123,198 | | | — | |
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Loans held-for-sale | | 37,026 | | | 41,079 | | | — | | | 41,079 | | | — | |
Net loans held-for-investment | | 1,709,824 | | | 1,725,022 | | | — | | | — | | | 1,725,022 | |
FHLB and other restricted stock | | 8,577 | | | N/A | | N/A | | N/A | | N/A |
Accrued interest receivable | | 5,368 | | | 5,368 | | | 1 | | | 337 | | | 5,030 | |
Financial liabilities: | | | | | | | | | | |
Deposits | | $ | 1,867,134 | | | $ | 1,867,635 | | | $ | — | | | $ | — | | | $ | 1,867,635 | |
FHLB advances | | 10,000 | | | 10,087 | | | — | | | 10,087 | | | — | |
Accrued interest payable | | 771 | | | 771 | | | — | | | 1 | | | 770 | |
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Note 3 - Investment Securities
The following table presents the amortized cost and fair value of the securities available-for-sale as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value | ($ in thousands) | | Amortized Cost | | Gross Unrealized Gain | | Gross Unrealized Loss | | Fair Value |
September 30, 2021 | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | 91,446 | | | $ | 976 | | | $ | (937) | | | $ | 91,485 | | Residential mortgage-backed securities | | $ | 101,619 | | | $ | 9 | | | $ | (8,118) | | | $ | 93,510 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | 21,079 | | | 172 | | | (53) | | | 21,198 | | Residential collateralized mortgage obligations | | 25,705 | | | 9 | | | (1,034) | | | 24,680 | |
SBA loan pool securities | SBA loan pool securities | | 9,406 | | | 266 | | | (5) | | | 9,667 | | SBA loan pool securities | | 11,007 | | | 51 | | | (266) | | | 10,792 | |
Municipal bonds | Municipal bonds | | 5,339 | | | 369 | | | — | | | 5,708 | | Municipal bonds | | 5,307 | | | 7 | | | (42) | | | 5,272 | |
Corporate bonds | Corporate bonds | | 5,000 | | | 44 | | | — | | | 5,044 | | Corporate bonds | | 5,000 | | | — | | | (187) | | | 4,813 | |
Total securities available-for-sale | Total securities available-for-sale | | $ | 132,270 | | | $ | 1,827 | | | $ | (995) | | | $ | 133,102 | | Total securities available-for-sale | | $ | 148,638 | | | $ | 76 | | | $ | (9,647) | | | $ | 139,067 | |
| December 31, 2020 | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | 74,622 | | | $ | 1,558 | | | $ | (26) | | | $ | 76,154 | | Residential mortgage-backed securities | | $ | 85,346 | | | $ | 625 | | | $ | (1,258) | | | $ | 84,713 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | 26,216 | | | 294 | | | (43) | | | 26,467 | | Residential collateralized mortgage obligations | | 18,990 | | | 113 | | | (47) | | | 19,056 | |
SBA loan pool securities | SBA loan pool securities | | 11,753 | | | 349 | | | (22) | | | 12,080 | | SBA loan pool securities | | 8,520 | | | 156 | | | (4) | | | 8,672 | |
Municipal bonds | Municipal bonds | | 5,370 | | | 456 | | | — | | | 5,826 | | Municipal bonds | | 5,329 | | | 357 | | | — | | | 5,686 | |
Corporate bonds | | Corporate bonds | | 5,000 | | | 71 | | | — | | | 5,071 | |
Total securities available-for-sale | Total securities available-for-sale | | $ | 117,961 | | | $ | 2,657 | | | $ | (91) | | | $ | 120,527 | | Total securities available-for-sale | | $ | 123,185 | | | $ | 1,322 | | | $ | (1,309) | | | $ | 123,198 | |
| |
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, pledged securities were $110.8$68.7 million and $117.8$110.9 million, respectively. These securities were pledged for the State Deposit from the California State Treasurer.
The following table presents the amortized cost and fair value of the investment securities available-for-sale by contractual maturity as of September 30, 2021.the date indicated. Expected maturities may differ from contractual maturities, if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | Securities Available-For-Sale | | | June 30, 2022 | |
($ in thousands) | ($ in thousands) | | Amortized Cost | | Fair Value | | ($ in thousands) | | Amortized Cost | | Fair Value | |
Within one year | Within one year | | $ | 307 | | | $ | 311 | | | Within one year | | $ | 300 | | | $ | 300 | | |
One to five years | One to five years | | 1,858 | | | 1,917 | | | One to five years | | 1,839 | | | 1,842 | | |
Five to ten years | Five to ten years | | 5,834 | | | 5,898 | | | Five to ten years | | 5,822 | | | 5,634 | | |
Greater than ten years | Greater than ten years | | 2,340 | | | 2,626 | | | Greater than ten years | | 2,346 | | | 2,309 | | |
Residential mortgage-backed securities, residential collateralized mortgage obligations and SBA loan pool securities | Residential mortgage-backed securities, residential collateralized mortgage obligations and SBA loan pool securities | | 121,931 | | | 122,350 | | | Residential mortgage-backed securities, residential collateralized mortgage obligations and SBA loan pool securities | | 138,331 | | | 128,982 | | |
Total | Total | | $ | 132,270 | | | $ | 133,102 | | | Total | | $ | 148,638 | | | $ | 139,067 | | |
|
The following table presentsCompany had no proceeds from sales and calls of securities available-for-sale during the three and the associated gross gainssix months ended June 30, 2022 and
losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Gross realized gains on sales and calls of securities available-for-sale | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Gross realized losses on sales and calls of securities available-for-sale | | — | | | — | | | — | | | — | |
Net realized gains (losses) on sales and calls of securities available-for-sale | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Proceeds from sales and calls of securities available-for-sale | | $ | — | | | $ | 185 | | | $ | — | | | $ | 185 | |
Tax expense on sales and calls of securities available-for-sale | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
2021.
The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position as of the dates indicated:
| | | Length of Time that Individual Securities Have Been In a Continuous Unrealized Loss Position | | Length of Time that Individual Securities Have Been In a Continuous Unrealized Loss Position |
| | Less Than 12 Months | | 12 Months or Longer | | Total | | Less Than 12 Months | | 12 Months or Longer | | Total |
($ in thousands) | ($ in thousands) | | Fair Value | | Gross Unrealized Losses | | Number of Securities | | Fair Value | | Gross Unrealized Losses | | Number of Securities | | Fair Value | | Gross Unrealized Losses | | Number of Securities | ($ in thousands) | | Fair Value | | Gross Unrealized Losses | | Number of Securities | | Fair Value | | Gross Unrealized Losses | | Number of Securities | | Fair Value | | Gross Unrealized Losses | | Number of Securities |
September 30, 2021 | | | | | | | | | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | 51,552 | | | $ | (868) | | | 28 | | | $ | 1,904 | | | $ | (69) | | | 1 | | | $ | 53,456 | | | $ | (937) | | | 29 | | Residential mortgage-backed securities | | $ | 68,576 | | | $ | (4,963) | | | 95 | | | $ | 21,103 | | | $ | (3,155) | | | 15 | | | $ | 89,679 | | | $ | (8,118) | | | 110 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | 2,794 | | | (53) | | | 1 | | | — | | | — | | | — | | | 2,794 | | | (53) | | | 1 | | Residential collateralized mortgage obligations | | 18,553 | | | (1,034) | | | 37 | | | — | | | — | | | — | | | 18,553 | | | (1,034) | | | 37 | |
SBA loan pool securities | SBA loan pool securities | | — | | | — | | | — | | | 158 | | | (5) | | | 1 | | | 158 | | | (5) | | | 1 | | SBA loan pool securities | | 4,923 | | | (265) | | | 10 | | | 84 | | | (1) | | | 1 | | | 5,007 | | | (266) | | | 11 | |
| Municipal bonds | | Municipal bonds | | 2,851 | | | (42) | | | 8 | | | — | | | — | | | — | | | 2,851 | | | (42) | | | 8 | |
Corporate bonds | | Corporate bonds | | 4,813 | | | (187) | | | 1 | | | — | | | — | | | — | | | 4,813 | | | (187) | | | 1 | |
Total securities available-for-sale | Total securities available-for-sale | | $ | 54,346 | | | $ | (921) | | | 29 | | | $ | 2,062 | | | $ | (74) | | | 2 | | | $ | 56,408 | | | $ | (995) | | | 31 | | Total securities available-for-sale | | $ | 99,716 | | | $ | (6,491) | | | 151 | | | $ | 21,187 | | | $ | (3,156) | | | 16 | | | $ | 120,903 | | | $ | (9,647) | | | 167 | |
| December 31, 2020 | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | | | | | | | | | |
Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | 5,773 | | | $ | (26) | | | 4 | | | $ | — | | | $ | — | | | — | | | $ | 5,773 | | | $ | (26) | | | 4 | | Residential mortgage-backed securities | | $ | 46,945 | | | $ | (931) | | | 32 | | | $ | 8,885 | | | $ | (327) | | | 5 | | | $ | 55,830 | | | $ | (1,258) | | | 37 | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | 2,424 | | | (4) | | | 3 | | | 5,127 | | | (39) | | | 6 | | | 7,551 | | | (43) | | | 9 | | Residential collateralized mortgage obligations | | 2,897 | | | (47) | | | 4 | | | — | | | — | | | — | | | 2,897 | | | (47) | | | 4 | |
SBA loan pool securities | SBA loan pool securities | | 1,677 | | | (4) | | | 2 | | | 1,869 | | | (18) | | | 4 | | | 3,546 | | | (22) | | | 6 | | SBA loan pool securities | | — | | | — | | | — | | | 156 | | | (4) | | | 1 | | | 156 | | | (4) | | | 1 | |
| Total securities available-for-sale | Total securities available-for-sale | | $ | 9,874 | | | $ | (34) | | | 9 | | | $ | 6,996 | | | $ | (57) | | | 10 | | | $ | 16,870 | | | $ | (91) | | | 19 | | Total securities available-for-sale | | $ | 49,842 | | | $ | (978) | | | 36 | | | $ | 9,041 | | | $ | (331) | | | 6 | | | $ | 58,883 | | | $ | (1,309) | | | 42 | |
| |
The Company performs an other-than-temporary impairment (“OTTI”) assessment at least on a quarterly basis. OTTI is recognized when fair value is below the amortized cost where: (i) an entity has the intent to sell the security; (ii) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (iii) an entity does not expect to recover the entire amortized cost basis of the security.
All individual securities in a continuous unrealized loss position for 12 months or more as of SeptemberJune 30, 20212022 and December 31, 20202021 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 SeptemberJune 30, 20212022 and December 31, 2020.2021. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. 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 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 during the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
Note 4 - Loans and Allowance for Loan Losses
Loans Held-For-Investment
The following table presents, by recorded investment, the composition of the Company’s loans held-for-investment (net of deferred fees and costs) as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
Real estate loans: | Real estate loans: | | | | | Real estate loans: | | | | |
Commercial property | Commercial property | | $ | 1,054,351 | | | $ | 880,736 | | Commercial property | | $ | 1,204,142 | | | $ | 1,105,843 | |
Residential property | Residential property | | 201,635 | | | 198,431 | | Residential property | | 258,259 | | | 209,485 | |
SBA property | SBA property | | 127,845 | | | 126,570 | | SBA property | | 131,420 | | | 129,661 | |
Construction | Construction | | 6,572 | | | 15,199 | | Construction | | 12,595 | | | 8,252 | |
Total real estate loans | Total real estate loans | | 1,390,403 | | | 1,220,936 | | Total real estate loans | | 1,606,416 | | | 1,453,241 | |
Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 74,390 | | | 87,250 | | Commercial term | | 73,885 | | | 73,438 | |
Commercial lines of credit | Commercial lines of credit | | 101,456 | | | 96,087 | | Commercial lines of credit | | 111,916 | | | 100,936 | |
SBA commercial term | SBA commercial term | | 18,338 | | | 21,878 | | SBA commercial term | | 16,985 | | | 17,640 | |
SBA PPP | SBA PPP | | 101,901 | | | 135,654 | | SBA PPP | | 1,583 | | | 65,329 | |
Total commercial and industrial loans | Total commercial and industrial loans | | 296,085 | | | 340,869 | | Total commercial and industrial loans | | 204,369 | | | 257,343 | |
Other consumer loans | Other consumer loans | | 21,390 | | | 21,773 | | Other consumer loans | | 22,225 | | | 21,621 | |
Loans held-for-investment | Loans held-for-investment | | 1,707,878 | | | 1,583,578 | | Loans held-for-investment | | 1,833,010 | | | 1,732,205 | |
Allowance for loan losses | Allowance for loan losses | | (23,807) | | | (26,510) | | Allowance for loan losses | | (21,071) | | | (22,381) | |
Net loans held-for-investment | Net loans held-for-investment | | $ | 1,684,071 | | | $ | 1,557,068 | | Net loans held-for-investment | | $ | 1,811,939 | | | $ | 1,709,824 | |
|
The Company had no loans under modified terms related to the COVID-19 pandemic as of June 30, 2022 and December 31, 2021.
In the ordinary course of business, the Company may grant loans to certain officers and directors, and the companies with which they are associated. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had $398$115 thousand and $3.9 million,$398 thousand, respectively, of such loans outstanding.
SBA PPP loans
The following table presents a summary of SBA PPP loans as of September 30, 2021:
| | | | | | | | | | | | | | | | |
($ in thousands) | | Number of Loans | | Amount | | |
Loan amount: | | | | | | |
$50,000 or less | | 436 | | | $ | 8,913 | | | |
Over $50,000 and less than $350,000 | | 286 | | | 39,689 | | | |
Over $350,000 and less than $2,000,000 | | 77 | | | 50,116 | | | |
$2,000,000 or more | | 1 | | | 3,183 | | | |
Total | | 800 | | | $ | 101,901 | | | |
| | | | | | |
Allowance for Loan Losses
The following table presentstables present the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the three months ended September 30, 2021 and 2020:periods indicated:
| | ($ in thousands) | ($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total | ($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total |
Balance at July 1, 2021 | | $ | 18,672 | | | $ | 5,866 | | | $ | 351 | | | $ | 24,889 | | |
Balance at April 1, 2022 | | Balance at April 1, 2022 | | $ | 16,602 | | | $ | 4,356 | | | $ | 240 | | | $ | 21,198 | |
Charge-offs | | Charge-offs | | — | | | (17) | | | (30) | | | (47) | |
Recoveries on loans previously charged off | | Recoveries on loans previously charged off | | — | | | 18 | | | 11 | | | 29 | |
Reversal for loan losses | | Reversal for loan losses | | (11) | | | (82) | | | (16) | | | (109) | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | $ | 16,591 | | | $ | 4,275 | | | $ | 205 | | | $ | 21,071 | |
| Balance at April 1, 2021 | | Balance at April 1, 2021 | | $ | 18,693 | | | $ | 6,468 | | | $ | 353 | | | $ | 25,514 | |
Charge-offs | Charge-offs | | — | | | (84) | | | (43) | | | (127) | | Charge-offs | | — | | | (11) | | | (22) | | | (33) | |
Recoveries on loans previously charged off | Recoveries on loans previously charged off | | — | | | 94 | | | 4 | | | 98 | | Recoveries on loans previously charged off | | 17 | | | 310 | | | 15 | | | 342 | |
Provision (reversal) for loan losses | Provision (reversal) for loan losses | | (733) | | | (336) | | | 16 | | | (1,053) | | Provision (reversal) for loan losses | | (38) | | | (901) | | | 5 | | | (934) | |
Balance at September 30, 2021 | | $ | 17,939 | | | $ | 5,540 | | | $ | 328 | | | $ | 23,807 | | |
Balance at June 30, 2021 | | Balance at June 30, 2021 | | $ | 18,672 | | | $ | 5,866 | | | $ | 351 | | | $ | 24,889 | |
| Balance at July 1, 2020 | | $ | 15,545 | | | $ | 4,337 | | | $ | 366 | | | $ | 20,248 | | |
Charge-offs | | — | | | — | | | (102) | | | (102) | | |
Recoveries on loans previously charged off | | — | | | 18 | | | 56 | | | 74 | | |
Provision (reversal) for loan losses | | 2,556 | | | 1,686 | | | 84 | | | 4,326 | | |
Balance at September 30, 2020 | | $ | 18,101 | | | $ | 6,041 | | | $ | 404 | | | $ | 24,546 | | |
|
The following table presents the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total |
Balance at January 1, 2021 | | $ | 18,894 | | | $ | 7,222 | | | $ | 394 | | | $ | 26,510 | |
Charge-offs | | (18) | | | (100) | | | (87) | | | (205) | |
Recoveries on loans previously charged off | | 47 | | | 553 | | | 36 | | | 636 | |
Provision (reversal) for loan losses | | (984) | | | (2,135) | | | (15) | | | (3,134) | |
Balance at September 30, 2021 | | $ | 17,939 | | | $ | 5,540 | | | $ | 328 | | | $ | 23,807 | |
| | | | | | | | |
Balance at January 1, 2020 | | $ | 9,854 | | | $ | 4,354 | | | $ | 172 | | | $ | 14,380 | |
Charge-offs | | (138) | | | (916) | | | (241) | | | (1,295) | |
Recoveries on loans previously charged off | | 56 | | | 223 | | | 105 | | | 384 | |
Provision (reversal) for loan losses | | 8,329 | | | 2,380 | | | 368 | | | 11,077 | |
Balance at September 30, 2020 | | $ | 18,101 | | | $ | 6,041 | | | $ | 404 | | | $ | 24,546 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total |
Balance at January 1, 2022 | | $ | 16,797 | | | $ | 5,310 | | | $ | 274 | | | $ | 22,381 | |
Charge-offs | | — | | | (17) | | | (42) | | | (59) | |
Recoveries on loans previously charged off | | — | | | 23 | | | 26 | | | 49 | |
Reversal for loan losses | | (206) | | | (1,041) | | | (53) | | | (1,300) | |
Balance at June 30, 2022 | | $ | 16,591 | | | $ | 4,275 | | | $ | 205 | | | $ | 21,071 | |
| | | | | | | | |
Balance at January 1, 2021 | | $ | 18,894 | | | $ | 7,222 | | | $ | 394 | | | $ | 26,510 | |
Charge-offs | | (18) | | | (16) | | | (44) | | | (78) | |
Recoveries on loans previously charged off | | 47 | | | 459 | | | 32 | | | 538 | |
Reversal for loan losses | | (251) | | | (1,799) | | | (31) | | | (2,081) | |
Balance at June 30, 2021 | | $ | 18,672 | | | $ | 5,866 | | | $ | 351 | | | $ | 24,889 | |
| | | | | | | | |
The following table presents the information on allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total | ($ in thousands) | | Real Estate | | Commercial and Industrial | | Other Consumer | | Total |
September 30, 2021 | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Individually evaluated for impairment | Individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated for impairment | Collectively evaluated for impairment | | 17,939 | | | 5,540 | | | 328 | | | 23,807 | | Collectively evaluated for impairment | | 16,591 | | | 4,275 | | | 205 | | | 21,071 | |
Total | Total | | $ | 17,939 | | | $ | 5,540 | | | $ | 328 | | | $ | 23,807 | | Total | | $ | 16,591 | | | $ | 4,275 | | | $ | 205 | | | $ | 21,071 | |
Loans receivable: | Loans receivable: | | | | | | | | | Loans receivable: | | | | | | | | |
Individually evaluated for impairment | Individually evaluated for impairment | | $ | 1,344 | | | $ | 325 | | | $ | — | | | $ | 1,669 | | Individually evaluated for impairment | | $ | 1,564 | | | $ | 190 | | | $ | — | | | $ | 1,754 | |
Collectively evaluated for impairment | Collectively evaluated for impairment | | 1,389,059 | | | 295,760 | | | 21,390 | | | 1,706,209 | | Collectively evaluated for impairment | | 1,604,852 | | | 204,179 | | | 22,225 | | | 1,831,256 | |
Total | Total | | $ | 1,390,403 | | | $ | 296,085 | | | $ | 21,390 | | | $ | 1,707,878 | | Total | | $ | 1,606,416 | | | $ | 204,369 | | | $ | 22,225 | | | $ | 1,833,010 | |
December 31, 2020 | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | |
Allowance for loan losses: | Allowance for loan losses: | | Allowance for loan losses: | |
Individually evaluated for impairment | Individually evaluated for impairment | | $ | 3 | | | $ | 2 | | | $ | — | | | $ | 5 | | Individually evaluated for impairment | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated for impairment | Collectively evaluated for impairment | | 18,891 | | | 7,220 | | | 394 | | | 26,505 | | Collectively evaluated for impairment | | 16,797 | | | 5,310 | | | 274 | | | 22,381 | |
Total | Total | | $ | 18,894 | | | $ | 7,222 | | | $ | 394 | | | $ | 26,510 | | Total | | $ | 16,797 | | | $ | 5,310 | | | $ | 274 | | | $ | 22,381 | |
Loans receivable: | Loans receivable: | | | | | | | | | Loans receivable: | | | | | | | | |
Individually evaluated for impairment | Individually evaluated for impairment | | $ | 2,200 | | | $ | 1,531 | | | $ | — | | | $ | 3,731 | | Individually evaluated for impairment | | $ | 1,314 | | | $ | 221 | | | $ | — | | | $ | 1,535 | |
Collectively evaluated for impairment | Collectively evaluated for impairment | | 1,218,736 | | | 339,338 | | | 21,773 | | | 1,579,847 | | Collectively evaluated for impairment | | 1,451,927 | | | 257,122 | | | 21,621 | | | 1,730,670 | |
Total | Total | | $ | 1,220,936 | | | $ | 340,869 | | | $ | 21,773 | | | $ | 1,583,578 | | Total | | $ | 1,453,241 | | | $ | 257,343 | | | $ | 21,621 | | | $ | 1,732,205 | |
|
Credit Quality Indicators
The Company classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans in regards to credit risk. This analysis typically includes non-homogeneous loans, such as commercial property and commercial and industrial loans, and is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass include non-homogeneous loans not meeting the risk ratings defined below and smaller, homogeneous loans not assessed on an individual basis.
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The following table presents the risk categories for the recorded investment in loans by portfolio segment as of dates indicated:
| ($ in thousands) | ($ in thousands) | | Pass | | Special Mention | | Substandard | | Doubtful | | Total | ($ in thousands) | | Pass | | Special Mention | | Substandard | | Doubtful | | Total |
September 30, 2021 | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
Commercial property | Commercial property | | $ | 1,040,685 | | | $ | 11,801 | | | $ | 1,865 | | | $ | — | | | $ | 1,054,351 | | Commercial property | | $ | 1,200,147 | | | $ | 3,304 | | | $ | 691 | | | $ | — | | | $ | 1,204,142 | |
Residential property | Residential property | | 201,635 | | | — | | | — | | | — | | | 201,635 | | Residential property | | 257,808 | | | — | | | 451 | | | — | | | 258,259 | |
SBA property | SBA property | | 125,672 | | | 254 | | | 1,919 | | | — | | | 127,845 | | SBA property | | 129,640 | | | 249 | | | 1,531 | | | — | | | 131,420 | |
Construction | Construction | | 6,572 | | | — | | | — | | | — | | | 6,572 | | Construction | | 12,595 | | | — | | | — | | | — | | | 12,595 | |
Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 69,694 | | | 3,550 | | | 1,146 | | | — | | | 74,390 | | Commercial term | | 71,377 | | | 1,462 | | | 1,046 | | | — | | | 73,885 | |
Commercial lines of credit | Commercial lines of credit | | 100,007 | | | 1,449 | | | — | | | — | | | 101,456 | | Commercial lines of credit | | 110,815 | | | 1,101 | | | — | | | — | | | 111,916 | |
SBA commercial term | SBA commercial term | | 17,695 | | | 261 | | | 382 | | | — | | | 18,338 | | SBA commercial term | | 16,551 | | | 197 | | | 237 | | | — | | | 16,985 | |
SBA PPP | SBA PPP | | 101,901 | | | — | | | — | | | — | | | 101,901 | | SBA PPP | | 1,583 | | | — | | | — | | | — | | | 1,583 | |
Other consumer loans | Other consumer loans | | 21,357 | | | — | | | 33 | | | — | | | 21,390 | | Other consumer loans | | 22,201 | | | — | | | 24 | | | — | | | 22,225 | |
Total | Total | | $ | 1,685,218 | | | $ | 17,315 | | | $ | 5,345 | | | $ | — | | | $ | 1,707,878 | | Total | | $ | 1,822,717 | | | $ | 6,313 | | | $ | 3,980 | | | $ | — | | | $ | 1,833,010 | |
December 31, 2020 | | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
Commercial property | Commercial property | | $ | 866,508 | | | $ | 10,268 | | | $ | 3,960 | | | $ | — | | | $ | 880,736 | | Commercial property | | $ | 1,092,253 | | | $ | 11,739 | | | $ | 1,851 | | | $ | — | | | $ | 1,105,843 | |
Residential property | Residential property | | 198,242 | | | — | | | 189 | | | — | | | 198,431 | | Residential property | | 209,485 | | | — | | | — | | | — | | | 209,485 | |
SBA property | SBA property | | 123,147 | | | 251 | | | 3,172 | | | — | | | 126,570 | | SBA property | | 127,518 | | | 251 | | | 1,892 | | | — | | | 129,661 | |
Construction | Construction | | 15,199 | | | — | | | — | | | — | | | 15,199 | | Construction | | 8,252 | | | — | | | — | | | — | | | 8,252 | |
Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 81,724 | | | 4,362 | | | 1,164 | | | — | | | 87,250 | | Commercial term | | 68,626 | | | 3,698 | | | 1,114 | | | — | | | 73,438 | |
Commercial lines of credit | Commercial lines of credit | | 93,883 | | | 1,299 | | | 905 | | | — | | | 96,087 | | Commercial lines of credit | | 98,785 | | | 2,151 | | | — | | | — | | | 100,936 | |
SBA commercial term | SBA commercial term | | 20,923 | | | 281 | | | 674 | | | — | | | 21,878 | | SBA commercial term | | 17,111 | | | 253 | | | 276 | | | — | | | 17,640 | |
SBA PPP | SBA PPP | | 135,654 | | | — | | | — | | | — | | | 135,654 | | SBA PPP | | 65,329 | | | — | | | — | | | — | | | 65,329 | |
Other consumer loans | Other consumer loans | | 21,707 | | | — | | | 66 | | | — | | | 21,773 | | Other consumer loans | | 21,586 | | | — | | | 35 | | | — | | | 21,621 | |
Total | Total | | $ | 1,556,987 | | | $ | 16,461 | | | $ | 10,130 | | | $ | — | | | $ | 1,583,578 | | Total | | $ | 1,708,945 | | | $ | 18,092 | | | $ | 5,168 | | | $ | — | | | $ | 1,732,205 | |
|
The Company had no loans under modified terms related to the COVID-19 pandemic as of September 30, 2021. The following table presents the risk categories for the recorded investment in loans under modified terms related to the COVID-19 pandemic by portfolio segment as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Pass | | Special Mention | | Substandard | | Doubtful | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
December 31, 2020 | | | | | | | | | | |
Real estate loans: | | | | | | | | | | |
Commercial property | | $ | 13,158 | | | $ | 10,268 | | | $ | 706 | | | $ | — | | | $ | 24,132 | |
Residential property | | 425 | | | — | | | — | | | — | | | 425 | |
SBA property | | 3,941 | | | 251 | | | — | | | — | | | 4,192 | |
| | | | | | | | | | |
Commercial and industrial loans: | | | | | | | | | | |
Commercial term | | — | | | 4,362 | | | 1,165 | | | — | | | 5,527 | |
| | | | | | | | | | |
SBA commercial term | | 1,769 | | | — | | | 72 | | | — | | | 1,841 | |
| | | | | | | | | | |
Total | | $ | 19,293 | | | $ | 14,881 | | | $ | 1,943 | | | $ | — | | | $ | 36,117 | |
| | | | | | | | | | |
Loans that were granted modifications related to the COVID-19 pandemic in excess of 6 months, on a cumulative basis, were classified as special mention or substandard.
Past Due and Nonaccrual Loans
The following table presents the aging of past due recorded investment in accruing loans and nonaccrual loans by portfolio segment as of dates indicated:
| | | Still Accruing | | | Still Accruing | |
($ in thousands) | ($ in thousands) | | 30 to 59 Days Past Due | | 60 to 89 Days Past Due | | 90 or More Days Past Due | | Nonaccrual | | Total Past Due and Nonaccrual | ($ in thousands) | | 30 to 59 Days Past Due | | 60 to 89 Days Past Due | | 90 or More Days Past Due | | Nonaccrual | | Total Past Due and Nonaccrual |
September 30, 2021 | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
| Residential property | Residential property | | $ | 189 | | | $ | — | | | $ | — | | | $ | — | | | $ | 189 | | Residential property | | $ | 372 | | | $ | — | | | $ | — | | | $ | 450 | | | $ | 822 | |
SBA property | SBA property | | — | | | — | | | — | | | 766 | | | 766 | | SBA property | | 191 | | | — | | | — | | | 564 | | | 755 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | | — | | | — | | | 3 | | | — | | | 3 | | |
| | SBA commercial term | SBA commercial term | | — | | | — | | | — | | | 314 | | | 314 | | SBA commercial term | | — | | | — | | | — | | | 185 | | | 185 | |
SBA PPP | | 62 | | | — | | | — | | | — | | | 62 | | |
| Other consumer loans | Other consumer loans | | 41 | | | — | | | — | | | 33 | | | 74 | | Other consumer loans | | 119 | | | — | | | — | | | 24 | | | 143 | |
Total | Total | | $ | 292 | | | $ | — | | | $ | 3 | | | $ | 1,113 | | | $ | 1,408 | | Total | | $ | 682 | | | $ | — | | | $ | — | | | $ | 1,223 | | | $ | 1,905 | |
December 31, 2020 | | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
Commercial property | | $ | — | | | $ | — | | | $ | — | | | $ | 524 | | | $ | 524 | | |
| Residential property | Residential property | | 182 | | | — | | | — | | | 189 | | | 371 | | Residential property | | $ | 461 | | | $ | — | | | $ | — | | | $ | — | | | $ | 461 | |
SBA property | SBA property | | — | | | — | | | — | | | 885 | | | 885 | | SBA property | | — | | | — | | | — | | | 746 | | | 746 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
| Commercial lines of credit | | — | | | — | | | — | | | 904 | | | 904 | | |
| SBA commercial term | SBA commercial term | | — | | | — | | | — | | | 595 | | | 595 | | SBA commercial term | | — | | | — | | | — | | | 213 | | | 213 | |
Other consumer loans | Other consumer loans | | 120 | | | 36 | | | — | | | 66 | | | 222 | | Other consumer loans | | 88 | | | 5 | | | — | | | 35 | | | 128 | |
Total | Total | | $ | 302 | | | $ | 36 | | | $ | — | | | $ | 3,163 | | | $ | 3,501 | | Total | | $ | 549 | | | $ | 5 | | | $ | — | | | $ | 994 | | | $ | 1,548 | |
|
There were no nonaccrual loans guaranteed by a U.S. government agency at SeptemberJune 30, 20212022 and December 31, 2020.2021.
All loans under modified terms related to the COVID-19 pandemic were on accrual status and current at December 31, 2020.
Impaired Loans
The following table presents loans individually evaluated for impairment by portfolio segment as of the dates indicated. The recorded investment presents customer balances net of any partial charge-offs recognized on the loans and net of any deferred fees and costs.
| | | With No Allowance Recorded | | With an Allowance Recorded | | With No Allowance Recorded | | With an Allowance Recorded |
($ in thousands) | ($ in thousands) | | Recorded Investment | | Unpaid Principal Balance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | ($ in thousands) | | Recorded Investment | | Unpaid Principal Balance | | Recorded Investment | | Unpaid Principal Balance | | Related Allowance |
September 30, 2021 | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | |
Real estate loans: | | Real estate loans: | |
Commercial property | | Commercial property | | $ | 322 | | | $ | 321 | | | $ | — | | | $ | — | | | $ | — | |
Residential property | | Residential property | | 450 | | | 451 | | | — | | | — | | | — | |
SBA property | | SBA property | | 792 | | | 831 | | | — | | | — | | | — | |
| Commercial and industrial loans: | | Commercial and industrial loans: | |
| SBA commercial term | | SBA commercial term | | 190 | | | 196 | | | — | | | — | | | — | |
| Total | | Total | | $ | 1,754 | | | $ | 1,799 | | | $ | — | | | $ | — | | | $ | — | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
Commercial property | Commercial property | | $ | 328 | | | $ | 327 | | | $ | — | | | $ | — | | | $ | — | | Commercial property | | $ | 326 | | | $ | 325 | | | $ | — | | | $ | — | | | $ | — | |
| SBA property | SBA property | | 1,016 | | | 1,062 | | | — | | | — | | | — | | SBA property | | 988 | | | 1,033 | | | — | | | — | | | — | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 5 | | | 5 | | | — | | | — | | | — | | Commercial term | | 2 | | | 2 | | | — | | | — | | | — | |
| SBA commercial term | SBA commercial term | | 320 | | | 332 | | | — | | | — | | | — | | SBA commercial term | | 219 | | | 227 | | | — | | | — | | | — | |
| Total | Total | | $ | 1,669 | | | $ | 1,726 | | | $ | — | | | $ | — | | | $ | — | | Total | | $ | 1,535 | | | $ | 1,587 | | | $ | — | | | $ | — | | | $ | — | |
December 31, 2020 | | | | | | | | | | | |
Real estate loans: | | |
Commercial property | | $ | 856 | | | $ | 855 | | | $ | — | | | $ | — | | | $ | — | | |
Residential property | | 189 | | | 189 | | | — | | | — | | | — | | |
SBA property | | 1,108 | | | 1,198 | | | 47 | | | 45 | | | 3 | | |
| Commercial and industrial loans: | | |
Commercial term | | 18 | | | 18 | | | — | | | — | | | — | | |
Commercial lines of credit | | 905 | | | 905 | | | — | | | — | | | — | | |
SBA commercial term | | 592 | | | 632 | | | 16 | | | 18 | | | 2 | | |
| Total | | $ | 3,668 | | | $ | 3,797 | | | $ | 63 | | | $ | 63 | | | $ | 5 | | |
|
The following table presentstables present information on the recorded investment in impaired loans by portfolio segment for the three months ended September 30, 2021 and 2020:periods indicated:
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Average Recorded Investment | | Interest Income | | Average Recorded Investment | | Interest Income | ($ in thousands) | | Average Recorded Investment | | Interest Income | | Average Recorded Investment | | Interest Income |
Real estate loans: | Real estate loans: | | | | | | | | | Real estate loans: | | | | | | | | |
Commercial property | Commercial property | | $ | 329 | | | $ | 6 | | | $ | 336 | | | $ | 6 | | Commercial property | | $ | 323 | | | $ | 6 | | | $ | 330 | | | $ | 5 | |
| Residential property | | Residential property | | 456 | | | — | | | — | | | — | |
SBA property | SBA property | | 1,026 | | | 3 | | | 1,203 | | | 4 | | SBA property | | 880 | | | 3 | | | 1,048 | | | 3 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 8 | | | — | | | 24 | | | — | | Commercial term | | — | | | — | | | 13 | | | — | |
Commercial lines of credit | | — | | | — | | | 1,747 | | | — | | |
| SBA commercial term | SBA commercial term | | 327 | | | — | | | 395 | | | — | | SBA commercial term | | 197 | | | — | | | 616 | | | 1 | |
| Total | Total | | $ | 1,690 | | | $ | 9 | | | $ | 3,705 | | | $ | 10 | | Total | | $ | 1,856 | | | $ | 9 | | | $ | 2,007 | | | $ | 9 | |
|
The following table presents information on the recorded investment in impaired loans by portfolio segment for the nine months ended September 30, 2021 and 2020:
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Average Recorded Investment | | Interest Income | | Average Recorded Investment | | Interest Income | ($ in thousands) | | Average Recorded Investment | | Interest Income | | Average Recorded Investment | | Interest Income |
Real estate loans: | Real estate loans: | | | | | | | | | Real estate loans: | | | | | | | | |
Commercial property | Commercial property | | $ | 330 | | | $ | 17 | | | $ | 337 | | | $ | 17 | | Commercial property | | $ | 324 | | | $ | 11 | | | $ | 331 | | | $ | 11 | |
| Residential property | | Residential property | | 458 | | | — | | | — | | | — | |
SBA property | SBA property | | 1,140 | | | 13 | | | 1,554 | | | 13 | | SBA property | | 931 | | | 6 | | | 1,196 | | | 10 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 12 | | | — | | | 25 | | | 1 | | Commercial term | | — | | | — | | | 14 | | | — | |
Commercial lines of credit | | — | | | — | | | 2,085 | | | — | | |
| SBA commercial term | SBA commercial term | | 410 | | | 1 | | | 451 | | | 1 | | SBA commercial term | | 204 | | | — | | | 452 | | | 1 | |
| Total | Total | | $ | 1,892 | | | $ | 31 | | | $ | 4,452 | | | $ | 32 | | Total | | $ | 1,917 | | | $ | 17 | | | $ | 1,993 | | | $ | 22 | |
|
The following presents a summary of interest foregone on impaired loans for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Interest income that would have been recognized had impaired loans performed in accordance with their original terms | Interest income that would have been recognized had impaired loans performed in accordance with their original terms | | $ | 23 | | | $ | 53 | | | $ | 78 | | | $ | 198 | | Interest income that would have been recognized had impaired loans performed in accordance with their original terms | | $ | 24 | | | $ | 27 | | | $ | 50 | | | $ | 55 | |
Less: interest income recognized on impaired loans on a cash basis | Less: interest income recognized on impaired loans on a cash basis | | (9) | | | (10) | | | (31) | | | (32) | | Less: interest income recognized on impaired loans on a cash basis | | (9) | | | (9) | | | (17) | | | (22) | |
Interest income foregone on impaired loans | Interest income foregone on impaired loans | | $ | 14 | | | $ | 43 | | | $ | 47 | | | $ | 166 | | Interest income foregone on impaired loans | | $ | 15 | | | $ | 18 | | | $ | 33 | | | $ | 33 | |
|
Troubled Debt Restructurings
The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Accruing | | Nonaccrual | | Total | | Accruing | | Nonaccrual | | Total | ($ in thousands) | | Accruing | | Nonaccrual | | Total | | Accruing | | Nonaccrual | | Total |
Real estate loans: | Real estate loans: | | | | | | | | | | | | | Real estate loans: | | | | | | | | | | | | |
Commercial property | Commercial property | | $ | 328 | | | $ | — | | | $ | 328 | | | $ | 333 | | | $ | — | | | $ | 333 | | Commercial property | | $ | 321 | | | $ | — | | | $ | 321 | | | $ | 326 | | | $ | — | | | $ | 326 | |
| SBA property | SBA property | | 250 | | | 26 | | | 276 | | | 270 | | | 5 | | | 275 | | SBA property | | 229 | | | 10 | | | 239 | | | 242 | | | 17 | | | 259 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 5 | | | — | | | 5 | | | 18 | | | — | | | 18 | | Commercial term | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| SBA commercial term | SBA commercial term | | 6 | | | — | | | 6 | | | 13 | | | — | | | 13 | | SBA commercial term | | 5 | | | — | | | 5 | | | 6 | | | — | | | 6 | |
| Total | Total | | $ | 589 | | | $ | 26 | | | $ | 615 | | | $ | 634 | | | $ | 5 | | | $ | 639 | | Total | | $ | 555 | | | $ | 10 | | | $ | 565 | | | $ | 576 | | | $ | 17 | | | $ | 593 | |
|
There were no new loans that were modified as TDRs for the three and six months ended SeptemberJune 30, 2021 or 2020. The following table presents information on new loans that were modified as TDRs for the nine months ended September 30, 20212022 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
($ in thousands) | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment | | Number of Loans | | Pre-Modification Outstanding Recorded Investment | | Post-Modification Outstanding Recorded Investment |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Commercial and industrial loans: | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
SBA commercial term (1) | | — | | | $ | — | | | $ | — | | | 2 | | | $ | 37 | | | $ | 37 | |
| | | | | | | | | | | | |
Total | | — | | | $ | — | | | $ | — | | | 2 | | | $ | 37 | | | $ | 37 | |
| | | | | | | | | | | | |
(1) Modified by deferral of principal payment.2021.
The Company had no commitments to lend to customers with outstanding loans that were classified as TDRs as of SeptemberJune 30, 20212022 and December 31, 2020.2021.
The determination of the allowance for loan losses related to TDRs depends on the collectability of principal and interest, according to the modified repayment terms. Loans that were modified as TDRs were individually evaluated for impairment and the Company allocated no allowance for loan losses as of SeptemberJune 30, 20212022 and December 31, 2020.2021.
There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the three and six months ended SeptemberJune 30, 2021 or 2020. The following table presents information on loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the nine months ended September 30, 20212022 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2021 | | 2020 |
($ in thousands) | | Number of Loans | | Recorded Investment at Date of Default | | Number of Loans | | Recorded Investment at Date of Default |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Commercial and industrial loans: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
SBA commercial term | | — | | | $ | — | | | 1 | | | $ | 26 | |
| | | | | | | | |
Total | | — | | | $ | — | | | 1 | | | $ | 26 | |
| | | | | | | | |
2021.
Purchases, Sales, and Transfers
The following table presents a summary of loans held-for-investment transferred to loans held-for-sale for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Real estate loans: | Real estate loans: | | | | | | | | | Real estate loans: | | | | | | | | |
Commercial property | Commercial property | | $ | 3,452 | | | $ | — | | | $ | 5,162 | | | $ | — | | Commercial property | | $ | — | | | $ | 1,710 | | | $ | — | | | $ | 1,710 | |
Residential property | Residential property | | — | | | — | | | 189 | | | 1,125 | | Residential property | | — | | | 189 | | | — | | | 189 | |
| Commercial and industrial loans: | | |
| SBA commercial term | | — | | | — | | | — | | | 230 | | |
| Total | Total | | $ | 3,452 | | | $ | — | | | $ | 5,351 | | | $ | 1,355 | | Total | | $ | — | | | $ | 1,899 | | | $ | — | | | $ | 1,899 | |
|
The following table presents a summary ofCompany had no loans that were transferred from loans held-for-sale transferred to loans held-for-investment forheld-for investment during the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Real estate loans: | | | | | | | | |
| | | | | | | | |
Residential property | | $ | — | | | $ | — | | | $ | — | | | $ | 697 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total | | $ | — | | | $ | — | | | $ | — | | | $ | 697 | |
| | | | | | | | |
three and six months ended June 30, 2022 and 2021.The following table presents a summary of purchases of loans held-for-investment for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Real estate loans: | Real estate loans: | | | | | | | | | Real estate loans: | | | | | | | | |
| Residential property | Residential property | | $ | 803 | | | $ | — | | | $ | 1,439 | | | $ | — | | Residential property | | $ | — | | | $ | 636 | | | $ | — | | | $ | 636 | |
| Total | Total | | $ | 803 | | | $ | — | | | $ | 1,439 | | | $ | — | | Total | | $ | — | | | $ | 636 | | | $ | — | | | $ | 636 | |
|
Loans Held-For-Sale
The following table presents a composition of loans held-for-sale as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
Real estate loans: | Real estate loans: | | | | | Real estate loans: | | | | |
| Residential property | | $ | — | | | $ | 300 | | |
| SBA property | SBA property | | 28,036 | | | 1,411 | | SBA property | | $ | 8,040 | | | $ | 33,603 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
| SBA commercial term | SBA commercial term | | 984 | | | 268 | | SBA commercial term | | 1,587 | | | 3,423 | |
| Total | Total | | $ | 29,020 | | | $ | 1,979 | | Total | | $ | 9,627 | | | $ | 37,026 | |
|
Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. 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.
Note 5 - Servicing Assets
At SeptemberJune 30, 20212022 and December 31, 2020,2021, total servicing assets were $7.0$7.7 million and $6.4$7.3 million, respectively. The Company sells SBA loans and certain residential property loans with servicing retained. The Company sold loans of $45.0$38.4 million and $8.6$34.1 million, respectively, with the servicing rights retained and recognized a net gain on sale of $4.3$2.0 million and $689 thousand,$4.0 million, respectively, during the three months ended SeptemberJune 30, 20212022 and 2020.2021. During the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, the Company sold $90.1loans of $78.1 million and $47.1$45.0 million, respectively, with the servicing rights retained and recognized a net gain on sale of $9.4$5.8 million and $2.8$5.1 million, respectively. Loan servicing income was $655$755 thousand and $856$545 thousand for the three months ended SeptemberJune 30, 20212022 and 2020, respectively.2021. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, loan servicing income was $2.1$1.5 million and $2.3$1.4 million, respectively,respectively.
The following table presents the composition of servicing assets with key assumptions used to estimate the fair value as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term |
Carrying amount | Carrying amount | | $ | 87 | | | $ | 6,398 | | | $ | 524 | | | $ | 109 | | | $ | 5,642 | | | $ | 649 | | Carrying amount | | $ | 72 | | | $ | 7,193 | | | $ | 451 | | | $ | 86 | | | $ | 6,701 | | | $ | 482 | |
Fair value | Fair value | | $ | 119 | | | $ | 11,286 | | | $ | 787 | | | $ | 133 | | | $ | 8,498 | | | $ | 888 | | Fair value | | $ | 114 | | | $ | 10,056 | | | $ | 601 | | | $ | 126 | | | $ | 11,196 | | | $ | 734 | |
Discount rate | Discount rate | | 6.33 | % | | 8.75 | % | | 9.64 | % | | 11.25 | % | | 13.25 | % | | 12.75 | % | Discount rate | | 4.89 | % | | 8.31 | % | | 10.64 | % | | 6.33 | % | | 8.75 | % | | 9.64 | % |
Prepayment speed | Prepayment speed | | 26.40 | % | | 8.82 | % | | 12.31 | % | | 27.20 | % | | 9.99 | % | | 11.01 | % | Prepayment speed | | 23.20 | % | | 14.28 | % | | 19.00 | % | | 24.40 | % | | 9.80 | % | | 12.77 | % |
Weighted average remaining life | Weighted average remaining life | | 22.1 years | | 21.3 years | | 6.3 years | | 23.1 years | | 21.1 years | | 6.6 years | Weighted average remaining life | | 21.3 years | | 21.5 years | | 6.5 years | | 21.9 years | | 21.4 years | | 6.2 years |
Underlying loans being serviced | Underlying loans being serviced | | $ | 17,604 | | | $ | 430,084 | | | $ | 64,241 | | | $ | 22,299 | | | $ | 400,982 | | | $ | 75,514 | | Underlying loans being serviced | | $ | 14,593 | | | $ | 467,466 | | | $ | 55,931 | | | $ | 17,443 | | | $ | 442,424 | | | $ | 59,839 | |
|
The following table presentstables present activity in servicing assets for the three months ended September 30, 2021 and 2020:periods indicated:
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term |
Balance at beginning of period | Balance at beginning of period | | $ | 96 | | | $ | 5,800 | | | $ | 586 | | | $ | 125 | | | $ | 5,554 | | | $ | 720 | | Balance at beginning of period | | $ | 76 | | | $ | 6,984 | | | $ | 473 | | | $ | 105 | | | $ | 5,519 | | | $ | 629 | |
Additions | Additions | | — | | | 1,040 | | | 13 | | | — | | | 140 | | | 16 | | Additions | | — | | | 669 | | | 44 | | | — | | | 774 | | | 34 | |
Amortization | Amortization | | (9) | | | (442) | | | (75) | | | (8) | | | (320) | | | (61) | | Amortization | | (4) | | | (460) | | | (66) | | | (9) | | | (493) | | | (77) | |
| Balance at end of period | Balance at end of period | | $ | 87 | | | $ | 6,398 | | | $ | 524 | | | $ | 117 | | | $ | 5,374 | | | $ | 675 | | Balance at end of period | | $ | 72 | | | $ | 7,193 | | | $ | 451 | | | $ | 96 | | | $ | 5,800 | | | $ | 586 | |
|
The following table presents activity in servicing assets for the nine months ended September 30, 2021 and 2020:
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term | ($ in thousands) | | Residential Property | | SBA Property | | SBA Commercial Term | | Residential Property | | SBA Property | | SBA Commercial Term |
Balance at beginning of period | Balance at beginning of period | | $ | 109 | | | $ | 5,642 | | | $ | 649 | | | $ | 171 | | | $ | 5,805 | | | $ | 822 | | Balance at beginning of period | | $ | 86 | | | $ | 6,701 | | | $ | 482 | | | $ | 109 | | | $ | 5,642 | | | $ | 649 | |
Additions | Additions | | — | | | 2,021 | | | 84 | | | — | | | 653 | | | 100 | | Additions | | — | | | 1,414 | | | 94 | | | — | | | 981 | | | 71 | |
Amortization | Amortization | | (22) | | | (1,265) | | | (209) | | | (54) | | | (1,084) | | | (247) | | Amortization | | (14) | | | (922) | | | (125) | | | (13) | | | (823) | | | (134) | |
| Balance at end of period | Balance at end of period | | $ | 87 | | | $ | 6,398 | | | $ | 524 | | | $ | 117 | | | $ | 5,374 | | | $ | 675 | | Balance at end of period | | $ | 72 | | | $ | 7,193 | | | $ | 451 | | | $ | 96 | | | $ | 5,800 | | | $ | 586 | |
|
Note 6 - Other Real Estate Owned
The following table presents activity in OREO for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | — | | | $ | 376 | | | $ | 1,401 | | | $ | — | | Balance at beginning of period | | $ | — | | | $ | 2,336 | | | $ | — | | | $ | 1,401 | |
Additions | Additions | | — | | | 2,490 | | | 1,960 | | | 2,866 | | Additions | | 808 | | | — | | | 808 | | | 1,960 | |
Sales | Sales | | — | | | (2,490) | | | (3,361) | | | (2,490) | | Sales | | — | | | (2,336) | | | — | | | (3,361) | |
Net change in valuation allowance | Net change in valuation allowance | | — | | | — | | | — | | | — | | Net change in valuation allowance | | — | | | — | | | — | | | — | |
Balance at end of period | Balance at end of period | | $ | — | | | $ | 376 | | | $ | — | | | $ | 376 | | Balance at end of period | | $ | 808 | | | $ | — | | | $ | 808 | | | $ | — | |
|
The following table presents activity in OREO valuation allowance for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Balance at beginning of period | Balance at beginning of period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Balance at beginning of period | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Additions | Additions | | — | | | — | | | — | | | — | | Additions | | — | | | — | | | — | | | — | |
Net direct write-downs and removal from sale | Net direct write-downs and removal from sale | | — | | | — | | | — | | | — | | Net direct write-downs and removal from sale | | — | | | — | | | — | | | — | |
Balance at end of period | Balance at end of period | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Balance at end of period | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
The following table presents expenses related to OREOs for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Net gain (loss) on sales | | $ | — | | | $ | — | | | $ | 74 | | | $ | — | | |
Net loss (gain) on sales | | Net loss (gain) on sales | | $ | — | | | $ | 2 | | | $ | — | | | $ | (73) | |
Operating expenses, net of rental income | Operating expenses, net of rental income | | — | | | (2) | | | (81) | | | (2) | | Operating expenses, net of rental income | | 3 | | | 18 | | | 3 | | | 81 | |
Total | Total | | $ | — | | | $ | (2) | | | $ | (7) | | | $ | (2) | | Total | | $ | 3 | | | $ | 20 | | | $ | 3 | | | $ | 8 | |
|
The Company did not provide loans to finance the sale of its OREO property during the ninethree and six months ended SeptemberJune 30, 2021. During the three and nine months ended September 30, 2020, the Company provided a loan of $1.5 million to finance the sale of its OREO property.
Note 7 - Operating Leases
The following table presents operating lease cost and supplemental cash flow information related to leases for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost (1) | Operating lease cost (1) | | $ | 611 | | | $ | 669 | | | $ | 1,913 | | | $ | 1,985 | | Operating lease cost (1) | | $ | 659 | | | $ | 651 | | | $ | 1,324 | | | $ | 1,302 | |
Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | Cash paid for amounts included in the measurement of lease liabilities: | |
Operating cash flows from operating leases | Operating cash flows from operating leases | | $ | 654 | | | $ | 680 | | | $ | 2,051 | | | $ | 2,107 | | Operating cash flows from operating leases | | $ | 708 | | | $ | 698 | | | $ | 1,427 | | | $ | 1,397 | |
Right of use assets obtained in exchange for lease obligations | Right of use assets obtained in exchange for lease obligations | | $ | 1,111 | | | $ | 51 | | | $ | 1,247 | | | $ | 105 | | Right of use assets obtained in exchange for lease obligations | | $ | 629 | | | $ | 31 | | | $ | 964 | | | $ | 136 | |
|
(1) Included in Occupancy and Equipment on the Consolidated Statements of Income.Income (Unaudited).
The Company used the incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The following table presents supplemental balance sheet information related to leases as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
Operating leases: | Operating leases: | | | | | Operating leases: | | | | |
Operating lease assets | Operating lease assets | | $ | 7,164 | | | $ | 7,616 | | Operating lease assets | | $ | 6,512 | | | $ | 6,786 | |
Operating lease liabilities | Operating lease liabilities | | $ | 7,862 | | | $ | 8,455 | | Operating lease liabilities | | $ | 7,067 | | | $ | 7,444 | |
Weighted-average remaining lease term | Weighted-average remaining lease term | | 4.1 years | | 4.3 years | Weighted-average remaining lease term | | 3.9 years | | 4.0 years |
Weighted-average discount rate | Weighted-average discount rate | | 2.36 | % | | 2.60 | % | Weighted-average discount rate | | 2.40 | % | | 2.36 | % |
|
The following table presetspresents maturities of operating lease liabilities as of September 30, 2021:the date indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | ($ in thousands) | | June 30, 2022 |
Maturities: | Maturities: | | | Maturities: | | |
2021 | | $ | 684 | | |
2022 | 2022 | | 2,712 | | 2022 | | $ | 1,485 | |
2023 | 2023 | | 2,230 | | 2023 | | 2,492 | |
2024 | 2024 | | 793 | | 2024 | | 1,059 | |
2025 | 2025 | | 753 | | 2025 | | 965 | |
After 2025 | | 1,193 | | |
2026 | | 2026 | | 701 | |
After 2026 | | After 2026 | | 786 | |
Total lease payment | Total lease payment | | 8,365 | | Total lease payment | | 7,488 | |
Imputed Interest | Imputed Interest | | (503) | | Imputed Interest | | (421) | |
Present value of operating lease liabilities | Present value of operating lease liabilities | | $ | 7,862 | | Present value of operating lease liabilities | | $ | 7,067 | |
|
Note 8 - Federal Home Loan Bank Advances and Other Borrowings
FHLB Advances
The Company had no outstanding FHLB advancesadvance of $10.0 million and $80.0 million at SeptemberJune 30, 2021 and2022. At December 31, 2020, respectively. FHLB advances consisted of2021, the Company had a fixed interest rate term borrowingFHLB advance of $10.0 million with a maturity date of June 29, 2022 (original maturity term of five years) and an interest rate of 2.07% at September 30, 2021. At December 31, 2020, FHLB advances consisted of fixed interest rate term borrowings with original maturity terms ranging from one to five years and weighted-average interest rate of 0.67%. EachThe borrowing iswas payable at its maturity date. Borrowings paid early are subject to a prepayment penalty.
At SeptemberJune 30, 20212022 and December 31, 2020,2021, loans pledged to secure borrowings from the FHLB were $885.1$967.0 million and $834.4$982.7 million, respectively. The Company’s investment in capital stock of the FHLB of San Francisco totaled $10.0 million and $8.4 million and $8.3 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. The Company had additional borrowing capacity of $505.0$549.9 million and $425.3$516.2 million from the FHLB as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
Other Borrowing Arrangements
At SeptemberJune 30, 2021,2022, the Company had $36.9$22.0 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $45.1$29.1 million with no outstanding borrowings. In addition, the Company may borrow up to approximately $65.0 million overnight federal funds lines with correspondent financial institutions at SeptemberJune 30, 2021.2022.
Note 9 - Shareholders’ Equity
Series C, Senior Non-Cumulative Perpetual Preferred Stock Repurchase
On January 23, 2020,May 24, 2022, the Company announced that on November 22, 2019, its Boardissued 69,141 shares of Directors approved a $6.5Senior 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 stock repurchase program to commence uponfrom the opening ofU.S. Treasury under the Company’s trading windowEmergency Capital Investment Program (“ECIP”). ECIP investment is treated as tier 1 capital for the regulatory capital treatment.
The Series C Preferred Stock bears no dividend for the first quarter24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the lending growth criteria listed in the terms of 2020the ECIP investment with the annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and continue through November 20, 2021. December 15.
The Series C Preferred Stock may be redeemed at the option of the Company completedon or after the repurchase programfifth anniversary of issuance (or earlier in March 2020. The Company repurchasedthe event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and retired 428,474 shares of common stock at a weighted-average price of $15.14 per share, totaling $6.5 million under this repurchase program.in accordance with the federal banking agencies’ regulatory capital regulations.
Stock Repurchase
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. As of September 30, 2021, theThe Company repurchased and retired 680,269 shares of common stock at a weighted-average price of $15.99 per share, totaling $10.9 million under this repurchase program.
Note 10 - Share-Based Compensation
On July 25, 2013, the Company adopted the 2013 Equity Based Stock Compensation Plan (“2013 EBSC Plan”) approved by its shareholders to replace the 2003 Stock Option Plan. The 2013 EBSC Plan provides 1,114,446 shares of common stock for equity based compensation awards including incentive and non-qualified stock options and restricted stock awards. As of SeptemberJune 30, 2021,2022, there were 483,170414,370 shares available for future grants.
Share-Based Compensation Expense
The following table presents share-based compensation expense and the related tax benefits for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Share-based compensation expense related to: | Share-based compensation expense related to: | | | | | | | | | Share-based compensation expense related to: | | | | | | | | |
Stock options | Stock options | | $ | 52 | | | $ | 162 | | | $ | 130 | | | $ | 478 | | Stock options | | $ | 43 | | | $ | 50 | | | $ | 90 | | | $ | 78 | |
Restricted stock awards | Restricted stock awards | | 64 | | | 38 | | | 193 | | | 114 | | Restricted stock awards | | 99 | | | 67 | | | 193 | | | 6,129 | |
Total share-based compensation expense | Total share-based compensation expense | | $ | 116 | | | $ | 200 | | | $ | 323 | | | $ | 592 | | Total share-based compensation expense | | $ | 142 | | | $ | 117 | | | $ | 283 | | | $ | 207 | |
Related tax benefits | Related tax benefits | | $ | 21 | | | $ | 21 | | | $ | 62 | | | $ | 61 | | Related tax benefits | | $ | 31 | | | $ | 21 | | | $ | 60 | | | $ | 41 | |
|
The following table presents unrecognized share-based compensation expense as of September 30, 2021:the date indicated:
| | | | | | | | | | | | | | |
| | June 30, 2022 |
($ in thousands) | | Unrecognized Expense | | Weighted-Average Remaining Expected Recognition Period |
Unrecognized share-based compensation expense related to: | | | | |
Stock options | | $ | 322401 | | | 2.33.3 years |
Restricted stock awards | | 607901 | | | 2.43.1 years |
Total unrecognized share-based compensation expense | | $ | 9291,302 | | | 2.33.2 years |
| | | | |
Stock Options
The Company has issued stock options to certain employees, officers and directors. Stock options are issued with exercise prices of the closing market price of the Company’s stock on the grant date, and generally have a three-to five-year vesting period with contractual terms of ten years. The following table representstables represent stock option activity for the three months ended September 30, 2021:periods indicated:
| | | Three Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 |
($ in thousands except per share data) | ($ in thousands except per share data) | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Contractual Term | | Aggregated Intrinsic Value | ($ in thousands except per share data) | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Contractual Term | | Aggregated Intrinsic Value |
Outstanding at beginning of period | Outstanding at beginning of period | | 646,948 | | | $ | 10.98 | | | 4.8 years | | $ | 3,310 | | Outstanding at beginning of period | | 608,734 | | | $ | 12.24 | | | 4.7 years | | $ | 6,519 | |
Granted | | 15,000 | | | $ | 20.28 | | | 10.0 years | | |
| Exercised | Exercised | | (19,977) | | | $ | 12.69 | | | 5.3 years | | Exercised | | (12,097) | | | $ | 7.07 | | | 1.6 years | |
| Forfeited | | Forfeited | | (1,000) | | | $ | 15.50 | | | 5.5 years | |
Outstanding at end of period | Outstanding at end of period | | 641,971 | | | $ | 11.15 | | | 4.6 years | | $ | 5,625 | | Outstanding at end of period | | 595,637 | | | $ | 12.34 | | | 4.5 years | | $ | 3,776 | |
Exercisable at end of period | Exercisable at end of period | | 537,872 | | | $ | 10.23 | | | 4.0 years | | $ | 5,205 | | Exercisable at end of period | | 481,637 | | | $ | 10.85 | | | 3.6 years | | $ | 3,770 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
($ in thousands except per share data) | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Contractual Term | | Aggregated Intrinsic Value |
Outstanding at beginning of period | | 632,772 | | | $ | 11.47 | | | 4.54 years | | $ | 6,641 | |
Granted | | 30,000 | | | $ | 22.61 | | | 10.00 years | | |
Exercised | | (66,135) | | | $ | 8.57 | | | 2.43 years | | |
Forfeited | | (1,000) | | | $ | 15.50 | | | 5.53 years | | |
Outstanding at end of period | | 595,637 | | | $ | 12.34 | | | 4.50 years | | $ | 3,776 | |
Exercisable at end of period | | 481,637 | | | $ | 10.85 | | | 3.58 years | | $ | 3,770 | |
| | | | | | | | |
The following table represents stock option activity for the nine months ended September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
($ in thousands except per share data) | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Weighted-Average Contractual Term | | Aggregated Intrinsic Value |
Outstanding at beginning of period | | 718,935 | | | $ | 10.87 | | | 5.1 years | | $ | — | |
Granted | | 35,000�� | | | $ | 15.84 | | | 10.0 years | | |
Exercised | | (101,964) | | | $ | 10.15 | | | 3.8 years | | |
Forfeited | | (10,000) | | | $ | 17.47 | | | 8.0 years | | |
Outstanding at end of period | | 641,971 | | | $ | 11.15 | | | 4.6 years | | $ | 5,625 | |
Exercisable at end of period | | 537,872 | | | $ | 10.23 | | | 4.0 years | | $ | 5,205 | |
| | | | | | | | |
The following table represents information regarding unvested stock options for the three and nine months ended September 30, 2021:periods indicated:
| | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | Number of Shares | | Weighted-Average Exercise Price Per Share | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Number of Shares | | Weighted-Average Exercise Price Per Share | | Number of Shares | | Weighted-Average Exercise Price Per Share |
Outstanding at beginning of period | Outstanding at beginning of period | | 93,099 | | | $ | 15.09 | | | 121,199 | | | $ | 15.68 | | Outstanding at beginning of period | | 122,000 | | | $ | 18.40 | | | 107,099 | | | $ | 16.70 | |
Granted | Granted | | 15,000 | | | $ | 20.28 | | | 35,000 | | | $ | 15.84 | | Granted | | — | | | $ | — | | | 30,000 | | | $ | 22.61 | |
Vested | Vested | | (4,000) | | | $ | 14.00 | | | (42,100) | | | $ | 14.89 | | Vested | | (7,000) | | | $ | 15.19 | | | (22,099) | | | $ | 14.84 | |
Forfeited | Forfeited | | — | | | $ | — | | | (10,000) | | | $ | 17.47 | | Forfeited | | (1,000) | | | $ | 15.50 | | | (1,000) | | | $ | 15.50 | |
Outstanding at end of period | Outstanding at end of period | | 104,099 | | | $ | 15.88 | | | 104,099 | | | $ | 15.88 | | Outstanding at end of period | | 114,000 | | | $ | 18.63 | | | 114,000 | | | $ | 18.63 | |
|
Restricted Stock Awards
The Company also has granted restricted stock awards (“RSAs”) to certain employees and officers. The RSAs are valued at the closing market price of the Company’s stock on the grant date and generally have a three-to five-year vesting period. The following table represents RSAs activity for the three and nine months ended September 30, 2021:periods indicated:
| | | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share | | Number of Shares | | Weighted-Average Grant Date Fair Value Per Share |
Outstanding at beginning of period | Outstanding at beginning of period | | 62,884 | | | $ | 13.13 | | | 30,300 | | | $ | 16.27 | | Outstanding at beginning of period | | 68,822 | | | $ | 16.51 | | | 55,284 | | | $ | 12.79 | |
Granted | Granted | | 1,800 | | | $ | 19.12 | | | 35,584 | | | $ | 10.80 | | Granted | | — | | | $ | — | | | 25,000 | | | $ | 21.96 | |
Vested | Vested | | (9,100) | | | $ | 16.52 | | | (9,300) | | | $ | 16.46 | | Vested | | — | | | $ | — | | | (11,262) | | | $ | 10.36 | |
Forfeited | Forfeited | | (300) | | | $ | 9.33 | | | (1,300) | | | $ | 13.23 | | Forfeited | | — | | | $ | — | | | (200) | | | $ | 17.09 | |
Outstanding at end of period | Outstanding at end of period | | 55,284 | | | $ | 12.79 | | | 55,284 | | | $ | 12.79 | | Outstanding at end of period | | 68,822 | | | $ | 16.51 | | | 68,822 | | | $ | 16.51 | |
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Note 11 - Income Taxes
Income tax expense was $4.6$3.8 million and $1.5$4.1 million, respectively, and the effective tax rate was 29.5%29.3% and 29.8%29.4%, respectively, for the three months ended SeptemberJune 30, 20212022 and 2020.2021. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, income tax expense was $12.3$7.9 million and $4.4$7.7 million, respectively, and the effective tax rate was 29.5%29.1% and 29.7%29.5%, respectively.
At SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had no unrecognized tax benefits or related accrued interest.
The Company and its subsidiaries are subject to U.S. federal and various state jurisdictions income tax examinations. As of SeptemberJune 30, 2021,2022, the Company is no longer subject to examination by taxing authorities for tax years before 20172018 for federal taxes and before 20162017 for various state jurisdictions. The statute of limitations vary by state, and state taxes other than California have been minimal and immaterial to the Company’s financial results.
Note 12 - Earnings Per Share
The following table presents the computations of basic and diluted EPS for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands, except per share) | ($ in thousands, except per share) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands, except per share) | | 2022 | | 2021 | | 2022 | | 2021 |
Basic earnings per share: | Basic earnings per share: | | | | | | | | | Basic earnings per share: | | | | | | | | |
Net income | Net income | | $ | 11,023 | | | $ | 3,449 | | | $ | 29,427 | | | $ | 10,388 | | Net income | | $ | 9,092 | | | $ | 9,844 | | | $ | 19,332 | | | $ | 18,404 | |
Less: income allocated to unvested restricted stock | Less: income allocated to unvested restricted stock | | (43) | | | (8) | | | (116) | | | (25) | | Less: income allocated to unvested restricted stock | | (42) | | | (41) | | | (90) | | | (73) | |
Net income allocated to common stock | Net income allocated to common stock | | $ | 10,980 | | | $ | 3,441 | | | $ | 29,311 | | | $ | 10,363 | | Net income allocated to common stock | | $ | 9,050 | | | $ | 9,803 | | | $ | 19,242 | | | $ | 18,331 | |
Weighted-average total common shares outstanding | Weighted-average total common shares outstanding | | 14,837,000 | | | 15,378,374 | | | 15,150,635 | | | 15,432,353 | | Weighted-average total common shares outstanding | | 14,952,590 | | | 15,178,445 | | | 14,935,686 | | | 15,310,052 | |
Less: weighted-average unvested restricted stock | Less: weighted-average unvested restricted stock | | (57,293) | | | (34,486) | | | (59,646) | | | (36,878) | | Less: weighted-average unvested restricted stock | | (68,822) | | | (62,884) | | | (69,696) | | | (60,842) | |
Weighted-average common shares outstanding, basic | Weighted-average common shares outstanding, basic | | 14,779,707 | | | 15,343,888 | | | 15,090,989 | | | 15,395,475 | | Weighted-average common shares outstanding, basic | | 14,883,768 | | | 15,115,561 | | | 14,865,990 | | | 15,249,210 | |
Basic earnings per share | Basic earnings per share | | $ | 0.74 | | | $ | 0.22 | | | $ | 1.94 | | | $ | 0.67 | | Basic earnings per share | | $ | 0.61 | | | $ | 0.65 | | | $ | 1.29 | | | $ | 1.20 | |
Diluted earnings per share: | Diluted earnings per share: | | | | | | | | | Diluted earnings per share: | | | | | | | | |
Net income allocated to common stock | Net income allocated to common stock | | $ | 10,980 | | | $ | 3,441 | | | $ | 29,311 | | | $ | 10,363 | | Net income allocated to common stock | | $ | 9,050 | | | $ | 9,803 | | | $ | 19,242 | | | $ | 18,331 | |
Weighted-average common shares outstanding, basic | Weighted-average common shares outstanding, basic | | 14,779,707 | | | 15,343,888 | | | 15,090,989 | | | 15,395,475 | | Weighted-average common shares outstanding, basic | | 14,883,768 | | | 15,115,561 | | | 14,865,990 | | | 15,249,210 | |
Diluted effect of stock options | Diluted effect of stock options | | 251,851 | | | 33,643 | | | 207,076 | | | 70,732 | | Diluted effect of stock options | | 238,684 | | | 194,312 | | | 272,503 | | | 176,098 | |
Weighted-average common shares outstanding, diluted | Weighted-average common shares outstanding, diluted | | 15,031,558 | | | 15,377,531 | | | 15,298,065 | | | 15,466,207 | | Weighted-average common shares outstanding, diluted | | 15,122,452 | | | 15,309,873 | | | 15,138,493 | | | 15,425,308 | |
Diluted earnings per share | Diluted earnings per share | | $ | 0.73 | | | $ | 0.22 | | | $ | 1.92 | | | $ | 0.67 | | Diluted earnings per share | | $ | 0.60 | | | $ | 0.64 | | | $ | 1.27 | | | $ | 1.19 | |
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There were 50,00065,000 and 660,85985,000 stock options excluded in computing diluted EPS because they were anti-dilutive for three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, there were 104,00065,000 and 163,000 stock options excluded in computing diluted EPS because they were anti-dilutive.
Note 13 - Commitments and Contingencies
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and letters of credit. Those instruments involve to varying degrees, elements of credit, and interest rate risk not recognized in the Company’s consolidated financial statements.
As of September 30, 2021 and December 31, 2020, theThe Company had the following outstanding financial commitments whose contractual amount represents credit risk:risk as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Fixed Rate | | Variable Rate | | Fixed Rate | | Variable Rate | ($ in thousands) | | Fixed Rate | | Variable Rate | | Fixed Rate | | Variable Rate |
Unused lines of credit | Unused lines of credit | | $ | 5,852 | | | $ | 150,559 | | | $ | 6,623 | | | $ | 150,247 | | Unused lines of credit | | $ | 16,940 | | | $ | 201,910 | | | $ | 8,261 | | | $ | 160,739 | |
Unfunded loan commitments | Unfunded loan commitments | | 130 | | | 33,798 | | | 1,752 | | | 34,874 | | Unfunded loan commitments | | 1,086 | | | 39,500 | | | 595 | | | 29,688 | |
Standby letters of credit | Standby letters of credit | | 3,037 | | | 1,431 | | | 2,971 | | | 1,814 | | Standby letters of credit | | 2,921 | | | 1,701 | | | 3,078 | | | 1,431 | |
Commercial letters of credit | Commercial letters of credit | | 353 | | | — | | | — | | | — | | Commercial letters of credit | | — | | | 362 | | | 91 | | | 524 | |
Total | Total | | $ | 9,372 | | | $ | 185,788 | | | $ | 11,346 | | | $ | 186,935 | | Total | | $ | 20,947 | | | $ | 243,473 | | | $ | 12,025 | | | $ | 192,382 | |
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Unfunded loan commitments are generally made for periods of 90 days or less, except for SBA loans that are generally made for periods of 180 days or less.
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 Company uses the same credit policies in making commitments as it does for the loans reflected in the consolidated financial statements. The Company maintained a reserve for off-balance sheet items of $191$252 thousand and $238$214 thousand, respectively, at SeptemberJune 30, 20212022 and December 31, 2020,2021, in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets.
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. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.
Litigation
The Company is involved in various matters of litigation, which have arisen in the ordinary course of business. In the opinion of management, the disposition of pending matters of litigation will not have a material effect on the Company’s consolidated financial statements.
COVID-19 Pandemic
The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on 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. These conditions have impacted and may in the future impact its business, results of operations, and financial condition negatively.
Network and Data Incident
On August 30, 2021, the Bank identified unusual activity on its network,network. 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, and onattack. On September 7, 2021, the Bank determined that an external actor had illegally accessed and/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/or acquired and what clients werewho may have been impacted. The investigation revealed that this incident impacted certain files containing certain Bank customer information, including in some cases personalinformation. Some of these files contained documents related to loan applications, such as tax returns, Form W-2 information of customerstheir employees, and customers’ employees.payroll records. The Bank has notified or will notify all individuals identified to date,as impacted, consistent with applicable laws, whose information may have been impacted.laws. All impacted individuals will bewere offered free Equifax Complete Premier credit monitoring and identityidentify theft protection services. The Bank has notified law enforcement and appropriate authorities of the incident.
On December 16, 2021, a complaint based on the incident was filed in the Los Angeles County Superior Court seeking damages, injunctive relief, and equitable relief. The Bank expresses no opinion on the merits of the Matter and intends to answer, respond, and/or otherwise vigorously defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law. 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 financial regulators.
The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began. During the three monthsyear ended September 30,December 31, 2021, expenses associated with the data incident all of which are included in Other Expense in Consolidated Statements of Income (Unaudited), totaled $100 thousand, which represents the retention amount on its insurance claims. The Company anticipatesThere were no 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. To date, no litigation has resulted from the data incident.
During its most recent review of disclosure controls and procedures, the Company consideredassociated with the data incident during the three and concluded that its disclosure controls and procedures were effective. Nevertheless, the Company continues to enhance and update its disclosure controls and procedures, including as part of its efforts to enhance its cybersecurity safeguards and measures. With respect to the data incident, upon discovery the Bank engaged experienced outside counsel and continues to work with its experienced third-party forensics firm to investigate and remediate the matter. The Board of Directors was kept apprised of, and a director with experience in data security participated in, the investigation and remediation efforts. As a result of this incident and based on information known at this date, the Company determined that its disclosure controls and procedures were effective and the data incident did not materially affect, nor was it reasonably likely to affect, the Company’s internal control over financial reporting.six months ended June 30, 2022.
Note 14 - Regulatory Matters
Under the final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”), the Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. Management believes as of SeptemberJune 30, 20212022 and December 31, 2020,2021, the Bank met all capital adequacy requirements to which they are subject to. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in the following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums. The Company and the Bank’s capital conservation buffer was 8.32%11.25% and 8.01%10.92%, respectively, as of SeptemberJune 30, 2021,2022, and 9.22%8.04% and 8.95%7.73%, respectively, as of December 31, 2020.2021. Unrealized gain or loss on securities available-for-sale is not included in computing regulatory capital. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:
| | | Actual | | Minimum Capital Requirement | | To Be Well Capitalized Under Prompt Corrective Provisions | | Actual | | Minimum Capital Requirement | | To Be Well Capitalized Under Prompt Corrective Provisions |
($ in thousands) | ($ in thousands) | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | ($ in thousands) | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
September 30, 2021 | | | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | | | |
PCB Bancorp | PCB Bancorp | | PCB Bancorp | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | $ | 246,341 | | | 15.07 | % | | $ | 73,553 | | | 4.5 | % | | N/A | | N/A | Common tier 1 capital (to risk-weighted assets) | | $ | 271,383 | | | 14.44 | % | | $ | 84,595 | | | 4.5 | % | | N/A | | N/A |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 266,817 | | | 16.32 | % | | 130,762 | | | 8.0 | % | | N/A | | N/A | Total capital (to risk-weighted assets) | | 361,846 | | | 19.25 | % | | 150,390 | | | 8.0 | % | | N/A | | N/A |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 246,341 | | | 15.07 | % | | 98,071 | | | 6.0 | % | | N/A | | N/A | Tier 1 capital (to risk-weighted assets) | | 340,524 | | | 18.11 | % | | 112,793 | | | 6.0 | % | | N/A | | N/A |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 246,341 | | | 11.91 | % | | 82,728 | | | 4.0 | % | | N/A | | N/A | Tier 1 capital (to average assets) | | 340,524 | | | 15.37 | % | | 88,619 | | | 4.0 | % | | N/A | | N/A |
Pacific City Bank | Pacific City Bank | | Pacific City Bank | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | $ | 241,177 | | | 14.76 | % | | $ | 73,550 | | | 4.5 | % | | $ | 106,239 | | | 6.5 | % | Common tier 1 capital (to risk-weighted assets) | | $ | 334,347 | | | 17.79 | % | | $ | 84,591 | | | 4.5 | % | | $ | 122,187 | | | 6.5 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 261,652 | | | 16.01 | % | | 130,756 | | | 8.0 | % | | 163,445 | | | 10.0 | % | Total capital (to risk-weighted assets) | | 355,670 | | | 18.92 | % | | 150,384 | | | 8.0 | % | | 187,980 | | | 10.0 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 241,177 | | | 14.76 | % | | 98,067 | | | 6.0 | % | | 130,756 | | | 8.0 | % | Tier 1 capital (to risk-weighted assets) | | 334,347 | | | 17.79 | % | | 112,788 | | | 6.0 | % | | 150,384 | | | 8.0 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 241,177 | | | 11.66 | % | | 82,725 | | | 4.0 | % | | 103,407 | | | 5.0 | % | Tier 1 capital (to average assets) | | 334,347 | | | 15.09 | % | | 88,617 | | | 4.0 | % | | 110,771 | | | 5.0 | % |
December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
PCB Bancorp | PCB Bancorp | | PCB Bancorp | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | $ | 231,183 | | | 15.97 | % | | $ | 65,162 | | | 4.5 | % | | N/A | | N/A | Common tier 1 capital (to risk-weighted assets) | | $ | 255,650 | | | 14.79 | % | | $ | 77,762 | | | 4.5 | % | | N/A | | N/A |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 249,391 | | | 17.22 | % | | 115,843 | | | 8.0 | % | | N/A | | N/A | Total capital (to risk-weighted assets) | | 277,263 | | | 16.04 | % | | 138,244 | | | 8.0 | % | | N/A | | N/A |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 231,183 | | | 15.97 | % | | 86,882 | | | 6.0 | % | | N/A | | N/A | Tier 1 capital (to risk-weighted assets) | | 255,650 | | | 14.79 | % | | 103,683 | | | 6.0 | % | | N/A | | N/A |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 231,183 | | | 11.94 | % | | 77,452 | | | 4.0 | % | | N/A | | N/A | Tier 1 capital (to average assets) | | 255,650 | | | 12.11 | % | | 84,445 | | | 4.0 | % | | N/A | | N/A |
Pacific City Bank | Pacific City Bank | | Pacific City Bank | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | $ | 227,268 | | | 15.70 | % | | $ | 65,160 | | | 4.5 | % | | $ | 94,120 | | | 6.5 | % | Common tier 1 capital (to risk-weighted assets) | | $ | 250,145 | | | 14.48 | % | | $ | 77,761 | | | 4.5 | % | | $ | 112,321 | | | 6.5 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 245,474 | | | 16.95 | % | | 115,840 | | | 8.0 | % | | 144,800 | | | 10.0 | % | Total capital (to risk-weighted assets) | | 271,757 | | | 15.73 | % | | 138,241 | | | 8.0 | % | | 172,801 | | | 10.0 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 227,268 | | | 15.70 | % | | 86,880 | | | 6.0 | % | | 115,840 | | | 8.0 | % | Tier 1 capital (to risk-weighted assets) | | 250,145 | | | 14.48 | % | | 103,681 | | | 6.0 | % | | 138,241 | | | 8.0 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 227,268 | | | 11.74 | % | | 77,450 | | | 4.0 | % | | 96,813 | | | 5.0 | % | Tier 1 capital (to average assets) | | 250,145 | | | 11.85 | % | | 84,443 | | | 4.0 | % | | 105,554 | | | 5.0 | % |
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The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholder during the same period. As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a balance sheet test. Under the retained earnings test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights. Under the balance sheet test, the Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.
The Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”) and the California Department of Financial Protection and Innovation (the “CDFPI”) periodically examine the Company’s business, including compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that the Company’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of the Company’s operations had become unsatisfactory, or that the Company was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in Company’s capital, to restrict growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Company’s deposit insurance and place the Company into receivership or conservatorship.
Note 15 - Revenue Recognition
The following table presents revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers, for the periods indicated:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Noninterest income in-scope of Topic 606 | Noninterest income in-scope of Topic 606 | | | | | | | | | Noninterest income in-scope of Topic 606 | | | | | | | | |
Service charges and fees on deposits: | Service charges and fees on deposits: | | Service charges and fees on deposits: | |
Monthly service fees | Monthly service fees | | $ | 21 | | | $ | 19 | | | $ | 60 | | | $ | 68 | | Monthly service fees | | $ | 22 | | | $ | 19 | | | $ | 43 | | | $ | 39 | |
Account analysis fees | Account analysis fees | | 220 | | | 206 | | | 649 | | | 634 | | Account analysis fees | | 232 | | | 219 | | | 447 | | | 429 | |
Non-sufficient funds charges | Non-sufficient funds charges | | 35 | | | 39 | | | 130 | | | 181 | | Non-sufficient funds charges | | 57 | | | 46 | | | 104 | | | 95 | |
Other deposit related fees | Other deposit related fees | | 16 | | | 16 | | | 48 | | | 62 | | Other deposit related fees | | 19 | | | 18 | | | 39 | | | 32 | |
Total service charges and fees on deposits | Total service charges and fees on deposits | | 292 | | | 280 | | | 887 | | | 945 | | Total service charges and fees on deposits | | 330 | | | 302 | | | 633 | | | 595 | |
Debit card fees | Debit card fees | | 86 | | | 67 | | | 222 | | | 185 | | Debit card fees | | 85 | | | 77 | | | 169 | | | 136 | |
Gain (loss) on sale of other real estate owned | Gain (loss) on sale of other real estate owned | | — | | | — | | | 74 | | | — | | Gain (loss) on sale of other real estate owned | | — | | | (1) | | | — | | | 74 | |
Wire transfer fees | Wire transfer fees | | 159 | | | 137 | | | 435 | | | 391 | | Wire transfer fees | | 166 | | | 141 | | | 325 | | | 276 | |
Other service charges | Other service charges | | 50 | | | 47 | | | 150 | | | 139 | | Other service charges | | 47 | | | 48 | | | 92 | | | 100 | |
Total | Total | | $ | 587 | | | $ | 531 | | | $ | 1,768 | | | $ | 1,660 | | Total | | $ | 628 | | | $ | 567 | | | $ | 1,219 | | | $ | 1,181 | |
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Note 16 - Subsequent Events
Dividend Declared on Common Stock. On OctoberJuly 28, 2021,2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.12$0.15 per common share. The dividend will be paid on or about NovemberAugust 19, 2021,2022, to shareholders of record as of the close of business on NovemberAugust 12, 2021.2022.
Appointment of New Director.Stock Repurchase Plan. On OctoberJuly 28, 2021,2022, the Company’s Board of Directors appointed Janice Chungapproved a repurchase program authorizing for the repurchase of up to the Board of Directors5% of the Company’s outstanding common stock as of the date of the board meeting.
The Bank Name Change and New Logo. On July 28, 2022, the Company andannounced that the Bank will changes its name to PCB Bank, effective November 1, 2021.August 25, 2022. In addition, the Company introduced a new logo, which will also be utilized by the Bank after its name change.
The Company has evaluated the effects of events that have occurred subsequent to SeptemberJune 30, 20212022 through the issuance date of these consolidated financial statements (unaudited). Other than the events described above, there have been no material events that would require disclosure in the consolidated financial statements or in the notes to the consolidated financial statements.
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major factors that influenced the Company’s results of operations and financial condition as of and for the three and ninesix months ended SeptemberJune 30, 2021.2022. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.
Critical Accounting PoliciesEstimates
The Company’s consolidated financial statements are prepared in accordance with GAAP and general practices within the banking industry. Within these financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated statements of financial condition dates and the Company’s results of operations for the reporting periods. As certain accounting policies require significant estimates and assumptions that have a material impact on the carrying value of assets and liabilities, the Company has established critical accounting policies to facilitate making the judgment necessary to prepare financial statements. The Company’s critical accounting policies are described in Note 1 to Consolidated Financial Statements and in the “Critical Accounting Policies”Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the year ended December 31, 20202021 and in Note 1 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.
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. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that exclude (or include) amounts that are included in (or excluded from) the most directly comparable measure calculated, and presented in accordance with GAAP. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures and may not be comparable to non-GAAP financial measures that may be presented by other companies.
The following tables present reconciliation of return on average tangible common equity, tangible common equity per common share and tangible common equity to tangible assets ratios to their most comparable GAAP measures as of the dates or for the periods indicated. These non-GAAP measures are used by management in its analysis of the Company's performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
Average total shareholders' equity | | $ | 292,135 | | | $ | 239,448 | | | $ | 275,841 | | | $ | 238,127 | |
Less: average preferred stock | | 28,872 | | | — | | | 14,516 | | | — | |
Average tangible common equity | | $ | 263,263 | | | $ | 239,448 | | | $ | 261,325 | | | $ | 238,127 | |
Net income | | $ | 9,092 | | | $ | 9,844 | | | $ | 19,332 | | | $ | 18,404 | |
Annualized return on average shareholder's equity | | 12.48 | % | | 16.49 | % | | 14.13 | % | | 15.59 | % |
Annualized return on average tangible common equity | | 13.85 | % | | 16.49 | % | | 14.92 | % | | 15.59 | % |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
($ in thousands, except per share data) | | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Total shareholders' equity | | $ | 334,375 | | | $ | 256,286 | | | $ | 238,941 | |
Less: preferred stock | | 69,141 | | | — | | | — | |
Tangible common equity | | $ | 265,234 | | | $ | 256,286 | | | $ | 238,941 | |
Outstanding common shares | | 14,956,760 | | | 14,865,825 | | | 14,854,315 | |
Book value per common share | | $ | 22.36 | | | $ | 17.24 | | | $ | 16.09 | |
Tangible common equity per common share | | $ | 17.73 | | | $ | 17.24 | | | $ | 16.09 | |
Total assets | | $ | 2,344,560 | | | $ | 2,149,735 | | | $ | 2,060,003 | |
Total shareholders' equity to total assets | | 14.26 | % | | 11.92 | % | | 11.60 | % |
Tangible common equity to total assets | | 11.31 | % | | 11.92 | % | | 11.60 | % |
| | | | | | |
The following table presents reconciliation of allowance for loan losses to loans held-for-investment, excluding SBA PPP loans to its most comparable GAAP measure.measure as of the dates indicated. The Company believes that this non-GAAP measure enhanceenhances comparability to prior periods in which there were no SBA PPP loans and provideprovides supplemental information regarding the Company’s credit quality trend. | ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | | September 30, 2020 | ($ in thousands) | | June 30, 2022 | | December 31, 2021 | | June 30, 2021 |
Loans held-for-investment | Loans held-for-investment | | $ | 1,707,878 | | | $ | 1,583,578 | | | $ | 1,578,804 | | Loans held-for-investment | | $ | 1,833,010 | | | $ | 1,732,205 | | | $ | 1,719,656 | |
Less: SBA PPP loans | Less: SBA PPP loans | | 101,901 | | | 135,654 | | | 136,418 | | Less: SBA PPP loans | | 1,583 | | | 65,329 | | | 181,019 | |
Loans held-for-investment, excluding SBA PPP loans | Loans held-for-investment, excluding SBA PPP loans | | $ | 1,605,977 | | | $ | 1,447,924 | | | $ | 1,442,386 | | Loans held-for-investment, excluding SBA PPP loans | | $ | 1,831,427 | | | $ | 1,666,876 | | | $ | 1,538,637 | |
Allowance for loan losses | Allowance for loan losses | | $ | 23,807 | | | $ | 26,510 | | | $ | 24,546 | | Allowance for loan losses | | $ | 21,071 | | | $ | 22,381 | | | $ | 24,889 | |
Allowance for loan losses to loans held-for-investment | Allowance for loan losses to loans held-for-investment | | 1.39 | % | | 1.67 | % | | 1.55 | % | Allowance for loan losses to loans held-for-investment | | 1.15 | % | | 1.29 | % | | 1.45 | % |
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans | Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans | | 1.48 | % | | 1.83 | % | | 1.70 | % | Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans | | 1.15 | % | | 1.34 | % | | 1.62 | % |
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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 Three Months Ended September 30, | | As of or For the Nine Months Ended September 30, | | As of or For the Three Months Ended June 30, | | As of or For the Six Months Ended June 30, |
($ in thousands, except per share data) | ($ in thousands, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
Selected balance sheet data: | Selected balance sheet data: | | | | | | | | | Selected balance sheet data: | | | | | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 214,973 | | | $ | 257,382 | | | $ | 214,973 | | | $ | 257,382 | | Cash and cash equivalents | | $ | 299,910 | | | $ | 174,621 | | | $ | 299,910 | | | $ | 174,621 | |
Securities available-for-sale | Securities available-for-sale | | 133,102 | | | 128,982 | | | 133,102 | | | 128,982 | | Securities available-for-sale | | 139,067 | | | 135,479 | | | 139,067 | | | 135,479 | |
| Loans held-for-sale | Loans held-for-sale | | 29,020 | | | 30,878 | | | 29,020 | | | 30,878 | | Loans held-for-sale | | 9,627 | | | 11,255 | | | 9,627 | | | 11,255 | |
Loans held-for-investment, net of deferred loan costs (fees) | Loans held-for-investment, net of deferred loan costs (fees) | | 1,707,878 | | | 1,578,804 | | | 1,707,878 | | | 1,578,804 | | Loans held-for-investment, net of deferred loan costs (fees) | | 1,833,010 | | | 1,719,656 | | | 1,833,010 | | | 1,719,656 | |
Allowance for loan losses | Allowance for loan losses | | (23,807) | | | (24,546) | | | (23,807) | | | (24,546) | | Allowance for loan losses | | (21,071) | | | (24,889) | | | (21,071) | | | (24,889) | |
Total assets | Total assets | | 2,104,699 | | | 2,021,187 | | | 2,104,699 | | | 2,021,187 | | Total assets | | 2,344,560 | | | 2,060,003 | | | 2,344,560 | | | 2,060,003 | |
Total deposits | Total deposits | | 1,832,666 | | | 1,647,107 | | | 1,832,666 | | | 1,647,107 | | Total deposits | | 1,997,607 | | | 1,797,648 | | | 1,997,607 | | | 1,797,648 | |
Shareholders’ equity | Shareholders’ equity | | 247,598 | | | 229,339 | | | 247,598 | | | 229,339 | | Shareholders’ equity | | 334,375 | | | 238,941 | | | 334,375 | | | 238,941 | |
Selected income statement data: | Selected income statement data: | | Selected income statement data: | |
Interest income | Interest income | | $ | 21,168 | | | $ | 19,620 | | | $ | 60,477 | | | $ | 60,253 | | Interest income | | $ | 22,446 | | | $ | 20,051 | | | $ | 43,340 | | | $ | 39,309 | |
Interest expense | Interest expense | | 941 | | | 2,767 | | | 3,435 | | | 11,471 | | Interest expense | | 1,095 | | | 1,055 | | | 1,996 | | | 2,494 | |
Net interest income | Net interest income | | 20,227 | | | 16,853 | | | 57,042 | | | 48,782 | | Net interest income | | 21,351 | | | 18,996 | | | 41,344 | | | 36,815 | |
Provision (reversal) for loan losses | | (1,053) | | | 4,326 | | | (3,134) | | | 11,077 | | |
Reversal for loan losses | | Reversal for loan losses | | (109) | | | (934) | | | (1,300) | | | (2,081) | |
Noninterest income | Noninterest income | | 5,588 | | | 2,272 | | | 13,596 | | | 7,216 | | Noninterest income | | 3,648 | | | 5,151 | | | 8,934 | | | 8,008 | |
Noninterest expense | Noninterest expense | | 11,232 | | | 9,886 | | | 32,040 | | | 30,149 | | Noninterest expense | | 12,245 | | | 11,139 | | | 24,316 | | | 20,808 | |
Income before income taxes | Income before income taxes | | 15,636 | | | 4,913 | | | 41,732 | | | 14,772 | | Income before income taxes | | 12,863 | | | 13,942 | | | 27,262 | | | 26,096 | |
Income tax expense | Income tax expense | | 4,613 | | | 1,464 | | | 12,305 | | | 4,384 | | Income tax expense | | 3,771 | | | 4,098 | | | 7,930 | | | 7,692 | |
Net income | Net income | | 11,023 | | | 3,449 | | | 29,427 | | | 10,388 | | Net income | | 9,092 | | | 9,844 | | | 19,332 | | | 18,404 | |
Per share data: | Per share data: | | Per share data: | |
Earnings per common share, basic | Earnings per common share, basic | | $ | 0.74 | | | $ | 0.22 | | | $ | 1.94 | | | $ | 0.67 | | Earnings per common share, basic | | $ | 0.61 | | | $ | 0.65 | | | $ | 1.29 | | | $ | 1.20 | |
Earnings per common share, diluted | Earnings per common share, diluted | | 0.73 | | | 0.22 | | | 1.92 | | | 0.67 | | Earnings per common share, diluted | | 0.60 | | | 0.64 | | | 1.27 | | | 1.19 | |
Book value per common share (1) | Book value per common share (1) | | 16.68 | | | 14.91 | | | 16.68 | | | 14.91 | | Book value per common share (1) | | 22.36 | | | 16.09 | | | 22.36 | | | 16.09 | |
Tangible common equity per common share (9) | | Tangible common equity per common share (9) | | 17.73 | | | 16.09 | | | 17.73 | | | 16.09 | |
Cash dividends declared per common share | Cash dividends declared per common share | | 0.12 | | | 0.10 | | | 0.32 | | | 0.30 | | Cash dividends declared per common share | | 0.15 | | | 0.10 | | | 0.30 | | | 0.20 | |
Outstanding share data: | Outstanding share data: | | Outstanding share data: | |
Number of common shares outstanding | Number of common shares outstanding | | 14,841,626 | | | 15,379,538 | | | 14,841,626 | | | 15,379,538 | | Number of common shares outstanding | | 14,956,760 | | | 14,854,315 | | | 14,956,760 | | | 14,854,315 | |
Weighted-average common shares outstanding, basic | Weighted-average common shares outstanding, basic | | 14,779,707 | | | 15,343,888 | | | 15,090,989 | | | 15,395,475 | | Weighted-average common shares outstanding, basic | | 14,883,768 | | | 15,115,561 | | | 14,865,990 | | | 15,249,210 | |
Weighted-average common shares outstanding, diluted | Weighted-average common shares outstanding, diluted | | 15,031,558 | | | 15,377,531 | | | 15,298,065 | | | 15,466,207 | | Weighted-average common shares outstanding, diluted | | 15,122,452 | | | 15,309,873 | | | 15,138,493 | | | 15,425,308 | |
Selected performance ratios: | | |
Return on average assets (2) | | 2.11 | % | | 0.69 | % | | 1.94 | % | | 0.73 | % | |
Return on average shareholders’ equity (2) | | 17.98 | % | | 5.98 | % | | 16.40 | % | | 6.10 | % | |
Dividend payout ratio (3) | | 16.22 | % | | 45.45 | % | | 16.49 | % | | 44.78 | % | |
Efficiency ratio (4) | | 43.51 | % | | 51.69 | % | | 45.36 | % | | 53.84 | % | |
Yield on average interest-earning assets (2) | | 4.12 | % | | 4.00 | % | | 4.05 | % | | 4.31 | % | |
Cost of funds (2) | | 0.21 | % | | 0.63 | % | | 0.26 | % | | 0.92 | % | |
Net interest spread (2) | | 3.75 | % | | 3.08 | % | | 3.62 | % | | 3.03 | % | |
Net interest margin (2), (5) | | 3.93 | % | | 3.43 | % | | 3.82 | % | | 3.49 | % | |
Total loans to total deposits ratio (6) | | 94.77 | % | | 97.73 | % | | 94.77 | % | | 97.73 | % | |
|
| | | As of or For the Three Months Ended September 30, | | As of or For the Nine Months Ended September 30, | | As of or For the Three Months Ended June 30, | | As of or For the Six Months Ended June 30, |
($ in thousands, except per share data) | ($ in thousands, except per share data) | | 2021 | | 2020 | | 2021 | | 2020 | ($ in thousands, except per share data) | | 2022 | | | 2021 | | 2022 | | 2021 |
| Selected performance ratios: | | Selected performance ratios: | | | | | | | | | |
Return on average assets (2) | | Return on average assets (2) | | 1.65 | % | | | 1.96 | % | | 1.78 | % | | 1.85 | % |
Return on average shareholders' equity (2) | | Return on average shareholders' equity (2) | | 12.48 | % | | | 16.49 | % | | 14.13 | % | | 15.59 | % |
Return on average tangible common equity (2),(9) | | Return on average tangible common equity (2),(9) | | 13.85 | % | | | 16.49 | % | | 14.92 | % | | 15.59 | % |
Dividend payout ratio (3) | | Dividend payout ratio (3) | | 24.59 | % | | | 15.38 | % | | 23.26 | % | | 16.67 | % |
Efficiency ratio (4) | | Efficiency ratio (4) | | 48.98 | % | | | 46.13 | % | | 48.36 | % | | 46.42 | % |
Yield on average interest-earning assets (2) | | Yield on average interest-earning assets (2) | | 4.22 | % | | | 4.04 | % | | 4.13 | % | | 4.02 | % |
Cost of average interest-bearing liabilities (2) | | Cost of average interest-bearing liabilities (2) | | 0.43 | % | | | 0.40 | % | | 0.39 | % | | 0.46 | % |
Net interest spread (2) | | Net interest spread (2) | | 3.79 | % | | | 3.64 | % | | 3.74 | % | | 3.56 | % |
Net interest margin (2), (5) | | Net interest margin (2), (5) | | 4.01 | % | | | 3.83 | % | | 3.94 | % | | 3.77 | % |
Total loans to total deposits ratio (6) | | Total loans to total deposits ratio (6) | | 92.24 | % | | | 96.29 | % | | 92.24 | % | | 96.29 | % |
Asset quality: | Asset quality: | | | | | | | | | Asset quality: | | | |
Loans 30 to 89 days past due and still accruing | Loans 30 to 89 days past due and still accruing | | $ | 292 | | | $ | 301 | | | $ | 292 | | | $ | 301 | | Loans 30 to 89 days past due and still accruing | | $ | 682 | | | | $ | 227 | | | $ | 682 | | | $ | 227 | |
| Nonperforming loans (7) | Nonperforming loans (7) | | 1,116 | | | 3,592 | | | 1,116 | | | 3,592 | | Nonperforming loans (7) | | 1,223 | | | | 1,446 | | | 1,223 | | | 1,446 | |
Nonperforming assets (8) | Nonperforming assets (8) | | 1,116 | | | 3,968 | | | 1,116 | | | 3,968 | | Nonperforming assets (8) | | 2,031 | | | | 1,446 | | | 2,031 | | | 1,446 | |
Net charge-offs (recoveries) | Net charge-offs (recoveries) | | 29 | | | 28 | | | (431) | | | 911 | | Net charge-offs (recoveries) | | 18 | | | | (309) | | | 10 | | | (460) | |
Loans 30 to 89 days past due and still accruing to loans held-for-investment | Loans 30 to 89 days past due and still accruing to loans held-for-investment | | 0.02 | % | | 0.02 | % | | 0.02 | % | | 0.02 | % | Loans 30 to 89 days past due and still accruing to loans held-for-investment | | 0.04 | % | | | 0.01 | % | | 0.04 | % | | 0.01 | % |
| Nonperforming loans to loans held-for-investment | Nonperforming loans to loans held-for-investment | | 0.07 | % | | 0.23 | % | | 0.07 | % | | 0.23 | % | Nonperforming loans to loans held-for-investment | | 0.07 | % | | | 0.08 | % | | 0.07 | % | | 0.08 | % |
Nonperforming loans to allowance for loan losses | Nonperforming loans to allowance for loan losses | | 4.69 | % | | 14.63 | % | | 4.69 | % | | 14.63 | % | Nonperforming loans to allowance for loan losses | | 5.80 | % | | | 5.81 | % | | 5.80 | % | | 5.81 | % |
Nonperforming assets to total assets | Nonperforming assets to total assets | | 0.05 | % | | 0.20 | % | | 0.05 | % | | 0.20 | % | Nonperforming assets to total assets | | 0.09 | % | | | 0.07 | % | | 0.09 | % | | 0.07 | % |
Allowance for loan losses to loans held-for-investment | Allowance for loan losses to loans held-for-investment | | 1.39 | % | | 1.55 | % | | 1.39 | % | | 1.55 | % | Allowance for loan losses to loans held-for-investment | | 1.15 | % | | | 1.45 | % | | 1.15 | % | | 1.45 | % |
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (9) | Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (9) | | 1.48 | % | | 1.70 | % | | 1.48 | % | | 1.70 | % | Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (9) | | 1.15 | % | | | 1.62 | % | | 1.15 | % | | 1.62 | % |
Allowance for loan losses to nonaccrual loans | | 2,138.99 | % | | 848.46 | % | | 2,138.99 | % | | 848.46 | % | |
| Allowance for loan losses to nonperforming loans | Allowance for loan losses to nonperforming loans | | 2,133.24 | % | | 683.35 | % | | 2,133.24 | % | | 683.35 | % | Allowance for loan losses to nonperforming loans | | 1,722.89 | % | | | 1,721.23 | % | | 1,722.89 | % | | 1,721.23 | % |
Net charge-offs (recoveries) to average loans held-for-investment (2) | Net charge-offs (recoveries) to average loans held-for-investment (2) | | 0.01 | % | | 0.01 | % | | (0.04) | % | | 0.08 | % | Net charge-offs (recoveries) to average loans held-for-investment (2) | | 0.01 | % | | | (0.07) | % | | 0.01 | % | | (0.06) | % |
Capital ratios: | Capital ratios: | | Capital ratios: | | | |
Shareholders’ equity to total assets | Shareholders’ equity to total assets | | 11.76 | % | | 11.35 | % | | 11.76 | % | | 11.35 | % | Shareholders’ equity to total assets | | 14.26 | % | | | 11.60 | % | | 14.26 | % | | 11.60 | % |
Average equity to average assets | | 11.75 | % | | 11.52 | % | | 11.84 | % | | 11.92 | % | |
Tangible common equity to total assets (9) | | Tangible common equity to total assets (9) | | 11.31 | % | | | 11.60 | % | | 11.31 | % | | 11.60 | % |
Average shareholders’ equity to average total assets | | Average shareholders’ equity to average total assets | | 13.23 | % | | | 11.86 | % | | 12.63 | % | | 11.89 | % |
PCB Bancorp | PCB Bancorp | | PCB Bancorp | | | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | 15.07 | % | | 15.60 | % | | 15.07 | % | | 15.60 | % | Common tier 1 capital (to risk-weighted assets) | | 14.44 | % | | | 15.17 | % | | 14.44 | % | | 15.17 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 16.32 | % | | 16.86 | % | | 16.32 | % | | 16.86 | % | Total capital (to risk-weighted assets) | | 19.25 | % | | | 16.43 | % | | 19.25 | % | | 16.43 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 15.07 | % | | 15.60 | % | | 15.07 | % | | 15.60 | % | Tier 1 capital (to risk-weighted assets) | | 18.11 | % | | | 15.17 | % | | 18.11 | % | | 15.17 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 11.91 | % | | 11.40 | % | | 11.91 | % | | 11.40 | % | Tier 1 capital (to average assets) | | 15.37 | % | | | 11.76 | % | | 15.37 | % | | 11.76 | % |
Pacific City Bank | Pacific City Bank | | Pacific City Bank | | | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | 14.76 | % | | 15.34 | % | | 14.76 | % | | 15.34 | % | Common tier 1 capital (to risk-weighted assets) | | 17.79 | % | | | 14.88 | % | | 17.79 | % | | 14.88 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 16.01 | % | | 16.60 | % | | 16.01 | % | | 16.60 | % | Total capital (to risk-weighted assets) | | 18.92 | % | | | 16.13 | % | | 18.92 | % | | 16.13 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 14.76 | % | | 15.34 | % | | 14.76 | % | | 15.34 | % | Tier 1 capital (to risk-weighted assets) | | 17.79 | % | | | 14.88 | % | | 17.79 | % | | 14.88 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 11.66 | % | | 11.21 | % | | 11.66 | % | | 11.21 | % | Tier 1 capital (to average assets) | | 15.09 | % | | | 11.53 | % | | 15.09 | % | | 11.53 | % |
|
(1) Shareholders’ equity divided by common shares outstanding.
(2) Annualized.
(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, net of unearned loan costs (fees).
(7) Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing.
(8) Nonperforming assets include nonperforming loans and other real estate owned.
(9) Non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure.
Executive Summary
Q3 2021Q2 2022 Financial Highlights
•Net income was $11.0$9.1 million for the three months ended SeptemberJune 30, 2021, an increase2022, a decrease of $7.6 million,$752 thousand, or 219.6%7.6%, from $3.4$9.8 million for the three months ended SeptemberJune 30, 2020;2021;
◦The Company recorded a provision (reversal)reversal for loan losses of $(1.1) million$109 thousand for the three months ended SeptemberJune 30, 20212022 compared with $4.3 million$934 thousand for the three months ended SeptemberJune 30, 2020.2021.
◦Net interest income was $20.2$21.4 million for the three months ended SeptemberJune 30, 20212022 compared with $16.9$19.0 million for the three months ended SeptemberJune 30, 2020.2021. Net interest margin was 3.93%4.01% for the three months ended SeptemberJune 30, 20212022 compared with 3.43%3.83% for the three months ended SeptemberJune 30, 2020.2021.
◦Gain on sale of loans was $4.3$2.0 million for the three months ended SeptemberJune 30, 20212022 compared with $821 thousand$4.0 million for the three months ended SeptemberJune 30, 2020.2021.
•Total assets were $2.10$2.34 billion at SeptemberJune 30, 2021,2022, an increase of $181.8$194.8 million, or 9.5%9.1%, from $1.92$2.15 billion at December 31, 2020;2021;
•Loans held-for-investment, net of deferred costs (fees), were $1.71$1.83 billion at SeptemberJune 30, 2021,2022, an increase of $124.3$100.8 million, or 7.8%5.8%, from $1.58$1.73 billion at December 31, 2020;2021; and
◦SBA PPP loans totaled $101.9$1.6 million and $135.7$65.3 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. During the nine months ended September 30, 2021, the Company funded SBA PPP loans of $107.3 million and recognized $144.9 million in forgiveness and payoffs.
◦LoansThere were no loans under modified terms related to COVID-19 pandemic totaled none and $36.1 million at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
◦Allowance for loan losses to total loans held-for-investment ratio was 1.39%1.15% at SeptemberJune 30, 20212022 compared with 1.67%1.29% at December 31, 2020.2021.
•Total deposits were $1.83$2.00 billion at SeptemberJune 30, 2021,2022, an increase of $237.8$130.5 million, or 14.9%7.0%, from $1.59$1.87 billion at December 31, 2020.2021.
•The Company issued 69,141 shares of preferred stock in exchange for a capital investment of $69.1 million from the U.S. Treasury under the ECIP.
Name Change of Pacific City Bank to PCB Bank
On August 25, 2022, the Pacific City Bank will change its name to PCB Bank. In addition, the Company introduced a new logo, which will also be utilized by the Bank after its name change. In accordance with the name change, the Bank will update its website, branch signage and marketing collateral.
COVID-19 Pandemic
The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on recentglobal economic and market conditions. The U.S. government has enacted a number of monetary and fiscal policies to provide fiscal stimulus and relief in order to mitigate the impact of the COVID-19 pandemic. However, the COVID-19 pandemic continues to be a challenge to public health, including the emergence of new variants, and impact global economic and market conditions, including significant disruption of, and volatility in, financial markets; global supply chain disruptions;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, the local economies in the Company’s primary markets have not yet fully recovered. high inflation.
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 its customers,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.appropriate, including SBA PPP loans and loan modifications related to the COVID-19 pandemic.
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 impacted and are expected to continue to impact its business, results of operations, and financial condition negatively.
Network and Data Incident
On August 30, 2021, the Bank identified unusual activity on its network. 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. 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. 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. The Bank has notified law enforcement and appropriate authorities of the incident.
On December 16, 2021, a complaint based on the incident was filed in the Los Angeles County Superior Court seeking damages, injunctive relief, and equitable relief. The Bank expresses no opinion on the merits of the Matter and intends to answer, respond, and/or otherwise vigorously defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law. 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 financial regulators. Please see Part II Item 1 for more information about the litigation.
The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began and the lawsuit mentioned above is in its very early stages. During the year ended December 31, 2021, expenses associated with the data incident totaled $100 thousand, which represents the retention amount on its insurance claims. There were no additional expenses associated with the data incident during the three and six months ended June 30, 2022. 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.
During its most recent review of disclosure controls and procedures, the Company considered the data incident and concluded that its disclosure controls and procedures were effective. Nevertheless, the Company continues to enhance and update its disclosure controls and procedures, including as part of its efforts to enhance its cybersecurity safeguards and measures. With respect to the data incident, upon discovery the Bank engaged experienced outside counsel and continues to work with its experienced third-party forensics firm to investigate and remediate the matter. The Board of Directors was kept apprised of, and a director with experience in data security participated in, the investigation and remediation efforts. As a result of this incident and based on information known at this date, the Company determined that its disclosure controls and procedures were effective and the data incident did not materially affect, nor was it reasonably likely to affect, the Company’s internal control over financial reporting.
Results of Operations
Net Interest Income
A principal component of the Company’s earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds. Net interest income expressed as a percentage of average interest earning assets is referred to as the net interest margin. The net interest spread is the yield on average interest earning assets less the cost of average interest bearing liabilities. 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.
The following table presentstables present interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the periods indicated:
| | | Three Months Ended September 30, | | Three Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Average Balance | | Interest | | Yield/ Cost (6) | | Average Balance | | Interest | | Yield/ Cost (6) | ($ in thousands) | | Average Balance | | Interest | | Yield/ Cost (6) | | Average Balance | | Interest | | Yield/ Cost (6) |
Interest-earning assets: | Interest-earning assets: | | | | | | | | | | | | | Interest-earning assets: | | | | | | | | | | | | |
Total loans (1) | Total loans (1) | | $ | 1,715,106 | | | $ | 20,537 | | | 4.75 | % | | $ | 1,564,704 | | | $ | 18,938 | | | 4.81 | % | Total loans (1) | | $ | 1,804,368 | | | $ | 21,243 | | | 4.72 | % | | $ | 1,691,704 | | | $ | 19,511 | | | 4.63 | % |
Mortgage backed securities | Mortgage backed securities | | 95,908 | | | 278 | | | 1.15 | % | | 75,832 | | | 339 | | | 1.78 | % | Mortgage backed securities | | 88,032 | | | 416 | | | 1.90 | % | | 92,732 | | | 233 | | | 1.01 | % |
Collateralized mortgage obligation | Collateralized mortgage obligation | | 22,534 | | | 57 | | | 1.00 | % | | 33,393 | | | 82 | | | 0.98 | % | Collateralized mortgage obligation | | 25,929 | | | 125 | | | 1.93 | % | | 22,929 | | | 54 | | | 0.94 | % |
SBA loan pool securities | SBA loan pool securities | | 10,390 | | | 45 | | | 1.72 | % | | 12,996 | | | 57 | | | 1.74 | % | SBA loan pool securities | | 11,164 | | | 43 | | | 1.54 | % | | 10,828 | | | 51 | | | 1.89 | % |
Municipal bonds - tax exempt (2) | Municipal bonds - tax exempt (2) | | 5,759 | | | 36 | | | 2.48 | % | | 5,991 | | | 37 | | | 2.46 | % | Municipal bonds - tax exempt (2) | | 5,347 | | | 37 | | | 2.78 | % | | 5,760 | | | 37 | | | 2.58 | % |
Corporate bonds | Corporate bonds | | 2,283 | | | 21 | | | 3.65 | % | | — | | | — | | | — | % | Corporate bonds | | 4,852 | | | 47 | | | 3.89 | % | | — | | | — | | | — | % |
Interest-bearing deposits in other financial institutions | Interest-bearing deposits in other financial institutions | | 179,560 | | | 69 | | | 0.15 | % | | 251,979 | | | 64 | | | 0.10 | % | Interest-bearing deposits in other financial institutions | | 185,786 | | | 410 | | | 0.89 | % | | 156,155 | | | 42 | | | 0.11 | % |
FHLB and other bank stock | FHLB and other bank stock | | 8,577 | | | 125 | | | 5.78 | % | | 8,447 | | | 103 | | | 4.85 | % | FHLB and other bank stock | | 9,847 | | | 125 | | | 5.09 | % | | 8,555 | | | 123 | | | 5.77 | % |
Total interest-earning assets | Total interest-earning assets | | 2,040,117 | | | 21,168 | | | 4.12 | % | | 1,953,342 | | | 19,620 | | | 4.00 | % | Total interest-earning assets | | 2,135,325 | | | 22,446 | | | 4.22 | % | | 1,988,663 | | | 20,051 | | | 4.04 | % |
Noninterest-earning assets: | Noninterest-earning assets: | | | | | | | | | | Noninterest-earning assets: | | | | | | | | | |
Cash and cash equivalents | | 19,915 | | | 17,094 | | | |
Cash and due from banks | | Cash and due from banks | | 20,801 | | | 19,080 | | |
Allowance for loan losses | Allowance for loan losses | | (24,854) | | | (21,268) | | | Allowance for loan losses | | (21,204) | | | (25,559) | | |
Other assets | Other assets | | 35,187 | | | 42,446 | | | Other assets | | 73,137 | | | 36,605 | | |
Total noninterest earning assets | Total noninterest earning assets | | 30,248 | | | 38,272 | | | Total noninterest earning assets | | 72,734 | | | 30,126 | | |
Total assets | Total assets | | $ | 2,070,365 | | | $ | 1,991,614 | | | Total assets | | $ | 2,208,059 | | | $ | 2,018,789 | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | | | | | Interest-bearing liabilities: | | | | | |
Deposits: | Deposits: | | Deposits: | |
NOW and money market accounts | NOW and money market accounts | | $ | 387,661 | | | 291 | | | 0.30 | % | | $ | 365,093 | | | 391 | | | 0.43 | % | NOW and money market accounts | | $ | 464,829 | | | 430 | | | 0.37 | % | | $ | 400,314 | | | 317 | | | 0.32 | % |
Savings | Savings | | 12,806 | | | 2 | | | 0.06 | % | | 9,517 | | | 2 | | | 0.08 | % | Savings | | 14,989 | | | 2 | | | 0.05 | % | | 11,588 | | | 1 | | | 0.03 | % |
Time deposits | Time deposits | | 599,865 | | | 592 | | | 0.39 | % | | 689,352 | | | 2,206 | | | 1.27 | % | Time deposits | | 521,606 | | | 609 | | | 0.47 | % | | 615,035 | | | 682 | | | 0.44 | % |
Borrowings | Borrowings | | 18,152 | | | 56 | | | 1.22 | % | | 130,000 | | | 168 | | | 0.51 | % | Borrowings | | 11,132 | | | 54 | | | 1.95 | % | | 19,012 | | | 55 | | | 1.16 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | | 1,018,484 | | | 941 | | | 0.37 | % | | 1,193,962 | | | 2,767 | | | 0.92 | % | Total interest-bearing liabilities | | 1,012,556 | | | 1,095 | | | 0.43 | % | | 1,045,949 | | | 1,055 | | | 0.40 | % |
Noninterest-bearing liabilities: | Noninterest-bearing liabilities: | | | | | | | | | | Noninterest-bearing liabilities: | | | | | | | | | |
Demand deposits | Demand deposits | | 794,165 | | | 552,255 | | | Demand deposits | | 889,691 | | | 720,105 | | |
Other liabilities | Other liabilities | | 14,531 | | | 15,934 | | | Other liabilities | | 13,677 | | | 13,287 | | |
Total noninterest-bearing liabilities | Total noninterest-bearing liabilities | | 808,696 | | | 568,189 | | | Total noninterest-bearing liabilities | | 903,368 | | | 733,392 | | |
Total liabilities | Total liabilities | | 1,827,180 | | | 1,762,151 | | | Total liabilities | | 1,915,924 | | | 1,779,341 | | |
Shareholders’ equity | Shareholders’ equity | | 243,185 | | | 229,463 | | | Shareholders’ equity | | 292,135 | | | 239,448 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 2,070,365 | | | $ | 1,991,614 | | | Total liabilities and shareholders’ equity | | $ | 2,208,059 | | | $ | 2,018,789 | | |
Net interest income | Net interest income | | | | $ | 20,227 | | | | | $ | 16,853 | | | Net interest income | | | | $ | 21,351 | | | | | $ | 18,996 | | |
Net interest spread (3) | Net interest spread (3) | | | | 3.75 | % | | | | 3.08 | % | Net interest spread (3) | | | | 3.79 | % | | | | 3.64 | % |
Net interest margin (4) | Net interest margin (4) | | 3.93 | % | | 3.43 | % | Net interest margin (4) | | 4.01 | % | | 3.83 | % |
Cost of funds (5) | Cost of funds (5) | | 0.21 | % | | 0.63 | % | Cost of funds (5) | | 0.23 | % | | 0.24 | % |
|
(1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans. Net amortization of deferred loan fees (cost) of $3.4 million$606 thousand and $1.2$1.5 million, respectively, and net accretion of discount on loans of $1.9$907 thousand and $1.0 million, and $743 thousand, respectively, are included in the interest income for the three months ended SeptemberJune 30, 20212022 and 2020.2021.
(2) The yield on municipal bonds has not been computed on a tax-equivalent basis.
(3) Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
(4) Net interest margin is calculated by dividing net interest income by average interest-earning assets.
(5) Cost of funds is calculated by dividing annualized interest expense on total interest-bearing liabilities by the sum of average total interest-bearing liabilities and noninterest-bearing demand deposits.
(6) Annualized.
The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the nine months ended September 30, 2021 and 2020:
| | | Nine Months Ended September 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
($ in thousands) | ($ in thousands) | | Average Balance | | Interest | | Yield/ Cost (6) | | Average Balance | | Interest | | Yield/ Cost (6) | ($ in thousands) | | Average Balance | | Interest | | Yield/ Cost (6) | | Average Balance | | Interest | | Yield/ Cost (6) |
Interest-earning assets: | Interest-earning assets: | | | | | | | | | | | | | Interest-earning assets: | | | | | | | | | | | | |
Total loans (1) | Total loans (1) | | $ | 1,683,084 | | | $ | 58,792 | | | 4.67 | % | | $ | 1,524,628 | | | $ | 57,617 | | | 5.05 | % | Total loans (1) | | $ | 1,788,958 | | | $ | 41,433 | | | 4.67 | % | | $ | 1,666,808 | | | $ | 38,255 | | | 4.63 | % |
Mortgage backed securities | Mortgage backed securities | | 90,095 | | | 726 | | | 1.08 | % | | 65,713 | | | 985 | | | 2.00 | % | Mortgage backed securities | | 86,138 | | | 723 | | | 1.69 | % | | 87,140 | | | 448 | | | 1.04 | % |
Collateralized mortgage obligation | Collateralized mortgage obligation | | 23,442 | | | 168 | | | 0.96 | % | | 37,500 | | | 402 | | | 1.43 | % | Collateralized mortgage obligation | | 22,106 | | | 173 | | | 1.58 | % | | 23,903 | | | 111 | | | 0.94 | % |
SBA loan pool securities | SBA loan pool securities | | 10,959 | | | 148 | | | 1.81 | % | | 13,351 | | | 198 | | | 1.98 | % | SBA loan pool securities | | 10,633 | | | 81 | | | 1.54 | % | | 11,248 | | | 103 | | | 1.85 | % |
Municipal bonds - tax exempt (2) | Municipal bonds - tax exempt (2) | | 5,774 | | | 109 | | | 2.52 | % | | 5,807 | | | 113 | | | 2.60 | % | Municipal bonds - tax exempt (2) | | 5,489 | | | 73 | | | 2.68 | % | | 5,782 | | | 73 | | | 2.55 | % |
Corporate bonds | Corporate bonds | | 769 | | | 21 | | | 3.65 | % | | — | | | — | | | — | % | Corporate bonds | | 4,944 | | | 94 | | | 3.83 | % | | — | | | — | | | — | % |
Interest-bearing deposits in other financial institutions | Interest-bearing deposits in other financial institutions | | 172,136 | | | 156 | | | 0.12 | % | | 213,292 | | | 585 | | | 0.37 | % | Interest-bearing deposits in other financial institutions | | 188,051 | | | 506 | | | 0.54 | % | | 168,363 | | | 87 | | | 0.10 | % |
FHLB and other bank stock | FHLB and other bank stock | | 8,527 | | | 357 | | | 5.60 | % | | 8,406 | | | 353 | | | 5.61 | % | FHLB and other bank stock | | 9,216 | | | 257 | | | 5.62 | % | | 8,501 | | | 232 | | | 5.50 | % |
Total interest-earning assets | Total interest-earning assets | | 1,994,786 | | | 60,477 | | | 4.05 | % | | 1,868,697 | | | 60,253 | | | 4.31 | % | Total interest-earning assets | | 2,115,535 | | | 43,340 | | | 4.13 | % | | 1,971,745 | | | 39,309 | | | 4.02 | % |
Noninterest-earning assets: | Noninterest-earning assets: | | | | | | | | | | Noninterest-earning assets: | | | | | | | | | |
Cash and cash equivalents | | 19,359 | | | 17,324 | | | |
Cash and due from banks | | Cash and due from banks | | 20,594 | | | 19,076 | | |
Allowance for loan losses | Allowance for loan losses | | (25,753) | | | (17,676) | | | Allowance for loan losses | | (21,787) | | | (26,211) | | |
Other assets | Other assets | | 37,371 | | | 38,255 | | | Other assets | | 70,384 | | | 38,481 | | |
Total noninterest earning assets | Total noninterest earning assets | | 30,977 | | | 37,903 | | | Total noninterest earning assets | | 69,191 | | | 31,346 | | |
Total assets | Total assets | | $ | 2,025,763 | | | $ | 1,906,600 | | | Total assets | | $ | 2,184,726 | | | $ | 2,003,091 | | |
Interest-bearing liabilities: | Interest-bearing liabilities: | | | | | | Interest-bearing liabilities: | | | | | |
Deposits: | Deposits: | | Deposits: | |
NOW and money market accounts | NOW and money market accounts | | $ | 398,459 | | | 941 | | | 0.32 | % | | $ | 367,222 | | | 2,058 | | | 0.75 | % | NOW and money market accounts | | $ | 448,496 | | | 743 | | | 0.33 | % | | $ | 403,948 | | | 650 | | | 0.32 | % |
Savings | Savings | | 11,676 | | | 4 | | | 0.05 | % | | 7,706 | | | 8 | | | 0.14 | % | Savings | | 15,315 | | | 4 | | | 0.05 | % | | 11,101 | | | 2 | | | 0.04 | % |
Time deposits | Time deposits | | 616,707 | | | 2,251 | | | 0.49 | % | | 725,927 | | | 8,934 | | | 1.64 | % | Time deposits | | 553,818 | | | 1,144 | | | 0.42 | % | | 625,267 | | | 1,659 | | | 0.54 | % |
Borrowings | Borrowings | | 37,363 | | | 239 | | | 0.86 | % | | 95,276 | | | 471 | | | 0.66 | % | Borrowings | | 10,768 | | | 105 | | | 1.97 | % | | 47,128 | | | 183 | | | 0.78 | % |
Total interest-bearing liabilities | Total interest-bearing liabilities | | 1,064,205 | | | 3,435 | | | 0.43 | % | | 1,196,131 | | | 11,471 | | | 1.28 | % | Total interest-bearing liabilities | | 1,028,397 | | | 1,996 | | | 0.39 | % | | 1,087,444 | | | 2,494 | | | 0.46 | % |
Noninterest-bearing liabilities: | Noninterest-bearing liabilities: | | | | | | | | | | Noninterest-bearing liabilities: | | | | | | | | | |
Demand deposits | Demand deposits | | 707,800 | | | 465,634 | | | Demand deposits | | 865,294 | | | 663,902 | | |
Other liabilities | Other liabilities | | 13,925 | | | 17,493 | | | Other liabilities | | 15,194 | | | 13,618 | | |
Total noninterest-bearing liabilities | Total noninterest-bearing liabilities | | 721,725 | | | 483,127 | | | Total noninterest-bearing liabilities | | 880,488 | | | 677,520 | | |
Total liabilities | Total liabilities | | 1,785,930 | | | 1,679,258 | | | Total liabilities | | 1,908,885 | | | 1,764,964 | | |
Shareholders’ equity | Shareholders’ equity | | 239,833 | | | 227,342 | | | Shareholders’ equity | | 275,841 | | | 238,127 | | |
Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 2,025,763 | | | $ | 1,906,600 | | | Total liabilities and shareholders’ equity | | $ | 2,184,726 | | | $ | 2,003,091 | | |
Net interest income | Net interest income | | | | $ | 57,042 | | | | | $ | 48,782 | | | Net interest income | | | | $ | 41,344 | | | | | $ | 36,815 | | |
Net interest spread (3) | Net interest spread (3) | | | | 3.62 | % | | | | 3.03 | % | Net interest spread (3) | | | | 3.74 | % | | | | 3.56 | % |
Net interest margin (4) | Net interest margin (4) | | 3.82 | % | | 3.49 | % | Net interest margin (4) | | 3.94 | % | | 3.77 | % |
Cost of funds (5) | Cost of funds (5) | | 0.26 | % | | 0.92 | % | Cost of funds (5) | | 0.21 | % | | 0.29 | % |
|
(1) Average balance includes both loans held-for-sale and loans held-for-investment, as well as nonaccrual loans. Net amortization of deferred loan fees (cost) of $4.7$1.8 million and $2.0$2.7 million, respectively, and net accretion of discount on loans of $2.7$1.8 million and $2.3$1.8 million, respectively, are included in the interest income for the ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
(2) The yield on municipal bonds has not been computed on a tax-equivalent basis.
(3) Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
(4) Net interest margin is calculated by dividing net interest income by average interest-earning assets.
(5) Cost of funds is calculated by dividing annualized interest expense on total interest-bearing liabilities by the sum of average total interest-bearing liabilities and noninterest-bearing demand deposits.
(6) Annualized.
The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to: (i) changes in volume multiplied by the prior rate; and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 vs. 2020 | | 2021 vs. 2020 | | 2022 vs. 2021 | | 2022 vs. 2021 |
| | Increase (Decrease) Due to | | Net Increase (Decrease) | | Increase (Decrease) Due to | | Net Increase (Decrease) | | Increase (Decrease) Due to | | Net Increase (Decrease) | | Increase (Decrease) Due to | | Net Increase (Decrease) |
($ in thousands) | ($ in thousands) | | Volume | | Rate | | Volume | | Rate | | ($ in thousands) | | Volume | | Rate | | Volume | | Rate | |
Interest earned on: | Interest earned on: | | | | | | | | | | | | | Interest earned on: | | | | | | | | | | | | |
Total loans | Total loans | | $ | 1,820 | | | $ | (221) | | | $ | 1,599 | | | $ | 5,988 | | | $ | (4,813) | | | $ | 1,175 | | Total loans | | $ | 1,299 | | | $ | 433 | | | $ | 1,732 | | | $ | 2,803 | | | $ | 375 | | | $ | 3,178 | |
Investment securities | Investment securities | | 35 | | | (113) | | | (78) | | | 120 | | | (646) | | | (526) | | Investment securities | | 9 | | | 284 | | | 293 | | | 7 | | | 402 | | | 409 | |
Other interest-earning assets | Other interest-earning assets | | (46) | | | 73 | | | 27 | | | (174) | | | (251) | | | (425) | | Other interest-earning assets | | 31 | | | 339 | | | 370 | | | 37 | | | 407 | | | 444 | |
Total interest income | Total interest income | | 1,809 | | | (261) | | | 1,548 | | | 5,934 | | | (5,710) | | | 224 | | Total interest income | | 1,339 | | | 1,056 | | | 2,395 | | | 2,847 | | | 1,184 | | | 4,031 | |
Interest incurred on: | Interest incurred on: | | | | | | | | | | | | | Interest incurred on: | | | | | | | | | | | | |
Savings, NOW, and money market deposits | Savings, NOW, and money market deposits | | 27 | | | (127) | | | (100) | | | 194 | | | (1,315) | | | (1,121) | | Savings, NOW, and money market deposits | | 52 | | | 62 | | | 114 | | | 77 | | | 18 | | | 95 | |
Time deposits | Time deposits | | (286) | | | (1,328) | | | (1,614) | | | (1,344) | | | (5,339) | | | (6,683) | | Time deposits | | (104) | | | 31 | | | (73) | | | (190) | | | (325) | | | (515) | |
Borrowings | Borrowings | | (145) | | | 33 | | | (112) | | | (286) | | | 54 | | | (232) | | Borrowings | | (23) | | | 22 | | | (1) | | | (141) | | | 63 | | | (78) | |
Total interest expense | Total interest expense | | (404) | | | (1,422) | | | (1,826) | | | (1,436) | | | (6,600) | | | (8,036) | | Total interest expense | | (75) | | | 115 | | | 40 | | | (254) | | | (244) | | | (498) | |
Change in net interest income | Change in net interest income | | $ | 2,213 | | | $ | 1,161 | | | $ | 3,374 | | | $ | 7,370 | | | $ | 890 | | | $ | 8,260 | | Change in net interest income | | $ | 1,414 | | | $ | 941 | | | $ | 2,355 | | | $ | 3,101 | | | $ | 1,428 | | | $ | 4,529 | |
|
Three Months Ended SeptemberJune 30, 20212022 Compared to Three Months Ended SeptemberJune 30, 20202021
The following table presents the components of net interest income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2021 | | 2020 | | |
Interest income: | | | | | | | | |
Interest and fees on loans | | $ | 20,537 | | | $ | 18,938 | | | $ | 1,599 | | | 8.4 | % |
Interest on investment securities | | 437 | | | 515 | | | (78) | | | (15.1) | % |
Interest and dividends on other interest-earning assets | | 194 | | | 167 | | | 27 | | | 16.2 | % |
Total interest income | | 21,168 | | | 19,620 | | | 1,548 | | | 7.9 | % |
Interest expense: | | | | | | | | |
Interest on deposits | | 885 | | | 2,599 | | | (1,714) | | | (65.9) | % |
Interest on borrowings | | 56 | | | 168 | | | (112) | | | (66.7) | % |
Total interest expense | | 941 | | | 2,767 | | | (1,826) | | | (66.0) | % |
Net interest income | | $ | 20,227 | | | $ | 16,853 | | | $ | 3,374 | | | 20.0 | % |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2022 | | 2021 | | |
Interest and dividend income: | | | | | | | | |
Loans, including fees | | $ | 21,243 | | | $ | 19,511 | | | $ | 1,732 | | | 8.9 | % |
Investment securities | | 668 | | | 375 | | | 293 | | | 78.1 | % |
Other interest-earning assets | | 535 | | | 165 | | | 370 | | | 224.2 | % |
Total interest income | | 22,446 | | | 20,051 | | | 2,395 | | | 11.9 | % |
Interest expense: | | | | | | | | |
Deposits | | 1,041 | | | 1,000 | | | 41 | | | 4.1 | % |
Borrowings | | 54 | | | 55 | | | (1) | | | (1.8) | % |
Total interest expense | | 1,095 | | | 1,055 | | | 40 | | | 3.8 | % |
Net interest income | | $ | 21,351 | | | $ | 18,996 | | | $ | 2,355 | | | 12.4 | % |
| | | | | | | | |
Net interest income increased primarily due to a 55 basis point decrease in average cost on interest-bearing liabilities, a 12 basis point increase in average yield on interest-earning assets, a 4.4%7.4% increase in average balance of interest-earning assets, an 18 basis point increase in average yield, and a 14.7%3.2% decrease in average balance of interest-bearing liabilities.liabilities, partially offset by a 3 basis point increase in average cost.
Interest and fees on loans increased primarily due to a 9.6%6.7% increase in average balance partially offset byand a 69 basis point decreaseincrease in average yield. The decreaseincrease in average yield was primarily due to an increase in overall interest rates on loans from the lower market rates,rising interest rate environment, partially offset by increasesa decrease in net amortization of net deferred fees and net accretion of discount.loan fees. The increasedecrease in net accretion of discount was primarily due to an increase in loan payoffs on SBA loans. The increase in amortization of net deferred loan fees was primarily due to the payoffs and forgivenessdecreased amount of SBA PPP loans.loan payoffs.
Interest on investment securities decreasedincreased primarily due to a 33an 84 basis point decreaseincrease in average yield partially offset byand a 6.8%2.3% increase in average balance. The decreaseincrease in average yield and the increase in average balance werewas primarily due to new investmenta decrease in net amortization of premiums on mortgage-backed securities purchased under low market rates during the past 12-month period. The Company purchased new investment securities of $50.0 million during the past 12-month period.and collateralized mortgage obligations. For the three months ended SeptemberJune 30, 20212022 and 2020,2021, yield on total investment securities was 1.27%1.98% and 1.60%1.14%, respectively.
Interest income on other interest-earning assets increased primarily due to a 1570 basis point increase in average yield partially offset byand a 27.8% decrease18.8% increase in average balance. The increase in average yield was primarily due to an increase in dividend incomeinterest rate on cash held at the Federal Home LoanReserve Bank stock.(“FRB”) account. The decreaseincrease in average balance was primarily due to an increase in loans,deposits and the ECIP capital investment, partially offset by an increase in deposits.loans. The Company maintains most of its cash at the FRB account. For the three months ended SeptemberJune 30, 20212022 and 2020,2021, yield on total other interest-earning assets was 0.41%1.10% and 0.26%0.40%, respectively.
Interest expense on deposits decreasedincreased primarily due to a 623 basis point decreaseincrease in average cost of interest-bearing deposits and a 13.0% decrease in average balance of time deposits, partially offset by a 6.9%16.5% increase in savings, NOW and money market accounts.accounts, partially offset by a 15.2% decrease in average balance of time deposits. The decreaseincrease in average cost was primarily due to the loweran increase in market rates. The decrease in average balance of time deposits was primarily due to a lower level of new time deposits. For the three months ended SeptemberJune 30, 20212022 and 2020,2021, average cost on total interest-bearing deposits was 0.35%0.42% and 0.97%0.39%, respectively, and average cost on total deposits were 0.22% and 0.23%, respectively.
Interest expense on borrowings decreased primarily due to a decrease in average balance, partially offset by an increase in average cost. The Company had no outstanding borrowings as of June 30, 2022.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table presents the components of net interest income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2022 | | 2021 | | |
Interest and dividend income: | | | | | | | | |
Loans, including fees | | $ | 41,433 | | | $ | 38,255 | | | $ | 3,178 | | | 8.3 | % |
Investment securities | | 1,144 | | | 735 | | | 409 | | | 55.6 | % |
Other interest-earning assets | | 763 | | | 319 | | | 444 | | | 139.2 | % |
Total interest income | | 43,340 | | | 39,309 | | | 4,031 | | | 10.3 | % |
Interest expense: | | | | | | | | |
Deposits | | 1,891 | | | 2,311 | | | (420) | | | (18.2) | % |
Borrowings | | 105 | | | 183 | | | (78) | | | (42.6) | % |
Total interest expense | | 1,996 | | | 2,494 | | | (498) | | | (20.0) | % |
Net interest income | | $ | 41,344 | | | $ | 36,815 | | | $ | 4,529 | | | 12.3 | % |
| | | | | | | | |
Net interest income increased primarily due to a 7.3% increase in average balance of interest-earning assets, an 11 basis point increase in average yield, a 5.4% decrease in average balance of interest-bearing liabilities and a 7 basis point decrease in average cost.
Interest and fees on loans increased primarily due to a 7.3% increase in average balance and a 4 basis point increase in average yield. The increase in average yield was primarily due to the rising interest rate environment, partially offset by a decrease in net amortization of deferred loan fees. The decrease in net amortization of deferred loan fees was primarily due to the decreased amount of SBA PPP loan payoffs.
Interest on investment securities increased primarily due to a 62 basis point increase in average yield and a 1.0% increase in average balance. The increase in average yield was primarily due to a decrease in net amortization of premiums on mortgage-backed securities and collateralized mortgage obligations. For the six months ended June 30, 2022 and 2021, yield on total investment securities was 1.78% and 1.16%, respectively.
Interest income on other interest-earning assets increased primarily due to a 42 basis point increase in average yield and a 11.5% increase in average balance. The increase in average yield was primarily due to an increase in interest rate on cash held at the FRB account. The increase in average balance was primarily due to an increase in deposits and the ECIP capital investment, partially offset by an increase in loans. For the six months ended June 30, 2022 and 2021, yield on total other interest-earning assets was 0.78% and 0.36%, respectively.
Interest expense on deposits decreased primarily due to an 8 basis point decrease in average cost of interest-bearing deposits and an 11.4% decrease in average balance of time deposits, partially offset by a 11.7% increase in savings, NOW and money market accounts. The decrease in average cost was primarily due to the lower interest rates on time deposits opened throughout 2021. The decrease in average balance of time deposits was primarily due to a lower level of new time deposits. For the six months ended June 30, 2022 and 2021, average cost on total interest-bearing deposits was 0.37% and 0.45%, respectively, and average cost on total deposits were 0.20% and 0.64%0.27%, respectively.
Interest expense on borrowings decreased primarily due to a decrease in average balance, partially offset by an increase in average cost of FHLB advances. The Company maintained a lower balancehad no outstanding borrowings as of other borrowings primarily due to the increase in deposits.
Nine Months Ended SeptemberJune 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents the components of net interest income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2021 | | 2020 | | |
Interest income: | | | | | | | | |
Interest and fees on loans | | $ | 58,792 | | | $ | 57,617 | | | $ | 1,175 | | | 2.0 | % |
Interest on investment securities | | 1,172 | | | 1,698 | | | (526) | | | (31.0) | % |
Interest and dividends on other interest-earning assets | | 513 | | | 938 | | | (425) | | | (45.3) | % |
Total interest income | | 60,477 | | | 60,253 | | | 224 | | | 0.4 | % |
Interest expense: | | | | | | | | |
Interest on deposits | | 3,196 | | | 11,000 | | | (7,804) | | | (70.9) | % |
Interest on borrowings | | 239 | | | 471 | | | (232) | | | (49.3) | % |
Total interest expense | | 3,435 | | | 11,471 | | | (8,036) | | | (70.1) | % |
Net interest income | | $ | 57,042 | | | $ | 48,782 | | | $ | 8,260 | | | 16.9 | % |
| | | | | | | | |
Net interest income increased primarily due to an 85 basis point decrease in average cost on interest-bearing liabilities, a 6.7% increase in average balance of interest-earning assets, and an 11.0% decrease in average balance of interest-bearing liabilities, partially offset by a 26 basis point decrease in average yield on interest-earning assets.
Interest and fees on loans increased primarily due to a 10.4% increase in average balance, partially offset by a 38 basis point decrease in average yield. The decrease in average yield was primarily due to the lower market rates, partially offset by increases in amortization of net deferred fees and net accretion of discount. The increase in net accretion of discount was primarily due to an increase in loan payoffs on SBA loans. The increase in amortization of net deferred fees was primarily due to the payoffs and forgiveness of SBA PPP loans.
Interest on investment securities decreased primarily due to a 65 basis point decrease in average yield, partially offset by a 7.1% increase in average balance. The decrease in average yield and the increase in average balance were primarily due to new investment securities purchased under low market rates during the past 12-month period. The Company purchased new investment securities of $50.0 million during the past 12-month period. For the nine months ended September 30, 2021 and 2020, yield on total investment securities was 1.20% and 1.85%, respectively.
Interest income on other interest-earning assets decreased primarily due to a 19 basis point decrease in average yield and an 18.5% decrease in average balance. The decrease in average yield was primarily due to the lower rates on the account with Federal Reserve Bank. The decrease in average balance was primarily due to an increase in loans, partially offset by an increase in deposits. For the nine months ended September 30, 2021 and 2020, yield on total other interest-earning assets was 0.38% and 0.57%, respectively.
Interest expense on deposits decreased primarily due to a 91 basis point decrease in average cost of interest-bearing deposits and a 15.0% decrease in average balance of time deposits, partially offset by a 9.4% increase in savings, NOW and money market accounts. The decrease in average cost was primarily due to the lower market rates. The decrease in average balance of time deposits was primarily due to a lower level of new time deposits. For the nine months ended September 30, 2021 and 2020, average cost on total interest-bearing deposits was 0.42% and 1.33%, respectively, and average cost on total deposits were 0.25% and 0.94%, respectively.
Interest expense on borrowings decreased primarily due to a decrease in average balance, partially offset by an increase in average cost of FHLB advances. The Company maintained a lower balance of other borrowings primarily due to the increase in deposits.2022.
Provision (reversal)Reversal for Loan Losses
Provision (reversal)Reversal for loan losses was $(1.1) million$109 thousand and $4.3 million$934 thousand for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. For the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, provision (reversal)reversal for loan losses was $(3.1)$1.3 million and $11.1$2.1 million, respectively. The reversal for loan losses for the three and ninesix months ended SeptemberJune 30, 20212022 was primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions, partially offset by an increaseincreases in commercial and residential property loans.
See further discussion in “Allowance for Loan Losses.”
Noninterest Income
Three Months Ended SeptemberJune 30, 20212022 Compared to Three Months Ended SeptemberJune 30, 20202021
The following table presents the components of noninterest income for the periods indicated:
| | | Three Months Ended September 30, | | Amount Change | | Percentage Change | | Three Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | ($ in thousands) | | 2022 | | 2021 | |
Service charges and fees on deposits | Service charges and fees on deposits | | $ | 292 | | | $ | 280 | | | $ | 12 | | | 4.3 | % | Service charges and fees on deposits | | $ | 330 | | | $ | 302 | | | $ | 28 | | | 9.3 | % |
Loan servicing income | Loan servicing income | | 655 | | | 856 | | | (201) | | | (23.5) | % | Loan servicing income | | 755 | | | 545 | | | 210 | | | 38.5 | % |
Bank-owned life insurance income | | Bank-owned life insurance income | | 175 | | | — | | | 175 | | | NM |
Gain on sale of loans | Gain on sale of loans | | 4,269 | | | 821 | | | 3,448 | | | 420.0 | % | Gain on sale of loans | | 2,039 | | | 3,967 | | | (1,928) | | | (48.6) | % |
| Other income | Other income | | 372 | | | 315 | | | 57 | | | 18.1 | % | Other income | | 349 | | | 337 | | | 12 | | | 3.6 | % |
Total noninterest income | Total noninterest income | | $ | 5,588 | | | $ | 2,272 | | | $ | 3,316 | | | 146.0 | % | Total noninterest income | | $ | 3,648 | | | $ | 5,151 | | | $ | (1,503) | | | (29.2) | % |
|
Service charges and fees on depositsLoan servicing income increased primarily due to an increase in fee-based transactions.servicing income received and a decrease in servicing asset amortization. Servicing asset amortization was $532 thousand and $579 thousand, respectively, for the three months ended June 30, 2022 and 2021.
The Company purchased bank-owned life insurance during November 2021. Bank-owned life insurance income represents the increase in cash surrender value of the insurance policy.
Gain on sale of loans decreased primarily due to a lower level of premium on SBA loans in the secondary market. The Company sold SBA loans of $38.4 million with a gain of $2.0 million during the three months ended June 30, 2022. During the three months ended June 30, 2021, the Company sold SBA loans of $34.1 million with a gain of $4.0 million and residential property loans of $1.6 million with a gain of $13 thousand.
Other income primarily included wire transfer fees of $166 thousand and $141 thousand, respectively, and debit card interchange fees of $85 thousand and $77 thousand, respectively, for the three months ended June 30, 2022 and 2021.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table presents the components of noninterest income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2022 | | 2021 | | |
Service charges and fees on deposits | | $ | 633 | | | $ | 595 | | | $ | 38 | | | 6.4 | % |
Loan servicing income | | 1,455 | | | 1,427 | | | 28 | | | 2.0 | % |
Bank-owned life insurance income | | 347 | | | — | | | 347 | | | NM |
Gain on sale of loans | | 5,816 | | | 5,289 | | | 527 | | | 10.0 | % |
| | | | | | | | |
Other income | | 683 | | | 697 | | | (14) | | | (2.0) | % |
Total noninterest income | | $ | 8,934 | | | $ | 8,008 | | | $ | 926 | | | 11.6 | % |
| | | | | | | | |
Loan servicing income decreasedincreased primarily due to an increase in servicing asset amortization fromincome received, partially offset by an increase in loan payoffs.servicing asset amortization. Servicing asset amortization was $525 thousand$1.1 million and $388$970 thousand, respectively, for the threesix months ended SeptemberJune 30, 20212022 and 2020.2021.
The Company purchased bank-owned life insurance during November 2021. Bank-owned life insurance income represents the increase in cash surrender value of the insurance policy.
Gain on sale of loans increased primarily due to a higher level of premiums on SBA loans in the secondary market and an increase in sale volume of SBA loans. The Company sold SBA loans of $78.1 million with a gain of $5.9 million during the six months ended June 30, 2022. During the six months ended June 30, 2021, the Company sold SBA loans of $45.0 million with a gain of $4.3$5.1 million and residential property loans of $301 thousand with a gain of $2 thousand, and certain commercial property loans of $3.5$9.5 million with a gain of $4 thousand during the three months ended September 30, 2021. During the three months ended September 30, 2020, the Company sold SBA loans of $8.6 million with a gain of $689 thousand and residential property loans of $16.6 million with a gain of $132$140 thousand.
Other income primarily included wire transfer fees of $159$325 thousand and $137$276 thousand, respectively, and debit card interchange fees of $86$169 thousand and $67$136 thousand, respectively, and gain on sale of OREO of none and $74 thousand, respectively, for the threesix months ended SeptemberJune 30, 20212022 and 2020.2021.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents the components of noninterest income for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Amount Change | | Percentage Change |
($ in thousands) | | 2021 | | 2020 | | |
Service charges and fees on deposits | | $ | 887 | | | $ | 945 | | | $ | (58) | | | (6.1) | % |
Loan servicing income | | 2,082 | | | 2,312 | | | (230) | | | (9.9) | % |
Gain on sale of loans | | 9,558 | | | 3,044 | | | 6,514 | | | 214.0 | % |
| | | | | | | | |
Other income | | 1,069 | | | 915 | | | 154 | | | 16.8 | % |
Total noninterest income | | $ | 13,596 | | | $ | 7,216 | | | $ | 6,380 | | | 88.4 | % |
| | | | | | | | |
Service charges and fees on deposits decreased primarily due to a decrease in fee-based transactions.
Loan servicing income decreased primarily due to a decrease in servicing fee income and an increase in servicing asset amortization. Servicing asset amortization was $1.5 million and $1.4 million, respectively, for the nine months ended September 30, 2021 and 2020.
Gain on sale of loans increased primarily due to a higher level of premiums on SBA loans in the secondary market and an increase in sale volume of SBA loans. The Company sold SBA loans of $90.1 million with a gain of $9.4 million, residential property loans of $9.8 million with a gain of $142 thousand, and certain commercial property loans of $5.2 million with a gain of $4 thousand during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company sold SBA loans of $47.4 million with a gain of $2.8 million and residential property loans of $24.8 million with a gain of $203 thousand.
Other income primarily included wire transfer fees of $435 thousand and $391 thousand, respectively, and debit card interchange fees of $222 thousand and $185 thousand, respectively, for the nine months ended September 30, 2021 and 2020. For the nine months end September 30, 2021, other income also included gain on sale of other real estate owned of $74 thousand.
Noninterest Expense
Three Months Ended SeptemberJune 30, 20212022 Compared to Three Months Ended SeptemberJune 30, 20202021
The following table presents the components of noninterest expense for the periods indicated:
| | | Three Months Ended September 30, | | Amount Change | | Percentage Change | | Three Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | ($ in thousands) | | 2022 | | 2021 | |
Salaries and employee benefits | Salaries and employee benefits | | $ | 7,606 | | | $ | 6,438 | | | $ | 1,168 | | | 18.1 | % | Salaries and employee benefits | | $ | 8,125 | | | $ | 7,125 | | | $ | 1,000 | | | 14.0 | % |
Occupancy and equipment | Occupancy and equipment | | 1,399 | | | 1,416 | | | (17) | | | (1.2) | % | Occupancy and equipment | | 1,537 | | | 1,388 | | | 149 | | | 10.7 | % |
Professional fees | Professional fees | | 422 | | | 325 | | | 97 | | | 29.8 | % | Professional fees | | 642 | | | 658 | | | (16) | | | (2.4) | % |
Marketing and business promotion | Marketing and business promotion | | 416 | | | 193 | | | 223 | | | 115.5 | % | Marketing and business promotion | | 310 | | | 516 | | | (206) | | | (39.9) | % |
Data processing | Data processing | | 391 | | | 373 | | | 18 | | | 4.8 | % | Data processing | | 441 | | | 396 | | | 45 | | | 11.4 | % |
Director fees and expenses | Director fees and expenses | | 144 | | | 125 | | | 19 | | | 15.2 | % | Director fees and expenses | | 182 | | | 151 | | | 31 | | | 20.5 | % |
| Regulatory assessments | Regulatory assessments | | 12 | | | 267 | | | (255) | | | (95.5) | % | Regulatory assessments | | 147 | | | 179 | | | (32) | | | (17.9) | % |
| Other expenses | Other expenses | | 842 | | | 749 | | | 93 | | | 12.4 | % | Other expenses | | 861 | | | 726 | | | 135 | | | 18.6 | % |
Total noninterest expense | Total noninterest expense | | $ | 11,232 | | | $ | 9,886 | | | $ | 1,346 | | | 13.6 | % | Total noninterest expense | | $ | 12,245 | | | $ | 11,139 | | | $ | 1,106 | | | 9.9 | % |
|
Salaries and employee benefits increased primarily due to increasesan increase in salaries bonus accrual,from the annual merit increase and the incentivean increased number of employees, partially offset by a decrease in incentives tied to the sales of Loan Production Offices (“LPO”) originated SBA loans and an increase in loan origination cost, which offsets the incentive for SBA PPP loan production paid during the three months ended September 30, 2021, partially offset by decreases in vacation accrual and stock compensation expense.recognition of salaries. The number of full-time equivalent employees was 249271 at SeptemberJune 30, 20212022 compared to 252248 at SeptemberJune 30, 2020.2021.
Marketing and business promotion expense decreased primarily due to a decrease in advertisement, partially offset by an increase in marketing activities.
Director fees and expenses increased primarily due to an increase in advertisement.a new director appointed during the fourth quarter of 2021.
Regulatory assessment expense decreased primarily due to an adjustment made for thea decrease in assessment rate, decrease, partially offset by an increase in balance sheet growth.sheet.
Other expenses primarily included $42$55 thousand and $111$64 thousand in loan related expenses, $378$369 thousand and $345$338 thousand in office expense, and $144$150 thousand and $125$130 thousand in armed guard expense for the three months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
NineSix Months Ended SeptemberJune 30, 20212022 Compared to NineSix Months Ended SeptemberJune 30, 20202021
The following table presents the components of noninterest expense for the periods indicated:
| | | Nine Months Ended September 30, | | Amount Change | | Percentage Change | | Six Months Ended June 30, | | Amount Change | | Percentage Change |
($ in thousands) | ($ in thousands) | | 2021 | | 2020 | | ($ in thousands) | | 2022 | | 2021 | |
Salaries and employee benefits | Salaries and employee benefits | | $ | 20,913 | | | $ | 18,750 | | | $ | 2,163 | | | 11.5 | % | Salaries and employee benefits | | $ | 16,720 | | | $ | 13,307 | | | $ | 3,413 | | | 25.6 | % |
Occupancy and equipment | Occupancy and equipment | | 4,158 | | | 4,196 | | | (38) | | | (0.9) | % | Occupancy and equipment | | 2,934 | | | 2,759 | | | 175 | | | 6.3 | % |
Professional fees | Professional fees | | 1,574 | | | 1,631 | | | (57) | | | (3.5) | % | Professional fees | | 1,045 | | | 1,152 | | | (107) | | | (9.3) | % |
Marketing and business promotion | Marketing and business promotion | | 1,070 | | | 920 | | | 150 | | | 16.3 | % | Marketing and business promotion | | 517 | | | 654 | | | (137) | | | (20.9) | % |
Data processing | Data processing | | 1,164 | | | 1,097 | | | 67 | | | 6.1 | % | Data processing | | 845 | | | 773 | | | 72 | | | 9.3 | % |
Director fees and expenses | Director fees and expenses | | 433 | | | 453 | | | (20) | | | (4.4) | % | Director fees and expenses | | 351 | | | 289 | | | 62 | | | 21.5 | % |
Regulatory assessments | Regulatory assessments | | 399 | | | 728 | | | (329) | | | (45.2) | % | Regulatory assessments | | 288 | | | 387 | | | (99) | | | (25.6) | % |
Other expenses | Other expenses | | 2,329 | | | 2,374 | | | (45) | | | (1.9) | % | Other expenses | | 1,616 | | | 1,487 | | | 129 | | | 8.7 | % |
Total noninterest expense | Total noninterest expense | | $ | 32,040 | | | $ | 30,149 | | | $ | 1,891 | | | 6.3 | % | Total noninterest expense | | $ | 24,316 | | | $ | 20,808 | | | $ | 3,508 | | | 16.9 | % |
|
Salaries and employee benefits increased primarily due to increases in salaries, bonus accrual, and the incentiveincentives tied to the incentives forsales of LPO originated SBA loans, and other employee benefit expenses, and a decrease in loan sales andorigination cost. For the six months ended June 30, 2021, loan origination cost were higher primarily due to the SBA PPP loan production, partially offset by decreases in vacation accrual and stock compensation expense. Direct loan origination cost related to SBA PPP loan production totaled $812 thousand and $1.1 million for nine months ended September 30, 2021 and 2020, respectively.production. The number of full-time equivalent employees was 249271 at SeptemberJune 30, 20212022 compared to 252248 at SeptemberJune 30, 2020.
Professional fees decreased primarily due to decreases in expenses related to decreases in expenses related to the Bank’s Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”) compliance enhancements.2021.
Marketing and business promotion expense decreased primarily due to a decrease in advertisement, partially offset by an increase in marketing activities.
Director fees and expenses increased primarily due to an increase in advertisement.a new director appointed during the fourth quarter of 2021.
Regulatory assessment expense decreased primarily due to to an adjustment made for thea decrease in assessment rate, decrease, partially offset by an increase in balance sheet growth.sheet.
Other expenses primarily included $263$101 thousand and $328$221 thousand in loan related expenses, $1.0 million$695 thousand and $1.1 million$645 thousand in office expense, and $388$290 thousand and $379$244 thousand in armed guard expense for the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, respectively.
Income Tax Expense
Income tax expense was $4.6$3.8 million and $1.5$4.1 million, respectively, and the effective tax rate was 29.5%29.3% and 29.8%29.4%, respectively, for the three months ended SeptemberJune 30, 20212022 and 2020.2021. For the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, income tax expense was $12.3$7.9 million and $4.4$7.7 million, respectively, and the effective tax rate was 29.5%29.1% and 29.7%29.5%, respectively.
Financial Condition
Investment Securities
The Company’s investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on current and projected liquidity and interest rate sensitivity positions.
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. Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve liquidity position. Accordingly, the Company was no longer able to assert that it had the intent to hold these securities until maturity and the Company’s ability to assert that it has the intent and ability to hold to maturity debt securities will be limited for up to two years from the date of transfer. The Company transferred all securities held-to-maturity of $18.8 million to securities available-for-sale, which resulted in a pre-tax increase to accumulated other comprehensive income of $787 thousand.
The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Amortized Cost | | Fair Value | | Unrealized Gain (Loss) | | Amortized Cost | | Fair Value | | Unrealized Gain (Loss) | ($ in thousands) | | Amortized Cost | | Fair Value | | Unrealized Gain (Loss) | | Amortized Cost | | Fair Value | | Unrealized Gain (Loss) |
Securities available-for-sale: | Securities available-for-sale: | | | | | | | | | | | | | Securities available-for-sale: | | | | | | | | | | | | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | 91,446 | | | $ | 91,485 | | | $ | 39 | | | $ | 74,622 | | | $ | 76,154 | | | $ | 1,532 | | Residential mortgage-backed securities | | $ | 101,619 | | | $ | 93,510 | | | $ | (8,109) | | | $ | 85,346 | | | $ | 84,713 | | | $ | (633) | |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | 21,079 | | | 21,198 | | | 119 | | | 26,216 | | | 26,467 | | | 251 | | Residential collateralized mortgage obligations | | 25,705 | | | 24,680 | | | (1,025) | | | 18,990 | | | 19,056 | | | 66 | |
SBA loan pool securities | SBA loan pool securities | | 9,406 | | | 9,667 | | | 261 | | | 11,753 | | | 12,080 | | | 327 | | SBA loan pool securities | | 11,007 | | | 10,792 | | | (215) | | | 8,520 | | | 8,672 | | | 152 | |
Municipal bonds | Municipal bonds | | 5,339 | | | 5,708 | | | 369 | | | 5,370 | | | 5,826 | | | 456 | | Municipal bonds | | 5,307 | | | 5,272 | | | (35) | | | 5,329 | | | 5,686 | | | 357 | |
Corporate bonds | Corporate bonds | | 5,000 | | | 5,044 | | | 44 | | | — | | | — | | | — | | Corporate bonds | | 5,000 | | | 4,813 | | | (187) | | | 5,000 | | | 5,071 | | | 71 | |
Total securities available-for-sale | Total securities available-for-sale | | $ | 132,270 | | | $ | 133,102 | | | $ | 832 | | | $ | 117,961 | | | $ | 120,527 | | | $ | 2,566 | | Total securities available-for-sale | | $ | 148,638 | | | $ | 139,067 | | | $ | (9,571) | | | $ | 123,185 | | | $ | 123,198 | | | $ | 13 | |
| |
Total investment securities were $133.1$139.1 million at SeptemberJune 30, 2021,2022, an increase of $12.6$15.9 million, or 10.4%12.9%, from $120.5$123.2 million at December 31, 2020.2021. The increase was primarily due to purchases of $47.3$38.0 million, partially offset by principal paydowns of $32.2$12.3 million, a decrease in fair value of securities available-for-sale of $1.7$9.6 million, and net premium amortization of $811$232 thousand.
The Company performs an OTTI assessment at least on a quarterly basis. OTTI is recognized when fair value is below the amortized cost where: (i) an entity has the intent to sell the security; (ii) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (iii) an entity does not expect to recover the entire amortized cost basis of the security. All individual securities in a continuous unrealized loss position for 12 months or more as of SeptemberJune 30, 20212022 and December 31, 20202021 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 SeptemberJune 30, 20212022 and December 31, 2020.2021. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. 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 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 during the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of September 30, 2021:the date indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2022 |
| | Within One Year | | More than One Year through Five Years | | More than Five Years through Ten Years | | More than Ten Years | | Total | | Within One Year | | More than One Year through Five Years | | More than Five Years through Ten Years | | More than Ten Years | | Total |
($ in thousands) | ($ 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 | ($ 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: | Securities available-for-sale: | | | | | | | | | | | | | | | | | | | | | Securities available-for-sale: | | | | | | | | | | | | | | | | | | | | |
U.S. government agency and U.S. government sponsored enterprise securities: | U.S. government agency and U.S. government sponsored enterprise securities: | | U.S. government agency and U.S. government sponsored enterprise securities: | |
Residential mortgage-backed securities | Residential mortgage-backed securities | | $ | — | | | — | % | | $ | 604 | | | 1.53 | % | | $ | 8,709 | | | 1.53 | % | | $ | 82,133 | | | 1.32 | % | | $ | 91,446 | | | 1.35 | % | Residential mortgage-backed securities | | $ | — | | | — | % | | $ | 840 | | | 1.57 | % | | $ | 8,747 | | | 1.81 | % | | $ | 92,032 | | | 2.04 | % | | $ | 101,619 | | | 2.01 | % |
Residential collateralized mortgage obligations | Residential collateralized mortgage obligations | | — | | | — | % | | — | | | — | % | | 10,717 | | | 0.70 | % | | 10,362 | | | 1.46 | % | | 21,079 | | | 1.07 | % | Residential collateralized mortgage obligations | | — | | | — | % | | 218 | | | 2.09 | % | | 8,579 | | | 1.99 | % | | 16,908 | | | 2.32 | % | | 25,705 | | | 2.21 | % |
SBA loan pool securities | SBA loan pool securities | | — | | | — | % | | 519 | | | 2.58 | % | | 1,509 | | | 0.67 | % | | 7,378 | | | 2.01 | % | | 9,406 | | | 1.82 | % | SBA loan pool securities | | — | | | — | % | | 401 | | | 2.58 | % | | 3,098 | | | 0.73 | % | | 7,508 | | | 1.72 | % | | 11,007 | | | 1.48 | % |
Municipal bonds | Municipal bonds | | 307 | | | 1.72 | % | | 1,858 | | | 2.07 | % | | 834 | | | 2.27 | % | | 2,340 | | | 3.53 | % | | 5,339 | | | 2.72 | % | Municipal bonds | | 300 | | | 5.00 | % | | 1,839 | | | 2.07 | % | | 822 | | | 2.27 | % | | 2,346 | | | 3.53 | % | | 5,307 | | | 2.91 | % |
Corporate bonds | Corporate bonds | | — | | | — | % | | — | | | — | % | | 5,000 | | | 3.75 | % | | — | | | — | % | | 5,000 | | | 3.75 | % | Corporate bonds | | — | | | — | % | | — | | | — | % | | 5,000 | | | 3.75 | % | | — | | | — | % | | 5,000 | | | 3.75 | % |
Total securities available-for-sale | Total securities available-for-sale | | $ | 307 | | | 1.72 | % | | $ | 2,981 | | | 2.05 | % | | $ | 26,769 | | | 1.59 | % | | $ | 102,213 | | | 1.44 | % | | $ | 132,270 | | | 1.48 | % | Total securities available-for-sale | | $ | 300 | | | 5.00 | % | | $ | 3,298 | | | 2.01 | % | | $ | 26,246 | | | 2.13 | % | | $ | 118,794 | | | 2.09 | % | | $ | 148,638 | | | 2.10 | % |
| |
Weighted-average yields are based upon the amortized cost of securities and are calculated using the interest method which takes into consideration of premium amortization and discount accretion. Weighted-average yields on tax-exempt debt securities exclude the federal income tax benefit.
Loans Held-For-Sale
Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the foreseeable future, subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. 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. The following table presents a composition of loans held-for-sale as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | ($ in thousands) | | June 30, 2022 | | December 31, 2021 |
Real estate loans: | Real estate loans: | | | | | Real estate loans: | | | | |
| Residential property | | $ | — | | | $ | 300 | | |
| SBA property | SBA property | | 28,036 | | | 1,411 | | SBA property | | $ | 8,040 | | | $ | 33,603 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
| SBA commercial term | SBA commercial term | | 984 | | | 268 | | SBA commercial term | | 1,587 | | | 3,423 | |
| Total | Total | | $ | 29,020 | | | $ | 1,979 | | Total | | $ | 9,627 | | | $ | 37,026 | |
|
Loans held-for-sale were $29.0$9.6 million at SeptemberJune 30, 2021, an increase2022, a decrease of $27.0$27.4 million, or 1,366.4%74.0%, from $2.0$37.0 million at December 31, 2020.2021. The increasedecrease was primarily due to new fundingsales of $126.8 million and a loan transferred from loans held-for-investment of $5.4$78.1 million, partially offset by salesnew funding of $105.1$51.1 million.
Loans Held-For-Investment and Allowance for Loan Losses
The following table presents the composition of the Company’s loans held-for-investment as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Amount | | Percentage to Total | | Amount | | Percentage to Total | ($ in thousands) | | Amount | | Percentage to Total | | Amount | | Percentage to Total |
Real estate loans: | Real estate loans: | | | | | | | | | Real estate loans: | | | | | | | | |
Commercial property | Commercial property | | $ | 1,054,351 | | | 61.6 | % | | $ | 880,736 | | | 55.5 | % | Commercial property | | $ | 1,204,142 | | | 65.7 | % | | $ | 1,105,843 | | | 63.9 | % |
Residential property | Residential property | | 201,635 | | | 11.8 | % | | 198,431 | | | 12.5 | % | Residential property | | 258,259 | | | 14.1 | % | | 209,485 | | | 12.1 | % |
SBA property | SBA property | | 127,845 | | | 7.5 | % | | 126,570 | | | 8.0 | % | SBA property | | 131,420 | | | 7.2 | % | | 129,661 | | | 7.5 | % |
Construction | Construction | | 6,572 | | | 0.4 | % | | 15,199 | | | 1.0 | % | Construction | | 12,595 | | | 0.7 | % | | 8,252 | | | 0.5 | % |
Total real estate loans | Total real estate loans | | 1,390,403 | | | 81.3 | % | | 1,220,936 | | | 77.0 | % | Total real estate loans | | 1,606,416 | | | 87.7 | % | | 1,453,241 | | | 84.0 | % |
Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 74,390 | | | 4.4 | % | | 87,250 | | | 5.5 | % | Commercial term | | 73,885 | | | 4.0 | % | | 73,438 | | | 4.2 | % |
Commercial lines of credit | Commercial lines of credit | | 101,456 | | | 5.9 | % | | 96,087 | | | 6.1 | % | Commercial lines of credit | | 111,916 | | | 6.1 | % | | 100,936 | | | 5.8 | % |
SBA commercial term | SBA commercial term | | 18,338 | | | 1.1 | % | | 21,878 | | | 1.4 | % | SBA commercial term | | 16,985 | | | 0.9 | % | | 17,640 | | | 1.0 | % |
SBA PPP | SBA PPP | | 101,901 | | | 6.0 | % | | 135,654 | | | 8.6 | % | SBA PPP | | 1,583 | | | 0.1 | % | | 65,329 | | | 3.8 | % |
Total commercial and industrial loans | Total commercial and industrial loans | | 296,085 | | | 17.4 | % | | 340,869 | | | 21.6 | % | Total commercial and industrial loans | | 204,369 | | | 11.1 | % | | 257,343 | | | 14.8 | % |
Other consumer loans | Other consumer loans | | 21,390 | | | 1.3 | % | | 21,773 | | | 1.4 | % | Other consumer loans | | 22,225 | | | 1.2 | % | | 21,621 | | | 1.2 | % |
Loans held-for-investment | Loans held-for-investment | | 1,707,878 | | | 100.0 | % | | 1,583,578 | | | 100.0 | % | Loans held-for-investment | | 1,833,010 | | | 100.0 | % | | 1,732,205 | | | 100.0 | % |
Allowance for loan losses | Allowance for loan losses | | (23,807) | | | | | (26,510) | | | | Allowance for loan losses | | (21,071) | | | | | (22,381) | | | |
Net loans held-for-investment | Net loans held-for-investment | | $ | 1,684,071 | | | $ | 1,557,068 | | | Net loans held-for-investment | | $ | 1,811,939 | | | $ | 1,709,824 | | |
| Allowance for loan losses to loans held-for-investment | | Allowance for loan losses to loans held-for-investment | | 1.15 | % | | 1.29 | % | |
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (1) | | Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (1) | | 1.15 | % | | 1.34 | % | |
|
(1) Non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure.
Loans held-for-investment, net of deferred loan costs (fees) were $1.71$1.83 billion at SeptemberJune 30, 2021,2022, an increase of $124.3$100.8 million, or 7.8%5.8%, from $1.58$1.73 billion at December 31, 2020.2021. The increase was primarily due to new funding of $498.9$278.9 million and advances of $88.9$69.3 million, partially offset by paydowns and payoffs of $457.9$247.3 million. During the ninesix months ended SeptemberJune 30, 2021,2022, SBA PPP loans of $144.9$63.7 million were paid off and related unamortized net deferred fees were recognized through interest income. Commercial and residential property loan production contributed significantly to the Company’s loan growth for the ninesix months ended SeptemberJune 30, 2021.2022.
SBA Paycheck Protection Program
The following table presents a summary of SBA PPP loans as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 |
($ in thousands) | | Number of Loans | | Carrying Value | | Contractual Balance | | Number of Loans | | Carrying Value | | Contractual Balance |
Loan amount: | | | | | | | | | | | | |
$50,000 or less | | 3 | | | $ | 102 | | | $ | 108 | | | 145 | | | $ | 2,915 | | | $ | 3,074 | |
Over $50,000 and less than $350,000 | | 8 | | | 1,041 | | | 1,098 | | | 156 | | | 25,417 | | | 26,146 | |
Over $350,000 and less than $2,000,000 | | 1 | | | 440 | | | 451 | | | 52 | | | 33,812 | | | 34,432 | |
$2,000,000 or more | | — | | | — | | | — | | | 1 | | | 3,185 | | | 3,187 | |
Total | | 12 | | | $ | 1,583 | | | $ | 1,657 | | | 354 | | | $ | 65,329 | | | $ | 66,839 | |
| | | | | | | | | | | | |
Loan Modifications Related to the COVID-19 Pandemic
The Company had provided modifications including payment deferments and interest only payments, to customers that were adversely affected by the COVID-19 pandemic. As of September 30, 2021, all loans under modified terms related to the COVID-19 pandemic were accounted for under section 4013 ofduring the CARES Actyears ended December 31, 2021 and not considered TDRs.2020. The Company had no outstanding modification since September 30, 2021.
The following table presents a summary ofthe risk categories and accrued interest receivable for loans previously modified in response to the COVID-19 pandemic, but that have reverted back to previous contractual payment terms as of Septemberthe dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Value Per Risk Category | | Accrued Interest Receivable |
($ in thousands) | | Pass | | Special Mention | | Substandard | | Doubtful | | Total | |
June 30, 2022 | | | | | | | | | | | | |
Real estate loans: | | | | | | | | | | | | |
Commercial property | | $ | 270,481 | | | $ | 2,800 | | | $ | 370 | | | $ | — | | | $ | 273,651 | | | $ | 687 | |
Residential property | | 20,223 | | | — | | | — | | | — | | | 20,223 | | | 477 | |
SBA property | | 3,648 | | | 249 | | | — | | | — | | | 3,897 | | | 11 | |
Commercial and industrial loans: | | | | | | | | | | | | |
Commercial term | | 23,478 | | | 960 | | | 1,046 | | | — | | | 25,484 | | | 69 | |
SBA commercial term | | 1,513 | | | — | | | 47 | | | — | | | 1,560 | | | 5 | |
Other consumer loans | | 512 | | | — | | | — | | | — | | | 512 | | | 1 | |
Total | | $ | 319,855 | | | $ | 4,009 | | | $ | 1,463 | | | $ | — | | | $ | 325,327 | | | $ | 1,250 | |
December 31, 2021 | | | | | | | | | | | | |
Real estate loans: | | | | | | | | | | | | |
Commercial property | | $ | 291,759 | | | $ | 11,739 | | | $ | 1,525 | | | $ | — | | | $ | 305,023 | | | $ | 730 | |
Residential property | | 25,620 | | | — | | | — | | | — | | | 25,620 | | | 537 | |
SBA property | | 3,683 | | | 251 | | | — | | | — | | | 3,934 | | | 15 | |
Commercial and industrial loans: | | | | | | | | | | | | |
Commercial term | | 29,744 | | | 3,563 | | | 1,114 | | | — | | | 34,421 | | | 84 | |
SBA commercial term | | 1,663 | | | — | | | 57 | | | — | | | 1,720 | | | 6 | |
Other consumer loans | | 699 | | | — | | | — | | | — | | | 699 | | | 2 | |
Total | | $ | 353,168 | | | $ | 15,553 | | | $ | 2,696 | | | $ | — | | | $ | 371,417 | | | $ | 1,374 | |
| | | | | | | | | | | | |
The decrease in special mention loans for the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | |
($ in thousands) | | | | | | Carrying Value | | Accrued Interest Receivable |
Real estate loans: | | | | | | | | |
Commercial property | | | | | | $ | 328,847 | | | $ | 992 | |
Residential property | | | | | | 28,566 | | | 615 | |
SBA property | | | | | | 4,173 | | | 8 | |
Commercial and industrial loans: | | | | | | | | |
Commercial term | | | | | | 39,629 | | | 121 | |
SBA commercial term | | | | | | 1,795 | | | 6 | |
Other consumer loans | | | | | | 797 | | | 2 | |
Total | | | | | | $ | 403,807 | | | $ | 1,744 | |
| | | | | | | | |
2022 was primarily due to improvements of 2 loans with an aggregated carrying value of $11.3 million at December 31, 2021.
The following table presents activity in loans under modified terms related to the COVID-19 pandemic for the nine months ended September 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Real Estate Loans | | Commercial and Industrial Loans | | | | |
($ in thousands) | | Commercial Property | | Residential Property | | SBA Property | | Commercial Term | | SBA Commercial Term | | | | Total |
Balance at January 1, 2021 | | $ | 24,132 | | | $ | 425 | | | $ | 4,192 | | | $ | 5,527 | | | $ | 1,841 | | | | | $ | 36,117 | |
Modification early terminated (1) | | — | | | — | | | (2,576) | | | — | | | (1,338) | | | | | (3,914) | |
Modification expired | | (33,943) | | | (1,100) | | | (1,627) | | | (8,330) | | | (513) | | | | | (45,513) | |
Subsequent modification | | 11,829 | | | 328 | | | — | | | 2,878 | | | — | | | | | 15,035 | |
New modification | | — | | | 349 | | | — | | | — | | | — | | | | | 349 | |
Amortization | | (2,018) | | | (2) | | | 11 | | | (75) | | | 10 | | | | | (2,074) | |
Balance at September 30, 2021 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | |
| | | | | | | | | | | | | | |
(1) Termination of modifications at the request of the borrower.
SBA Paycheck Protection Program
The following table presents a summary of SBA PPP loans as of September 30, 2021:
| | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Number of Loans | | Carrying Value | | Contractual Balance |
Loan amount: | | | | | | |
$50,000 or less | | 436 | | | $ | 8,913 | | | $ | 9,469 | |
Over $50,000 and less than $350,000 | | 286 | | | 39,689 | | | 40,955 | |
Over $350,000 and less than $2,000,000 | | 77 | | | 50,116 | | | 51,121 | |
$2,000,000 or more | | 1 | | | 3,183 | | | 3,187 | |
Total | | 800 | | | $ | 101,901 | | | $ | 104,732 | |
| | | | | | |
Allowance for loan losses
The Company’s methodology for assessing the appropriateness of the allowance for loan losses includes a general allowance for performing loans, which are grouped based on similar characteristics, and a specific allowance for individual impaired loans or loans considered by management to be in a high-risk category. General allowances are established based on a number of factors, including historical loss rates, an assessment of portfolio trends and conditions, accrual status and economic conditions.
For any loan held for investment,held-for-investment, a specific allowance may be assigned based on an impairment analysis. Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on an analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the estimated market value or the fair value of the underlying collateral. Interest income on impaired loans is accrued as earned, unless the loan is placed on nonaccrual status.
Individual loans considered to be uncollectible are charged off against the allowance for loan losses. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is confirmed. Recoveries on loans previously charged off are added to the allowance for loan losses.
The decrease in allowance for loan losses to loans held-for-investment was primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions, partially offset by an increase in commercial property loans.
The Company analyzes the loan portfolio, including delinquencies, concentrations, and risk characteristics, at least quarterly in order to assess the overall level of the allowance for loan losses. The Company also relies on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends.
In determining the allowance and the related provision for loan losses, the Company considers three principal elements: (i) valuation allowances based upon probable incurred losses identified during the review of impaired commercial and industrial, commercial property and construction loans, (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and (iii) qualitative factors. Provisions for loan losses are charged to operations to record changes to the allowance for loan losses to a level deemed appropriate.
The SBA guarantee on PPP loans cannot be separated from the loan and therefore is not a separate unit of account. The Company considered the SBA guarantee in the allowance for loan losses evaluation and determined that it is not required to reserve an allowance on SBA PPP loans at SeptemberJune 30, 20212022 and December 31, 2020.2021.
The following table provides an analysistables present net charge-offs (recoveries) as a percentage to the average loan held for investment balances in each of the allowance for loan losses, provision for loan losses and net charge-offs as of the dates orcategories for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of or For the Three Months Ended September 30, | | As of or For the Nine Months Ended September 30, |
($ in thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
Allowance for loan losses: | | | | | | | | |
Balance at beginning of period | | $ | 24,889 | | | $ | 20,248 | | | $ | 26,510 | | | $ | 14,380 | |
Charge-offs: | | | | | | | | |
Real estate | | — | | | — | | | 18 | | | 138 | |
Commercial and industrial | | 84 | | | — | | | 100 | | | 916 | |
Other consumer | | 43 | | | 102 | | | 87 | | | 241 | |
Total charge-offs | | 127 | | | 102 | | | 205 | | | 1,295 | |
Recoveries on loans previously charged off | | | | | | | | |
Real estate | | — | | | — | | | 47 | | | 56 | |
Commercial and industrial | | 94 | | | 18 | | | 553 | | | 223 | |
Other consumer | | 4 | | | 56 | | | 36 | | | 105 | |
Total recoveries | | 98 | | | 74 | | | 636 | | | 384 | |
Net charge-offs (recoveries) | | 29 | | | 28 | | | (431) | | | 911 | |
Provision (reversal) for loan losses | | (1,053) | | | 4,326 | | | (3,134) | | | 11,077 | |
Balance at end of period | | $ | 23,807 | | | $ | 24,546 | | | $ | 23,807 | | | 24,546 | |
Loans held-for-investment: | | | | | | | | |
Balance at end of period | | $ | 1,707,878 | | | $ | 1,578,804 | | | $ | 1,707,878 | | | $ | 1,578,804 | |
Average balance | | 1,688,468 | | | 1,546,900 | | | 1,539,161 | | | 1,509,963 | |
Ratios: | | | | | | | | |
Annualized net charge-offs (recoveries) to average loans held-for-investment | | 0.01 | % | | 0.01 | % | | (0.04) | % | | 0.08 | % |
Allowance for loan losses to loans held-for-investment | | 1.39 | % | | 1.55 | % | | 1.39 | % | | 1.55 | % |
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (1) | | 1.48 | % | | 1.70 | % | | 1.48 | % | | 1.70 | % |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| | 2022 | | 2021 |
($ in thousands) | | Average Balance | | Net Charge-Offs (Recoveries) | | Percentage | | Average Balance | | Net Charge-Offs (Recoveries) | | Percentage |
Real estate loans: | | | | | | | | | | | | |
Commercial property | | $ | 1,176,726 | | | $ | — | | | — | % | | $ | 939,972 | | | $ | — | | | — | % |
Residential property | | 237,978 | | | — | | | — | % | | 189,800 | | | — | | | — | % |
SBA property | | 113,253 | | | — | | | — | % | | 124,530 | | | (17) | | | (0.05) | % |
Construction | | 10,345 | | | — | | | — | % | | 13,322 | | | — | | | — | % |
Total real estate loans | | 1,538,302 | | | — | | | — | % | | 1,267,624 | | | (17) | | | (0.01) | % |
Commercial and industrial loans: | | | | | | | | | | | | |
Commercial term | | 71,552 | | | (2) | | | (0.01) | % | | 78,930 | | | (123) | | | (0.62) | % |
Commercial lines of credit | | 110,090 | | | — | | | — | % | | 86,905 | | | — | | | — | % |
SBA commercial term | | 16,047 | | | 1 | | | 0.02 | % | | 20,226 | | | (176) | | | (3.48) | % |
SBA PPP | | 10,549 | | | — | | | — | % | | 202,917 | | | — | | | — | % |
Total commercial and industrial loans | | 208,238 | | | (1) | | | — | % | | 388,978 | | | (299) | | | (0.31) | % |
Other consumer loans | | 21,615 | | | 19 | | | 0.35 | % | | 20,907 | | | 7 | | | 0.13 | % |
Total | | $ | 1,768,155 | | | $ | 18 | | | (0.01) | % | | $ | 1,677,509 | | | $ | (309) | | | (0.07) | % |
| | | | | | | | | | | | |
(1) Non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
($ in thousands) | | Average Balance | | Net Charge-Offs (Recoveries) | | Percentage | | Average Balance | | Net Charge-Offs (Recoveries) | | Percentage |
Real estate loans: | | | | | | | | | | | | |
Commercial property | | $ | 1,153,936 | | | $ | — | | | — | % | | $ | 920,546 | | | $ | — | | | — | % |
Residential property | | 223,554 | | | — | | | — | % | | 192,395 | | | — | | | — | % |
SBA property | | 115,220 | | | — | | | — | % | | 124,494 | | | (29) | | | (0.05) | % |
Construction | | 9,701 | | | — | | | — | % | | 13,914 | | | — | | | — | % |
Total real estate loans | | 1,502,411 | | | — | | | — | % | | 1,251,349 | | | (29) | | | (0.01) | % |
Commercial and industrial loans: | | | | | | | | | | | | |
Commercial term | | 71,963 | | | (4) | | | (0.01) | % | | 81,661 | | | (126) | | | (0.31) | % |
Commercial lines of credit | | 104,952 | | | — | | | — | % | | 91,883 | | | (136) | | | (0.30) | % |
SBA commercial term | | 16,455 | | | (2) | | | (0.02) | % | | 21,152 | | | (181) | | | (1.71) | % |
SBA PPP | | 26,307 | | | — | | | — | % | | 190,902 | | | — | | | — | % |
Total commercial and industrial loans | | 219,677 | | | (6) | | | (0.02) | % | | 385,598 | | | (443) | | | (0.23) | % |
Other consumer loans | | 21,459 | | | 16 | | | 0.15 | % | | 21,001 | | | 12 | | | 0.11 | % |
Total | | $ | 1,743,547 | | | $ | 10 | | | (0.01) | % | | $ | 1,657,948 | | | $ | (460) | | | (0.06) | % |
| | | | | | | | | | | | |
Nonperforming Loans and Nonperforming Assets
The following table presents a summary of total non-performing assets as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | | Amount Change | | Percentage Change | ($ in thousands) | | June 30, 2022 | | December 31, 2021 | | Amount Change | | Percentage Change |
Nonaccrual loans | Nonaccrual loans | | | | | | | | | Nonaccrual loans | | | | | | | | |
Real estate loans: | Real estate loans: | | Real estate loans: | |
Commercial property | | $ | — | | | $ | 524 | | | $ | (524) | | | (100.0) | % | |
| Residential property | Residential property | | — | | | 189 | | | (189) | | | (100.0) | % | Residential property | | $ | 450 | | | $ | — | | | $ | 450 | | | — | % |
SBA property | SBA property | | 766 | | | 885 | | | (119) | | | (13.4) | % | SBA property | | 564 | | | 746 | | | (182) | | | (24.4) | % |
| Total real estate loans | Total real estate loans | | 766 | | | 1,598 | | | (832) | | | (52.1) | % | Total real estate loans | | 1,014 | | | 746 | | | 268 | | | 35.9 | % |
Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
| Commercial lines of credit | | — | | | 904 | | | (904) | | | (100.0) | % | |
| SBA commercial term | SBA commercial term | | 314 | | | 595 | | | (281) | | | (47.2) | % | SBA commercial term | | 185 | | | 213 | | | (28) | | | (13.1) | % |
Total commercial and industrial loans | Total commercial and industrial loans | | 314 | | | 1,499 | | | (1,185) | | | (79.1) | % | Total commercial and industrial loans | | 185 | | | 213 | | | (28) | | | (13.1) | % |
Other consumer loans | Other consumer loans | | 33 | | | 66 | | | (33) | | | (50.0) | % | Other consumer loans | | 24 | | | 35 | | | (11) | | | (31.4) | % |
Total nonaccrual loans | Total nonaccrual loans | | 1,113 | | | 3,163 | | | (2,050) | | | (64.8) | % | Total nonaccrual loans | | 1,223 | | | 994 | | | 229 | | | 23.0 | % |
Loans past due 90 days or more still on accrual | Loans past due 90 days or more still on accrual | | 3 | | | — | | | 3 | | | — | % | Loans past due 90 days or more still on accrual | | — | | | — | | | — | | | — | % |
Total nonperforming loans | Total nonperforming loans | | 1,116 | | | 3,163 | | | (2,047) | | | (64.7) | % | Total nonperforming loans | | 1,223 | | | 994 | | | 229 | | | 23.0 | % |
Other real estate owned | Other real estate owned | | — | | | 1,401 | | | (1,401) | | | (100.0) | % | Other real estate owned | | 808 | | | — | | | 808 | | | — | % |
Total nonperforming assets | Total nonperforming assets | | $ | 1,116 | | | $ | 4,564 | | | $ | (3,448) | | | (75.5) | % | Total nonperforming assets | | $ | 2,031 | | | $ | 994 | | | $ | 1,037 | | | 104.3 | % |
| Nonperforming loans to loans held-for-investment | | 0.07 | % | | 0.20 | % | | |
Nonaccrual loans to loans held-for-investment | | Nonaccrual loans to loans held-for-investment | | 0.07 | % | | 0.06 | % | |
Allowance for loan losses to nonaccrual loans | | Allowance for loan losses to nonaccrual loans | | 1,722.89 | % | | 2,251.61 | % | |
Nonperforming assets to total assets | Nonperforming assets to total assets | | 0.05 | % | | 0.24 | % | | Nonperforming assets to total assets | | 0.09 | % | | 0.05 | % | |
|
The decreaseincrease in total nonaccrual loans was primarily due to paydowns and payoffs of $2.0 million and a loan transferred to OREO of $905 thousand, partially offset by loans placed on nonaccrual status of $949$481 thousand during the ninesix months ended SeptemberJune 30, 2021.2022, partially offset by paydowns and payoffs of $246 thousand and charge-offs of $6 thousand. 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. In all cases, loans are placed on nonaccrual if collection of principal or interest is considered doubtful. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where management believes the borrower will eventually overcome those circumstances and repay the loan in full. Additional income of approximately $15$17 thousand and $44$35 thousand would have been recorded during the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, had these loans been paid in accordance with their original terms throughout the periods indicated.
Troubled Debt Restructurings
Loans that the Bank modifies or restructures where the debtor is experiencing financial difficulties and makes a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments and, in limited cases, reductions in the outstanding loan balances are classified as TDRs. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition. A workout plan between a borrower and the Bank is designed to provide a bridge for the cash flow shortfalls in the near term. If the borrower works through the near term issues, in most cases, the original contractual terms of the loan will be reinstated. The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Accruing | | Nonaccrual | | Total | | Accruing | | Nonaccrual | | Total | ($ in thousands) | | Accruing | | Nonaccrual | | Total | | Accruing | | Nonaccrual | | Total |
Real estate loans: | Real estate loans: | | | | | | | | | | | | | Real estate loans: | | | | | | | | | | | | |
Commercial property | Commercial property | | $ | 328 | | | $ | — | | | $ | 328 | | | $ | 333 | | | $ | — | | | $ | 333 | | Commercial property | | $ | 321 | | | $ | — | | | $ | 321 | | | $ | 326 | | | $ | — | | | $ | 326 | |
| SBA property | SBA property | | 250 | | | 26 | | | 276 | | | 270 | | | 5 | | | 275 | | SBA property | | 229 | | | 10 | | | 239 | | | 242 | | | 17 | | | 259 | |
| Commercial and industrial loans: | Commercial and industrial loans: | | Commercial and industrial loans: | |
Commercial term | Commercial term | | 5 | | | — | | | 5 | | | 18 | | | — | | | 18 | | Commercial term | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
| SBA commercial term | SBA commercial term | | 6 | | | — | | | 6 | | | 13 | | | — | | | 13 | | SBA commercial term | | 5 | | | — | | | 5 | | | 6 | | | — | | | 6 | |
| Total | Total | | $ | 589 | | | $ | 26 | | | $ | 615 | | | $ | 634 | | | $ | 5 | | | $ | 639 | | Total | | $ | 555 | | | $ | 10 | | | $ | 565 | | | $ | 576 | | | $ | 17 | | | $ | 593 | |
|
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 following table presents a summary of the Company’s deposits as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | September 30, 2021 | | December 31, 2020 | | Amount Change | | Percentage Change | ($ in thousands) | | June 30, 2022 | | December 31, 2021 | | Amount Change | | Percentage Change |
Noninterest-bearing demand deposits | Noninterest-bearing demand deposits | | $ | 832,240 | | | $ | 538,009 | | | $ | 294,231 | | | 54.7 | % | Noninterest-bearing demand deposits | | $ | 988,454 | | | $ | 830,383 | | | $ | 158,071 | | | 19.0 | % |
Interest-bearing deposits: | Interest-bearing deposits: | | Interest-bearing deposits: | |
Savings | Savings | | 13,294 | | | 10,481 | | | 2,813 | | | 26.8 | % | Savings | | 14,686 | | | 16,299 | | | (1,613) | | | (9.9) | % |
NOW | NOW | | 20,461 | | | 21,604 | | | (1,143) | | | (5.3) | % | NOW | | 18,881 | | | 20,185 | | | (1,304) | | | (6.5) | % |
Retail money market accounts | Retail money market accounts | | 376,333 | | | 351,739 | | | 24,594 | | | 7.0 | % | Retail money market accounts | | 458,605 | | | 386,041 | | | 72,564�� | | | 18.8 | % |
Brokered money market accounts | Brokered money market accounts | | 4 | | | 25,002 | | | (24,998) | | | (100.0) | % | Brokered money market accounts | | 1 | | | 1 | | | — | | | — | % |
Retail time deposits of: | Retail time deposits of: | | Retail time deposits of: | |
$250,000 or less | $250,000 or less | | 262,207 | | | 299,431 | | | (37,224) | | | (12.4) | % | $250,000 or less | | 235,956 | | | 256,956 | | | (21,000) | | | (8.2) | % |
More than $250,000 | More than $250,000 | | 163,127 | | | 168,683 | | | (5,556) | | | (3.3) | % | More than $250,000 | | 186,024 | | | 172,269 | | | 13,755 | | | 8.0 | % |
Time deposits from internet rate service providers | | — | | | 24,902 | | | (24,902) | | | — | % | |
| Brokered time deposits | Brokered time deposits | | 65,000 | | | 55,000 | | | 10,000 | | | 18.2 | % | Brokered time deposits | | 35,000 | | | 85,000 | | | (50,000) | | | (58.8) | % |
Time deposits from California State Treasurer | Time deposits from California State Treasurer | | 100,000 | | | 100,000 | | | — | | | — | % | Time deposits from California State Treasurer | | 60,000 | | | 100,000 | | | (40,000) | | | (40.0) | % |
Total interest-bearing deposits | Total interest-bearing deposits | | 1,000,426 | | | 1,056,842 | | | (56,416) | | | (5.3) | % | Total interest-bearing deposits | | 1,009,153 | | | 1,036,751 | | | (27,598) | | | (2.7) | % |
Total deposits | Total deposits | | $ | 1,832,666 | | | $ | 1,594,851 | | | $ | 237,815 | | | 14.9 | % | Total deposits | | $ | 1,997,607 | | | $ | 1,867,134 | | | $ | 130,473 | | | 7.0 | % |
| Total deposits not covered by deposit insurance | | Total deposits not covered by deposit insurance | | $ | 1,199,502 | | | $ | 919,584 | | | 279,918 | | | 30.4 | % |
Time deposits not covered by deposit insurance | | Time deposits not covered by deposit insurance | | $ | 192,296 | | | $ | 216,269 | | | (23,973) | | | (11.1) | % |
|
The increaseincreases in noninterest-bearing demand deposits wasand retail money market accounts were primarily due to the overall liquid deposit market, as well as the deposit increases from customers with SBA PPP loans, SBA Revitalization Funds and SBA Economic Injury Disaster Loans. A total of $93.9 million of SBA PPP loans were funded through the Bank's noninterest-bearing demand deposits and deposit customers also received $138.2 million of SBA Revitalization Funds and SBA Economic Injury Disaster Loans during the nine months ended September 30, 2021.market.
The decrease in retail time deposits was primarily due to matured and closed accounts of $457.6$413.7 million, partially offset by new accounts of $76.4$297.6 million and renewals of the matured accounts of $328.5$99.4 million.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, total deposits were comprised of 45.4%49.5% and 33.7%44.5%, respectively, of noninterest-bearing demand accounts, 22.4%24.6% and 25.7%22.6%, respectively, of savings, NOW and money market accounts, and 32.2%25.9% and 40.6%32.9%, respectively, of time deposits.
Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $5.6$3.1 million and $2.7$3.9 million, respectively, at SeptemberJune 30, 20212022 and December 31, 2020.2021.
The following table presents the maturity of time deposits as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months or Less | | Three to Six Months | | Six Months to One Year | | One to Three Years | | Over Three Years | | Total |
September 30, 2021 | | | | | | | | | | | | |
Time deposits less than $100,000 | | $ | 31,309 | | | $ | 74,233 | | | $ | 32,399 | | | $ | 5,627 | | | $ | 597 | | | $ | 144,165 | |
Time deposits of $100,000 through $250,000 | | 47,758 | | | 68,019 | | | 67,147 | | | 118 | | | — | | | 183,042 | |
Time deposits of more than $250,000 | | 142,938 | | | 57,823 | | | 60,053 | | | 2,313 | | | — | | | 263,127 | |
Total | | $ | 222,005 | | | $ | 200,075 | | | $ | 159,599 | | | $ | 8,058 | | | $ | 597 | | | $ | 590,334 | |
December 31, 2020 | | | | | | | | | | | | |
Time deposits less than $100,000 | | $ | 83,751 | | | $ | 18,482 | | | $ | 32,112 | | | $ | 7,975 | | | $ | 1,528 | | | $ | 143,848 | |
Time deposits of $100,000 through $250,000 | | 91,727 | | | 57,715 | | | 81,622 | | | 4,421 | | | — | | | 235,485 | |
Time deposits of more than $250,000 | | 156,507 | | | 35,000 | | | 72,553 | | | 4,623 | | | — | | | 268,683 | |
Total | | $ | 331,985 | | | $ | 111,197 | | | $ | 186,287 | | | $ | 17,019 | | | $ | 1,528 | | | $ | 648,016 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | Three Months or Less | | Three to Six Months | | Six Months to One Year | | Over One Year | | | | Total |
June 30, 2022 | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Time deposits of $250,000 or less | | $ | 100,393 | | | $ | 90,778 | | | $ | 74,701 | | | $ | 5,084 | | | | | $ | 270,956 | |
Time deposits of more than $250,000 | | 134,962 | | | 38,200 | | | 71,662 | | | 1,200 | | | | | 246,024 | |
Total | | $ | 235,355 | | | $ | 128,978 | | | $ | 146,363 | | | $ | 6,284 | | | | | $ | 516,980 | |
Not covered by deposit insurance | | $ | 112,489 | | | $ | 25,578 | | | $ | 52,935 | | | $ | 1,294 | | | | | $ | 192,296 | |
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 | |
| | | | | | | | | | | | |
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.
Shareholders’ equity was $247.6$334.4 million at SeptemberJune 30, 2021,2022, an increase of $13.8$78.1 million, or 5.9%30.5%, from $233.8$256.3 million at December 31, 2020.2021. The increase was primarily due to an issuance of preferred stock of $69.1 million, net income of $29.4$19.3 million and cash proceeds from exercise of stock options of $1.0 million,$567 thousand, partially offset by repurchases of common stock of $10.9 million, dividends declared on common stock of $4.9$4.5 million and a decrease in accumulated other comprehensive income of $1.2$6.8 million.
Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. The Company is not currently subject to separate minimum capital measurements under the definition of a “Small Bank Holding Company.” At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank.
Federal banking agencies also require a capital conservation buffer of 2.50% in addition to the ratios required to generally be considered “adequately capitalized” under the prompt corrective action (“PCA”) regulations. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for the PCA, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
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 well as the Bank’s capital ratios as of September 30, 2021 and December 31, 2020.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.
| | | PCB Bancorp | | Pacific City Bank | | Minimum Regulatory Requirements | | Well Capitalized Requirements (Bank) | | PCB Bancorp | | Pacific City Bank | | Minimum Regulatory Requirements | | Well Capitalized Requirements (Bank) |
September 30, 2021 | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | 15.07 | % | | 14.76 | % | | 4.5 | % | | 6.5 | % | Common tier 1 capital (to risk-weighted assets) | | 14.44 | % | | 17.79 | % | | 4.5 | % | | 6.5 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 16.32 | % | | 16.01 | % | | 8.0 | % | | 10.0 | % | Total capital (to risk-weighted assets) | | 19.25 | % | | 18.92 | % | | 8.0 | % | | 10.0 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 15.07 | % | | 14.76 | % | | 6.0 | % | | 8.0 | % | Tier 1 capital (to risk-weighted assets) | | 18.11 | % | | 17.79 | % | | 6.0 | % | | 8.0 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 11.91 | % | | 11.66 | % | | 4.0 | % | | 5.0 | % | Tier 1 capital (to average assets) | | 15.37 | % | | 15.09 | % | | 4.0 | % | | 5.0 | % |
December 31, 2020 | | |
December 31, 2021 | | December 31, 2021 | |
Common tier 1 capital (to risk-weighted assets) | Common tier 1 capital (to risk-weighted assets) | | 15.97 | % | | 15.70 | % | | 4.5 | % | | 6.5 | % | Common tier 1 capital (to risk-weighted assets) | | 14.79 | % | | 14.48 | % | | 4.5 | % | | 6.5 | % |
Total capital (to risk-weighted assets) | Total capital (to risk-weighted assets) | | 17.22 | % | | 16.95 | % | | 8.0 | % | | 10.0 | % | Total capital (to risk-weighted assets) | | 16.04 | % | | 15.73 | % | | 8.0 | % | | 10.0 | % |
Tier 1 capital (to risk-weighted assets) | Tier 1 capital (to risk-weighted assets) | | 15.97 | % | | 15.70 | % | | 6.0 | % | | 8.0 | % | Tier 1 capital (to risk-weighted assets) | | 14.79 | % | | 14.48 | % | | 6.0 | % | | 8.0 | % |
Tier 1 capital (to average assets) | Tier 1 capital (to average assets) | | 11.94 | % | | 11.74 | % | | 4.0 | % | | 5.0 | % | Tier 1 capital (to average assets) | | 12.11 | % | | 11.85 | % | | 4.0 | % | | 5.0 | % |
|
The Company and the Bank’s capital conservation buffer was 8.32%11.25% and 8.01%10.92%, respectively, as of SeptemberJune 30, 2021,2022, and 9.22%8.04% and 8.95%7.73%, respectively, as of December 31, 2020.2021.
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.
The Series C Preferred Stock bears no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the lending growth criteria listed in the terms of the ECIP investment with the annual dividend rate up to 2%. After the tenth anniversary of the investment date, the dividend rate will be fixed based on average annual amount of lending in years 2 through 10. Dividends will be payable quarterly in arrears on March 15, June 15, September 15, and December 15.
The Series C Preferred Stock may be redeemed at the option of the Company on or after the fifth anniversary of issuance (or earlier in the event of loss of regulatory capital treatment), subject to the approval of the appropriate federal banking regulator and in accordance with the federal banking agencies’ regulatory capital regulations.
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.
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 cash flow and capital and strategic cash flow needs, all at a reasonable cost. The Company continuously monitors its liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of the Company’s shareholders.
The Company’s liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-bearing deposits in financial institutions, federal funds sold, and unpledged securities available-for-sale. Liquid liabilities may include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market non-core deposits, additional collateralized borrowings such as FHLB advances and Federal Reserve Discount Window, and the issuance of debt securities and preferred or common securities.
The Company’s short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in loan and investment securities portfolios, increases in debt financing and other borrowings, and increases in customer deposits.
Integral to the Company’s liquidity management is the administration of borrowings. To the extent the Company is unable to obtain sufficient liquidity through core deposits, the Company seeks to meet its liquidity needs through wholesale funding or other borrowings on either a short or long-term basis.
The Company had $10.0 million and $80.0 millionfollowing table presents a summary of outstanding FHLB advances at September 30, 2021 and December 31, 2020, respectively. Based on the values of loans pledged as collateral, the Company had $505.0 million and $425.3 million of additional borrowing capacity with FHLBCompany’s liquidity position as of September 30, 2021 and December 31, 2020, respectively. The Company also had $65.0 million and $65.0 million, respectively, of available unused unsecured federal funds lines at September 30, 2021 and December 31, 2020.the dates indicated:
In addition, available unused secured borrowing capacity from Federal Reserve Discount Window at September 30, 2021 and December 31, 2020 was $36.9 million and $35.8 million, respectively. Federal Reserve Discount Window was collateralized by loans totaling $45.1 million and $44.1 million as of September 30, 2021 and December 31, 2020, respectively. The Company’s borrowing capacity from the Federal Reserve Discount Window is limited by eligible collateral. | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ in thousands) | | June 30, 2022 | | December 31, 2021 | | Amount Change | | Percentage Change |
Cash and cash equivalents | | $ | 299,910 | | | $ | 203,285 | | | $ | 96,625 | | | 47.5 | % |
Cash and cash equivalents to total assets | | 12.8 | % | | 9.5 | % | | | | |
| | | | | | | | |
Available borrowing capacity: | | | | | | | | |
FHLB advances | | $ | 549,920 | | | $ | 516,158 | | | 33,762 | | | 6.5 | % |
Federal Reserve Discount Window | | 21,955 | | | 29,198 | | | (7,243) | | | (24.8) | % |
Overnight federal funds lines | | 65,000 | | | 65,000 | | | — | | | — | % |
Total | | $ | 636,875 | | | $ | 610,356 | | | $ | 26,519 | | | 4.3 | % |
Total available borrowing capacity to total assets | | 27.2 | % | | 28.4 | % | | | | |
| | | | | | | | |
The Company also maintains relationships in the capital markets with brokers and dealers to issue time deposits and money market accounts. As of September 30, 2021 and December 31, 2020, total cash and cash equivalents represented 10.2% and 10.1% of total assets, respectively.
On June 30, 2020, the Company also transferred securities held-to-maturity of $18.8 million to securities available-for-sale in order to secure additional liquidity on balance sheet. As of September 30, 2021, management was able to maintain strong on-and off-balance sheet liquidity as a result of proactive liquidity management in response to the COVID-19 pandemic.
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. Management believes that these limitations will not impact the Company’s ability to meet its ongoing short- and long-term cash obligations.
Off-Balance Sheet Activities and Contractual Obligations
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.
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company’s financial statements.
The Company’s exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated 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. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary is based on management’s credit evaluation of the customer. The following table presents outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated:
| | | September 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
($ in thousands) | ($ in thousands) | | Fixed Rate | | Variable Rate | | Fixed Rate | | Variable Rate | ($ in thousands) | | Fixed Rate | | Variable Rate | | Fixed Rate | | Variable Rate |
Unused lines of credit | Unused lines of credit | | $ | 5,852 | | | $ | 150,559 | | | $ | 6,623 | | | $ | 150,247 | | Unused lines of credit | | $ | 16,940 | | | $ | 201,910 | | | $ | 8,261 | | | $ | 160,739 | |
Unfunded loan commitments | Unfunded loan commitments | | 130 | | | 33,798 | | | 1,752 | | | 34,874 | | Unfunded loan commitments | | 1,086 | | | 39,500 | | | 595 | | | 29,688 | |
Standby letters of credit | Standby letters of credit | | 3,037 | | | 1,431 | | | 2,971 | | | 1,814 | | Standby letters of credit | | 2,921 | | | 1,701 | | | 3,078 | | | 1,431 | |
Commercial letters of credit | Commercial letters of credit | | 353 | | | — | | | — | | | — | | Commercial letters of credit | | — | | | 362 | | | 91 | | | 524 | |
Total | Total | | $ | 9,372 | | | $ | 185,788 | | | $ | 11,346 | | | $ | 186,935 | | Total | | $ | 20,947 | | | $ | 243,473 | | | $ | 12,025 | | | $ | 192,382 | |
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Contractual Obligations
The following table presents supplemental information regarding total contractual obligations as of the dates indicated:
| ($ in thousands) | ($ in thousands) | | Within One Year | | One to Three Years | | Three to Five Years | | Over Five Years | | Total | ($ in thousands) | | Within One Year | | One to Three Years | | Three to Five Years | | Over Five Years | | Total |
September 30, 2021 | | | | | | | | | | | |
June 30, 2022 | | June 30, 2022 | | | | | | | | | | |
Time deposits | Time deposits | | $ | 581,679 | | | $ | 8,058 | | | $ | 597 | | | $ | — | | | $ | 590,334 | | Time deposits | | $ | 510,696 | | | $ | 6,071 | | | $ | 213 | | | $ | — | | | $ | 516,980 | |
FHLB advances | | 10,000 | | | — | | | — | | | — | | | 10,000 | | |
| Operating leases | Operating leases | | 2,728 | | | 3,500 | | | 1,341 | | | 796 | | | 8,365 | | Operating leases | | 2,968 | | | 2,565 | | | 1,396 | | | 559 | | | 7,488 | |
Total | Total | | $ | 594,407 | | | $ | 11,558 | | | $ | 1,938 | | | $ | 796 | | | $ | 608,699 | | Total | | $ | 513,664 | | | $ | 8,636 | | | $ | 1,609 | | | $ | 559 | | | $ | 524,468 | |
December 31, 2020 | | | | | | | | | | | |
December 31, 2021 | | December 31, 2021 | | | | | | | | | | |
Time deposits | Time deposits | | $ | 629,469 | | | $ | 17,019 | | | $ | 1,528 | | | $ | — | | | $ | 648,016 | | Time deposits | | $ | 603,014 | | | $ | 10,850 | | | $ | 361 | | | $ | — | | | $ | 614,225 | |
FHLB advances | FHLB advances | | 70,000 | | | 10,000 | | | — | | | — | | | 80,000 | | FHLB advances | | 10,000 | | | — | | | — | | | — | | | 10,000 | |
Operating leases | Operating leases | | 2,494 | | | 4,342 | | | 1,413 | | | 818 | | | 9,067 | | Operating leases | | 2,706 | | | 3,023 | | | 1,235 | | | 710 | | | 7,674 | |
Total | Total | | $ | 701,963 | | | $ | 31,361 | | | $ | 2,941 | | | $ | 818 | | | $ | 737,083 | | Total | | $ | 615,036 | | | $ | 13,873 | | | $ | 1,596 | | | $ | 710 | | | $ | 631,899 | |
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Management believes that the Company will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. 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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss due to changes in market values of assets and liabilities. Market risk occurs in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.
Overview
Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).
The Company’s Board asset liability committee (“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. 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. As discussed earlier, the Company also has a Management ALCO, which is comprised of the senior management team and Chief Executive Officer,Officer. Management ALCO meets monthly and is responsible for reviewing the Company’s open market positions and establishing polices to proactively monitor itsand limit exposure to market risk.
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.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on interest-earning assets would reprice upward more quickly than rates paid on interest-bearing liabilities, thus expanding net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on interest-bearing liabilities would reprice upward more quickly than rates earned on interest-earning assets, thus compressing net interest margin.
Measurement
Interest rate risk exposure is measured and monitored through various risk management tools, which include a simulation model that performs interest rate sensitivity analyses under multiple interest rate scenarios. Interest rate risk measurement is calculated and reported to the Board ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
The Company uses two approaches to model interest rate risk: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). The Company uses a static balance sheet to perform these analysis. Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives. The Company uses a static balance sheet to perform these analyses. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement andsimulation reflects the effect of interest rate shifts on the value of the Company. In contrast to NII simulation, EVE simulation identifies risks arising from repricing or maturity gaps over the life of the balance sheet. The EVE approach provides a comparatively broader scope than the NII at Risk approach since it captures all anticipated cash flows.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
Simulated Rate Changes | | Net Interest Income Sensitivity | | Economic Value of Equity Sensitivity | | Net Interest Income Sensitivity | | Economic Value of Equity Sensitivity |
+300 | | 30.1 | % | | 21.5 | % | | 28.9 | % | | 17.4 | % |
+200 | | 20.1 | % | | 15.6 | % | | 19.4 | % | | 13.3 | % |
+100 | | 10.4 | % | | 8.6 | % | | 9.8 | % | | 7.6 | % |
| | | | | | | | |
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| | | | | | | | |
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| | June 30, 2022 | | December 31, 2021 |
Simulated Rate Changes | | Net Interest Income Sensitivity | | Economic Value of Equity Sensitivity | | Net Interest Income Sensitivity | | Economic Value of Equity Sensitivity |
+300 | | 17.2 | % | | 4.3 | % | | 26.2 | % | | 14.0 | % |
+200 | | 11.7 | % | | 3.7 | % | | 17.5 | % | | 10.6 | % |
+100 | | 5.9 | % | | 2.2 | % | | 8.7 | % | | 6.2 | % |
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Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”), as of SeptemberJune 30, 20212022 was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2021,2022, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the three months ended SeptemberJune 30, 20212022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II - Other Information
Item 1 - Legal Proceedings
In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel and have taken into consideration the views of such counsel as to the potential outcome of the claims in determining the accrued loss contingency. The Company did not have any accrued loss contingencies for legal claims at SeptemberJune 30, 2021.2022. It is reasonably possible the Company may incur losses in addition to the amounts currently accrued. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, the Company believes have little to no merit. Management has considered these and other possible loss contingencies and does not expect the amounts to be material to the consolidated financial statements.
Network and Data Incident
On August 30, 2021, the Bank identified unusual activity on its network. 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. 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. 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. The Bank has notified law enforcement and appropriate authorities of the incident.
On December16, 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. 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.). 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 and intends to answer, respond, and/or otherwise defend itself from the claims and causes of action asserted in the complaint to the fullest extent permitted by applicable law. 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. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began and the lawsuit mentioned above is in its very early stages. During the year ended December31, 2021, expenses associated with the data incident totaled $100 thousand, which represents the retention amount on its insurance claims. There were no additional expenses associated with the data incident during the three and six months ended June30, 2022. 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 1A - Risk Factors
System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
The computer systems and network infrastructure we use could be vulnerable to hardware and cyber-security issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal or external sources, including our third-party vendors. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure utilized by us, including our internet banking activities, against damage from physical break-ins, cyber-security breaches and other disruptive problems caused by the internet or other users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our internet banking services by current and potential customers.
We rely heavily on communications, information systems (both internal and provided by third-parties) and the internet to conduct our business. Our business is dependent on our ability to process and monitor large numbers of daily transactions in compliance with legal, regulatory and internal standards and specifications. In addition, a significant portion of our operations relies heavily on the secure processing, storage and transmission of personal and confidential information, such as the personal information of our customers and clients. In recent periods, several governmental agencies and large corporations, including financial service organizations and retail companies, have suffered major data breaches, in some cases exposing not only their confidential and proprietary corporate information, but also sensitive financial and other personal information of their clients or clients and their employees or other third-parties, and subjecting those agencies and corporations to potential fraudulent activity and their clients, clients and other third-parties to identity theft and fraudulent activity in their credit card and banking accounts. Therefore, security breaches and cyber-attacks can cause significant increases in operating costs, including the costs of compensating clients and customers for any resulting losses they may incur and the costs and capital expenditures required to correct the deficiencies in and strengthen the security of data processing and storage systems. 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.
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. Other threats of this type may include fraudulent or unauthorized access to data processing or data storage systems used by us or by our clients, electronic identity theft, “phishing,” account takeover, and malware or other cyber-attacks. To date, none of these types of attacks have had a material effect on our business or operations. Such security attacks can originate from a wide variety of sources, including persons who are involved with organized crime or who may be linked to terrorist organizations or hostile foreign governments. Those same parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information. 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.
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. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.
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, 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 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.
The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began. During the three months ended September 30, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income (Unaudited), totaled $100 thousand, which represents the retention amount on its insurance claims. 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. To date, no litigation has resulted from the data incident.
Management is not aware of any material changes, other than the noted above, to the risk factors that appeared under “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2020,2021, which could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The risks described in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management presently believes not to be material may also result in material and adverse effects on the Company’s business, financial condition, and results of operations.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
ThereExcept for the preferred stock discussed below, there were no unregistered sales of equity securities during the three and six months ended SeptemberJune 30, 2021.2022.
On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock for the capital investment of $69.1 million from the U.S. Treasury under the ECIP. For additional information, see Note 9 to the Consolidated Financial Statements (Unaudited) included in Item 1 of this Quarterly Report on Form 10-Q.
The following table presents share repurchase activities during the three months ended September 30, 2021:periods indicated:
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($ 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 July 1, 2021 to July 31, 2021 | | 33,935 | | | $ | 15.99 | | | 33,935 | | | — | |
From August 1, 2021 to August 31, 2021 | | — | | | — | | | — | | | — | |
From September 1, 2021 to September 30, 2021 | | — | | | — | | | — | | | — | |
Total | | 33,935 | | | $ | 15.99 | | | 33,935 | | | |
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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. The Company repurchased and retired 428,474 shares of common stock at a weighted-average price of $15.14 per share. | | | | | | | | | | | | | | | | | | | | | | | | | | |
($ 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 April 1, 2022 to April 30, 2022 | | — | | | $ | — | | | — | | | — | |
From May 1, 2022 to May 31, 2022 | | — | | | — | | | — | | | — | |
From June 1, 2022 to June 30, 2022 | | — | | | — | | | — | | | — | |
Total | | — | | | $ | — | | | — | | | |
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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. 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.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Mine Safety Disclosures
Not applicable.
Item 5 - Other Information
None
Item 6 - Exhibits
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Exhibit Number | | Description | | Form | | File No. | | Exhibit | | Filing Date |
3.1 | | | | 10-Q | | 001-38621 | | 3.1 | | August 8, 2019 |
3.2 | | | | 8-K | | 001-38621 | | 3.2 | | July 2, 2019 |
4.1 | | | | 10-Q | | 001-38621 | | 4.1 | | August 8, 2019 |
4.2 | | | | 10-K | | 001-38621 | | 4.2 | | March 9, 2020 |
10.1 | | | | S-1 | | 333-226208 | | 10.1 | | July 17, 2018 |
10.1A | | | | | | | | | | |
10.2 | | | | S-1 | | 333-226208 | | 10.2 | | July 17, 2018 |
10.3 | | | | S-1 | | 333-226208 | | 10.3 | | July 17, 2018 |
10.4 | | | | S-1 | | 333-226208 | | 10.4 | | July 17, 2018 |
10.5 | | | | S-1 | | 333-226208 | | 10.5 | | July 17, 2018 |
10.6 | | | | S-1 | | 333-226208 | | 10.6 | | July 17, 2018 |
31.1 | | | | | | | | | | |
31.2 | | | | | | | | | | |
32.1 | | | | | | | | | | |
32.2 | | | | | | | | | | |
101.INS | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document* | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document* | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document* | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | | | | | | | | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)* | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Description | | Form | | File No. | | Exhibit | | Filing Date |
3.1 | | | | 10-Q | | 001-38621 | | 3.1 | | August 8, 2019 |
3.2 | | | | 8-K | | 001-38621 | | 3.2 | | July 2, 2019 |
3.3 | | | | 8-K | | 001-38621 | | 3.1 | | May 24, 2022 |
4.1 | | | | 10-Q | | 001-38621 | | 4.1 | | August 8, 2019 |
4.2 | | | | | | | | | | |
4.3 | | | | 8-K | | 001-38621 | | 4.1 | | May 24, 2022 |
10.1 | | | | S-1 | | 333-226208 | | 10.1 | | July 17, 2018 |
10.1A | | | | 10-Q | | 001-38621 | | 10.1A | | November 8, 2021 |
10.1B | | | | 10-K | | 001-38621 | | 10.1B | | March 4, 2022 |
10.2 | | | | S-1 | | 333-226208 | | 10.2 | | July 17, 2018 |
10.3 | | | | S-1 | | 333-226208 | | 10.3 | | July 17, 2018 |
10.4 | | | | S-1 | | 333-226208 | | 10.4 | | July 17, 2018 |
10.5 | | | | S-1 | | 333-226208 | | 10.5 | | July 17, 2018 |
10.6 | | | | S-1 | | 333-226208 | | 10.6 | | July 17, 2018 |
10.7 | | | | 8-K | | 001-38621 | | 10.1 | | May 24, 2022 |
31.1 | | | | | | | | | | |
31.2 | | | | | | | | | | |
32.1 | | | | | | | | | | |
32.2 | | | | | | | | | | |
101.INS | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document* | | | | | | | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | | | | | | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document* | | | | | | | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document* | | | | | | | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | | | | | | | | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)* | | | | | | | | |
| | | | | | | | | | |
* Filed herewith
** Furnished herewith
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | PCB Bancorp |
| | | |
Date: | November 8, 2021August 4, 2022 | | /s/ Henry Kim |
| | | Henry Kim |
| | | President and Chief Executive Officer (Principal Executive Officer) |
| | | |
Date: | November 8, 2021August 4, 2022 | | /s/ Timothy Chang |
| | | Timothy Chang |
| | | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |