What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-09 compared with 2022-03-04 · 110 added, 164 removed, 1323 unchanged (17% of the section changed)

43 unchanged sentences

Federal Home Loan Bank and other restricted stock, at cost 10,183 8,577

Other real estate owned, net — 1,401

Bank-owned life insurance 30,064 29,358

16 unchanged sentences

Commitments and contingent liabilities

Preferred stock, 10,000,000 shares authorized, no par value, no issued and outstanding shares

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 December 31, 2022 and 2021, respectively.

Common stock, 60,000,000 shares authorized, no par value;

2 unchanged sentences

Retained earnings 127,181 101,140

Accumulated other comprehensive income, net 154 1,956

Accumulated other comprehensive income (loss), net ( 10,511 ) 154

Total shareholders’ equity 335,442 256,286

24 unchanged sentences

Gain on sale of loans 7,990 12,932 6,527

Gain on sale of securities available-for-sale — — 786

Other income 1,508 1,429 1,247

26 unchanged sentences

Unrealized gain (loss) on securities available-for-sale arising during the year ( 15,128 ) ( 2,553 ) 2,064

Reclassification adjustment for net gain included in net income — — ( 786 )

Unrealized gain arising from the reclassification of securities held-to-maturity to securities available-for-sale — — 787

7 unchanged sentences

(in thousands, except share data)

Shareholders’ Equity

Common Stock Outstanding Shares Common stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Shares Outstanding Shareholders’ Equity

Preferred Stock Common Stock Preferred Stock Common stock

Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

Balance at January 1, 2020 — 15,707,016 $ — $ 169,221 $ 57,670 $ ( 57 ) $ 226,834

Cumulative effect adjustment upon adoption of new lease accounting standard — — ( 53 ) — ( 53 )

Adjusted balance at January 1, 2019 15,977,754 174,366 37,524 ( 1,647 ) 210,243

Comprehensive income

2 unchanged sentences

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 )

4 unchanged sentences

Balance at December 31, 2020 — 15,385,878 — 164,140 67,692 1,956 233,788

Comprehensive income

Comprehensive income (loss)

Net income — — — — 40,103 — 40,103

Other comprehensive income, net of tax — — — 2,013 2,013

Other comprehensive loss, net of tax — — — — — ( 1,802 ) ( 1,802 )

Issuance of restricted stock — 35,584 — — — — —

Forfeiture of restricted stock — ( 1,300 ) — — — — —

Restricted stock surrendered due to employee tax liability — ( 231 ) — ( 4 ) — — ( 4 )

8 unchanged sentences

Other comprehensive loss, net of tax — — — — — ( 10,665 ) ( 10,665 )

Issuance of preferred stock 69,141 — 69,141 69,141

Issuance of restricted stock — 27,700 — — — — —

23 unchanged sentences

Bank-owned life insurance income ( 706 ) ( 108 ) —

Deferred tax benefit ( 1,953 ) ( 3,670 ) ( 2,573 )

Deferred tax expense (benefit) 12,172 ( 1,953 ) ( 3,670 )

Share-based compensation 539 453 715

Gain on sale of securities available-for-sale — — ( 786 )

Gain on sale of loans ( 7,990 ) ( 12,932 ) ( 6,527 )

6 unchanged sentences

Purchase of securities available-for-sale ( 57,360 ) ( 47,306 ) ( 39,385 )

Proceeds from sale of securities available-for-sale — — 33,627

Proceeds from maturities, calls, and paydowns of securities available-for-sale 23,200 41,078 37,182

Purchase of securities held-to-maturity — — ( 2,150 )

Proceeds from maturities, calls, and paydowns of securities held-to-maturity — — 1,309

9 unchanged sentences

Net increase in deposits 178,849 272,283 115,544

Net change in short-term Federal Home Loan Bank advances 20,000 — —

Proceeds from long-term Federal Home Loan Bank advances — — 140,000

2 unchanged sentences

Restricted stock surrendered due to employee tax liability ( 8 ) ( 4 ) ( 2 )

Issuance of preferred stock 69,141 — —

Repurchase of common stock ( 6,732 ) ( 10,876 ) ( 6,487 )

23 unchanged sentences

Nature of Operations

PCB Bancorp is a bank holding company whose subsidiary is Pacific City Bank.

On July 1, 2019, the Company changed its corporate name to “PCB Bancorp” from “Pacific City Financial Corporation.” 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 LPOs in Irvine, Artesia and Los Angeles, California;

PCB Bancorp is a bank holding company whose subsidiary is PCB Bank (the “Bank”), which is a single operating segment.

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 on the East Coast (Bayside, New York;

and Englewood Cliffs and Palisades Park, New Jersey), and two full-service branches in Texas (Carrollton and Dallas), and seven LPOs 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.

72 unchanged sentences

• 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.

Loan Modifications Related to the COVID-19 Pandemic :

As a part of the CARES Act, the temporal relief from 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.

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 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.

Small Business Administration Paycheck Protection Program :

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 and 2020, the Company had 354 and 1,585 SBA PPP loans totaling $ 65.3 million and $ 135.7 million, net of unamortized deferred fees and costs, respectively.

As of December 31, 2021, the Company recognized $ 181.8 million in forgiveness.

The Company amortizes these deferred fees and costs without prepayment assumption using the contractual lives of SBA PPP loans.

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 December 31, 2021 and 2020.

Allowance for Loan Losses

9 unchanged sentences

The allowance consists of general reserves (collectively evaluated for impairment) and specific reserves (individually evaluated for impairment).

General reserves cover non-impaired loans and are based on historical loss rates over the most recent four years for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience.

General reserves cover non-impaired loans and are based on historical loss rates over the most recent 11 years for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience.

The Company utilizes a migration analysis to measure actual historical loss experience, with the resulting historical loss rate adjusted for any applicable loss emergence period factors serving as the base loss rate to estimate the amount of appropriate loss reserve.

58 unchanged sentences

Return of this investment is generated primarily through allocated federal tax credits and other tax benefits.

The recorded investment amount was $ 1.6 million and $ 1.9 million, respectively, and unfunded commitments were $ 51 thousand and $ 57 thousand, respectively, at December 31, 2021 and 2020.

The recorded investment amount was $ 4.3 million and $ 1.6 million, respectively, and unfunded commitments were $ 2.9 million and $ 51 thousand, respectively, at December 31, 2022 and 2021.

The recorded investment amount is included in Other Assets and unfunded commitment is included in Accrued Interest Payable and Other Liabilities on the Consolidated Statements of Financial Condition.

As components of income tax expense, the Company recognized amortizations of $ 247 thousand, $ 240 thousand and $ 261 thousand, respectively, and federal tax credits and other benefits of $ 299 thousand, $ 300 thousand and $ 304 thousand, respectively, for the years ended December 31, 2021, 2020 and 2019.

As components of income tax expense, the Company recognized $ 343 thousand, $ 247 thousand and $ 240 thousand in amortization expense, respectively, partially offset by federal tax credits and other benefits of $ 336 thousand, $ 299 thousand and $ 300 thousand, respectively, for the years ended December 31, 2022, 2021 and 2020.

The Company determined that there were no events or changes in circumstances indicating that it is more likely than not that the carrying amount of the investment will not be realized.

Therefore, no impairment was recorded at December 31, 2021 and 2020.

Therefore, no impairment was recorded for the years ended December 31, 2022 and 2021.

Bank-owned Life Insurance

The Company purchased life insurance policies on certain officers and directors during the year ended December 31, 2021.

The Company purchases life insurance policies on certain officers and directors.

The Bank and named beneficiaries of various current covered officers are the beneficiaries under each policy.

62 unchanged sentences

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 is effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

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 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.

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 will adopt this ASU during the three months ended March 31, 2023.

The Company is currently in its final stage of CECL implementation.

The Company is testing its designed models with an independent third party and is completing development of its methodologies, and data/input gathering and validation.

In addition, the Company is devising risk documentation, policies and procedures associated with CECL to support the ongoing estimation activities and the continuous assessment of risks related to the model, its methodologies, and data governance.

The Company has completed its parallel-runs during the year ended December 31, 2022.

Based on the Company’s current assessment of this ASU, the Company expects to recognize coverage ratio of allowance for credit losses (“ACL”) on loans from 1.12 % to 1.32 % of loans held-for-investment.

In addition, the Company expects to recognize additional reserve for ACL on off-balance sheet items ranging from $ 1.1 million to $ 1.4 million.

The Company expects to recognize no ACL on securities available-for-sale.

The adjustment recorded upon adoption of CECL may differ from management’s estimated change based on material changes in the economic forecast and conditions, and composition of the loan portfolio used in calculating the ACL upon adoption.

This impact will be recorded as a cumulative-effect adjustment to retained earnings as of January 1, 2023.

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 eliminate 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 with ASU 2016-13.

The Company does not expect to have a material impact on its consolidated financial statements upon adoption of this ASU.

Fair Value Measurements

42 unchanged sentences

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:

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of the dates indicated:

Fair Value Measurement Level

25 unchanged sentences

Municipal bonds — 5,686 — 5,686

Corporate bonds — 5,071 — 5,071

Total securities available-for-sale — 123,198 — 123,198

4 unchanged sentences

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:

The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:

Fair Value Measurement Level

5 unchanged sentences

Impaired loans:

SBA property $ — $ — $ 17 $ 17

Commercial lines of credit (1)

— — 4,000 4,000

Total impaired loans — — 4,000 4,000

Total assets measured at fair value on a non-recurring basis

$ — $ — $ 4,000 $ 4,000

Total liabilities measured at fair value on a non-recurring basis

3 unchanged sentences

SBA property $ — $ — $ 17 $ 17

Commercial lines of credit — — 904 904

SBA commercial term — — 255 255

Total impaired loans — — 17 17

Total assets measured at fair value on a non-recurring basis

$ — $ — $ 17 $ 17

Total liabilities measured at fair value on a non-recurring basis

$ — $ — $ — $ —

(1) Included in loans held-for-sale

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 dates indicated:

2 unchanged sentences

Impaired loans:

SBA property $ 17 Fair value of collateral NM NM

Commercial lines of credit $ 4,000 Pending sales agreement NM NM

December 31, 2021

1 unchanged sentence

SBA property $ 17 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 %)

SBA commercial term $ 255 Fair value of collateral NM NM

For assets measured at fair value, the following table presents the total net losses, which include charge-offs, recoveries, specific reserves, impairment on servicing assets, gain (loss) on sale of OREO, and OREO valuation write-downs recorded for the periods indicated:

35 unchanged sentences

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

Carrying Value Fair Value

Fair Value Measurements

($ in thousands) Level 1 Level 2 Level 3

50 unchanged sentences

5,329 357 — 5,686

Corporate bonds 5,000 71 — 5,071

Total securities available-for-sale $ 123,185 $ 1,322 $ ( 1,309 ) $ 123,198

17 unchanged sentences

Gross realized gains on sales and calls of securities available-for-sale

$ — $ — $ 786

Gross realized losses on sales and calls of securities available-for-sale

3 unchanged sentences

Tax expense on sales and calls of securities available-for-sale

$ — $ — $ 234

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:

12 unchanged sentences

SBA loan pool securities 7,161 ( 325 ) 12 821 ( 89 ) 2 7,982 ( 414 ) 14

Municipal bonds 3,314 ( 78 ) 11 — — — 3,314 ( 78 ) 11

Corporate bonds 4,523 ( 477 ) 1 — — — 4,523 ( 477 ) 1

Total securities available-for-sale $ 82,769 $ ( 5,792 ) 136 $ 44,780 $ ( 9,441 ) 45 $ 127,549 $ ( 15,233 ) 181

42 unchanged sentences

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 December 31, 2021 and 2020, the Company had $ 398 thousand and $ 3.9 million, respectively, of such loans outstanding.

As of December 31, 2022 and 2021, the Company had $ 113 thousand and $ 398 thousand, respectively, of such loans outstanding.

Allowance for Loan Losses

11 unchanged sentences

63 565 66 694

Provision for loan losses

9,157 3,736 326 13,219

Reversal for loan losses ( 2,136 ) ( 2,362 ) ( 98 ) ( 4,596 )

Balance at December 31, 2021 16,797 5,310 274 22,381

1 unchanged sentence

Recoveries on loans previously charged off

63 565 66 694

Reversal for loan losses ( 2,136 ) ( 2,362 ) ( 98 ) ( 4,596 )

Provision (reversal) for loan losses 2,430 1,226 ( 54 ) 3,602

Balance at December 31, 2022 $ 19,227 $ 5,502 $ 213 $ 24,942

20 unchanged sentences

Credit Quality Indicators

The following table presents the risk categories for the recorded investment in loans by portfolio segment as of dates indicated:

The following table presents the risk categories for the recorded investment in loans by portfolio segment as of the dates indicated:

($ in thousands) Pass Special Mention Substandard Doubtful Total

26 unchanged sentences

Total $ 1,708,945 $ 18,092 $ 5,168 $ — $ 1,732,205

Substandard SBA property loans included $ 109 thousand and $ 113 thousand of guaranteed portion by the U.S.

Substandard SBA property loans included none and $ 109 thousand of guaranteed portion by the U.S.

government agency at December 31, 2022 and 2021, respectively.

The Company had no loans under modified terms related to the COVID-19 pandemic as of December 31, 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:

The following table presents the aging of past due recorded investment in accruing loans and nonaccrual loans by portfolio segment as of the dates indicated:

Still Accruing

2 unchanged sentences

Real estate loans:

Commercial property $ — $ — $ — $ 2,400 $ 2,400

Residential property $ — $ — $ — $ 372 $ 372

SBA property — — — 585 585

Commercial and industrial loans:

SBA commercial term — — — 213 213

Other consumer loans 47 87 — 3 137

2 unchanged sentences

Real estate loans:

Commercial property $ — $ — $ — $ 524 $ 524

Residential property $ 461 $ — $ — $ — $ 461

1 unchanged sentence

Commercial and industrial loans:

Commercial lines of credit — — — 904 904

SBA commercial term — — — 213 213

3 unchanged sentences

government agency at December 31, 2022 and 2021.

All loans under modified terms related to the COVID-19 pandemic were on accrual status and current at December 31, 2020.

Impaired Loans

6 unchanged sentences

Commercial property $ 2,721 $ 2,727 $ — $ — $ —

Residential property 372 372 — — —

SBA property 798 840 — — —

Commercial and industrial loans:

Commercial term 2 2 — — —

SBA commercial term 219 227 — — —

Total $ 3,891 $ 3,939 $ — $ — $ —

2 unchanged sentences

Commercial property $ 326 $ 325 $ — $ — $ —

Residential property 189 189 — — —

SBA property 988 1,033 — — —

1 unchanged sentence

Commercial term 2 2 — — —

Commercial lines of credit 904 904 — — —

SBA commercial term 219 227 — — —

38 unchanged sentences

Loans that were modified as TDRs were individually evaluated for impairment and the Company allocated $ 0 and $ 0 of allowance for loan losses as of December 31, 2022 and 2021, respectively.

There were no new TDRs for the year ended December 31, 2021.

There were no new TDRs for the year ended December 31, 2022 or 2021.

The following table presents new loans that were modified as TDRs by portfolio segment for the periods indicated:

1 unchanged sentence

($ in thousands) Number of Loans

Pre-Modification Recorded Investment Post-Modification Recorded Investment Number of Loans

Pre-Modification Recorded Investment Post-Modification Recorded Investment

Real estate loans:

Commercial property — $ — $ — 1 $ 341 $ 341

SBA property — — — 2 254 254

Commercial and industrial loans:

1 unchanged sentence

Total 2 $ 37 $ 37

The following table summarized the TDRs by modification type for the periods indicated:

Principal (1)

Principal and Interest (2)

($ in thousands) Number of Loans

Pre-Modification Recorded Investment Number of Loans

Pre-Modification Recorded Investment

Year ended December 31, 2020:

Commercial and industrial loans:

SBA commercial term 2 $ 37 — $ — 2 $ 37

Total 2 $ 37 — $ — 2 $ 37

Year ended December 31, 2019:

Real estate loans:

Commercial property — $ — 1 $ 341 1 $ 341

SBA property 2 254 — — 2 254

Commercial and industrial loans:

SBA commercial term 2 15 — — 2 15

Total 4 $ 269 1 $ 341 5 $ 610

(1) Includes forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payment to interest only payment.

(2) Includes principal and interest deferments or reductions.

(1) Includes loans modified with forbearance payments, term extensions and principal deferments that modify the terms of the loan from principal and interest payment to interest only payment.

There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the years ended December 31, 2022 and 2021.

8 unchanged sentences

Commercial and industrial loans:

Commercial lines of credit 4,000 — —

SBA commercial term — — 230

18 unchanged sentences

Real estate loans:

Residential property $ — $ 300

SBA property $ 16,473 $ 33,603

Commercial and industrial loans:

Commercial lines of credit 4,000 —

SBA commercial term 2,338 3,423

25 unchanged sentences

The Company used the incremental borrowing rate based on the information available in determining the present value of lease payment.

The following table presents supplemental balance sheet information related to leases as of December 31, 2021:

The following table presents supplemental balance sheet information related to leases as of the dates indicated:

($ in thousands) 2022 2021

4 unchanged sentences

Weighted-average discount rate 2.66 % 2.36 %

The following table presets maturities of operating lease liabilities as of December 31, 2021:

The following table presents maturities of operating lease liabilities as of the date indicated:

($ in thousands) December 31, 2022

8 unchanged sentences

Loan servicing income was $ 3.0 million, $ 2.8 million and $ 2.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The following table presents the composition of servicing assets with key assumptions used to estimate the fair value:

The following table presents the composition of servicing assets with key assumptions used to estimate the fair value as of the dates indicated:

($ in thousands) Residential Property SBA Property SBA Commercial Term Residential Property SBA Property SBA Commercial Term

11 unchanged sentences

The following table presents activity in servicing assets for the periods indicated:

($ in thousands) Residential Property SBA Property SBA Commercial Term Total

($ in thousands) Residential Property SBA Property

SBA Commercial Term Total

Balance at January 1, 2020 $ 171 $ 5,805 $ 822 $ 6,798

31 unchanged sentences

Total $ 139 $ 8 $ 51

The Company provided a loan of $ 250 thousand and $ 1.5 million to finance the sale of its OREO property during the year ended December 31, 2021 and 2020, respectively.

The Company did no t provide loans to finance the sale of its OREO properties during the year ended December 31, 2022.

The Company provided a loan of $ 250 thousand and $ 1.5 million to finance the sale of its OREO properties during the year ended December 31, 2021 and 2020, respectively.

At December 31, 2022 and 2021, total deposits were $ 2.05 billion and $ 1.87 billion, respectively, and total interest-bearing deposits were $ 1.31 billion and $ 1.04 billion, respectively.

The aggregate amount of deposits reclassified as loans, such as overdrafts, was $ 81 thousand and $ 39 thousand at December 31, 2022 and 2021, respectively.

Total deposits not covered by deposit insurance were $ 919.6 million and $ 737.2 million, respectively, and total time deposits not covered by deposit insurance were $ 216.3 million and $ 224.7 million, respectively, at December 31, 2021 and 2020.

Total deposits not covered by deposit insurance were $ 1.06 billion and $ 919.6 million, respectively, and total time deposits not covered by deposit insurance were $ 294.0 million and $ 216.3 million, respectively, at December 31, 2022 and 2021.

The Company had California State Treasurer’s deposits of $ 60.0 million and $ 100.0 million in time deposits of more than $250,000 at December 31, 2022 and 2021, respectively.

3 unchanged sentences

Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $ 2.8 million and $ 3.9 million at December 31, 2022 and 2021, respectively.

The following table presents scheduled maturities of time deposits as of December 31, 2021:

The following table presents scheduled maturities of time deposits as of the date indicated:

December 31, 2022

($ in thousands) 2023 2024 2025 2026 2027 Thereafter Total

7 unchanged sentences

The Company had $ 20.0 million and $ 10.0 million in FHLB advances at December 31, 2022 and 2021, respectively.

FHLB advances consisted of a fixed rate term borrowing with with a maturity date of June 29, 2022 (original maturity term of five years ) at December 31, 2021.

The following table presents scheduled maturities of FHLB advances as of December 31, 2021:

FHLB advances as of December 31, 2022 consisted of an overnight borrowing with a maturity date of January 3, 2023.

The following table presents scheduled maturities of FHLB advances as of the date indicated:

December 31, 2022

($ in thousands) 2023 2024 2025 2026 Thereafter Total

16 unchanged sentences

Advances paid early are subject to a prepayment penalty.

At December 31, 2021 and 2020, loans pledged to secure from FHLB advances were $ 982.7 million and $ 834.4 million, respectively.

At December 31, 2022 and 2021, loans pledged to secure from FHLB advances were $ 1.16 billion and $ 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, respectively, at December 31, 2022 and 2021.

4 unchanged sentences

Shareholders’ Equity

Preferred Stock

Series C, Senior Non-Cumulative Perpetual Preferred Stock

On May 24, 2022, the Company issued 69,141 shares of Senior 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 from the U.S.

Treasury under the Emergency 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 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 the 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.

Stock Repurchases

On March 28, 2019, the Company’s Board of Directors approved the repurchase of up to $ 6.5 million of the Company’s common stock through March 27, 2020.

During the year ended December 31, 2019, the Company completed the repurchase program, and repurchased and retired 396,715 shares of common stock at a weighted-average price of $ 16.33 per share.

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.

3 unchanged sentences

The 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.

On July 28, 2022, the Company’s Board of Directors approved a repurchase program authorizing for the repurchase of up to 5 % of the Company’s outstanding common stock as of the date of the board meeting, which represented 747,938 shares, through February 1, 2023.

The Company repurchased and retired 362,557 shares of common stock at a weighted-average price of $ 18.57 per share, totaling $ 6.7 million under this repurchase program as of December 31, 2022.

Share-Based Compensation

11 unchanged sentences

Related tax benefits $ 113 $ 84 $ 76

The following table presents unrecognized share-based compensation expense as of December 31, 2021:

The following table presents unrecognized share-based compensation expense as of the date indicated:

December 31, 2022

($ in thousands) Unrecognized Expense Weighted-Average Remaining Expected Recognition Period

14 unchanged sentences

Expected term

6.71 years N/A 5.00 years

6.50 years 6.71 years N/A

Expected stock price volatility

13 unchanged sentences

$ 5.03 $ 3.76 $ —

The following table represents stock option activity as of and for the year ended December 31, 2021:

The following table represents stock option activity as of and for the period indicated:

Year Ended December 31, 2022

8 unchanged sentences

Exercisable at end of year 472,637 $ 11.21 3.26 years $ 3,064

The following table represents information regarding unvested stock options for the year ended December 31, 2021:

The following table represents information regarding unvested stock options for the period indicated:

Year Ended December 31, 2022

23 unchanged sentences

The Board of Directors may make a discretionary contribution to the plan annually.

The Company’s contribution to the plan was $ 901 thousand, $ 807 thousand and $ 831 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company’s contribution to the plan was $ 1.1 million, $ 901 thousand and $ 807 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.

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

6 unchanged sentences

State 3,738 ( 525 ) ( 1,447 )

Total deferred income tax benefit ( 1,953 ) ( 3,670 ) ( 2,573 )

Total deferred income tax expense (benefit) 12,172 ( 1,953 ) ( 3,670 )

$ 14,416 $ 16,856 $ 6,836

7 unchanged sentences

0.07 % 0.05 % 0.39 %

Bank-owned life insurance ( 0.30 ) % ( 0.04 ) % — %

Other items, net

7 unchanged sentences

Share-based compensation 298 303

Unrealized loss on investment securities 4,459 —

Loans held-for-sale market adjustment — 2,445

6 unchanged sentences

Unrealized gain on investment securities — 4

Loans held-for-sale market adjustment 8,745 —

Deferred loan origination costs 98 177

54 unchanged sentences

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.

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 global supply chain disruptions and high inflation.

Network and Data Incident

10 unchanged sentences

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.

The Bank expresses no opinion on the merits of the Matter.

The Bank had answered, responded, and will continue to 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.

1 unchanged sentence

During the year ended December 31, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income, totaled $ 100 thousand, which represents the retention amount on its insurance claims.

During the year ended December 31, 2022, the Company incurred additional legal expenses of $ 220 thousand associated with the on-going legal matters related to the data incident, all of which are included in Professional Fees in Consolidated Statement of Income.

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.

Regulatory Matters

7 unchanged sentences

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:

The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of the dates indicated:

Actual Minimum Capital Requirement To Be Well Capitalized Under Prompt Corrective Provisions

5 unchanged sentences

Tier 1 capital (to average assets) 345,501 14.33 % 96,472 4.0 % N/A N/A

Pacific City Bank

Common tier 1 capital (to risk-weighted assets) $ 338,891 16.30 % $ 93,553 4.5 % $ 135,131 6.5 %

7 unchanged sentences

Tier 1 capital (to average assets) 255,650 12.11 % 84,445 4.0 % N/A N/A

Pacific City Bank

Common tier 1 capital (to risk-weighted assets) $ 250,145 14.48 % $ 77,761 4.5 % $ 112,321 6.5 %

2 unchanged sentences

Tier 1 capital (to average assets) 250,145 11.85 % 84,443 4.0 % 105,554 5.0 %

On December 16, 2021, the Treasury informed the Company, that the Treasury has reviewed the Company’s application to receive a capital investment from the Treasury under the ECIP, and that the Company would be eligible to receive an ECIP investment in an amount up to approximately $ 69.1 million in the form of non-dilutive Tier 1 senior perpetual preferred capital.

The Company determined to accept the offer to receive the ECIP investment for the full amount and it expects to close in the second quarter of 2022, both of which are subject to final determination by the U.S.

Established by the Consolidated Appropriations Act, 2021, the ECIP was created to encourage low- and moderate-income community financial institutions and minority depository institutions such as the Bank to augment their efforts to support small businesses and consumers in their communities.

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.

6 unchanged sentences

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.

On April 30, 2019, the FDIC, the CDFPI and the Bank entered into a stipulation consenting to the issuance of a consent order (the “Order”) relating to the Bank’s BSA/AML.

Subsequent to the Order, the Bank implemented many actions to respond to the requirements of the Order and submitted all required reports to the FDIC and CDFPI.

On September 30, 2020, the FDIC and CDFPI terminated the Order upon the Bank’s satisfaction of the terms and requirements of the Order to their satisfaction.

Revenue Recognition

19 unchanged sentences

$ 6,549 $ 5,451

Investment in Pacific City Bank

250,780 229,871

Investment in subsidiary 328,832 250,780

Total assets $ 335,442 $ 256,286

26 unchanged sentences

Change in other assets ( 6 ) ( 11 ) 47

Change in other liabilities — — ( 19 )

Net cash provided by operating activities 15,944 17,834 13,083

3 unchanged sentences

Cash flows from financing activities:

Issuance of preferred stock 69,141 — —

Restricted stock surrendered due to employee tax liability ( 8 ) ( 4 ) ( 2 )

10 unchanged sentences

The dividend was paid on February 17, 2023, to shareholders of record as of the close of business on February 10, 2023.

The Company has evaluated the effects of events that have occurred subsequent to December 31, 2021 through the issuance date of these consolidated financial statements.

Other than the event 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.

Amendment to the Stock Repurchase Plan.

On January 26, 2023, the Company’s Board of Directors approved an amendment to its current repurchase program that was approved and announced on July 28, 2022, which extends the expiration date from February 1, 2023 to February 1, 2024.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data