Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is management's discussion and analysis of the major factors that influenced the Company's results of operations and financial condition as of and for the three months ended March 31, 2026. This analysis should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2025 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
The Company's consolidated financial statements are prepared in accordance with GAAP and general practices within the banking industry. Within these financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated statements of financial condition dates and the Company's results of operations for the reporting periods. As certain accounting policies require significant estimates and assumptions that have a material impact on the carrying value of assets and liabilities, the Company has established critical accounting policies to facilitate making the judgment necessary to prepare financial statements. The Company's critical accounting policies are described in Note 1 to Consolidated Financial Statements and in the "Critical Accounting Estimates" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the year ended December 31, 2025 and in Note 1 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.
Allowance for Credit Losses
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.
Estimating expected credit losses requires management to use relevant forward-looking information, including the use of reasonable and supportable forecasts. The measurement of the ACL is performed by collectively evaluating loans with similar risk characteristics. The Company's discounted cash flow methodology incorporates a probability of default and loss given default model, as well as expectations of future economic conditions, using reasonable and supportable forecasts.
The use of reasonable and supportable forecasts requires significant judgment, such as selecting forecast scenarios, as well as determining the appropriate length of the forecast horizon. Management leverages economic projections from a reputable and independent third party to inform and provide its reasonable and supportable economic forecasts. Although no one economic variable can fully demonstrate the sensitivity of the ACL estimate to changes in economic variables used in the ACL model, the Company utilized changes in U.S. unemployment rate and year-over-year change in real gross domestic product ("GDP") growth rate as its key economic variables. Other internal and external indicators of economic forecasts may also be considered by management when developing the forecast metrics. The Company's ACL model reverts to long-term average loss rates for purposes of estimating expected cash flows beyond a period deemed reasonable and supportable. The Company forecasts economic conditions and expected credit losses over a one-year time horizon. Beyond the one-year forecast time horizon, the Company's ACL model reverts to historical long-term average loss rates over a one-year period.
Within the various economic scenarios considered as of March 31, 2026, the quantitative estimate of the ACL would increase by approximately $20.7 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.
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.
Although management uses the best information reasonably available to derive estimates and assumptions necessary to measure an appropriate level of the ACL, these estimates and assumptions are subject to change in future periods, which may have a material impact on the level of the ACL and the Company's results of operations.
Non-GAAP Measures
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. Generally, a non-GAAP financial measure is a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated, and presented in accordance with GAAP. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures and may not be comparable to non-GAAP financial measures that may be presented by other companies.
The following tables present reconciliation of return on average tangible common equity, tangible common equity per common share and tangible common equity to tangible assets ratios to their most comparable GAAP measures as of the dates or for the periods indicated. These non-GAAP measures, which are presented in this Quarterly Report on Form 10-Q, are used by management in its analysis of the Company's performance.
Three Months Ended March 31, | ||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||
Average total shareholders' equity | $ | 394,574 | $ | 367,718 | ||||||||||
| Less: average preferred stock | 69,141 | 69,141 | ||||||||||||
| Average tangible common equity | $ | 325,433 | $ | 298,577 | ||||||||||
| Net income | $ | 10,653 | $ | 7,735 | ||||||||||
| Annualized return on average shareholders' equity | 10.95 | % | 8.53 | % | ||||||||||
Net income available to common shareholders | $ | 10,567 | $ | 7,695 | ||||||||||
| Annualized return on average tangible common equity | 13.17 | % | 10.45 | % | ||||||||||
| ($ in thousands, except per share data) | March 31, 2026 |
December 31, 2025 |
March 31, 2025 | |||||||||||||||||
Total shareholders' equity | $ | 396,718 | $ | 390,026 | $ | 370,864 | ||||||||||||||
| Less: preferred stock | 69,141 | 69,141 | 69,141 | |||||||||||||||||
| Tangible common equity | $ | 327,577 | $ | 320,885 | $ | 301,723 | ||||||||||||||
| Outstanding common shares | 14,231,423 | 14,230,428 | 14,387,176 | |||||||||||||||||
| Book value per common share | $ | 27.88 | $ | 27.41 | $ | 25.78 | ||||||||||||||
| Tangible common equity per common share | $ | 23.02 | $ | 22.55 | $ | 20.97 | ||||||||||||||
| Total assets | $ | 3,396,193 | $ | 3,281,771 | $ | 3,183,758 | ||||||||||||||
Total shareholders' equity to total assets | 11.68 | % | 11.88 | % | 11.65 | % | ||||||||||||||
| Tangible common equity to total assets | 9.65 | % | 9.78 | % | 9.48 | % | ||||||||||||||
Selected Financial Data
The following table presents certain selected financial data as of the dates or for the periods indicated:
As of or For the Three Months Ended March 31, | ||||||||||||||
| ($ in thousands, except per share data) | 2026 |
2025 | ||||||||||||
Selected balance sheet data: | ||||||||||||||
Cash and cash equivalents | $ | 267,405 | $ | 214,348 | ||||||||||
Securities available-for-sale | 170,477 | 148,190 | ||||||||||||
Loans held-for-sale | 3,604 | 12,101 | ||||||||||||
Loans held-for-investment | 2,873,551 | 2,727,610 | ||||||||||||
| ACL on loans | (33,943) | (31,942) | ||||||||||||
Total assets | 3,396,193 | 3,183,758 | ||||||||||||
Total deposits | 2,887,980 | 2,714,399 | ||||||||||||
Shareholders' equity | 396,718 | 370,864 | ||||||||||||
Selected income statement data: | ||||||||||||||
Interest income | $ | 48,831 | $ | 46,892 | ||||||||||
Interest expense | 22,021 | 22,609 | ||||||||||||
Net interest income | 26,810 | 24,283 | ||||||||||||
| Provision for credit losses | 467 | 1,598 | ||||||||||||
Noninterest income | 3,374 | 2,580 | ||||||||||||
Noninterest expense | 14,814 | 14,474 | ||||||||||||
Income before income taxes | 14,903 | 10,791 | ||||||||||||
Income tax expense | 4,250 | 3,056 | ||||||||||||
Net income | 10,653 | 7,735 | ||||||||||||
| Preferred stock dividends | 86 | 40 | ||||||||||||
| Net income available to common shareholders | 10,567 | 7,695 | ||||||||||||
Per share data: | ||||||||||||||
Earnings per common share, basic | $ | 0.74 | $ | 0.53 | ||||||||||
Earnings per common share, diluted | 0.74 | 0.53 | ||||||||||||
Book value per common share (1) | 27.88 | 25.78 | ||||||||||||
Tangible common equity per common share (9) | 23.02 | 20.97 | ||||||||||||
Cash dividends declared per common share | 0.22 | 0.20 | ||||||||||||
Outstanding share data: | ||||||||||||||
Number of common shares outstanding | 14,231,423 | 14,387,176 | ||||||||||||
| Weighted-average common shares outstanding, basic | 14,142,092 | 14,272,267 | ||||||||||||
| Weighted-average common shares outstanding, diluted | 14,238,226 | 14,403,769 | ||||||||||||
Selected performance ratios: | ||||||||||||||
Return on average assets (2) | 1.30 | % | 1.01 | % | ||||||||||
Return on average shareholders' equity (2) | 10.95 | % | 8.53 | % | ||||||||||
Dividend payout ratio (3) | 29.73 | % | 37.74 | % | ||||||||||
Efficiency ratio (4) | 49.08 | % | 53.88 | % | ||||||||||
Yield on average interest-earning assets (2) | 6.12 | % | 6.33 | % | ||||||||||
Cost of average interest-bearing liabilities (2) | 3.82 | % | 4.28 | % | ||||||||||
Net interest spread (2) | 2.30 | % | 2.05 | % | ||||||||||
Net interest margin (2), (5) | 3.36 | % | 3.28 | % | ||||||||||
Total loans to total deposits ratio (6) | 99.63 | % | 100.93 | % | ||||||||||
As of or For the Three Months Ended March 31, | ||||||||||||||
| ($ in thousands, except per share data) | 2026 |
2025 | ||||||||||||
Asset quality: | ||||||||||||||
Loans 30 to 89 days past due and still accruing | $ | 1,371 | $ | 5,337 | ||||||||||
| Nonaccrual loans held-for-investment | 8,185 | 6,248 | ||||||||||||
Nonperforming loans held-for-investment (7) | 8,185 | 6,248 | ||||||||||||
| Nonperforming loans held-for-sale | 1,091 | - | ||||||||||||
Nonperforming assets (8) | 9,276 | 6,248 | ||||||||||||
| Net charge-offs | 56 | 277 | ||||||||||||
Loans 30 to 89 days past due and still accruing to loans held-for-investment | 0.05 | % | 0.20 | % | ||||||||||
| Nonperforming loans held-for-investment to loans held-for-investment | 0.28 | % | 0.23 | % | ||||||||||
| Nonperforming loans held-for-investment to ACL on loans | 24.11 | % | 19.56 | % | ||||||||||
Nonperforming assets to total assets | 0.27 | % | 0.20 | % | ||||||||||
| ACL on loans to loans held-for-investment | 1.18 | % | 1.17 | % | ||||||||||
| ACL on loans to nonaccrual loans held-for-investment | 414.70 | % | 511.24 | % | ||||||||||
| ACL on loans to nonperforming loans held-for-investment | 414.70 | % | 511.24 | % | ||||||||||
Net charge-offs (recoveries) to average loans held-for-investment (2) | 0.01 | % | 0.04 | % | ||||||||||
Capital ratios: | ||||||||||||||
Shareholders' equity to total assets | 11.68 | % | 11.65 | % | ||||||||||
Tangible common equity to total assets (9) | 9.65 | % | 9.48 | % | ||||||||||
| Average shareholders' equity to average total assets | 11.86 | % | 11.87 | % | ||||||||||
PCB Bancorp | ||||||||||||||
Common tier 1 capital (to risk-weighted assets) | 11.48 | % | 11.25 | % | ||||||||||
Total capital (to risk-weighted assets) | 15.09 | % | 14.98 | % | ||||||||||
Tier 1 capital (to risk-weighted assets) | 13.87 | % | 13.77 | % | ||||||||||
Tier 1 capital (to average assets) | 12.05 | % | 12.14 | % | ||||||||||
| PCB Bank | ||||||||||||||
Common tier 1 capital (to risk-weighted assets) | 13.46 | % | 13.42 | % | ||||||||||
Total capital (to risk-weighted assets) | 14.68 | % | 14.63 | % | ||||||||||
Tier 1 capital (to risk-weighted assets) | 13.46 | % | 13.42 | % | ||||||||||
Tier 1 capital (to average assets) | 11.70 | % | 11.82 | % | ||||||||||
(1) Shareholders' equity divided by common shares outstanding.
(2) Annualized.
(3) Dividends declared per common share divided by basic earnings per common share.
(4) Noninterest expenses divided by the sum of net interest income and noninterest income.
(5) Net interest income divided by average total interest-earning assets.
(6) Total loans include both loans held-for-sale and loans held-for-investment.
(7) Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing.
(8) Nonperforming assets include nonperforming loans and other real estate owned.
(9) Non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure.
Executive Summary
Q1 2026 Financial Highlights
•Net income available for common shareholders was $10.6 million for the three months ended March 31, 2026, an increase of $2.9 million, or 37.3%, from $7.7 million for the three months ended March 31, 2025;
▪Recorded a provision for credit losses of $467 thousand for the three months ended March 31, 2026 compared with $1.6 million for the three months ended March 31, 2025;
▪ACL on loans to loans held-for-investment ratio was 1.18% at March 31, 2026 compared with 1.18% at December 31, 2025;
•Net interest income was $26.8 million for the three months ended March 31, 2026 compared with $24.3 million for the three months ended March 31, 2025. Net interest margin was 3.36% for the three months ended March 31, 2026 compared with 3.28% for the three months ended March 31, 2025;
•Gain on sale of loans was $1.4 million for the three months ended March 31, 2026 compared with $887 thousand for the three months ended March 31, 2025;
•Total assets were $3.40 billion at March 31, 2026, an increase of $114.4 million, or 3.5%, from $3.28 billion at December 31, 2025;
•Loans held-for-investment were $2.87 billion at March 31, 2026, an increase of $53.2 million, or 1.9%, from $2.82 billion at December 31, 2025; and
•Total deposits were $2.89 billion at March 31, 2026, an increase of $92.6 million, or 3.3%, from $2.80 billion at December 31, 2025.
Results of Operations
Net Interest Income
A principal component of the Company's earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid on deposits and borrowed funds. Net interest income expressed as a percentage of average interest earning assets is referred to as the net interest margin. The net interest spread is the yield on average interest earning assets less the cost of average interest bearing liabilities. Net interest income is affected by changes in the balances of interest earning assets and interest bearing liabilities and changes in the yields earned on interest earning assets and the rates paid on interest bearing liabilities.
The following tables present interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the periods indicated:
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
2026 |
2025 | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Average Balance | Interest | Yield/ Cost (6) | Average Balance | Interest | Yield/ Cost (6) | ||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||
Total loans (1) | $ | 2,840,688 | $ | 44,484 | 6.35 | % | $ | 2,649,037 | $ | 43,026 | 6.59 | % | ||||||||||||||||||||||||||
Mortgage backed securities | 131,025 | 1,305 | 4.04 | % | 112,825 | 1,075 | 3.86 | % | ||||||||||||||||||||||||||||||
Collateralized mortgage obligation | 18,443 | 169 | 3.72 | % | 21,028 | 210 | 4.05 | % | ||||||||||||||||||||||||||||||
SBA loan pool securities | 4,060 | 31 | 3.10 | % | 5,927 | 54 | 3.69 | % | ||||||||||||||||||||||||||||||
Municipal bonds - tax exempt (2) | 2,502 | 22 | 3.57 | % | 2,424 | 22 | 3.68 | % | ||||||||||||||||||||||||||||||
| Corporate bonds | 4,768 | 47 | 4.00 | % | 4,336 | 47 | 4.40 | % | ||||||||||||||||||||||||||||||
Interest-bearing deposits in other financial institutions | 221,183 | 2,017 | 3.70 | % | 195,333 | 2,148 | 4.46 | % | ||||||||||||||||||||||||||||||
FHLB and other bank stock | 14,978 | 756 | 20.47 | % | 14,042 | 310 | 8.95 | % | ||||||||||||||||||||||||||||||
Total interest-earning assets | 3,237,647 | 48,831 | 6.12 | % | 3,004,952 | 46,892 | 6.33 | % | ||||||||||||||||||||||||||||||
Noninterest-earning assets: | ||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 23,505 | 24,656 | ||||||||||||||||||||||||||||||||||||
| Allowance for credit losses on loans | (33,344) | (30,676) | ||||||||||||||||||||||||||||||||||||
Other assets | 98,520 | 98,584 | ||||||||||||||||||||||||||||||||||||
Total noninterest earning assets | 88,681 | 92,564 | ||||||||||||||||||||||||||||||||||||
Total assets | $ | 3,326,328 | $ | 3,097,516 | ||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||||
NOW and money market accounts | $ | 678,108 | 5,743 | 3.43 | % | $ | 483,927 | 4,297 | 3.60 | % | ||||||||||||||||||||||||||||
Savings | 5,360 | 3 | 0.23 | % | 5,612 | 3 | 0.22 | % | ||||||||||||||||||||||||||||||
Time deposits | 1,595,636 | 15,732 | 4.00 | % | 1,650,662 | 18,264 | 4.49 | % | ||||||||||||||||||||||||||||||
Borrowings | 56,000 | 543 | 3.93 | % | 3,933 | 45 | 4.64 | % | ||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 2,335,104 | 22,021 | 3.82 | % | 2,144,134 | 22,609 | 4.28 | % | ||||||||||||||||||||||||||||||
Noninterest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
Demand deposits | 534,698 | 516,630 | ||||||||||||||||||||||||||||||||||||
Other liabilities | 61,952 | 69,034 | ||||||||||||||||||||||||||||||||||||
Total noninterest-bearing liabilities | 596,650 | 585,664 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | 2,931,754 | 2,729,798 | ||||||||||||||||||||||||||||||||||||
| Shareholders' equity | 394,574 | 367,718 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 3,326,328 | $ | 3,097,516 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 26,810 | $ | 24,283 | ||||||||||||||||||||||||||||||||||
Net interest spread (3) | 2.30 | % | 2.05 | % | ||||||||||||||||||||||||||||||||||
Net interest margin (4) | 3.36 | % | 3.28 | % | ||||||||||||||||||||||||||||||||||
| Cost of deposits | 3.10 | % | 3.44 | % | ||||||||||||||||||||||||||||||||||
Cost of funds (5) | 3.11 | % | 3.45 | % | ||||||||||||||||||||||||||||||||||
(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 $353 thousand and $266 thousand, respectively, and net accretion of discount on loans of $517 thousand and $872 thousand, respectively, are included in the interest income for the three months ended March 31, 2026 and 2025.
(2) The yield on municipal bonds has not been computed on a tax-equivalent basis.
(3) Net interest spread is calculated by subtracting average rate on interest-bearing liabilities from average yield on interest-earning assets.
(4) Net interest margin is calculated by dividing net interest income by average interest-earning assets.
(5) Cost of funds is calculated by dividing annualized interest expense on total interest-bearing liabilities by the sum of average total interest-bearing liabilities and noninterest-bearing demand deposits.
(6) Annualized.
The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on changes attributable to: (i) changes in volume multiplied by the prior rate; and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
Three Months Ended March 31,
2026 vs. 2025 | ||||||||||||||||||||
| Increase (Decrease) Due to | Net Increase (Decrease) | |||||||||||||||||||
| ($ in thousands) | Volume | Rate | ||||||||||||||||||
Interest earned on: | ||||||||||||||||||||
Total loans | $ | 3,113 | $ | (1,655) | $ | 1,458 | ||||||||||||||
Investment securities | 137 | 29 | 166 | |||||||||||||||||
Other interest-earning assets | 315 | - | 315 | |||||||||||||||||
Total interest income | 3,565 | (1,626) | 1,939 | |||||||||||||||||
Interest incurred on: | ||||||||||||||||||||
Savings, NOW, and money market deposits | 1,703 | (257) | 1,446 | |||||||||||||||||
Time deposits | (609) | (1,923) | (2,532) | |||||||||||||||||
Borrowings | 596 | (98) | 498 | |||||||||||||||||
Total interest expense | 1,690 | (2,278) | (588) | |||||||||||||||||
Change in net interest income | $ | 1,874 | $ | 653 | $ | 2,527 | ||||||||||||||
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
The following table presents the components of net interest income for the periods indicated:
Three Months Ended March 31, | Amount Change | Percentage Change | ||||||||||||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||||||||||||||
| Interest and dividend income: | ||||||||||||||||||||||||||
| Loans, including fees | $ | 44,484 | $ | 43,026 | $ | 1,458 | 3.4 | % | ||||||||||||||||||
| Investment securities | 1,574 | 1,408 | 166 | 11.8 | % | |||||||||||||||||||||
| Other interest-earning assets | 2,773 | 2,458 | 315 | 12.8 | % | |||||||||||||||||||||
Total interest income | 48,831 | 46,892 | 1,939 | 4.1 | % | |||||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||||
| Deposits | 21,478 | 22,564 | (1,086) | (4.8) | % | |||||||||||||||||||||
| Borrowings | 543 | 45 | 498 | 1,106.7 | % | |||||||||||||||||||||
Total interest expense | 22,021 | 22,609 | (588) | (2.6) | % | |||||||||||||||||||||
Net interest income | $ | 26,810 | $ | 24,283 | $ | 2,527 | 10.4 | % | ||||||||||||||||||
Net interest income increased primarily due to a 7.7% increase in average balance of interest-earning assets and a 46 basis point decrease in average cost, partially offset by an 8.9% increase in average balance of interest-bearing liabilities and a 21 basis point decrease in average yield.
Interest and fees on loans increased primarily due to a 7.2% increase in average balance, partially offset by a 24 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.
Interest on investment securities increased primarily due to a 9.7% increase in average balance and a 7 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, 2026 and 2025, the average yield on total investment securities was 3.97% and 3.90%, respectively.
Interest income on other interest-earning assets increased primarily due to a 12.8% increase in average balance. The decrease in interest rate on cash held at the Federal Reserve Bank was offset by an increase in dividend received on FHLB stock. For the three months ended March 31, 2026 and 2025, the average yield on total other interest-earning assets was 4.76% and 4.76%, respectively.
Interest expense on deposits decreased primarily due to a 46 basis point decrease in average cost of interest-bearing deposits, partially offset by a 6.5% 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 March 31, 2026 and 2025, average cost on total interest-bearing deposits was 3.82% and 4.28%, respectively, and average cost on total deposits were 3.10% and 3.44%, respectively.
Interest expense on other borrowings increased primarily due to a $52.1 million increase in average balance, partially offset by a 71 basis point decrease in average cost.
Provision for Credit Losses
The following tables present a composition of provision for credit losses for the periods indicated:
Three Months Ended March 31, | Amount Change | Percentage Change | ||||||||||||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||||||||||||||
| Provision for credit losses on loans | $ | 618 | $ | 1,591 | $ | (973) | (61.2) | % | ||||||||||||||||||
| Provision (reversal) for credit losses on off-balance sheet credit exposures | (151) | 7 | (158) | NM | ||||||||||||||||||||||
| Total provision for credit losses | $ | 467 | $ | 1,598 | $ | (1,131) | (70.8) | % | ||||||||||||||||||
Provision for credit losses for the three months ended March 31, 2026 was primarily due to increases in loans held-for-investment and overall reserve related to qualitative adjustment factors, partially offset by decreases in quantitatively measured loss reserve requirement and reserves on individually evaluated loans. See further discussion in "Loans Held-For-Investment and Allowance for Credit Losses."
Noninterest Income
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
The following table presents the components of noninterest income for the periods indicated:
Three Months Ended March 31, | Amount Change | Percentage Change | ||||||||||||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||||||||||||||
Service charges and fees on deposits | $ | 430 | $ | 372 | $ | 58 | 15.6 | % | ||||||||||||||||||
Loan servicing income | 801 | 725 | 76 | 10.5 | % | |||||||||||||||||||||
| Bank-owned life insurance income | 274 | 247 | 27 | 10.9 | % | |||||||||||||||||||||
Gain on sale of loans | 1,409 | 887 | 522 | 58.9 | % | |||||||||||||||||||||
Other income | 460 | 349 | 111 | 31.8 | % | |||||||||||||||||||||
Total noninterest income | $ | 3,374 | $ | 2,580 | $ | 794 | 30.8 | % | ||||||||||||||||||
Loan servicing income increased primarily due to a decrease in servicing asset amortization, partially offset by a decrease in servicing fee income. Servicing asset amortization was $417 thousand and $549 thousand, respectively, for the three months ended March 31, 2026 and 2025.
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 $21.8 million with a gain of $1.4 million during the three months ended March 31, 2026. During the three months ended March 31, 2025, the Company sold SBA loans of $16.6 million with a gain of $887 thousand.
Other income primarily included wire transfer fees of $169 thousand and $153 thousand, respectively, and debit card interchange fees of $102 thousand and $86 thousand, respectively, for the three months ended March 31, 2026 and 2025.
Noninterest Expense
Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025
The following table presents the components of noninterest expense for the periods indicated:
Three Months Ended March 31, | Amount Change | Percentage Change | ||||||||||||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||||||||||||||
Salaries and employee benefits | $ | 9,720 | $ | 9,075 | $ | 645 | 7.1 | % | ||||||||||||||||||
Occupancy and equipment | 2,277 | 2,289 | (12) | (0.5) | % | |||||||||||||||||||||
Professional fees | 534 | 628 | (94) | (15.0) | % | |||||||||||||||||||||
Marketing and business promotion | 456 | 243 | 213 | 87.7 | % | |||||||||||||||||||||
Data processing | 337 | 333 | 4 | 1.2 | % | |||||||||||||||||||||
Director fees and expenses | 223 | 226 | (3) | (1.3) | % | |||||||||||||||||||||
Regulatory assessments | 361 | 344 | 17 | 4.9 | % | |||||||||||||||||||||
Other expenses | 906 | 1,336 | (430) | (32.2) | % | |||||||||||||||||||||
Total noninterest expense | $ | 14,814 | $ | 14,474 | $ | 340 | 2.3 | % | ||||||||||||||||||
Salaries and employee benefits increased primarily due to increases in salaries and group insurance, and a decrease in loan origination cost, which offsets and defers the recognition of salaries and benefits expense. The number of full-time equivalent employees was 264 at March 31, 2026 compared to 257 at March 31, 2025.
Marketing and business promotion increased primarily due to an increase in advertising.
Other expenses included $86 thousand and $92 thousand in loan related expenses, $370 thousand and $478 thousand in office expense, and $180 thousand and $183 thousand in armed guard expense for the three months ended March 31, 2026 and 2025, respectively. During the three months ended March 31, 2025, the Company recognized an impairment on operating lease assets of $146 thousand for a sublease contract and recognition of contingent liabilities for legal settlements of $183 thousand.
Income Tax Expense
Income tax expense was $4.3 million and $3.1 million, respectively, and the effective tax rate was 28.5% and 28.3%, respectively, for the three months ended March 31, 2026 and 2025.
Financial Condition
Investment Securities
The Company's investment strategy aims to maximize earnings while maintaining liquidity in securities with minimal credit risk. The types and maturities of securities purchased are primarily based on current and projected liquidity and interest rate sensitivity positions.
The following table presents the amortized cost and fair value of the investment securities available-for-sale portfolio as of the dates indicated:
March 31, 2026 |
December 31, 2025 | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Amortized Cost | Fair Value |
Net Unrealized Gain (Loss) | Amortized Cost | Fair Value |
Net Unrealized Gain (Loss) | ||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||
U.S. government agency and U.S. government sponsored enterprise securities: | ||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 148,476 | $ | 141,372 | $ | (7,104) | $ | 135,728 | $ | 129,822 | $ | (5,906) | ||||||||||||||||||||||||||
Residential collateralized mortgage obligations | 18,815 | 18,001 | (814) | 19,499 | 18,762 | (737) | ||||||||||||||||||||||||||||||||
SBA loan pool securities | 4,023 | 3,855 | (168) | 4,363 | 4,193 | (170) | ||||||||||||||||||||||||||||||||
Municipal bonds | 2,466 | 2,452 | (14) | 2,463 | 2,484 | 21 | ||||||||||||||||||||||||||||||||
| Corporate bonds | 5,000 | 4,797 | (203) | 5,000 | 4,748 | (252) | ||||||||||||||||||||||||||||||||
Total securities available-for-sale | $ | 178,780 | $ | 170,477 | $ | (8,303) | $ | 167,053 | $ | 160,009 | $ | (7,044) | ||||||||||||||||||||||||||
The fair value of total investment securities available-for-sale were $170.5 million at March 31, 2026, an increase of $10.5 million, or 6.5%, from $160.0 million at December 31, 2025. The increase was primarily due to purchases of $18.7 million, partially offset by principal paydowns of $6.9 million, net premium amortization of $24 thousand, and a decrease in fair value of securities available-for-sale of $1.3 million.
As of March 31, 2026 and December 31, 2025, 95.8% and 95.5%, 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, 2026 and December 31, 2025.
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, 2026 and December 31, 2025. 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, 2026 and December 31, 2025.
As of March 31, 2026 and December 31, 2025, the Company recorded no ACL on securities available-for-sale.
The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of the date indicated:
March 31, 2026 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Within One Year | More than One Year through Five Years | More than Five Years through Ten Years | More than Ten Years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Amortized Cost | Weighted-Average Yield | Amortized Cost | Weighted-Average Yield | Amortized Cost | Weighted-Average Yield | Amortized Cost | Weighted-Average Yield | Amortized Cost | Weighted-Average Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government agency and U.S. government sponsored enterprise securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 32 | 1.35 | % | $ | 1,269 | 1.50 | % | $ | 20,013 | 1.31 | % | $ | 127,162 | 4.35 | % | $ | 148,476 | 3.91 | % | ||||||||||||||||||||||||||||||||||||||||||
Residential collateralized mortgage obligations | 16 | 2.06 | % | 5,484 | 4.16 | % | 7 | 2.40 | % | 13,308 | 3.23 | % | 18,815 | 3.50 | % | |||||||||||||||||||||||||||||||||||||||||||||||
SBA loan pool securities | - | - | % | 508 | 3.57 | % | 1,508 | 2.51 | % | 2,007 | 3.01 | % | 4,023 | 2.90 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Municipal bonds | - | - | % | 83 | 3.01 | % | 1,505 | 3.50 | % | 878 | 3.68 | % | 2,466 | 3.55 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | - | - | % | - | - | % | 5,000 | 3.75 | % | - | - | % | 5,000 | 3.75 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Total securities available-for-sale | $ | 48 | 1.59 | % | $ | 7,344 | 3.64 | % | $ | 28,033 | 1.93 | % | $ | 143,355 | 4.22 | % | $ | 178,780 | 3.84 | % | ||||||||||||||||||||||||||||||||||||||||||
Weighted-average yields are based upon the amortized cost of securities and are calculated using the interest method which takes into consideration of premium amortization and discount accretion. Weighted-average yields on tax-exempt debt securities exclude the federal income tax benefit.
Loans Held-For-Sale
Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company's intent to hold these loans to maturity or for the foreseeable future, subject to periodic reviews under the Company's management evaluation processes, including asset/liability management and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to the allowance for credit losses on loans.
Loans held-for-sale were $3.6 million at March 31, 2026, a decrease of $8.5 million, or 70.2%, from $12.1 million at December 31, 2025. The decrease was primarily due to sales of $21.8 million and pay-offs and pay-downs of $149 thousand, partially offset by new funding of $12.4 million and a nonaccrual loan transferred from loans held-for-investment of $1.1 million.
Loans Held-For-Investment and Allowance for Credit Losses
The following table presents the composition of the Company's loans held-for-investment as of the dates indicated:
March 31, 2026 |
December 31, 2025 | |||||||||||||||||||||||||
| ($ in thousands) | Amount | Percentage to Total | Amount | Percentage to Total | ||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||
Commercial property | $ | 1,091,823 | 38.0 | % | $ | 1,071,396 | 38.0 | % | ||||||||||||||||||
| Business property | 644,307 | 22.4 | % | 638,063 | 22.6 | % | ||||||||||||||||||||
| Multifamily | 198,346 | 6.9 | % | 175,579 | 6.2 | % | ||||||||||||||||||||
Construction | 18,972 | 0.7 | % | 18,561 | 0.7 | % | ||||||||||||||||||||
| Total commercial real estate | 1,953,448 | 68.0 | % | 1,903,599 | 67.5 | % | ||||||||||||||||||||
| Commercial and industrial | 520,894 | 18.1 | % | 508,662 | 18.0 | % | ||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||
| Residential mortgage | 392,680 | 13.7 | % | 401,337 | 14.3 | % | ||||||||||||||||||||
| Other consumer | 6,529 | 0.2 | % | 6,802 | 0.2 | % | ||||||||||||||||||||
| Total consumer | 399,209 | 13.9 | % | 408,139 | 14.5 | % | ||||||||||||||||||||
Loans held-for-investment | 2,873,551 | 100.0 | % | 2,820,400 | 100.0 | % | ||||||||||||||||||||
| Allowance for credit losses on loans | (33,943) | (33,381) | ||||||||||||||||||||||||
Net loans held-for-investment | $ | 2,839,608 | $ | 2,787,019 | ||||||||||||||||||||||
| ACL on loans to loans held-for-investment | 1.18 | % | 1.18 | % | ||||||||||||||||||||||
Loans held-for-investment were $2.87 billion at March 31, 2026, an increase of $53.2 million, or 1.9%, from $2.82 billion at December 31, 2025. The increase was primarily due to new funding of term loans of $112.9 million and net increase of lines of credit of $20.1 million, partially offset by pay-downs and pay-offs of term loans of $78.7 million, charge-offs of $76 thousand and a nonaccrual loan transferred to loans held-for-sale of $1.1 million.
Commercial Real Estate Loans Concentration
The following table presents the property type composition of commercial real estate loans held-for-investment as of the dates indicated.
March 31, 2026 |
December 31, 2025 | |||||||||||||||||||||||||
| ($ in thousands) | Amount | Percentage to Total | Amount | Percentage to Total | ||||||||||||||||||||||
| Retail property | $ | 416,643 | 21.2 | % | $ | 394,800 | 20.6 | % | ||||||||||||||||||
| Industrial property | 281,023 | 14.4 | % | 285,383 | 15.0 | % | ||||||||||||||||||||
| Mixed-use property | 207,184 | 10.6 | % | 204,722 | 10.8 | % | ||||||||||||||||||||
| Apartments | 178,789 | 9.2 | % | 156,482 | 8.2 | % | ||||||||||||||||||||
| Office property | 155,310 | 8.0 | % | 150,662 | 7.9 | % | ||||||||||||||||||||
| Hotel and Motel | 147,275 | 7.5 | % | 152,321 | 8.0 | % | ||||||||||||||||||||
| Gas Station | 125,162 | 6.4 | % | 122,681 | 6.4 | % | ||||||||||||||||||||
Other property types (1) | 442,062 | 22.7 | % | 436,548 | 23.1 | % | ||||||||||||||||||||
| Total commercial real estate | $ | 1,953,448 | 100.0 | % | $ | 1,903,599 | 100.0 | % | ||||||||||||||||||
(1) Other property types represented less than 5% of total commercial real estate loans as of March 31, 2026 and December 31, 2025.
The following table presents the geographical composition of commercial real estate loans held-for-investment as of the dates indicated.
March 31, 2026 |
December 31, 2025 | |||||||||||||||||||||||||
| ($ in thousands) | Amount | Percentage to Total | Amount | Percentage to Total | ||||||||||||||||||||||
| California | ||||||||||||||||||||||||||
| Los Angeles County | $ | 1,177,051 | 60.3 | % | $ | 1,160,738 | 61.0 | % | ||||||||||||||||||
| Orange County | 164,091 | 8.4 | % | 164,388 | 8.6 | % | ||||||||||||||||||||
| Other Counties in California | 185,582 | 9.5 | % | 184,444 | 9.7 | % | ||||||||||||||||||||
| Total California | 1,526,724 | 78.2 | % | 1,509,570 | 79.3 | % | ||||||||||||||||||||
| New York and New Jersey | 148,394 | 7.6 | % | 140,303 | 7.4 | % | ||||||||||||||||||||
| Texas | 128,998 | 6.6 | % | 118,960 | 6.2 | % | ||||||||||||||||||||
| Washington | 61,159 | 3.1 | % | 60,563 | 3.2 | % | ||||||||||||||||||||
| Other states | 88,173 | 4.5 | % | 74,203 | 3.9 | % | ||||||||||||||||||||
| Total commercial real estate | $ | 1,953,448 | 100.0 | % | $ | 1,903,599 | 100.0 | % | ||||||||||||||||||
The following table presents activities in ACL for the periods indicated:
Three Months Ended March 31, | ||||||||||||||
| ($ in thousands) | 2026 |
2025 | ||||||||||||
| ACL on loans | ||||||||||||||
| Balance at beginning of period | $ | 33,381 | $ | 30,628 | ||||||||||
| Charge-offs | (76) | (353) | ||||||||||||
| Recoveries | 20 | 76 | ||||||||||||
| Provision for credit losses on loans | 618 | 1,591 | ||||||||||||
| Balance at end of period | $ | 33,943 | $ | 31,942 | ||||||||||
| ACL on off-balance sheet credit exposures | ||||||||||||||
| Balance at beginning of period | $ | 1,543 | $ | 1,190 | ||||||||||
| Provision for credit losses on off-balance sheet credit exposure | (151) | 7 | ||||||||||||
| Balance at end of period | $ | 1,392 | $ | 1,197 | ||||||||||
The increase for the three months ended March 31, 2026 was primarily due to increases in loans held-for-investment and overall reserve related to qualitative adjustment factors, partially offset by decreases in quantitatively measured loss reserve requirement and reserves on individually evaluated loans.
The decrease in quantitatively measured loss reserve requirement was primarily due to an improved year-over-year change in real GDP forecast. The Company utilizes year-over-year change in real GDP and unemployment rate forecasts published by the Federal Open Market Committee ("FOMC"). The 2026 year-end year-over-year change in forecasted real GDP increased to 2.4% in the March 2026 FOMC meeting from 2.3% in December 2025. The forecasted year-end national unemployment rate was maintained at 4.4% in both March 2026 and December 2025 FOMC meetings. Overall changes in macroeconomic projections resulted in the decreases of probability of default and loss given default rates across majority of the loan segments leading to lower overall expected loss measurements.
The increase in qualitative adjustment factors was primarily due to the updates to risk status ratings for reflecting the credit quality trend of each loan segment and changes in economic condition. Management believes that increased uncertainty from recent global geopolitical events, which have disrupted trade routes, increased energy costs, and added inflationary pressure, is likely to negatively affect overall economic conditions. Management applied additional qualitative adjustments to address these risks that may not be reflected in the quantitative reserves, which were based on macroeconomic forecasts released earlier in the period.
Loans individually evaluated for impairment totaled $49.0 million and $53.2 million, respectively, and related reserve totaled $120 thousand and $206 thousand, respectively, at March 31, 2026 and December 31, 2025.
Management believes that the projections used are reasonable and align with the Company's expectation of the economic environment over the next 4 quarters.
The following tables present net charge-offs (recoveries) as a percentage to the average loans held-for-investment balances in each of the loan segments for the periods indicated:
Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||
2026 |
2025 | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) | Average Balance | Net Charge-Offs (Recoveries) | Percentage | Average Balance | Net Charge-Offs (Recoveries) | Percentage | ||||||||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||||||||
Commercial property | $ | 958,161 | $ | - | - | % | $ | 944,321 | $ | - | - | % | ||||||||||||||||||||||||||
| Business property | 776,400 | (1) | (0.01) | % | 613,022 | (1) | (0.01) | % | ||||||||||||||||||||||||||||||
| Multifamily | 171,808 | - | - | % | 198,124 | - | - | % | ||||||||||||||||||||||||||||||
Construction | 18,706 | - | - | % | 22,574 | - | - | % | ||||||||||||||||||||||||||||||
| Total commercial real estate | 1,925,075 | (1) | (0.01) | % | 1,778,041 | (1) | (0.01) | % | ||||||||||||||||||||||||||||||
| Commercial and industrial | 496,736 | 57 | 0.05 | % | 447,645 | 280 | 0.25 | % | ||||||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||||||||||||
| Residential mortgage | 396,516 | - | - | % | 400,784 | - | - | % | ||||||||||||||||||||||||||||||
| Other consumer | 6,326 | - | - | % | 10,942 | (2) | (0.07) | % | ||||||||||||||||||||||||||||||
| Total consumer | 402,842 | - | - | % | 411,726 | (2) | - | % | ||||||||||||||||||||||||||||||
| Total | $ | 2,824,653 | $ | 56 | 0.01 | % | $ | 2,637,412 | $ | 277 | 0.04 | % | ||||||||||||||||||||||||||
Nonperforming Loans and Nonperforming Assets
The following table presents a summary of total non-performing assets as of the dates indicated:
| ($ in thousands) | March 31, 2026 |
December 31, 2025 | Amount Change | Percentage Change | ||||||||||||||||||||||
| Nonaccrual loans held-for-investment | ||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||
Commercial property | $ | 1,356 | $ | 1,403 | $ | (47) | (3.3) | % | ||||||||||||||||||
| Business property | 1,355 | 938 | 417 | 44.5 | % | |||||||||||||||||||||
| Total commercial real estate | 2,711 | 2,341 | 370 | 15.8 | % | |||||||||||||||||||||
| Commercial and industrial | 83 | 161 | (78) | (48.4) | % | |||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||
| Residential mortgage | 5,387 | 5,403 | (16) | (0.3) | % | |||||||||||||||||||||
| Other consumer | 4 | 5 | (1) | (20.0) | % | |||||||||||||||||||||
| Total consumer | 5,391 | 5,408 | (17) | (0.3) | % | |||||||||||||||||||||
| Total nonaccrual loans held-for-investment | 8,185 | 7,910 | 275 | 3.5 | % | |||||||||||||||||||||
Loans past due 90 days or more still on accrual | - | - | - | - | % | |||||||||||||||||||||
| Nonperforming loans held-for-investment | 8,185 | 7,910 | 275 | 3.5 | % | |||||||||||||||||||||
| Nonperforming loans held-for-sale | 1,091 | - | 1,091 | - | % | |||||||||||||||||||||
| Total nonperforming loans | 9,276 | 7,910 | 1,366 | 17.3 | % | |||||||||||||||||||||
Other real estate owned | - | - | - | - | % | |||||||||||||||||||||
| Nonperforming assets | $ | 9,276 | $ | 7,910 | $ | 1,366 | 17.3 | % | ||||||||||||||||||
| Nonaccrual loans held-for-investment to loans held-for-investment | 0.28 | % | 0.28 | % | ||||||||||||||||||||||
| Nonperforming assets to total assets | 0.27 | % | 0.24 | % | ||||||||||||||||||||||
| ACL on loans to nonaccrual loans held-for-investment | 414.70 | % | 422.01 | % | ||||||||||||||||||||||
The increase in nonaccrual loans held-for-investment was primarily due to a loan placed on nonaccrual status of $1.6 million, partially offset by paydowns and a loan transferred to loans held-for-sale of $1.1 million, payoffs of $173 thousand and charge-offs of $71 thousand during the three months ended March 31, 2026.
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 $163 thousand would have been recorded during the three months ended March 31, 2026 had these loans been paid in accordance with their original terms throughout the periods indicated.
Deposits
The Bank gathers deposits primarily through its branch locations. The Bank offers a variety of deposit products including demand deposits accounts, NOW and money market accounts, savings accounts and time deposits. The following table presents a summary of the Company's deposits as of the dates indicated:
| ($ in thousands) | March 31, 2026 |
December 31, 2025 | Amount Change | Percentage Change | ||||||||||||||||||||||
Noninterest-bearing demand deposits | $ | 570,393 | $ | 555,645 | $ | 14,748 | 2.7 | % | ||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||
Savings | 5,005 | 6,077 | (1,072) | (17.6) | % | |||||||||||||||||||||
NOW | 13,927 | 13,928 | (1) | - | % | |||||||||||||||||||||
Retail money market accounts | 662,132 | 656,069 | 6,063 | 0.9 | % | |||||||||||||||||||||
Brokered money market accounts | 1 | 1 | - | - | % | |||||||||||||||||||||
Retail time deposits of: | ||||||||||||||||||||||||||
$250,000 or less | 575,079 | 574,519 | 560 | 0.1 | % | |||||||||||||||||||||
More than $250,000 | 685,074 | 648,633 | 36,441 | 5.6 | % | |||||||||||||||||||||
Brokered time deposits | 256,369 | 280,540 | (24,171) | (8.6) | % | |||||||||||||||||||||
Time deposits from California State Treasurer | 120,000 | 60,000 | 60,000 | 100.0 | % | |||||||||||||||||||||
Total interest-bearing deposits | 2,317,587 | 2,239,767 | 77,820 | 3.5 | % | |||||||||||||||||||||
Total deposits | $ | 2,887,980 | $ | 2,795,412 | $ | 92,568 | 3.3 | % | ||||||||||||||||||
Estimated total deposits not covered by deposit insurance | $ | 1,363,735 | $ | 1,270,159 | 93,576 | 7.4 | % | |||||||||||||||||||
Estimated time deposits not covered by deposit insurance | $ | 590,784 | $ | 499,745 | 91,039 | 18.2 | % | |||||||||||||||||||
The increase in retail time deposits was primarily due to new accounts of $116.8 million and renewals of the matured accounts of $388.8 million, partially offset by matured and closed accounts of $485.0 million.
As of March 31, 2026 and December 31, 2025, total deposits were comprised of 19.8% and 19.9%, respectively, of noninterest-bearing demand accounts, 23.6% and 24.2%, respectively, of savings, NOW and money market accounts, and 56.6% and 55.9%, respectively, of time deposits.
Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $9.6 million and $8.9 million, respectively, at March 31, 2026 and December 31, 2025.
The following table presents the maturity of time deposits as of the dates indicated:
| ($ in thousands) | Three Months or Less | Three to Six Months | Six Months to One Year | Over One Year | Total | |||||||||||||||||||||||||||
March 31, 2026 | ||||||||||||||||||||||||||||||||
| Time deposits of $250,000 or less | $ | 323,477 | $ | 143,320 | $ | 363,630 | $ | 1,021 | $ | 831,448 | ||||||||||||||||||||||
Time deposits of more than $250,000 | 181,059 | 283,399 | 340,116 | 500 | 805,074 | |||||||||||||||||||||||||||
Total | $ | 504,536 | $ | 426,719 | $ | 703,746 | $ | 1,521 | $ | 1,636,522 | ||||||||||||||||||||||
| Not covered by deposit insurance | $ | 133,826 | $ | 231,667 | $ | 225,206 | $ | 85 | $ | 590,784 | ||||||||||||||||||||||
December 31, 2025 | ||||||||||||||||||||||||||||||||
| Time deposits of $250,000 or less | $ | 243,468 | $ | 316,179 | $ | 293,888 | $ | 1,524 | $ | 855,059 | ||||||||||||||||||||||
Time deposits of more than $250,000 | 309,465 | 147,875 | 248,401 | 2,892 | 708,633 | |||||||||||||||||||||||||||
Total | $ | 552,933 | $ | 464,054 | $ | 542,289 | $ | 4,416 | $ | 1,563,692 | ||||||||||||||||||||||
| Not covered by deposit insurance | $ | 233,697 | $ | 103,783 | $ | 159,928 | $ | 2,337 | $ | 499,745 | ||||||||||||||||||||||
Shareholders' Equity and Regulatory Capital
Capital Resources
Shareholders' equity is influenced primarily by earnings, dividends paid on common stock and preferred stock, sales and redemptions of common stock and preferred stock, and changes in accumulated other comprehensive income caused primarily by fluctuations in unrealized gains or losses, net of taxes, on securities available-for-sale.
Shareholders' equity was $396.7 million at March 31, 2026, an increase of $6.7 million, or 1.7%, from $390.0 million at December 31, 2025. The increase was primarily due to net income of $10.7 million and proceeds from stock option exercises of $112 thousand, partially offset by dividends declared on common stock of $3.1 million, repurchases of common stock of $193 thousand, preferred stock dividends of $86 thousand and an increase in accumulated other comprehensive loss of $895 thousand.
Regulatory Capital Requirements
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:
| PCB Bancorp | PCB Bank | Minimum Regulatory Requirements | Well Capitalized Requirements | |||||||||||||||||||||||
March 31, 2026 | ||||||||||||||||||||||||||
Common tier 1 capital (to risk-weighted assets) | 11.48 | % | 13.46 | % | 4.5 | % | 6.5 | % | ||||||||||||||||||
Total capital (to risk-weighted assets) | 15.09 | % | 14.68 | % | 8.0 | % | 10.0 | % | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | 13.87 | % | 13.46 | % | 6.0 | % | 8.0 | % | ||||||||||||||||||
Tier 1 capital (to average assets) | 12.05 | % | 11.70 | % | 4.0 | % | 5.0 | % | ||||||||||||||||||
December 31, 2025 | ||||||||||||||||||||||||||
Common tier 1 capital (to risk-weighted assets) | 11.46 | % | 13.49 | % | 4.5 | % | 6.5 | % | ||||||||||||||||||
Total capital (to risk-weighted assets) | 15.13 | % | 14.72 | % | 8.0 | % | 10.0 | % | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | 13.89 | % | 13.49 | % | 6.0 | % | 8.0 | % | ||||||||||||||||||
Tier 1 capital (to average assets) | 11.89 | % | 11.55 | % | 4.0 | % | 5.0 | % | ||||||||||||||||||
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 6.98% and 6.69%, respectively, as of March 31, 2026, and 6.96% and 6.72%, respectively, as of December 31, 2025.
Emergency Capital Investment Program
On May 24, 2022, the Company issued 69,141 shares of Series C Preferred Stock with a liquidation preference of $1,000 per share 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 the purposes of the bank regulatory capital requirements.
The Series C Preferred Stock accrued no dividend for the first 24 months following the investment date. Thereafter, the dividend rate is 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.
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.
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.
On January 16, 2025, the Company entered into an ECIP Securities Purchase Option Agreement (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 Option Agreement provides that if the Company meets certain conditions, the Company or the Company's qualifying designee may repurchase the Series C Preferred Stock, potentially at a substantial discount (the "Repurchase Option"). 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.
The purchase option may not be exercised during 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.
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.
The following table presents the estimated purchase price based on the formula set forth in the Option Agreement as if the Company met all Threshold Conditions as of March 31, 2026:
Dividend Rate at the Reset Date Immediately Preceding the Purchase Date | ||||||||||||||||||||
| ($ in thousands) | 0.50% | 1.25% | 2.00% | |||||||||||||||||
Purchase price | $ | 4,684 | $ | 11,711 | $ | 18,737 | ||||||||||||||
Discount | 64,457 | 57,430 | 50,404 | |||||||||||||||||
The Company began paying quarterly dividends on the Series C Preferred Stock at 2% beginning in the three months ended June 30, 2024 and the dividend rate decreased to 0.50% from the three months ended March 31, 2025. Dividends on the Series C Preferred Stock totaled $86 thousand and $40 thousand for the three months ended March 31, 2026 and 2025, respectively.
Stock Repurchases
During the year ended December 31, 2025, the Company repurchased and retired 358,251 shares of common stock at a weighted-average price of $19.82 per share under a stock repurchase program first approved by the Board of Directors on August 2, 2023 authorizing the repurchase of up to 720,000 shares. On July 23, 2025, the Company announced that the term of the stock repurchase program would be extended to July 31, 2026.
During the three months ended March 31, 2026, the Company repurchased and retired 9,005 shares of common stock at a weighted-average price of $21.45 per share. As of March 31, 2026, the Company was authorized to purchase 210,521 additional shares under the stock repurchase program.
Liquidity
Liquidity refers to the measure of ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting operating cash flow and capital and strategic cash flow needs, all at a reasonable cost. The Company continuously monitors its liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of the Company's shareholders.
The Company's liquidity position is supported by management of liquid assets and liabilities and access to alternative sources of funds. Liquid assets include cash, interest-bearing deposits in financial institutions, federal funds sold, and unpledged securities available-for-sale. Liquid liabilities may include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of liquidity include the sale of loans, the ability to acquire additional national market non-core deposits, additional collateralized borrowings such as FHLB advances and Federal Reserve Discount Window, and the issuance of debt securities and preferred or common securities.
The Company's short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers, capital expenditures and shareholder dividends. These liquidity requirements are met primarily through cash flow from operations, redeployment of prepaying and maturing balances in loan and investment securities portfolios, increases in debt financing and other borrowings, and increases in customer deposits.
Integral to the Company's liquidity management is the administration of borrowings. To the extent the Company is unable to obtain sufficient liquidity through core deposits, the Company seeks to meet its liquidity needs through wholesale funding or other borrowings on either a short or long-term basis.
The following table presents a summary of the Company's liquidity position as of the dates indicated:
| ($ in thousands) | March 31, 2026 |
December 31, 2025 | Amount Change | Percentage Change | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 267,405 | $ | 207,142 | $ | 60,263 | 29.1 | % | ||||||||||||||||||
| Cash and cash equivalents to total assets | 7.9 | % | 6.3 | % | ||||||||||||||||||||||
| Available borrowing capacity: | ||||||||||||||||||||||||||
| FHLB advances | $ | 770,183 | $ | 840,607 | (70,424) | (8.4) | % | |||||||||||||||||||
| Federal Reserve Discount Window | 863,567 | 841,563 | 22,004 | 2.6 | % | |||||||||||||||||||||
| Overnight federal funds lines | 65,000 | 65,000 | - | - | % | |||||||||||||||||||||
| Total | $ | 1,698,750 | $ | 1,747,170 | $ | (48,420) | (2.8) | % | ||||||||||||||||||
| Total available borrowing capacity to total assets | 50.0 | % | 53.2 | % | ||||||||||||||||||||||
The Company also maintains relationships in the capital markets with brokers and dealers to issue time deposits and money market accounts.
PCB Bancorp, on a stand-alone holding company basis, must provide for its own liquidity and its main source of funding is dividends from the Bank. There are statutory, regulatory and debt covenant limitations that affect the ability of the Bank to pay dividends to the holding company. Management believes that these limitations will not impact the Company's ability to meet its ongoing short- and long-term cash obligations.
Off-Balance Credit Exposures and Contractual Obligations
Off-Balance Sheet Credit Exposures
The Company has limited off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on financial condition, results of operations, liquidity, capital expenditures or capital resources.
In the ordinary course of business, the Company enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit, unused lines of credit, commercial and similar letters of credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company's financial statements.
The Company's exposure to loan loss in the event of nonperformance on these financial commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for loans reflected in the consolidated financial statements.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Company evaluates each client's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary is based on management's credit evaluation of the customer. The following table presents outstanding financial commitments whose contractual amount represents credit risk as of the dates indicated:
March 31, 2026 |
December 31, 2025 | |||||||||||||||||||||||||
| ($ in thousands) | Fixed Rate | Variable Rate | Fixed Rate | Variable Rate | ||||||||||||||||||||||
| Unused lines of credit | $ | 8,118 | $ | 339,611 | $ | 12,663 | $ | 348,287 | ||||||||||||||||||
| Unfunded loan commitments | - | 8,547 | - | 7,132 | ||||||||||||||||||||||
Standby letters of credit | 5,705 | 1,625 | 5,705 | 1,625 | ||||||||||||||||||||||
Total | $ | 13,823 | $ | 349,783 | $ | 18,368 | $ | 357,044 | ||||||||||||||||||
Contractual Obligations
The following table presents supplemental information regarding total contractual obligations as of the dates indicated:
| ($ in thousands) | Within One Year | One to Three Years | Three to Five Years | Over Five Years | Total | |||||||||||||||||||||||||||
March 31, 2026 | ||||||||||||||||||||||||||||||||
Time deposits | $ | 1,635,001 | $ | 1,391 | $ | 130 | $ | - | $ | 1,636,522 | ||||||||||||||||||||||
FHLB advances | 50,000 | - | - | - | 50,000 | |||||||||||||||||||||||||||
Operating leases | 3,470 | 6,186 | 5,615 | 6,931 | 22,202 | |||||||||||||||||||||||||||
Total | $ | 1,688,471 | $ | 7,577 | $ | 5,745 | $ | 6,931 | $ | 1,708,724 | ||||||||||||||||||||||
December 31, 2025 | ||||||||||||||||||||||||||||||||
Time deposits | $ | 1,559,276 | $ | 4,293 | $ | 123 | $ | - | $ | 1,563,692 | ||||||||||||||||||||||
FHLB advances | 34,000 | - | - | - | 34,000 | |||||||||||||||||||||||||||
Operating leases | 3,562 | 6,277 | 5,708 | 7,585 | 23,132 | |||||||||||||||||||||||||||
Total | $ | 1,596,838 | $ | 10,570 | $ | 5,831 | $ | 7,585 | $ | 1,620,824 | ||||||||||||||||||||||
Management believes that the Company will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels. Management expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. The Company has in place various borrowing mechanisms for both short-term and long-term liquidity needs.