What changed in this filing

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Item 1. Business

2023-03-09 compared with 2022-03-04 · 39 added, 63 removed, 674 unchanged (13% of the section changed)

PCB Bancorp, formerly known as Pacific City Financial Corporation, (collectively, with its consolidated subsidiary, the “Company,” “we,” “us” or “our”) is a California corporation incorporated in 2007 as a registered bank holding company subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), to serve as the holding company for Pacific City Bank (the “Bank”), which was founded in 2003.

The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange counties, California, one full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and 10 loan production offices (“LPOs”) located in Irvine, Artesia and Los Angeles, California;

PCB Bancorp (collectively, with its consolidated subsidiary, the “Company,” “we,” “us” or “our”) is a California corporation incorporated in 2007 as a registered bank holding company subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), to serve as the holding company for PCB Bank (the “Bank”), which was founded in 2003.

The Company changed its subsidiary name from Pacific City Bank to PCB Bank on August 25, 2022.

The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches in on the East Coast (Bayside, New York;

and Englewood Cliffs and Palisade Park, New Jersey), two full-service branches in Texas (Carrollton and Dallas), and seven loan production offices (“LPOs”) located in Los Angeles and Orange Counties, California;

Annandale, Virginia;

Atlanta, Georgia;

Chicago, Illinois;

Bellevue, Washington;

Aurora, Colorado;

Carrollton, Texas;

and New York, New York.

Bellevue, Washington;

and Carrollton, Texas.

The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals.

The principal executive office of the Company is located at 3701 Wilshire Boulevard, Suite 900, Los Angeles, California 90010, and its telephone number is (213) 210-2000.

The reports, proxy statements and other information that the Company files with the SEC, as well as news releases, are available free of charge through the Company’s website at www.paccitybank.com.

The reports, proxy statements and other information that the Company files with the SEC, as well as news releases, are available free of charge through the Company’s website at www.mypcbbank.com.

This information can be found under the “Investor Relations” link on the website.

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Reference to the Company’s website address is not intended to incorporate any of the information contained on the Company’s website into this document.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on recent global economic and market conditions, including significant disruption of, and volatility in, financial markets;

global supply chain disruptions;

and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company’s operations and a large majority of its customers are located.

On March 27, 2020, the CARES Act was enacted to address the economic impact resulted from the COVID-19 pandemic.

The CARES Act included various initiatives, such as extended unemployment benefits, mortgage forbearance, the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) and the temporary relief from troubled debt restructuring (“TDRs”).

The Economic Aid Act was signed into law on December 27, 2020, and provided additional stimulus relief, reauthorized PPP, and extended the temporary relief from TDR treatment for certain loans modified in connection with COVID-19.

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, 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.

SBA PPP Loans

SBA launched the 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 C&I portfolio and have an interest rate of 1%.

The substantial majority of the PPP loans funded during the year ended December 31, 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.

SBA PPP loans funded during the year ended December 31, 2021 have a maturity of five years.

As of December 31, 2021, the Company had 354 SBA PPP loans totaling $65.3 million, net of unamortized deferred fees and costs and recognized $182.7 million in forgiveness.

For additional information on loans, see “Loans Held-For-Investment and Allowance for Loan Losses” included in Item 7 and Note 4 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

Loan Modifications Related to the COVID-19 Pandemic

As a part of the CARES Act, the temporary relief from TDRs provided an option for financial institutions to suspend the U.S.

generally accepted accounting principles (“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.

On April 7, 2020, the federal banking regulators also issued the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)” (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 December 31, 2021 and 2020, total loans under modified terms related to the COVID-19 pandemic, including payment deferments and interest only payments, were none and $36.1 million, respectively.

All of these 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 have 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 accrual status as of December 31, 2020;

however, all of these loans were monitored on an ongoing basis in accordance with each loan’s covenants and conditions for potential downgrade or change in accrual status.

Liquidity and Capital

In addition, the Company has been monitoring its liquidity and capital closely.

As of December 31, 2021, the Company maintained $203.3 million, or 9.5% of total assets, of cash and cash equivalents and $610.4 million, or 28.4% of total assets, of available borrowing capacity.

All regulatory capital ratios were also well above the regulatory well capitalized requirements as of December 31, 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 impact its business, results of operations, and financial condition negatively.

Subsidiary Name Change

On August 25, 2022, the Company’s subsidiary changed its name to “PCB Bank” from “Pacific City Bank.” In addition, the Company introduced a new logo, which was also utilized by the Bank after its name change.

In accordance with the name change, the Bank updated its website, branch signage and marketing collateral.

Corporate Name Change

On July 1, 2019, the Company changed its corporate name to “PCB Bancorp” from “Pacific City Financial Corporation” in order to align the corporate name with the trading symbol of the its common stock and simplify corporate communications while maintaining its core branding.

On July 1, 2019, the Company changed its corporate name to “PCB Bancorp” from “Pacific City Financial Corporation” in order to align the corporate name with the trading symbol of its common stock and simplify corporate communications while maintaining its core branding.

Initial Public Offering

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For lending limit purposes, a secured loan is defined as a loan secured by collateral having a current fair value of at least 100% of the amount of the loan or extension of credit at all times and satisfying certain other requirements.

The largest aggregate amount of loans that the Bank had outstanding to any one borrower and related entities was $29.6 million, which were performing at December 31, 2021.

The largest aggregate carrying value of loans that the Bank had outstanding to any one borrower and related entities was $55.0 million, which were performing at December 31, 2022.

Risk Governance

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Real estate loans:

Residential property $ — — % $ 300 15.2 %

SBA property $ 16,473 72.3 % $ 33,603 90.8 %

Commercial and industrial loans:

Commercial lines of credit

4,000 17.5 % — — %

SBA commercial term 2,338 10.2 % 3,423 9.2 %

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In underwriting loans secured by CRE, the Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s age, condition, operating history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.

The underwriting analysis may also include credit verification, reviews of appraisals, environmental hazard reports, the borrower’s liquidity and leverage, management experience of the owners or principals, economic condition and industry trends.

Also, tertiary sources of repayment in the form of personal guarantees from responsible parties are generally required on loans secured by CRE.

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Commercial term loans are typically extended to finance business acquisitions, permanent working capital needs, and/or equipment purchases.

Commercial lines of credit are generally provided to finance short-term working capital needs.

Commercial lines of credit are generally provided to finance short-term working capital needs and warehouse lending credit facilities.

Warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a mortgage that a borrower uses to purchase SFR property or refinance an existing mortgage.

SBA commercial term loans are provided to small businesses under the U.S.

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The Company strives to retain an attractive deposit mix from both large and small customers as well as a broad market reach.

As of December 31, 2021, the Company’s top 10 customers accounted for 10.5% of total deposits.

As of December 31, 2022, the Company’s top 10 customers, excluding wholesale deposits, accounted for 15.1% of total deposits.

The Company believes the competitive pricing and products, convenient branch locations, and quality personal customer service enable the Company to attract and retain deposits.

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A prepayment penalty is usually imposed for early repayment of these advances.

As of December 31, 2021, the Company had outstanding FHLB advances of $10.0 million and maintained additional borrowing capacity of $516.2 million.

As of December 31, 2022, the Company had outstanding overnight FHLB advances of $20.0 million and maintained additional borrowing capacity of $561.7 million.

For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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Market Area and Competition

The Company is headquartered in Los Angeles, California and operates 11 full-service branches in Los Angeles and Orange counties, California, one full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and 10 LPOs in Irvine, Artesia and Los Angeles, California;

The Company is headquartered in Los Angeles, California and operates 11 full-service branches in Los Angeles and Orange Counties, California, three full-service branches in on the East Coast (Bayside, New York;

Annandale, Virginia;

Atlanta, Georgia;

Chicago, Illinois;

Bellevue, Washington;

Aurora, Colorado;

Carrollton, Texas;

and New York, New York.

Bellevue, Washington;

and Carrollton, Texas.

The Company operates in highly competitive market areas.

3 unchanged sentences

Human Capital

At December 31, 2021, the Company had a total of 245 full-time employees and 4 part-time employees.

As of December 31, 2022, the Company had a total of 267 full-time employees and 7 part-time employees.

The Company’s employees are not represented by any collective bargaining group.

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Never has this been more necessary than during the COVID-19 pandemic.

In response to the COVID-19 pandemic, the Company has taken significant steps to protect the health and well-being of its employees and customers, including implementing a work-from-home policy, and providing automated thermometers and sanitization stations in branches and departments.

In response to the COVID-19 pandemic, the Company took significant steps to protect the health and well-being of its employees and customers, including implementing a work-from-home policy, and providing automated thermometers and sanitization stations in branches and departments.

Supervision and Regulation

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The Economic Growth Act also added certain protections for consumers, including veterans and active duty military personnel, expanded credit freezes and creation of an identity theft protection database.

The Economic Growth Act also made changes for bank holding companies, as it raised the threshold for automatic designation as a systemically important financial institution from $50 billion to $250 billion in assets, subjects banks with $100 billion to $250 billion in total assets to periodic stress tests, exempts from stress test requirements entirely banks with under $100 billion in assets, and required the federal banking regulators to, within 180 days of passage, raised the asset threshold under the Small Bank Holding Company Policy Statement from $1 billion to $3 billion.

The Economic Growth Act also made changes for bank holding companies, as it raised the threshold for automatic designation as a systemically important financial institution from $50 billion to $250 billion in assets, subjects banks with $100 billion to $250 billion in total assets to periodic stress tests, exempts from stress test requirements entirely banks with under $100 billion in assets, and required the federal banking regulators to, within 180 days of passage, raise the asset threshold under the Small Bank Holding Company Policy Statement from $1 billion to $3 billion.

The Economic Growth Act also added certain protections for student borrowers.

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Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including the recalibration of the risk weights and the introduction of new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital.

Under the Basel framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.

Under the Basel framework, these standards generally became effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.

Under the current U.S.

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If the Company’s fails to adhere to these policies, the Federal Reserve could find that the Company is operating in an unsafe and unsound manner.

In addition, under the Basel III Rule, institutions that seek to pay dividends must maintain 2.5% in CET1 attributable to the capital conservation buffer, which is to be phased in over a three-year period that began on January 1, 2016.

In addition, under the Basel III Rule, institutions that seek to pay dividends must maintain 2.5% in CET1 attributable to the capital conservation buffer, which was phased in over a three-year period that began on January 1, 2016.

See “Supervision and Regulation - Regulatory Capital Requirements” above.

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The rule also requires bank service providers to notify each affected banking organization if that bank service provider experiences a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.

The rule becomes effective on April 1, 2022, with a compliance date of May 1, 2022.

The rule became effective on April 1, 2022, with a compliance date of May 1, 2022.

On January 3, 2023, the federal banking agencies issued a joint statement on crypto-asset risks to banking organizations following events which exposed vulnerabilities in the crypto-asset sector, including the risk of fraud and scams, legal uncertainties, significant volatility, and contagion risk.

Although banking organizations are not prohibited from crypto-asset related activities, the agencies have expressed significant safety and soundness concerns with business models that are concentrated in crypto-asset related activities or have concentrated exposures to the crypto-asset sector.

Presently, the Bank does not engage in any crypto-asset related activities.

Branching Authority

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On December 12, 2019, the FDIC and the OCC announced a proposal to modernize the agencies’ regulations under the CRA that have not been substantively updated for nearly 25 years.

The proposal will clarify what qualifies for credit under the CRA, enabling banks and their partners to better implement reinvestment and other activities that can benefit communities.

The agencies will also create an additional definition of “assessment areas” tied to where deposits are located, in part to address changes that have occurred due to the rise in digital banking, ensuring that banks continue to provide loans and other services to low- and moderate-income persons in those areas.

Although the proposed rule was never finalized by the FDIC, it is expected that there will be inter-agency efforts to update and finalize a rule soon.

On May 20, 2020, the OCC issued a CRA final rule, which was later rescinded by final rule on December 15, 2021.

Subsequently, on May 5, 2022, the Federal Reserve, the FDIC and the OCC issued a joint notice of proposed rulemaking to strengthen and modernize the CRA regulatory framework.

The proposal clarifies what qualifies for credit under the CRA, enabling banks and their partners to better implement reinvestment and other activities that can benefit communities.

The agencies also propose additional definitions for community development activities, an evaluation framework tailored for differences in bank size and business model, and to revise data collection and reporting requirements to increase the clarity, consistency, and transparency of the evaluation process through the use of standard metrics and benchmarks.

It is expected that there will be inter-agency efforts to update and finalize a rule soon.

Anti-Money Laundering and Office of Foreign Assets Control Regulation

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In general, however, banks with assets of $10 billion or less, such as the Bank, will continue to be examined for consumer compliance by their primary bank regulator.

On June 9, 2022, the CDFPI’s proposed commercial financing disclosure regulations were approved, which became effective on December 9, 2022.

The regulations require commercial financing providers to disclose certain information to assist small businesses in making more informed decisions, including the amount of funding the small business will receive, the Annual Percentage Rate calculated for the transaction, the term, details related to prepayment policies and an average monthly cost.

Mortgage and Mortgage-Related Products, Generally

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business