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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                  
Commission file number 001-38621
PCB BANCORP
(Exact name of registrant as specified in its charter)
California20-8856755
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
3701 Wilshire Boulevard, Suite 900, Los Angeles, California 90010
(Address of principal executive offices) (Zip Code)
(213) 210-2000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valuePCBNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No
As of July 31, 2023, the registrant had outstanding 14,343,590 shares of common stock.



PCB Bancorp and Subsidiary
Quarterly Report on Form 10-Q
June 30, 2023
Table of Contents
Part I - Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part II - Other Information
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


2


Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which reflect current views of PCB Bancorp (collectively, with its consolidated subsidiary, the “Company,” “we,” “us” or “our”) with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “aim,” “would,” and “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our business and industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, but are not limited to, the following:
business and economic conditions, particularly those affecting the financial services industry and our primary market areas and arising from recent inflationary pressures and governmental and societal responses thereto;
our ability to successfully manage our credit risk and the sufficiency of our allowance for credit loss;
factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance;
governmental monetary and fiscal policies, and changes in market interest rates;
the current inflationary environment and government and regulatory responses thereto;
adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks and may affect our customers’ behavior and our stock price;
the significant portion of our loan portfolio that is comprised of real estate loans;
our ability to attract and retain Korean-American customers;
our ability to identify and address cyber-security risks, fraud and systems errors;
our ability to effectively execute our strategic plan and manage our growth;
changes in our senior management team and our ability to attract, motivate and retain qualified personnel;
cyber-attacks, ransomware attacks, computer viruses or other malware that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data, disable or degrade service, or sabotage our systems;
liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold and our ability to raise additional capital, if necessary;
costs and obligations associated with operating as a public company;
effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;
the effects of severe weather, natural disasters, acts of war or terrorism, health epidemics or pandemics (or expectations about them) and other external events on our business;
the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; and
changes in federal tax laws or policies.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements and the risks described under “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 and our other documents that we file with the United States (“U.S.”) Securities Exchange Commission (“SEC”). Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is initially made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
3


Part I - Financial Information
Item 1 - Consolidated Financial Statements

PCB Bancorp and Subsidiary
Consolidated Balance Sheets
($ in thousands, except share data)
June 30, 2023December 31, 2022
(Unaudited)
Assets
Cash and due from banks
$22,159 $23,202 
Interest-bearing deposits in other financial institutions
199,987 123,829 
Total cash and cash equivalents
222,146 147,031 
Securities available-for-sale, at fair value (amortized cost of $154,100 and $156,978 at June 30, 2023 and December 31, 2022, respectively, and allowance for credit losses of $0 at June 30, 2023)
138,673 141,863 
Loans held-for-sale, at lower of cost or fair value13,065 22,811 
Loans held-for-investment, net of deferred fees and costs2,122,427 2,046,063 
Allowance for credit losses on loans (1)
(24,867)(24,942)
Net loans held-for-investment
2,097,560 2,021,121 
Premises and equipment, net
6,394 6,916 
Federal Home Loan Bank and other restricted stock, at cost
12,716 10,183 
Bank-owned life insurance30,428 30,064 
Deferred tax assets, net
4,348 3,115 
Servicing assets
7,142 7,347 
Operating lease assets
5,182 6,358 
Accrued interest receivable
8,040 7,472 
Other assets
10,651 15,755 
Total assets
$2,556,345 $2,420,036 
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand$635,329 $734,989 
Savings, NOW and money market accounts
489,153 514,741 
Time deposits of $250,000 or less
552,160 382,377 
Time deposits of more than $250,000
511,590 413,876 
Total deposits
2,188,232 2,045,983 
Federal Home Loan Bank advances
 20,000 
Operating lease liabilities
5,495 6,809 
Accrued interest payable and other liabilities
22,207 11,802 
Total liabilities
2,215,934 2,084,594 
Commitments and contingencies
Preferred stock, 10,000,000 shares authorized, no par value:
Series C, senior non-cumulative perpetual, $1,000 per share liquidation preference, 69,141 and 69,141 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively.
69,141 69,141 
Common stock, 60,000,000 shares authorized, no par value; 14,318,890 and 14,625,474 shares issued and outstanding, respectively, and included 45,761 and 62,022 shares of unvested restricted stock, respectively, at June 30, 2023 and December 31, 2022
143,686 149,631 
Retained earnings
138,315 127,181 
Accumulated other comprehensive income (loss), net(10,731)(10,511)
Total shareholders’ equity
340,411 335,442 
Total liabilities and shareholders’ equity
$2,556,345 $2,420,036 
(1)    Allowance for credit losses on loans at June 30, 2023 is presented under ASC 326, while prior period comparison continues to be presented under legacy ASC 450 and ASC 310.
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
4


PCB Bancorp and Subsidiary
Consolidated Statements of Income (Unaudited)
($ in thousands, except share and per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023202220232022
Interest and dividend income:
Loans, including fees$32,960 $21,243 $64,189 $41,433 
Tax-exempt investment securities33 37 67 73 
Taxable investment securities1,103 631 2,171 1,071 
Other interest-earning assets2,742 535 4,947 763 
Total interest income
36,838 22,446 71,374 43,340 
Interest expense:
Deposits15,121 1,041 27,034 1,891 
Other borrowings 54 209 105 
Total interest expense
15,121 1,095 27,243 1,996 
Net interest income21,717 21,351 44,131 41,344 
Provision (reversal) for credit losses (1)
197 (109)(2,581)(1,300)
Net interest income after provision (reversal) for credit losses21,520 21,460 46,712 42,644 
Noninterest income:
Service charges and fees on deposits
369 330 713 633 
Loan servicing income
868 755 1,728 1,455 
Bank-owned life insurance income184 175 364 347 
Gain on sale of loans
769 2,039 2,078 5,816 
Other income
467 349 795 683 
Total noninterest income
2,657 3,648 5,678 8,934 
Noninterest expense:
Salaries and employee benefits
8,675 8,125 17,603 16,720 
Occupancy and equipment
1,919 1,537 3,815 2,934 
Professional fees
772 642 1,504 1,045 
Marketing and business promotion
203 310 575 517 
Data processing
380 441 792 845 
Director fees and expenses
217 182 397 351 
Regulatory assessments
382 147 537 288 
Other expense1,079 861 2,158 1,616 
Total noninterest expense
13,627 12,245 27,381 24,316 
Income before income taxes
10,550 12,863 25,009 27,262 
Income tax expense
3,073 3,771 7,235 7,930 
Net income
$7,477 $9,092 $17,774 $19,332 
Earnings per common share, basic
$0.52 $0.61 $1.24 $1.29 
Earnings per common share, diluted
$0.52 $0.60 $1.22 $1.27 
Weighted-average common shares outstanding, basic
14,271,200 14,883,768 14,344,769 14,865,990 
Weighted-average common shares outstanding, diluted
14,356,776 15,122,452 14,468,981 15,138,493 
(1)    Provision (reversal) for credit losses for the three and six months ended June 30, 2023 is presented under ASC 326, while prior period comparison continues to be presented under legacy ASC 450 and ASC 310.
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
5


PCB Bancorp and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
($ in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income$7,477 $9,092 $17,774 $19,332 
Other comprehensive loss:
Unrealized loss on securities available-for-sale arising during the period(2,340)(4,117)(312)(9,584)
Income tax benefit related to items of other comprehensive loss691 1,215 92 2,830 
Total other comprehensive loss, net of tax(1,649)(2,902)(220)(6,754)
Total comprehensive income$5,828 $6,190 $17,554 $12,578 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
6


PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
($ in thousands, except share and per share data)
Three Months Ended
Shares OutstandingShareholders’ Equity
Preferred StockCommon Stock
Preferred Stock
Common Stock
Retained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance at April 1, 2022 14,944,663 $ $155,614 $109,142 $(3,698)$261,058 
Comprehensive income (loss)
Net income
— — — — 9,092 — 9,092 
Other comprehensive loss, net of tax— — — — — (2,902)(2,902)
Issuance of preferred stock69,141 — 69,141 — — — 69,141 
Share-based compensation expense
— — — 142 — — 142 
Stock options exercised
— 12,097 — 86 — — 86 
Cash dividends declared on common stock ($0.15 per share)
— — — — (2,242)— (2,242)
Balance at June 30, 202269,141 14,956,760 $69,141 $155,842 $115,992 $(6,600)$334,375 
Balance at April 1, 202369,141 14,297,870 $69,141 $143,356 $133,415 $(9,082)$336,830 
Comprehensive income (loss)
Net income
— — — — 7,477 — 7,477 
Other comprehensive loss, net of tax— — — — — (1,649)(1,649)
Share-based compensation expense
— — — 113 — — 113 
Stock options exercised
— 21,020 — 217 — — 217 
Cash dividends declared on common stock ($0.18 per share)
— — — — (2,577)— (2,577)
Balance at June 30, 202369,141 14,318,890 $69,141 $143,686 $138,315 $(10,731)$340,411 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

7


PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity, Continued (Unaudited)
($ in thousands, except share and per share data)
Six Months Ended
Shares OutstandingShareholders’ Equity
Preferred StockCommon Stock
Preferred Stock
Common Stock
Retained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance at January 1, 2022 14,865,825 $ $154,992 $101,140 $154 $256,286 
Comprehensive income (loss)
Net income
— — — — 19,332 — 19,332 
Other comprehensive loss, net of tax— — — — — (6,754)(6,754)
Issuance of preferred stock69,141 — 69,141 — — — 69,141 
Issuance of restricted stock— 25,000 — — — — — 
Forfeiture of restricted stock— (200)— — — — — 
Share-based compensation expense
— — — 283 — — 283 
Stock options exercised
— 66,135 — 567 — — 567 
Cash dividends declared on common stock ($0.30 per share)
— — — — (4,480)— (4,480)
Balance at June 30, 202269,141 14,956,760 $69,141 $155,842 $115,992 $(6,600)$334,375 
Balance at January 1, 202369,141 14,625,474 $69,141 $149,631 $127,181 $(10,511)$335,442 
Cumulative effect adjustment upon adoption of ASC 326— — — — (1,886)— (1,886)
Adjusted balance at January 1, 202369,141 14,625,474 69,141 149,631 125,295 (10,511)333,556 
Comprehensive income (loss)
Net income
— — — — 17,774 — 17,774 
Other comprehensive loss, net of tax— — — — — (220)(220)
Repurchase of common stock— (385,381)— (6,845)— — (6,845)
Share-based compensation expense
— — — 233 — — 233 
Stock options exercised
— 78,797 — 667 — — 667 
Cash dividends declared on common stock ($0.33 per share)
— — — — (4,754)— (4,754)
Balance at June 30, 202369,141 14,318,890 $69,141 $143,686 $138,315 $(10,731)$340,411 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
8


PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
($ in thousands)
Six Months Ended June 30,
20232022
Cash flows from operating activities
Net income$17,774 $19,332 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment1,131 651 
Net amortization of premiums on securities116 232 
Net accretion of discounts on loans(1,422)(1,815)
Net accretion of deferred loan fees(422)(1,771)
Amortization of servicing assets873 1,061 
Reversal for credit losses (1)
(2,581)(1,300)
Bank-owned life insurance income(364)(347)
Deferred tax expense (benefit)(353)1,785 
Stock-based compensation233 283 
Gain on sale of loans(2,078)(5,816)
Originations of loans held-for-sale(38,293)(51,106)
Proceeds from sales of and principal collected on loans held-for-sale46,793 84,802 
Change in accrued interest receivable and other assets4,545 (3,094)
Change in accrued interest payable and other liabilities8,674 (4,119)
Net cash provided by operating activities34,626 38,778 
Cash flows from investing activities
Purchase of securities available-for-sale(5,931)(38,033)
Proceeds from maturities and paydowns of securities available-for-sale8,693 12,348 
Proceeds from principal collected on loans held-for-sale previously classified as held-for-investment5,074  
Net change in loans held-for-investment(59,758)(99,369)
Purchase of loans held-for-investment(15,741) 
Purchase of Federal Home Loan Bank stock(2,533)(1,606)
Purchases of premises and equipment(632)(1,194)
Net cash used in investing activities(70,828)(127,854)
Cash flows from financing activities
Net change in deposits142,249 130,473 
Net change in short-term Federal Home Loan Bank advances(20,000) 
Repayment of long-term Federal Home Loan Bank advances (10,000)
Stock options exercised667 567 
Issuance of preferred stock 69,141 
Repurchase of common stock(6,845) 
Cash dividends paid on common stock(4,754)(4,480)
Net cash provided by financing activities111,317 185,701 
Net increase in cash and cash equivalents75,115 96,625 
Cash and cash equivalents at beginning of period147,031 203,285 
Cash and cash equivalents at end of period$222,146 $299,910 
(1)    Reversal for credit losses for the six months ended June 30, 2023 is presented under ASC 326, while prior period comparison continue to be presented under legacy ASC 450 and ASC 310.
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
9


PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued (Unaudited)
($ in thousands)
Six Months Ended June 30,
20232022
Supplemental disclosures of cash flow information:
Interest paid
$17,299 $2,165 
Income taxes paid
1,706 11,409 
Supplemental disclosures of non-cash investment activities:
Loans transferred to other real estate owned
$ $151 
Right of use assets obtained in exchange for lease obligations
226 964 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

10


PCB Bancorp and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation and Significant Accounting Policies
Nature of Operations
PCB Bancorp is a bank holding company whose subsidiary is PCB Bank (the “Bank”), which is a single operating segment. The Company changed its subsidiary name from Pacific City Bank to PCB Bank on August 25, 2022. As of June 30, 2023, the Bank operated 11 full-service branches in Los Angeles and Orange counties, California, three full-service branches on the East Coast (Bayside, New York; and Englewood Cliffs and Palisades Park, New Jersey), and two full-service branches in Texas (Carrollton and Dallas), and seven loan production offices (“LPOs”) in Los Angeles and Orange Counties, California; Annandale, Virginia; Atlanta, Georgia; Aurora, Colorado; Bellevue, Washington; and Carrollton, Texas. The Bank offers a broad range of loans, deposits, and other products and services predominantly to small and middle market businesses and individuals.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles (“GAAP”) are not included herein. These interim statements should be read in conjunction with the audited consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed by the Company with the SEC. The December 31, 2022 balance sheet presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC, but does not include all of the disclosures required by GAAP for complete financial statements.
In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Principles of Consolidation
The consolidated financial statements include the accounts of PCB Bancorp and its wholly owned subsidiary as of June 30, 2023 and December 31, 2022, and for the three and six months ended June 30, 2023 and 2022. Significant inter-company accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its wholly owned subsidiary.
Significant Accounting Policies
The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. Other than the adoption of ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326)” discussed below, the Company has not made any significant changes in its critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are subject to change and such change could have a material effect on the consolidated financial statements. Actual results may differ from those estimates.


11


Adopted Accounting Pronouncements
During the six months ended June 30, 2023, the Company adopted following accounting pronouncements.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326).” The amendments in this ASU require that entities change the impairment model for most financial assets that are measured at amortized cost and certain other instruments from an incurred loss model to an expected loss model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. It includes financial assets such as loan receivables, held-to-maturity debt securities, net investment in leases that are not accounted for at fair value through net income, and certain off-balance sheet credit exposures. This ASU was effective for public business entities that are SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In 2019, the FASB amended this ASU, which delayed the effective date to 2023 for certain SEC filers that are Smaller Reporting Companies, such as the Company.
On January 1, 2023, the Company adopted the provisions of ASC 326 through the application of the modified retrospective transition approach, and recorded a net decrease of $1.9 million to the beginning balance of retained earnings as of January 1, 2023 for the cumulative effect adjustment, reflecting an initial adjustment to the allowance for credit losses (“ACL”) on loans of $1.1 million and the ACL on off-balance sheet credit exposures of $1.6 million, net of related deferred tax assets arising from temporary differences of $788 thousand. The initial adjustment to the ACL is reflective of expected lifetime credit losses associated with the composition of financial assets within in the scope of ASC 326 as of January 1, 2023, as well as management’s current expectation of future economic conditions.
The following table summarizes the initial adjustment to the ACL as of January 1, 2023:
($ in thousands)Pre-ASC 326 AdoptionImpact of ASC 326 AdoptionAs Reported Under ASC 326
Assets
ACL on loans
Commercial real estate$15,536 $(610)$14,926 
Commercial and industrial5,502 4,344 9,846 
Consumer3,904 (2,667)1,237 
Total ACL on loans24,942 1,067 26,009 
Deferred tax assets3,115 788 3,903 
Liabilities
ACL on off-balance sheet credit exposures$299 $1,607 1,906 
Shareholders’ equity
Retained earnings$127,181 $(1,886)125,295 
In conjunction with the adoption of ASC 326, the Company made an accounting policy election not to measure an ACL on accrued interest receivables for the loans collectively evaluated. For the loans individually evaluated, the Company considers accrued interest receivables as a part of the amortized cost and measures an ACL.
When accrued interest receivable is deemed to be uncollectable, the Company promptly reverses such balances through current period interest income in the period they are deemed uncollectable. Additionally, the Company has also elected not to include the balance of accrued interest receivable in the amortized cost basis of financial assets within the scope of ASC 326. Accrued interest receivable will continue to be presented separately in the Consolidated Balance Sheets.
ACL on securities available-for-sale
The Company reviewed securities available-for-sale that were in an unrealized loss position as of January 1, 2023 and determined the decline in fair value for those securities was not related to credit, but rather related to changes in interest rates and general market conditions. Additionally, there were no investment securities with previously recorded other-than-temporary impairment (“OTTI”) as of January 1, 2023. As such, no ACL was recorded for securities available-for-sale as of January 1, 2023.

12


ACL on loans
The measurement of the ACL on loans is performed by collectively evaluating loans with similar risk characteristics using a discounted cash flow approach. The discounted cash flow methodology incorporates a probability of default (“PD”) and loss given default (“LGD”) model, as well as reasonable and supportable forecasts, and generates an estimate of the contractual cash flows that are not expected to be collected over the life of the loan.
PD and LGD are forecasted over a one-year time horizon using economic forecast scenarios, which the Company believes is a reasonable and supportable period. 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. 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 utilizes the economic forecasts provided by the Federal Open Market Committee (“FOMC”) to forecast the first 4 quarters of the credit loss estimate. The FOMC projects national unemployment rate and the projected change in the year-over-year national gross domestic product (“GDP”) growth rates over the forward-looking 4 quarters are used in determining the PD rates over the forecasted periods.
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.
Problem loans are typically substandard or have a worse internal risk grade, and may consist of loans on nonaccrual status where the likelihood of foreclosure on underlying collateral has increased, collateral dependent loans and other loans where concern or doubt over the ultimate collectability of all contractual amounts due has become elevated. These problem loans, in the opinion of management, no longer possess risk characteristics similar to other loans in the loan segment, and as such may require individual evaluation for appropriate ACL for the loan. Performing loans individually evaluated, the Company measures the expected credit loss for the loan based on a discounted cash flow approach or fair value of collateral, less costs to sell. Collateral dependent loans are loans to borrowers with financial difficulty where the repayment of the loan is expected from the operation of and/or eventual liquidation of the underlying collateral.
As a part of the adoption of ASC 326, the Company reviewed and revised certain loan segments for the Company’s ACL model. Before the adoption of ASC 326, commercial property and SBA property loans were separately presented and represented 63.0% and 6.6% of loans held-for-investment at December 31, 2022, respectively. The Company re-divided these loan segments into commercial property, business property and multifamily loans, as described below, as these new loan segments are determined to share similar characteristics under the Company’s ACL model. In addition, four loan segments before the adoption of ASC 326 (commercial term loans, commercial lines of credit, SBA term loans and SBA PPP loans), which represented 12.2% of loans held-for-investment at December 31, 2022, are combined into a single loan segment, commercial and industrial (“C&I”) loans, as these loans are determined to share similar risk characteristics under the Company’s ACL model. However, loan related disclosures for prior periods continue to be presented under the legacy loan segments in this Quarterly Report on Form 10-Q.
Each loan segment bears varying degrees of risk based on, among other things, the type of loan and collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions and interest rate changes. The loan segments are as following:
Commercial Real Estate (“CRE”) Loans:
Commercial property loans – Commercial property loans include loans for which the Company holds real property as collateral, but where the borrower does not occupy the underlying property. The primary risks associated with investor property loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, significant increases in interest rates, changes in market rents, and vacancy and conditions of the underlying property, any of which may make the real estate property unprofitable to the borrower. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

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Business property loans – Business property loans include loans for which the Company holds real property as collateral and where the underlying property is occupied by the borrower, such as with a place of business. These loans are primarily underwritten based on the cash flows of the business and secondarily on the real estate. The primary risks associated with business property loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which reduce the cash flows of the underlying business. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.
Multifamily loans: Multifamily loans are secured by multi-tenant (5 or more units) residential real properties. Payments on multifamily loans are dependent on the successful operation or management of the properties, and repayment of these loans may be subject to adverse conditions in the real estate market or the economy.
Construction loans: Construction loans are considered to have higher risks due to construction completion and timing risk, and the ultimate repayment being sensitive to interest rate changes, government regulation of real property, and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. The fair value of the underlying collateral may fluctuate as market conditions change. The primary risks include the borrower’s inability to pay and the inability of the Company to recover its investment due to a decline in the fair value of the underlying collateral.
Commercial and Industrial Loans:
Commercial and industrial loans – The C&I loan category includes commercial term loans and commercial lines of credit. Commercial term loans are typically extended to finance business acquisitions, permanent working capital needs, and/or equipment purchases. Commercial lines of credit are generally provided to finance short-term working capital needs and mortgage warehouse lending credit facilities. Mortgage warehouse lending is a line of credit given to a loan originator, the funds from which are used to finance a mortgage that a borrower uses to purchase single-family residential property or refinance an existing mortgage. The primary risk associated with C&I loans is the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans, and occasionally upon other borrower assets and guarantor assets.
Consumer Loans
Residential mortgage loans – The primary risks of residential mortgage loans include the borrower’s inability to pay, material decreases in the value of the real estate that is being held as collateral, and significant increases in interest rates, which may reduce the borrower’s capacity to pay.
Other consumer loans – Other consumer loans primarily include automobile loans, as well as unsecured lines of credit and term loans to high net worth individuals. Automobile loans have relatively lower LTV ratios on average and carry higher interest rates to offset for the inherently higher default risks. Unsecured lines of credit and term consumer loans are underwritten primarily based on the individual borrower’s income, current debt level, and past credit history. Repayment of these loans is dependent on the borrower’s ability to pay, and the fair value of the underlying collateral for automobile loans.

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The following table presents a summary of reclassification of loans held-for-investment as the date indicated:
($ in thousands)December 31, 2022Reclassification
January 1, 2023
Commercial property (1)
$1,288,392 $(1,288,392)$— 
SBA property134,892 (134,892)— 
Commercial property N/A 772,020 772,020 
Business property N/A 526,513 526,513 
Multifamily N/A 124,751 124,751 
Total Reclassed:1,423,284 — 1,423,284 
Construction17,054 — 17,054 
Commercial and industrial249,250 — 249,250 
Residential property333,726 — 333,726 
Other consumer22,749 — 22,749 
Total loans held-for-investment$2,046,063 $ $2,046,063 
(1)    Commercial property loans under the legacy loan segments included all commercial property, business property and multifamily loans under the new loan segments.
The following table presents a summary of reclassification of ACL on loans as the date indicated as well as the initial adjustment to the ACL as of January 1, 2023:
($ in thousands)December 31, 2022Reclassification
January 1, 2023
Impact of ASC 326 AdoptionAs Reported Under ASC 326
Commercial property (1)
$14,059 $(14,059)$— $— $— 
SBA property1,326 (1,326)— — — 
Commercial property N/A 8,502 8,502 (1,762)6,740 
Business property N/A 5,749 5,749 896 6,645 
Multifamily N/A 1,134 1,134 256 1,390 
Total Reclassed:15,385 — 15,385 (610)14,775 
Construction151 — 151  151 
Commercial and industrial5,502 — 5,502 4,344 9,846 
Residential property3,691 — 3,691 (2,534)1,157 
Other consumer213 — 213 (133)80 
Total ACL$24,942 $ $24,942 $1,067 $26,009 
(1)    Commercial property loans under the legacy loan segments included all commercial property, business property and multifamily loans under the new loan segments.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company applies an expected credit loss estimation methodology applied to each respective loan segment for determining the ACL on off-balance sheet credit exposures. These assumptions are based on the Company’s own historical internal loan data.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments-Credit Losses (Topic 326) - Troubled Debt Restructuring and Vintage Disclosures.” The amendments in this ASU eliminate the accounting guidance for TDRs by creditors in ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty. This ASU also requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The Company adopted this ASU as of January 1, 2023, in conjunction with the adoption of ASU 2016-13. The Company did not have a material impact on its consolidated financial statements upon adoption of this ASU.
Recent Accounting Pronouncements Not Yet Adopted
There were no significant accounting pronouncements applicable to the Company that have not yet been adopted.
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Note 2 - Fair Value Measurements
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value including a three-level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (i.e. an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The three-level fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are defined as follows:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Fair value is measured on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Additionally, fair value is used on a non-recurring basis to evaluate certain assets or liabilities for impairment or for disclosure purposes. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company records securities available-for-sale at fair value on a recurring basis. Certain other assets, such as loans held-for-sale, impaired loans, servicing assets and other real estate owned (“OREO”) are recorded at fair value on a non-recurring basis. Non-recurring fair value measurements typically involve assets that are periodically evaluated for impairment and for which any impairment is recorded in the period in which the re-measurement is performed. The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Investment securities: The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1) or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2). Management reviews the valuation techniques and assumptions used by the provider and determines that the provider uses widely accepted valuation techniques based on observable market inputs appropriate for the type of security being measured. Securities held-to-maturity are not measured at fair value on a recurring basis.
Loans held-for-sale: The Company records SBA loans held-for-sale, residential property loans held-for-sale and certain non-residential real estate loans held-for-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2.
Loans individually evaluated: Certain collateral-dependent loans individually evaluated are recognized at fair value when they reflect partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral. In some cases, the properties for which market quotes or appraised values have been obtained are located in areas where comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent loans individually evaluated are obtained from real estate brokers or other third-party consultants, and are classified as Level 3.
Other real estate owned: The Company initially records OREO at fair value at the time of foreclosure. Thereafter, OREO is recorded at the lower of cost or fair value based on their subsequent changes in fair value. The fair value of OREO is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification due to the unobservable inputs used for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value.
Servicing Assets: Servicing assets represent the value associated with servicing loans that have been sold. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for servicing assets. Servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of dates indicated:
Fair Value Measurement Level
($ in thousands)
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
June 30, 2023
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ $97,119 $ $97,119 
Residential collateralized mortgage obligations
 25,325  25,325 
SBA loan pool securities
 7,974  7,974 
Municipal bonds
 4,221  4,221 
Corporate bonds 4,034  4,034 
Total securities available-for-sale
 138,673  138,673 
Total assets measured at fair value on a recurring basis
$ $138,673 $ $138,673 
Total liabilities measured at fair value on a recurring basis
$ $ $ $ 
December 31, 2022
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ $96,900 $ $96,900 
Residential collateralized mortgage obligations
 26,956  26,956 
SBA loan pool securities
 9,298  9,298 
Municipal bonds
 4,186  4,186 
Corporate bonds 4,523  4,523 
Total securities available-for-sale
 141,863  141,863 
Total assets measured at fair value on a recurring basis
$ $141,863 $ $141,863 
Total liabilities measured at fair value on a recurring basis
$ $ $ $ 
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
The following table presents the Company’s assets and liabilities measured at fair value on a non-recurring basis as of dates indicated:
Fair Value Measurement Level
($ in thousands)
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
June 30, 2023
Loans individually evaluated:
Business property$ $ $18 $18 
Total loans individually evaluated  18 18 
Total assets measured at fair value on a non-recurring basis
$ $ $18 $18 
Total liabilities measured at fair value on a non-recurring basis
$ $ $ $ 
December 31, 2022
Impaired loans:
Commercial lines of credit (1)
$ $ $4,000 $4,000 
Total impaired loans
  4,000 4,000 
Total assets measured at fair value on a non-recurring basis
$