PCB BANCORP

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 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.

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 and six months ended June 30, 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

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.

Current wording

Within the various economic scenarios considered as of June 30, 2025, the quantitative estimate of the ACL would increase by approximately $22.4 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.

Previous wording

A portion of the collectively evaluated ACL on loans also includes qualitative adjustments for risk factors not reflected or captured by the quantitative modeled ACL but are relevant in estimating future expected credit losses. Qualitative adjustments may be related to and include, but not limited to factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization-specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of ACL model data inputs.

Current wording

A portion of the collectively evaluated ACL on loans also includes qualitative adjustments for risk factors not reflected or captured by the quantitative modeled ACL but are relevant in estimating future expected credit losses. Qualitative adjustments may be related to and include, but are not limited to factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization-specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as limitations identified through back-testing, and other limitations associated with factors such as underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of ACL model data inputs.

Previous 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;

Current wording

•Net income available for common shareholders was $9.0 million for the three months ended June 30, 2025, an increase of $2.8 million, or 46.3%, from $6.1 million for the three months ended June 30, 2024;

Previous 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.

Current wording

▪Recorded a provision for credit losses of $1.8 million for the three months ended June 30, 2025 compared with $259 thousand for the three months ended June 30, 2024;

Previous 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.

Current wording

▪ACL on loans to loans held-for-investment ratio was 1.20% at June 30, 2025 compared with 1.16% at December 31, 2024;

Previous 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.

Current wording

•Net interest income was $26.0 million for the three months ended June 30, 2025 compared with $21.7 million for the three months ended June 30, 2024. Net interest margin was 3.33% for the three months ended June 30, 2025 compared with 3.16% for the three months ended June 30, 2024;

Previous wording

•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 wording

•Total assets were $3.31 billion at June 30, 2025, an increase of $241.6 million, or 7.9%, from $3.06 billion at December 31, 2024;

Previous wording

•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 wording

•Loans held-for-investment were $2.80 billion at June 30, 2025, an increase of $165.9 million, or 6.3%, from $2.63 billion at December 31, 2024; and

Previous wording

•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 wording

•Total deposits were $2.82 billion at June 30, 2025, an increase of $207.1 million, or 7.9%, from $2.62 billion at December 31, 2024.

Previous wording

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:

Current wording

The following tables present interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the periods indicated:

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 $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.

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 $414 thousand and $339 thousand, respectively, and net accretion of discount on loans of $610 thousand and $791 thousand, respectively, are included in the interest income for the three months ended June 30, 2025 and 2024.

Previous 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.

Current wording

Interest and fees on loans increased primarily due to a 15.2% increase in average balance, partially offset by a 21 basis point decrease in average yield. The decrease in average yield was primarily due to decreases in market rates and net accretion of discount on loans, partially offset by an increase in net amortization of deferred loan fees.

Previous 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.

Current wording

Interest on investment securities increased primarily due to a 6.5% increase in average balance and a 16 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 June 30, 2025 and 2024, the average yield on total investment securities was 3.88% and 3.72%, respectively.

Previous 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.

Current wording

Interest income on other interest-earning assets decreased primarily due to a 5.9% decrease in average balance and a 94 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 June 30, 2025 and 2024, the average yield on total other interest-earning assets was 4.73% and 5.67%, respectively.

Previous 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.

Current wording

Interest expense on deposits decreased primarily due to a 73 basis point decrease in average cost of interest-bearing deposits, partially offset by a 17.4% increase in average balance of interest-bearing deposits. The decrease in average cost was primarily due to a decrease in market rates. For the three months ended June 30, 2025 and 2024, average cost on total interest-bearing deposits was 4.13% and 4.86%, respectively, and average cost on total deposits were 3.32% and 3.78%, respectively.

Previous 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.

Current wording

Net interest income increased primarily due to a 11.7% increase in average balance of interest-earning assets and a 66 basis point decrease in average cost, partially offset by a 16.4% increase in average balance of interest-bearing liabilities and a 15 basis point decrease in average yield.

Previous wording

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 wording

Interest expense on other borrowings decreased primarily due to a 16.6% decrease in average balance and a 102 basis point decrease in average cost.

Previous 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.”

Current wording

The provision for credit losses for the three and six months ended June 30, 2025 was primarily due to increases in loans held-for-investment, substandard and nonaccrual loans, net charge-offs, reserves on individually evaluated loans, and quantitatively measured loss reserves, partially offset by a decrease in the qualitative adjustment factors on commercial property loans. See further discussion in “Loans Held-For-Investment and Allowance for Credit Losses.”

Previous 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.

Current wording

Gain on sale of loans increased primarily due to an increase in sale volume, partially offset by a decrease in level of premium on SBA loans in the secondary market. The Company sold SBA loans of $26.9 million with a gain of $1.5 million during the three months ended June 30, 2025. During the three months ended June 30, 2024, the Company sold SBA loans of $13.6 million with a gain of $763 thousand.

Previous 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.

Current wording

Other income primarily included wire transfer fees of $173 thousand and $165 thousand, respectively, and debit card interchange fees of $117 thousand and $18 thousand, respectively, for the three months ended June 30, 2025 and 2024.

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 $549 thousand and $374 thousand, respectively, for the three months ended March 31, 2025 and 2024.

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 $1.0 million and $893 thousand, respectively, for the six months ended June 30, 2025 and 2024.

Previous 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.

Current wording

Salaries and employee benefits decreased primarily due to decreases in salaries, bonus and vacation accruals, as well as an increase in direct loan origination cost, which offsets and defers the recognition of salaries and benefits expense. The number of full-time equivalent employees was 266 at June 30, 2025 compared to 265 at June 30, 2024.

Previous wording

Marketing and business promotion expense decreased primarily due to a decrease in advertisements.

Current wording

Marketing and business promotion expense increased primarily due to an increase in advertisements.

Previous 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.

Current wording

Other expenses included $224 thousand and $218 thousand in loan related expenses, $1.1 million and $1.1 million in office expense, and $362 thousand and $414 thousand in armed guard expense for the six months ended June 30, 2025 and 2024, respectively. During the six months ended June 30, 2025, the Company recognized impairments of operating lease assets of $228 thousand for sublease contracts and contingent liabilities for legal settlements of $183 thousand. During the six months ended June 30, 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 $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.

Current wording

Income tax expense was $3.6 million and $2.5 million, respectively, and the effective tax rate was 28.4% and 28.5%, respectively, for the three months ended June 30, 2025 and 2024. For the six months ended June 30, 2025 and 2024, income tax expense was $6.7 million and $4.3 million, respectively, and the effective tax rate was 28.4% and 28.3%, respectively.

Previous wording

The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:

Current wording

The following table presents the amortized cost and fair value of the investment securities available-for-sale portfolio as of the dates indicated:

Previous 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.

Current wording

The fair value of total investment securities available-for-sale were $154.6 million at June 30, 2025, an increase of $8.3 million, or 5.7%, from $146.3 million at December 31, 2024. The increase was primarily due to purchases of $14.9 million and an increase in fair value of securities available-for-sale of $4.0 million, partially offset by principal paydowns of $10.5 million and net premium amortization of $65 thousand.

Previous 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.

Current wording

As of June 30, 2025 and December 31, 2024, 95.5% 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 June 30, 2025 and December 31, 2024.

Previous wording

Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the foreseeable future, subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to allowance for credit losses on loans.

Current wording

Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the foreseeable future, subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to the allowance for credit losses on loans.

Previous 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.

Current wording

Loans held-for-sale were $8.1 million at June 30, 2025, an increase of $1.8 million, or 29.3%, from $6.3 million at December 31, 2024. The increase was primarily due to new funding of $45.6 million, partially offset by sales of $43.6 million and pay-offs and pay-downs of $166 thousand.

Previous wording

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 wording

Loans held-for-investment were $2.80 billion at June 30, 2025, an increase of $165.9 million, or 6.3%, from $2.63 billion at December 31, 2024. The increase was primarily due to new funding of term loans of $346.0 million and net increase of lines of credit of $16.8 million, partially offset by pay-downs and pay-offs of term loans of $196.4 million and charge-offs of $473 thousand.

Previous wording

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 wording

The increase in overall ACL for the three and six months ended June 30, 2025 was primarily due to increases in loans held-for-investment and quantitatively measured loss reserve, as well as net charge-offs and increased reserves on individually evaluated loans, partially offset by a decrease in qualitative adjustment factors in commercial property loans.

Previous wording

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 wording

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 1.4% in the June 2025 FOMC meeting from 1.7% March 2025 and 2.1% in December 2024. The forecasted year-end national unemployment rate increased to 4.5% in June 2025 FOMC meeting from 4.4% in March 2025 and 4.3% in December 2024. Overall changes in macroeconomic projections resulted the increases of probability of default and loss given default rates across majority of the loan segments leading to higher overall expected loss measurements.

Previous wording

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 wording

The decrease in the qualitative adjustment factors was primarily due to the credit quality improvements in commercial property loans, partially offset by increased problem loans in business property, and commercial and industrial loans.

Previous wording

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 wording

Loans individually evaluated for impairment totaled $56.6 million and $52.0 million, respectively, and related reserve totaled $191 thousand and $59 thousand, respectively, at June 30, 2025 and December 31, 2024.

Previous wording

The following tables present net charge-offs (recoveries) as a percentage to the average loan held-for-investment balances in each of the loan segments for the periods indicated:

Current wording

The following tables present net charge-offs (recoveries) as a percentage to the average loans held-for-investment balances in each of the loan segments for the periods indicated:

Previous 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.

Current wording

The increase in nonaccrual loans held-for-investment was primarily due to loans placed on nonaccrual status of $5.8 million, partially offset by paydowns and payoffs of $1.5 million and charge-offs of $1 thousand during the six months ended June 30, 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 $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.

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 $189 thousand and $333 thousand would have been recorded during the three and six months ended June 30, 2025, respectively, 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 $162.2 million and renewals of the matured accounts of $339.0 million, partially offset by matured and closed accounts of $430.9 million.

Current wording

The increase in retail time deposits was primarily due to new accounts of $279.8 million and renewals of the matured accounts of $604.5 million, partially offset by matured and closed accounts of $802.8 million.