PCB BANCORP
For the period ended Mar 31, 2025. Filed Jun 9, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed Jun 9, 2025
PCB$30.04-0.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001423869-24-000044
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-06-09.
0001423869-25-000031
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 161 previous paragraphs and 146 current paragraphs.
83 unchanged; 42 reworded; 21 added; 20 removed; 16 previous and 0 current paragraphs rearranged.
Tables are not compared: 27 previous and 23 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (21)
Current report
Option Derivative
Current report
On January 16, 2025, the Company entered into the Option Agreement with the U.S. Treasury, which grants the Company the conditional option to repurchase the Series C Preferred Stock. The Company evaluated this purchase option in accordance with ASC 815, Derivatives and Hedging, and determined that this purchase option was a derivative. As no consideration is paid to the U.S. Treasury, whom is the existing shareholder, the fair value of option is considered capital contribution and recorded in Common Stock on the Consolidated Balance Sheet (Unaudited) in accordance with ASC 505, Equity. Subsequent changes in fair value will be recognized in earnings. The fair value change from January 16, 2025 to March 31, 2025 was deemed immaterial.
Current report
The fair value of the option derivative is based on the probability-weighted scenario discounted cash flow method. The model uses inputs such as the hypothetical purchase price of preferred stock calculated using the formula set forth in the Option Agreement, expected terms when the Company expects to be able to exercise, dividend rates that determine the purchase price at the time of exercise, discount rate, and probability of exercise.
Current report
For additional information, See Notes 2 and 9 to the Consolidated Financial Statements (Unaudited) included in Item 1 of the Quarterly Report on Form 10-Q for additional information regarding the valuation methodology and this purchase option.
Current report
•The Company recorded an option derivative of $35.8 million.
Current report
•Gain on sale of loans was $887 thousand for the three months ended March 31, 2025 compared with $1.1 million for the three months ended March 31, 2024.
Current report
•Total assets were $3.22 billion at March 31, 2025, an increase of $155.6 million, or 5.1%, from $3.06 billion at December 31, 2024;
Current report
•Loans held-for-investment were $2.73 billion at March 31, 2025, an increase of $98.2 million, or 3.7%, from $2.63 billion at December 31, 2024; and
Current report
•Total deposits were $2.71 billion at March 31, 2025, an increase of $98.6 million, or 3.8%, from $2.62 billion at December 31, 2024.
Current report
Interest expense on other borrowings decreased primarily due to a 90.7% decrease in average balance and 98 basis point decrease in average cost.
Current report
Provision for Credit Losses
Current report
Data processing decreased primarily due to a decreased overall service charges after the core system conversion.
Current report
Loans held-for-investment were $2.73 billion at March 31, 2025, an increase of $98.2 million, or 3.7%, from $2.63 billion at December 31, 2024. The increase was primarily due to new funding of term loans of $154.0 million and net increase of lines of credit of $29.3 million, partially offset by pay-downs and pay-offs of term loans of $84.8 million and charge-offs of $353 thousand.
Current report
The increase in ACL for the three months ended March 31, 2025 was primarily due to increases in loans held-for-investment, net charge-off, and quantitatively measured loss reserves, partially offset by the decreases in maximum loss rate used for qualitative factor reserves and reserves on individually evaluated loans.
Current report
The increase in the quantitatively measured loss reserve requirement was primarily due to the worsened year-over-year change in real GDP forecast and the increased unemployment rate forecast. The Company utilizes these forecasts published by the Federal Open Market Committee (“FOMC”). The 2025 year-end year-over-year change in forecasted real GDP decreased to 1.7% in the March 2025 FOMC meeting from 2.1% in December 2024. The forecasted year-end national unemployment rate increased to 4.4% in the March 2025 FOMC meeting from 4.3% in December 2024. Overall changes in macroeconomic projections resulted the increases of PD and LGD rates across majority of the loan segments leading to higher overall expected loss measurements.
Current report
The decrease in the qualitative adjustment factors was primarily due to credit quality improvements in commercial property loans and the overall decrease in maximums rates used as the high watermark.
Current report
Loans individually evaluated for impairment totaled $55.5 million and $52.0 million, respectively, and related reserve totaled $5 thousand and $59 thousand, respectively, at March 31, 2025 and December 31, 2024.
Current report
On January 16, 2025, the Company entered into the Option Agreement with the U.S. Treasury, which grants the Company the conditional option to repurchase the Series C Preferred Stock during the first 15 years following the Company’s issuance of the Series C Preferred Stock. The purchase price for the Preferred Stock under the Option Agreement is based on a formula equal to the present value of the Preferred Stock, calculated as set forth in the Option Agreement, together with any accrued and unpaid dividends thereon and could represent a discount from the Series C Preferred Stock’s liquidation amount.
Current report
The purchase option may not be exercised during the first 10 years following the Company’s sale of the Series C Preferred Stock (“the ECIP Period”) unless and until the Company meets at least one of the Threshold Conditions: (1) an average of at least 60% of the Company’s loan originations qualify as “Deep Impact Lending” over any 16 consecutive quarters, (2) an average of at least 85% of the Company’s “total originations qualify as “Qualified Lending” over any 24 quarters or (3) the Series C Preferred Stock has a dividend rate of no more than 0.5% at each of six consecutive “Reset Dates,” in each case as defined in Option Agreement and the terms of the Series C Preferred. In addition to satisfying a Threshold Condition, the Option Agreement requires that the Company meet certain other eligibility conditions in order to exercise the purchase option in the future, including compliance with the terms of the original ECIP purchase agreement and the terms of the Series C Preferred Stock, maintaining qualification as either a certified community development financial institution or a minority depository institution and satisfying other legal and regulatory criteria.
Current report
The earliest possible date by which a Threshold Condition may be met is June 30, 2026. However, the Company does not currently meet any of the Threshold Conditions necessary to exercise the purchase option, and there can be no assurance whether and when the Threshold Conditions will be met.
Current report
The following table presents the estimated purchase price based on the formula set forth in the Option Agreement as if the Company meet all Threshold Conditions as of March 31, 2025:
Removed paragraphs (20)
Previous report
•Gain on sale of loans was $750 thousand for the three months ended September 30, 2024 compared with $689 thousand for the three months ended September 30, 2023.
Previous report
•Total assets were $2.89 billion at September 30, 2024, an increase of $100.3 million, or 3.6%, from $2.79 billion at December 31, 2023;
Previous report
•Loans held-for-investment were $2.47 billion at September 30, 2024, an increase of $142.7 million, or 6.1%, from $2.32 billion at December 31, 2023; and
Previous report
•Total deposits were $2.46 billion at September 30, 2024, an increase of $108.1 million, or 4.6%, from $2.35 billion at December 31, 2023.
Previous report
(6) Annualized.
Previous report
Interest income on other interest-earning assets increased primarily due to a 17 basis point increase in average yield, partially offset by a 19.8% decrease in average balance. The increase in average yield was primarily due to an increase in dividends received on FHLB stock. For the three months ended September 30, 2024 and 2023, the average yield on total other interest-earning assets was 5.66% and 5.49%, respectively.
Previous report
The Company did not utilize borrowings during the three months ended September 30, 2023.
Previous report
Net interest income decreased primarily due to a 26.0% increase in average balance of interest-bearing liabilities and a 98 basis point increase in average cost, partially offset by a 12.6% increase in average balance of interest-earning assets and a 50 basis point increase in average yield.
Previous report
Interest and fees on loans increased primarily due to a 14.8% increase in average balance and a 46 basis point increase in average yield. The increase in average yield was primarily due to increases in overall interest rates on loans and net amortization of deferred loan fees.
Previous report
Interest on investment securities increased primarily due to a 44 basis point increase in average yield and a 1.6% increase in average balance. The increase in average yield was primarily due to a decrease in net amortization of premiums on securities and a higher yield on newly purchased investment securities. For the nine months ended September 30, 2024 and 2023, the average yield on total investment securities was 3.67% and 3.23%, respectively.
Previous report
Interest expense on deposits increased primarily due to a 24.0% increase in average balance of interest-bearing deposits and a 98 basis point increase in average cost of interest-bearing deposits. The increase in average balance was primarily due to the migration of noninterest-bearing deposits to money market accounts and time deposits attributable to the rising market rates. The increase in average cost was primarily due to an increase in market rates. For the nine months ended September 30, 2024 and 2023, average cost on total interest-bearing deposits was 4.85% and 3.87%, respectively, and average cost on total deposits were 3.76% and 2.70%, respectively.
Previous report
Interest expense on borrowings increased primarily due to a 579.7% increase in average balance and a 24 basis point increase in average cost of interest-bearing deposits. The increase in average cost was primarily due to an increase in market rates.
Previous report
Provision (reversal) for Credit Losses
Previous report
Occupancy and equipment increased primarily due to an expansion of headquarters location in the second half of 2023, the relocation of a regional office and the consolidation of two branches into a new location in Orange County, California starting from the three months ended June 30, 2024.
Previous report
Salaries and employee benefits increased primarily due to salaries, bonus accrual, incentives tied to sales of SBA loans originated at LPOs, and other employee benefits, partially offset by a decrease in vacation accrual. The number of full-time equivalent employees was 264 at September 30, 2024 compared to 270 at September 30, 2023.
Previous report
Occupancy and equipment increased primarily due to an expansion of headquarters location in the second half of 2023, and the relocation of a regional office and the consolidation of two branches into a new location in Orange County, California starting from the three months ended June 30, 2024.
Previous report
Loans held-for-investment were $2.47 billion at September 30, 2024, an increase of $142.7 million, or 6.1%, from $2.32 billion at December 31, 2023. The increase was primarily due to new funding and advances of $1.83 billion, partially offset by paydowns and payoffs of $1.69 billion.
Previous report
The decrease in noninterest-bearing demand deposits was primarily due to strong deposit market competition and the migration of noninterest-bearing demand deposits to interest-bearing deposits. To retain existing and attract new customers, the Bank offers competitive rates on deposit products.
Previous report
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 requirements under the Federal Reserve’s “Small Bank Holding Company” policy. At such time as the Company reaches the $3 billion asset level, it will be subject to consolidated capital requirements independent of the Bank.
Previous report
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 prompt corrective action (“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.
Reworded paragraphs (42)
Previous wording
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 nine months ended September 30, 2024. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.
Current wording
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 months ended March 31, 2025. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.
Previous wording
On January 1, 2023, the Company adopted the provisions of ASC 326, “Financial Instruments - Credit Losses (Topic 326)” Instruments. The adoption of ASC 326 changes the way the Company estimates the ACL on certain financial assets. The adoption of ASC 326 requires the Company to measure and record current expected credit losses for financial assets within the scope of ASC 326, which the Company currently consist substantially of loans, off-balance sheet credit exposures and securities available-for-sale. Measuring credit losses under the current expected credit losses (“CECL”) framework requires a significant amount of judgment, including the incorporation of reasonable and supportable forecasts about future conditions that may ultimately impact the level of credit losses the Company may recognize. Under the CECL framework, current expected credit losses are recorded on financial assets within the scope of ASC 326 at the time of their origination or acquisition.
Current wording
The Company accounts for credit losses on loans, off-balance sheet credit exposures and securities available-for-sale in accordance with ASC 326,“Financial Instruments - Credit Losses (Topic 326).”Measuring credit losses under the current expected credit losses (“CECL”) framework requires a significant amount of judgment, including the incorporation of reasonable and supportable forecasts about future conditions that may ultimately impact the level of credit losses the Company may recognize. Under the CECL framework, current expected credit losses are recorded on financial assets within the scope of ASC 326 at the time of their origination or acquisition.
Previous wording
Within the various economic scenarios considered as of September 30, 2024, the quantitative estimate of the ACL would increase by approximately $8.4 million under sole consideration of a more adverse downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled ACL estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the ACL for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.
Current wording
Within the various economic scenarios considered as of March 31, 2025, the quantitative estimate of the ACL would increase by approximately $19.9 million under sole consideration of a more adverse downside scenario. The quoted sensitivity calculation reflects the sensitivity of the modeled ACL estimate to macroeconomic forecast data, but is absent of qualitative overlays and other qualitative adjustments that are part of the quarterly reserving process and does not necessarily reflect the nature and extent of future changes in the ACL for reasons including increases or decreases in qualitative adjustments, changes in the risk profile and size of the portfolio, changes in the severity of the macroeconomic scenario and the range of scenarios under management consideration.
Previous wording
•Net income available for common shareholders was $7.5 million for the three months ended September 30, 2024, an increase of $445 thousand, or 6.3%, from $7.0 million for the three months ended September 30, 2023;
Current wording
•Net income available for common shareholders was $7.7 million for the three months ended March 31, 2025, an increase of $3.0 million, or 64.2%, from $4.7 million for the three months ended March 31, 2024;
Previous wording
▪Recorded a provision for credit losses of $50 thousand for the three months ended September 30, 2024 compared with $751 thousand for the three months ended September 30, 2023.
Current wording
▪Recorded a provision for credit losses of $1.6 million for the three months ended March 31, 2025 compared with $1.1 million for the three months ended March 31, 2024.
Previous wording
▪ACL on loan to loans held-for-investment ratio was 1.17% at September 30, 2024 compared with 1.19% at December 31, 2023.
Current wording
▪ACL on loans to loans held-for-investment ratio was 1.17% at March 31, 2025 compared with 1.16% at December 31, 2024.
Previous wording
•Net interest income was $22.7 million for the three months ended September 30, 2024 compared with $22.4 million for the three months ended September 30, 2023. Net interest margin was 3.25% for the three months ended September 30, 2024 compared with 3.57% for the three months ended September 30, 2023.
Current wording
•Net interest income was $24.3 million for the three months ended March 31, 2025 compared with $21.0 million for the three months ended March 31, 2024. Net interest margin was 3.28% for the three months ended March 31, 2025 compared with 3.10% for the three months ended March 31, 2024.
Previous wording
(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 of $246 thousand and $226 thousand, respectively, and net accretion of discount on loans of $773 thousand and $775 thousand, respectively, are included in the interest income for the three months ended September 30, 2024 and 2023.
Current wording
(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 of $266 thousand and $334 thousand, respectively, and net accretion of discount on loans of $872 thousand and $573 thousand, respectively, are included in the interest income for the three months ended March 31, 2025 and 2024.
Previous wording
Net interest income increased primarily due to an 11.4% increase in average balance of interest-earning assets and a 40 basis point increase in average yield, partially offset by a 22.2% increase in average balance of interest-bearing liabilities and a 68 basis point increase in average cost.
Current wording
Net interest income increased primarily due to a 10.2% increase in average balance of interest-earning assets and a 57 basis point decrease in average cost, partially offset by a 14.7% increase in average balance of interest-bearing liabilities and a 9 basis point decrease in average yield.
Previous wording
Interest and fees on loans increased primarily due to a 14.9% increase in average balance and a 39 basis point increase in average yield. The increase in average yield was primarily due to increases in overall interest rates on loans and net amortization of deferred loan fees.
Current wording
Interest and fees on loans increased primarily due to an 11.8% increase in average balance, partially offset by a 7 basis point decrease in average yield. The decrease in average yield was primarily due to decreases in market rates and net amortization of deferred loan fees, partially offset by an increase in net accretion of discount on loans.
Previous wording
Interest on investment securities increased primarily due to a 39 basis point increase in average yield and a 6.1% increase in average balance. The increase in average yield was primarily due to a higher yield on newly purchased investment securities. For the three months ended September 30, 2024 and 2023, the average yield on total investment securities was 3.73% and 3.34%, respectively.
Current wording
Interest on investment securities increased primarily due to a 4.3% increase in average balance and a 33 basis point increase in average yield. The increase in average yield was primarily due to a higher yield on newly purchased investment securities. For the three months ended March 31, 2025 and 2024, the average yield on total investment securities was 3.90% and 3.57%, respectively.
Previous wording
Interest income on other interest-earning assets increased primarily due to a 51 basis point increase in average yield, partially offset by a 2.3% decrease in average balance. The increase in average yield was primarily due to an increase in interest rate on cash held at the Federal Reserve Bank and dividends received on FHLB stock. For the nine months ended September 30, 2024 and 2023, the average yield on total other interest-earning assets was 5.67% and 5.16%, respectively.
Current wording
Interest income on other interest-earning assets decreased primarily due to a 3.5% decrease in average balance and a 91 basis point decrease in average yield. The decrease in average yield was primarily due to a decrease in interest rate on cash held at the Federal Reserve Bank. For the three months ended March 31, 2025 and 2024, the average yield on total other interest-earning assets was 4.76% and 5.67%, respectively.
Previous wording
Interest expense on deposits increased primarily due to a 21.2% increase in average balance of interest-bearing deposits and an 68 basis point increase in average cost of interest-bearing deposits. The increase in average balance was primarily due to the migration of noninterest-bearing deposits to money market accounts and time deposits attributable to the rising market rates. The increase in average cost was primarily due to an increase in market rates. For the three months ended September 30, 2024 and 2023, average cost on total interest-bearing deposits was 4.85% and 4.17%, respectively, and average cost on total deposits were 3.78% and 2.97%, respectively.
Current wording
Interest expense on deposits increased primarily due to a 17.1% increase in average balance of interest-bearing deposits, partially offset by a 56 basis point decrease in average cost of interest-bearing deposits. The decrease in average cost was primarily due to a decrease in market rates. For the three months ended March 31, 2025 and 2024, average cost on total interest-bearing deposits was 4.28% and 4.84%, respectively, and average cost on total deposits were 3.44% and 3.73%, respectively.
Previous wording
The following tables present a composition of provision (reversal) for credit losses for the periods indicated:
Current wording
The following tables present a composition of provision for credit losses for the periods indicated:
Previous wording
The provision for credit losses for the three and nine months ended September 30, 2024 was primarily due to increases in loans held-for-investment and quantitatively measured loss reserve requirement, partially offset by a decrease in reserve related to qualitative adjustment factors. See further discussion in “Allowance for Credit Losses.”
Current wording
The provision for credit losses for the three months ended March 31, 2025 was primarily due to increases in loans held-for-investment, net charge-offs, and quantitatively measured loss reserves, partially offset by the decreases in maximum loss rate used for qualitative factor reserves and reserves on individually evaluated loans. See further discussion in “Allowance for Credit Losses.”
Previous wording
Loan servicing income decreased primarily due to a decrease in servicing fee income and an increase in servicing asset amortization. Servicing asset amortization was $478 thousand and $470 thousand, respectively, for the three months ended September 30, 2024 and 2023.
Current wording
Loan servicing income decreased primarily due to a decrease in servicing fee income and an increase in servicing asset amortization. Servicing asset amortization was $549 thousand and $374 thousand, respectively, for the three months ended March 31, 2025 and 2024.
Previous wording
Gain on sale of loans increased primarily due to an increase in level of premium on SBA loans in the secondary market, partially offset by a decrease in sales volume. The Company sold SBA loans of $13.5 million with a gain of $750 thousand and a residential mortgage loan of $676 thousand at par during the three months ended September 30, 2024. During the three months ended September 30, 2023, the Company sold SBA loans of $17.7 million with a gain of $689 thousand.
Current wording
Gain on sale of loans decreased primarily due to decreases in level of premium on SBA loans in the secondary market and sales volume. The Company sold SBA loans of $16.6 million with a gain of $887 thousand during the three months ended March 31, 2025. During the three months ended March 31, 2024, the Company sold SBA loans of $19.4 million with a gain of $1.1 million.
Previous wording
Other income primarily included wire transfer fees of $156 thousand and $162 thousand, respectively, and debit card interchange fees of $154 thousand and $103 thousand, respectively, for the three months ended September 30, 2024 and 2023.
Current wording
Other income primarily included wire transfer fees of $153 thousand and $141 thousand, respectively, and debit card interchange fees of $86 thousand and $81 thousand, respectively, for the three months ended March 31, 2025 and 2024.
Previous wording
Salaries and employee benefits increased primarily due to increases in salaries, bonus accrual, incentives tied to sales of SBA loans originated at LPOs, and other employee benefits, partially offset by a decrease in vacation accrual. The number of full-time equivalent employees was 264 at September 30, 2024 compared to 270 at September 30, 2023.
Current wording
Salaries and employee benefits decreased primarily due to a decrease in salaries and an increase in direct loan origination cost, which offsets and defers the recognition of salaries and benefits expense, partially offset by an increase in bonus accrual. The number of full-time equivalent employees was 257 at March 31, 2025 compared to 272 at March 31, 2024.
Previous wording
Professional fees decreased primarily due to the completion a core system conversion that was completed in April 2024, resulting in high professional fees during the three months ended September 30, 2024.
Current wording
Professional fees decreased primarily due to professional fees incurred during the year-ago quarter related to a core system conversion that was completed in April 2024.
Previous wording
Other expenses included $315 thousand and $311 thousand in loan related expenses, $1.7 million and $1.6 million in office expense, and $635 thousand and $588 thousand in armed guard expense for the nine months ended September 30, 2024 and 2023, respectively. In addition, the Company recognized a termination charge for the legacy core system of $508 thousand and an expense of $815 thousand for a reimbursement for an SBA loan guarantee previously paid by the SBA on a loan originated in 2014 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guaranty during the nine months ended September 30, 2024.
Current wording
Other expenses included $92 thousand and $94 thousand in loan related expenses, $478 thousand and $515 thousand in office expense, and $183 thousand and $204 thousand in armed guard expense for the three months ended March 31, 2025 and 2024, respectively. During the three months ended March 31, 2025, the Company recognized an impairment of operating lease assets of $146 thousand for a sublease contract and contingent liabilities for legal settlements of $183 thousand. During the three months ended March 31, 2024, the Company recognized termination charge for the legacy core system of $508 thousand and an expense of $815 thousand for a reimbursement for an SBA loan guarantee previously paid by the SBA on a loan originated in 2014 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guaranty.
Previous wording
Income tax expense was $2.9 million and $3.0 million, respectively, and the effective tax rate was 26.9% and 29.7%, respectively, for the three months ended September 30, 2024 and 2023. For nine months ended September 30, 2024 and 2023, income tax expense was $7.2 million and $10.2 million, respectively, and the effective tax rate was 27.7% and 29.2%, respectively.
Current wording
Income tax expense was $3.1 million and $1.8 million, respectively, and the effective tax rate was 28.3% and 27.9%, respectively, for the three months ended March 31, 2025 and 2024.
Previous wording
Total investment securities were $147.6 million at September 30, 2024, an increase of $4.3 million, or 3.0%, from $143.3 million at December 31, 2023. The increase was primarily due to purchases of $14.8 million and an increase in fair value of securities available-for-sale of $3.5 million, partially offset by principal paydowns of $13.9 million and net premium amortization of $123 thousand.
Current wording
Total investment securities were $148.2 million at March 31, 2025, an increase of $1.8 million, or 1.3%, from $146.3 million at December 31, 2024. The increase was primarily due to purchases of $3.0 million and an increase in fair value of securities available-for-sale of $3.2 million, partially offset by principal paydowns of $4.3 million and net premium amortization of $31 thousand.
Previous wording
As of September 30, 2024, 95.3%, at amortized cost basis, of the Company's securities available-for-sale were issued by U.S. government agency and U.S. government sponsored enterprise. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL.
Current wording
As of March 31, 2025 and December 31, 2024, 95.3% and 95.3%, respectively, of the Company's securities available-for-sale at amortized cost basis were issued by U.S. government agency and U.S. GSEs. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell these securities before their anticipated recovery, the Company determined that these securities with unrealized losses did not warrant an ACL as of March 31, 2025 and December 31, 2024.
Previous wording
Municipal and corporate bonds 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 September 30, 2024. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. 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 did not warrant an ACL as of September 30, 2024.
Current wording
Municipal and corporate bonds 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 March 31, 2025 and December 31, 2024. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. Additionally, the Company continues to receive contractual principal and interest payments in a timely manner. 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 therefore determined that the investment securities with unrealized losses did not warrant an ACL as of March 31, 2025 and December 31, 2024.
Previous wording
As of September 30, 2024, the Company recorded no ACL on securities available-for-sale.
Current wording
As of March 31, 2025 and December 31, 2024, the Company recorded no ACL on securities available-for-sale.
Previous wording
Loans held-for-sale were $5.2 million at September 30, 2024, an increase of $15 thousand, or 0.3%, from $5.2 million at December 31, 2023. The increase was primarily due to new funding of $48.3 million and a loan transferred from loan held-for-investment of $676 thousand, partially offset by sales of $47.2 million and pay-offs and pay-downs of $1.8 million.
Current wording
Loans held-for-sale were $12.1 million at March 31, 2025, an increase of $5.8 million, or 92.3%, from $6.3 million at December 31, 2024. The increase was primarily due to new funding of $22.5 million, partially offset by sales of $16.6 million and pay-offs and pay-downs of $45 thousand.
Previous wording
The increase in ACL for the three months ended September 30, 2024 was primarily due to increases in loans held-for-investment and quantitatively measured loss reserve requirement, partially offset by a decrease in reserve related to qualitative adjustment factors. The increase in the quantitatively measured loss reserve requirement was primarily due to the increased unemployment rate forecasts by the Federal Open Market Committee (“FOMC”). The projected 2024 and 2025 year-end national unemployment rate increased to 4.4% and 4.4%, respectively, in the September 2024 meeting from 4.0% and 4.2%, respectively, in the June 2024 meetings, which resulted an increase in probability of default (“PD”) rates for the 4-quarter projected period. The projected 2024 year-end year-over-year change in real GDP decreased to 2.0% in the September 2024 meeting from 2.1% in the June 2024 meetings. The projected 2025 year-end year-over-year change in real GDP was maintained at 2.0% at both meetings. Management believes that the projections used are reasonable and aligns with the Company’s expectation of the economic environment over the next 4 quarters.
Current wording
Management believes that the projections used are reasonable and aligns with the Company’s expectation of the economic environment over the next 4 quarters.
Previous wording
The increase in nonaccrual loans held-for-investment was primarily due to loans placed on nonaccrual status of $6.6 million, partially offset by paydowns and payoffs of $1.6 million, loans returned to accrual status of $2.0 million, charge-offs of $126 thousand, and a loan transferred to OREO of $94 thousand during the nine months ended September 30, 2024.
Current wording
The increase in nonaccrual loans held-for-investment was primarily due to loans placed on nonaccrual status of $3.0 million, partially offset by paydowns and payoffs of $1.4 million and charge-offs of $1 thousand during the three months ended March 31, 2025.
Previous wording
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 $171 thousand and $432 thousand would have been recorded during the three and nine months ended September 30, 2024, respectively, had these loans been paid in accordance with their original terms throughout the periods indicated.
Current wording
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 $144 thousand would have been recorded during the three months ended March 31, 2025 had these loans been paid in accordance with their original terms throughout the periods indicated.
Previous wording
The increase in retail time deposits was primarily due to new accounts of $272.7 million and renewals of the matured accounts of $560.4 million, partially offset by matured and closed accounts of $760.8 million.
Current wording
The increase in retail time deposits was primarily due to new accounts of $162.2 million and renewals of the matured accounts of $339.0 million, partially offset by matured and closed accounts of $430.9 million.
Previous wording
As of September 30, 2024 and December 31, 2023, total deposits were comprised of 22.0% and 25.3%, respectively, of noninterest-bearing demand accounts, 20.0% and 17.9%, respectively, of savings, NOW and money market accounts, and 58.0% and 56.8%, respectively, of time deposits.
Current wording
As of March 31, 2025 and December 31, 2024, total deposits were comprised of 20.8% and 20.9%, respectively, of noninterest-bearing demand accounts, 18.9% and 17.9%, respectively, of savings, NOW and money market accounts, and 60.3% and 61.2%, respectively, of time deposits.
Previous wording
Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $3.3 million and $3.7 million, respectively, at September 30, 2024 and December 31, 2023.
Current wording
Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $3.9 million and $6.0 million, respectively, at March 31, 2025 and December 31, 2024.
Previous wording
Shareholders’ equity was $362.3 million at September 30, 2024, an increase of $13.4 million, or 3.8%, from $348.9 million at December 31, 2023. The increase was primarily due to net income of $18.8 million and a decrease in accumulated other comprehensive loss of $2.5 million, partially offset by dividends declared on common stock of $7.7 million, repurchases of common stock of $222 thousand and preferred stock dividends of $488 thousand.
Current wording
Shareholders’ equity was $406.6 million at March 31, 2025, an increase of $42.8 million, or 11.8%, from $363.8 million at December 31, 2024. The increase was primarily due to net income of $7.7 million, a recognition of option derivative of $35.8 million as a capital contribution, a decrease in accumulated other comprehensive loss of $2.3 million and proceeds from stock option exercises of $684 thousand, partially offset by dividends declared on common stock of $2.9 million, repurchases of common stock of $953 thousand and preferred stock dividends of $40 thousand.
Previous wording
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 the dates indicated. For comparison purpose, the Company’s ratios are included as well, all of which would have exceeded the “well-capitalized” level under PCA had the Company been subject to separate capital minimums.
Current wording
The following table presents a summary of the minimum capital adequacy requirements applicable to the Company and the Bank and the minimum capital requirements for the Bank to be considered “well-capitalized” from a regulatory perspective as of the dates indicated:
Previous wording
To avoid restrictions on dividends, share repurchases and discretionary compensation payments to executives, the federal banking agencies require a banking organization to maintain a capital conservation buffer of 2.50% in common tier 1 capital, in addition to the minimum capital ratios necessary to minimum regulatory requirements. The capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 capital (to risk-weighted assets) ratio to 8.5% and the minimum total capital ratio (to risk-weighted assets) to 10.5% for banking organizations seeking to avoid the limitations on dividends, share repurchases and discretionary compensation payments to executives. The Company’s and the Bank’s capital conservation buffer were 7.42% and 7.54%, respectively, as of September 30, 2024, and 7.73% and 8.07%, respectively, as of December 31, 2023.
Current wording
To avoid restrictions on dividends, share repurchases and discretionary compensation payments to executives, the federal banking agencies require a banking organization to maintain a capital conservation buffer of 2.50% in common tier 1 capital, in addition to the minimum capital ratios adequacy requirements. The capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 capital (to risk-weighted assets) ratio to 8.5% and the minimum total capital ratio (to risk-weighted assets) to 10.5% for banking organizations seeking to avoid the limitations on dividends, share repurchases and discretionary compensation payments to executives. The Company’s and the Bank’s capital conservation buffers were 8.02% and 6.63%, respectively, as of March 31, 2025, and 6.94% and 6.92%, respectively, as of December 31, 2024.
Previous wording
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. The ECIP investment qualifies as tier 1 capital for purposes of the bank regulatory capital requirements.
Current wording
On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock with a 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 ECIP. The ECIP investment qualifies as tier 1 capital for purposes of the bank regulatory capital requirements.
Previous wording
The Series C Preferred Stock accrued no dividend for the first 24 months following the investment date. Beginning on May 24, 2024, holders of the Series C Preferred Stock are entitled to quarterly non-cumulative cash dividends as declared by the Company’s Board of Directors. The Series C Preferred Stock dividend rate adjusts annually 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 terms of the Series C Preferred Stock prohibit the Company from paying dividends on or repurchasing shares of its common stock unless it has paid or contemporaneously pays the full Series C Preferred Stock dividend with respect to the preceding quarterly dividend period.
Current wording
The Series C Preferred Stock accrued no dividend for the first 24 months following the investment date. Thereafter, the dividend rate will be adjusted based on the qualified 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 are payable quarterly in arrears on March 15, June 15, September 15, and December 15.
Previous wording
Established by the Consolidated Appropriations Act of 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.
Current wording
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.
Previous wording
The Company began paying quarterly dividends on the Series C Preferred Stock at 2% beginning in the three months ended June 30, 2024. Dividends on the Series C Preferred Stock totaled $346 thousand and $488 thousand for the three and nine months ended September 30, 2024, respectively.
Current wording
The Company began paying quarterly dividends on the Series C Preferred Stock in the three months ended June 30, 2024. Dividends on the Series C Preferred Stock totaled $40 thousand for the three months ended March 31, 2025.
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Previous report — wording carried elsewhere
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 periods indicated:
Previous report — wording carried elsewhere
(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 of $919 thousand and $648 thousand, respectively, and net accretion of discount on loans of $2.1 million and $2.2 million, respectively, are included in the interest income for the nine months ended September 30, 2024 and 2023.
Previous report — wording carried elsewhere
(2) The yield on municipal bonds has not been computed on a tax-equivalent basis.
Previous report — wording carried elsewhere
(3) Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
Previous report — wording carried elsewhere
(4) Net interest margin is calculated by dividing net interest income by average interest-earning assets.
Previous report — wording carried elsewhere
(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.
Previous report — wording carried elsewhere
The following table presents the components of net interest income for the periods indicated:
Previous report — wording carried elsewhere
The following table presents the components of noninterest income for the periods indicated:
Previous report — wording carried elsewhere
Loan servicing income decreased primarily due to a decrease in servicing fee income and an increase in servicing asset amortization. Servicing asset amortization was $1.4 million and $1.3 million, respectively, for the nine months ended September 30, 2024 and 2023.
Previous report — wording carried elsewhere
Gain on sale of loans decreased primarily due to an increase in level of premium on SBA loans in the secondary market, partially offset by a decrease in sales volume. The Company sold SBA loans of $46.5 million with a gain of $2.6 million and a residential mortgage loan of $676 thousand at par during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, the Company sold SBA loans of $61.6 million with a gain of $2.8 million.
Previous report — wording carried elsewhere
Other income primarily included wire transfer fees of $462 thousand and $467 thousand, respectively, and debit card interchange fees of $253 thousand and $254 thousand, respectively, for the nine months ended September 30, 2024 and 2023.
Previous report — wording carried elsewhere
Other expenses included $97 thousand and $114 thousand in loan related expenses, $625 thousand and $565 thousand in office expense, and $221 thousand and $206 thousand in armed guard expense for the three months ended September 30, 2024 and 2023, respectively.
Previous report — wording carried elsewhere
The following table presents the components of noninterest expense for the periods indicated:
Previous report — wording carried elsewhere
Professional fees decreased primarily due to the completion a core system conversion that was completed in April 2024, resulting in high professional fees during the nine months ended September 30, 2024.
Previous report — wording carried elsewhere
Marketing and business promotion expense decreased primarily due to a decrease in advertisements.
Previous report — wording carried elsewhere
Regulatory assessments increased primarily due to an increase in the balance sheet.