Financial Performance Overview

PCB Bancorp reported net income of $25.8 million for the year ended December 31, 2024, a decrease of $4.9 million, or 15.9%, from $30.7 million in 2023 and a decrease of $9.2 million, or 26.2%, from $35.0 million in 2022. The decrease in net income for 2024 was primarily due to an increase in noninterest expense, partially offset by increases in noninterest income and net interest income, as well as a provision for credit losses of $3.4 million compared to a reversal of $132 thousand in 2023.

The decrease in net income for 2023 compared to 2022 was primarily due to an increase in noninterest expense, decreases in noninterest income and net interest income, partially offset by a reversal for credit losses of $132 thousand in 2023 compared to a provision of $3.6 million in 2022.

Revenue and Profit Trends

Net interest income, the company’s primary source of revenue, was $88.6 million in 2024, relatively flat compared to $88.5 million in 2023 but down from $89.6 million in 2022. The net interest margin decreased from 4.08% in 2022 to 3.57% in 2023 and further to 3.17% in 2024, primarily due to increases in the average cost of interest-bearing liabilities outpacing the increases in average yield on interest-earning assets.

Noninterest income increased from $10.7 million in 2023 to $11.1 million in 2024, driven by higher service charges and fees on deposits, loan servicing income, and gain on sale of loans. In contrast, noninterest income decreased from $14.5 million in 2022 to $10.7 million in 2023, primarily due to a decline in gain on sale of loans.

Noninterest expense increased from $56.1 million in 2023 to $60.0 million in 2024, mainly due to higher salaries and employee benefits, occupancy and equipment costs, and other expenses. Noninterest expense also increased from $51.1 million in 2022 to $56.1 million in 2023, primarily driven by increases in salaries and employee benefits, occupancy and equipment, and professional fees.

Strengths and Weaknesses

One of the company’s key strengths is its diversified loan portfolio, with commercial real estate loans accounting for 66.7% of total loans held-for-investment as of December 31, 2024, followed by commercial and industrial loans at 18.0% and consumer loans at 15.3%. This diversification helps mitigate concentration risk.

Another strength is the company’s strong capital position, with a common equity tier 1 capital ratio of 11.44% and a total capital ratio of 15.24% as of December 31, 2024. These ratios exceed the regulatory minimums, providing a cushion against potential losses.

However, the company’s net interest margin has been declining, from 4.08% in 2022 to 3.57% in 2023 and 3.17% in 2024, as the average cost of interest-bearing liabilities has increased at a faster pace than the average yield on interest-earning assets. This compression in net interest margin could continue to put pressure on the company’s profitability.

Additionally, the company’s noninterest income has been volatile, decreasing from $14.5 million in 2022 to $10.7 million in 2023 before increasing to $11.1 million in 2024. Reliance on volatile revenue sources like gain on sale of loans can introduce uncertainty into the company’s earnings.

Outlook and Future Considerations

Looking ahead, the company’s ability to maintain profitability will depend on its ability to manage its net interest margin and noninterest income. Continued growth in the loan portfolio, particularly in higher-yielding commercial and industrial loans, could help offset the pressure on net interest margin. Additionally, the company may need to focus on diversifying its noninterest income sources to reduce reliance on volatile revenue streams.

The company’s adoption of the Current Expected Credit Losses (CECL) accounting standard in 2023 has also introduced some uncertainty, as the new standard requires the company to estimate expected credit losses over the life of its loan portfolio. The company’s ability to accurately forecast economic conditions and their impact on credit quality will be crucial in determining the appropriate level of the allowance for credit losses.

Overall, PCB Bancorp has demonstrated solid financial performance, with a diversified loan portfolio and strong capital position. However, the company faces challenges in maintaining its net interest margin and noninterest income, as well as navigating the new CECL accounting standard. Continued focus on prudent risk management, cost control, and diversification of revenue sources will be key to the company’s future success.