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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 September 30, 2021
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)
California 20-8856755
(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 class Trading Symbol(s) Name of each exchange on which registered
Common stock, no par value PCB Nasdaq 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 October 29, 2021, the registrant had outstanding 14,841,626 shares of common stock.


PCB Bancorp and Subsidiary
Quarterly Report on Form 10-Q
September 30, 2021
Table of Contents
Part I - Financial Information
Item 1.
5
5
6
7
8
10
12
Item 2.
40
Item 3.
63
Item 4.
64
Part II - Other Information
Item 1.
65
Item 1A.
65
Item 2.
66
Item 3.
67
Item 4.
67
Item 5.
67
Item 6.
68
69


2

Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements which reflect current views of PCB Bancorp, formerly known as Pacific City Financial Corporation, (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 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 current COVID-19 pandemic and governmental and societal responses thereto;
•our ability to successfully manage our credit risk and the sufficiency of our allowance for loan 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 and our borrowers' actual payment performance as loan deferrals related to the COVID-19 pandemic expire;
•governmental monetary and fiscal policies, and changes in market interest rates;
•compliance with governmental and regulatory requirements, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act of 2020 (the “Economic Aid Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”) and others relating to banking, consumer protection, securities and tax matters including, but not limited to the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance;
•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 for sale and our ability to raise additional capital, if necessary;
•costs and obligations associated with operating as a public company;
•the 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 law or policy.

3

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, 2020 and our other documents filed 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.
4

Part I - Financial Information
Item 1 - Consolidated Financial Statements

PCB Bancorp and Subsidiary
Consolidated Balance Sheets
($ in thousands, except share data)
September 30, 2021 December 31, 2020
(Unaudited)
Assets
Cash and due from banks
$ 19,688  $ 19,605 
Interest-bearing deposits in other financial institutions
195,285  174,493 
Total cash and cash equivalents
214,973  194,098 
Securities available-for-sale, at fair value
133,102  120,527 
Loans held-for-sale
29,020  1,979 
Loans held-for-investment, net of deferred loan costs (fees)
1,707,878  1,583,578 
Allowance for loan losses
(23,807) (26,510)
Net loans held-for-investment
1,684,071  1,557,068 
Premises and equipment, net
3,306  4,048 
Federal Home Loan Bank and other restricted stock, at cost
8,577  8,447 
Other real estate owned, net
—  1,401 
Deferred tax assets, net
7,519  8,120 
Servicing assets
7,009  6,400 
Operating lease assets
7,164  7,616 
Accrued interest receivable
5,494  9,334 
Other assets
4,464  3,815 
Total assets
$ 2,104,699  $ 1,922,853 
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing demand
$ 832,240  $ 538,009 
Savings, NOW and money market accounts
410,092  408,826 
Time deposits of $250,000 or less
327,207  379,333 
Time deposits of more than $250,000
263,127  268,683 
Total deposits
1,832,666  1,594,851 
Federal Home Loan Bank advances
10,000  80,000 
Operating lease liabilities
7,862  8,455 
Accrued interest payable and other liabilities
6,573  5,759 
Total liabilities
1,857,101  1,689,065 
Commitments and contingencies
Preferred stock, 10,000,000 shares authorized, no par value, no issued and outstanding shares
—  — 
Common stock, 60,000,000 shares authorized, no par value; 14,841,626 and 15,385,878 shares issued and outstanding, respectively, and included 55,284 and 30,300 shares of unvested restricted stock, respectively, at September 30, 2021 and December 31, 2020
154,618  164,140 
Retained earnings
92,248  67,692 
Accumulated other comprehensive income, net 732  1,956 
Total shareholders’ equity
247,598  233,788 
Total liabilities and shareholders’ equity
$ 2,104,699  $ 1,922,853 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
5

PCB Bancorp and Subsidiary
Consolidated Statements of Income (Unaudited)
($ in thousands, except share and per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2021 2020 2021 2020
Interest and dividend income:
Loans, including fees $ 20,537  $ 18,938  $ 58,792  $ 57,617 
Tax-exempt investment securities 36  37  109  113 
Taxable investment securities 401  478  1,063  1,585 
Other interest-earning assets 194  167  513  938 
Total interest income
21,168  19,620  60,477  60,253 
Interest expense:
Deposits 885  2,599  3,196  11,000 
Other borrowings 56  168  239  471 
Total interest expense
941  2,767  3,435  11,471 
Net interest income
20,227  16,853  57,042  48,782 
Provision (reversal) for loan losses (1,053) 4,326  (3,134) 11,077 
Net interest income after provision (reversal) for loan losses 21,280  12,527  60,176  37,705 
Noninterest income:
Service charges and fees on deposits
292  280  887  945 
Loan servicing income
655  856  2,082  2,312 
Gain on sale of loans
4,269  821  9,558  3,044 
Other income
372  315  1,069  915 
Total noninterest income
5,588  2,272  13,596  7,216 
Noninterest expense:
Salaries and employee benefits
7,606  6,438  20,913  18,750 
Occupancy and equipment
1,399  1,416  4,158  4,196 
Professional fees
422  325  1,574  1,631 
Marketing and business promotion
416  193  1,070  920 
Data processing
391  373  1,164  1,097 
Director fees and expenses
144  125  433  453 
Regulatory assessments
12  267  399  728 
Other expenses
842  749  2,329  2,374 
Total noninterest expense
11,232  9,886  32,040  30,149 
Income before income taxes
15,636  4,913  41,732  14,772 
Income tax expense
4,613  1,464  12,305  4,384 
Net income
$ 11,023  $ 3,449  $ 29,427  $ 10,388 
Earnings per common share, basic
$ 0.74  $ 0.22  $ 1.94  $ 0.67 
Earnings per common share, diluted
$ 0.73  $ 0.22  $ 1.92  $ 0.67 
Weighted-average common shares outstanding, basic
14,779,707  15,343,888  15,090,989  15,395,475 
Weighted-average common shares outstanding, diluted
15,031,558  15,377,531  15,298,065  15,466,207 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
6

PCB Bancorp and Subsidiary
Consolidated Statements of Comprehensive Income (Unaudited)
($ in thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2021 2020 2021 2020
Net income $ 11,023  $ 3,449  $ 29,427  $ 10,388 
Other comprehensive income (loss):
Unrealized gain (loss) on securities available-for-sale arising during the period (581) (9) (1,734) 2,045 
Unrealized gain arising from the reclassification of securities held-to-maturity to securities available-for-sale —  —  —  787 
Income tax benefit (expense) related to items of other comprehensive income (loss) 170  3  510  (839)
Total other comprehensive income (loss), net of tax (411) (6) (1,224) 1,993 
Total comprehensive income $ 10,612  $ 3,443  $ 28,203  $ 12,381 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
7

PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
($ in thousands, except share and per share data)
Shareholders’ Equity
Common Stock
Outstanding Shares 		Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total
Balance at July 1, 2020 15,377,935  $ 163,759  $ 61,532  $ 1,942  $ 227,233 
Comprehensive income (loss)
Net income
—  —  3,449  —  3,449 
Other comprehensive loss, net of tax —  —  —  (6) (6)
Issuance of restricted stock 900  —  —  —  — 
Restricted stock surrendered due to employee tax liability (165) (2) —  —  (2)
Share-based compensation expense
—  200  —  —  200 
Stock options exercised
868  3  —  —  3 
Cash dividends declared on common stock ($0.10 per share)
—  —  (1,538) —  (1,538)
Balance at September 30, 2020 15,379,538  $ 163,960  $ 63,443  $ 1,936  $ 229,339 
Balance at July 1, 2021 14,854,315  $ 154,796  $ 83,002  $ 1,143  $ 238,941 
Comprehensive income (loss)
Net income
—  —  11,023  —  11,023 
Other comprehensive loss, net of tax —  —  —  (411) (411)
Issuance of restricted stock 1,800  —  —  —  — 
Forfeiture of restricted stock (300) —  —  —  — 
Restricted stock surrendered due to employee tax liability (231) (4) —  —  (4)
Repurchase of common stock (33,935) (543) —  —  (543)
Share-based compensation expense
—  116  —  —  116 
Stock options exercised
19,977  253  —  —  253 
Cash dividends declared on common stock ($0.12 per share)
—  —  (1,777) —  (1,777)
Balance at September 30, 2021 14,841,626  $ 154,618  $ 92,248  $ 732  $ 247,598 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

8

PCB Bancorp and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
($ in thousands, except share and per share data)
Shareholders’ Equity
Common Stock
Outstanding Shares 		Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total
Balance at January 1, 2020 15,707,016  $ 169,221  $ 57,670  $ (57) $ 226,834 
Comprehensive income
Net income
—  —  10,388  —  10,388 
Other comprehensive income, net of tax
—  —  —  1,993  1,993 
Issuance of restricted stock 1,900  —  —  —  — 
Restricted stock surrendered due to employee tax liability (165) (2) —  —  (2)
Repurchase of common stock
(428,474) (6,487) —  —  (6,487)
Share-based compensation expense
—  592  —  —  592 
Stock options exercised
99,261  636  —  —  636 
Cash dividends declared on common stock ($0.30 per share)
—  —  (4,615) —  (4,615)
Balance at September 30, 2020 15,379,538  $ 163,960  $ 63,443  $ 1,936  $ 229,339 
Balance at January 1, 2021 15,385,878  $ 164,140  $ 67,692  $ 1,956  $ 233,788 
Comprehensive income (loss)
Net income
—  —  29,427  —  29,427 
Other comprehensive loss, net of tax —  —  —  (1,224) (1,224)
Issuance of restricted stock 35,584  —  —  —  — 
Forfeiture of restricted stock (1,300) —  —  —  — 
Restricted stock surrendered due to employee tax liability (231) (4) —  —  (4)
Repurchase of common stock (680,269) (10,876) —  —  (10,876)
Share-based compensation expense
—  323  —  —  323 
Stock options exercised
101,964  1,035  —  —  1,035 
Cash dividends declared on common stock ($0.32 per share)
—  —  (4,871) —  (4,871)
Balance at September 30, 2021 14,841,626  $ 154,618  $ 92,248  $ 732  $ 247,598 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
9

PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
($ in thousands)
Nine Months Ended September 30,
2021 2020
Cash flows from operating activities
Net income $ 29,427  $ 10,388 
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation of premises and equipment 1,053  1,118 
Net amortization of premiums on securities 811  656 
Net accretion of discounts on loans (2,689) (2,301)
Net accretion of deferred loan fees (4,662) (1,988)
Amortization of servicing assets 1,496  1,385 
Provision (reversal) for loan losses (3,134) 11,077 
Deferred tax expense (benefit) 1,111  (3,005)
Stock-based compensation 323  592 
Gain on sale of loans (9,558) (3,044)
Originations of loans held-for-sale (126,774) (100,507)
Proceeds from sales of and principal collected on loans held-for-sale 109,409  75,389 
Change in accrued interest receivable and other assets 3,191  (4,911)
Change in accrued interest payable and other liabilities (319) (3,944)
Net cash used in operating activities (315) (19,095)
Cash flows from investing activities
Purchase of securities available-for-sale (47,306) (36,640)
Proceeds from maturities and paydowns of securities available-for-sale 32,186  26,245 
Proceeds from maturities and paydowns of securities held-to-maturity —  1,309 
Proceeds from sale of loans held-for-sale previously classified as held-for-investment 5,355  664 
Net change in loans held-for-investment (123,698) (129,337)
Purchase of loans held-for-investment (1,439) — 
Purchase of Federal Home Loan Bank stock (130) (102)
Proceeds from sale of other real estate owned 3,434  2,490 
Purchases of premises and equipment (315) (1,714)
Net cash used in investing activities (131,913) (137,085)
Cash flows from financing activities
Net change in deposits 237,815  167,800 
Proceeds from long-term Federal Home Loan Bank advances —  140,000 
Repayment of long-term Federal Home Loan Bank advances (70,000) (30,000)
Stock options exercised 1,035  636 
Repurchase of common stock (10,876) (6,487)
Cash dividends paid on common stock (4,871) (4,615)
Net cash provided by financing activities 153,103  267,334 
Net increase (decrease) in cash and cash equivalents 20,875  111,154 
Cash and cash equivalents at beginning of period 194,098  146,228 
Cash and cash equivalents at end of period $ 214,973  $ 257,382 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)
10

PCB Bancorp and Subsidiary
Consolidated Statements of Cash Flows, Continued (Unaudited)
(in thousands)
Nine Months Ended September 30,
2021 2020
Supplemental disclosures of cash flow information:
Interest paid
$ 4,916  $ 14,849 
Income taxes paid
9,027  6,621 
Supplemental disclosures of non-cash investment activities:
Loans transferred to loans held-for-sale
$ 5,351  $ 1,355 
Loans transferred to other real estate owned
905  2,544 
Reclassification of securities held-to-maturity to securities available-for-sale
—  18,777 
Right of use assets obtained in exchange for lease obligations
1,247  105 
See Accompanying Notes to Consolidated Financial Statements (Unaudited)

11

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 Pacific City Bank (the “Bank”). The Bank is a single operating segment that operates 11 full-service branches in Los Angeles and Orange counties, California, one full-service branch in each of Englewood Cliffs, New Jersey and Bayside, New York, and 10 loan production offices (“LPOs”) in Irvine, Artesia and Los Angeles, California; Annandale, Virginia; Atlanta, Georgia; Chicago, Illinois; Bellevue, Washington; Aurora, Colorado; Carrollton, Texas; and New York, New York. 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, 2020 filed by the Company with the SEC. The December 31, 2020 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, 2020 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Principles of Consolidation
The consolidated financial statements include the accounts of PCB Bancorp and its wholly owned subsidiary as of September 30, 2021 and December 31, 2020, and for the three and nine months ended September 30, 2021 and 2020. 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. 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, 2020 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.
Reclassification of Securities Held-To-Maturity to Securities Available-For-Sale
On June 30, 2020, the Company transferred securities held-to-maturity to securities available-for-sale as a part of the Company’s liquidity management plan in response to the COVID-19 pandemic. Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve the Company’s liquidity position. Accordingly, the Company was no longer able to assert that it had the intent to hold these securities until maturity and the Company’s ability to assert that it has the intent and ability to hold to maturity debt securities will be limited for up to two years from the date of transfer. The Company transferred all securities held-to-maturity of $18.8 million to securities available-for-sale, which resulted in a pre-tax increase to accumulated other comprehensive income of $787 thousand.
12

Loan Modifications Related to the COVID-19 Pandemic
As a part of the CARES Act, the temporary relief from troubled debt restructurings (“TDRs”) provided an option for financial institutions to suspend the GAAP requirements and regulatory determinations for loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a TDR from March 1, 2020, through the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or December 31, 2020, if the loan was not more than 30 days past due as of December 31, 2019.
On April 7, 2020, the federal banking regulators also issued the Interagency Statement to encourage banks to work prudently with borrowers and describe the banking regulators’ interpretation of how accounting rules for TDR apply to certain modifications related to the COVID-19 pandemic.
On December 27, 2020, the Economic Aid Act was signed into law, which extended the applicable period of the temporary relief from TDRs under the CARES Act to the earlier of 60 days after the date of the COVID-19 National Emergency comes to an end or January 1, 2022.
As of September 30, 2021 and December 31, 2020, total loans under modified terms related to the COVID-19 pandemic were none and $36.1 million, respectively. All loans under modified terms related to the COVID-19 pandemic were accounted for under section 4013 of the CARES Act and not considered TDRs. All types of modifications had initial modification terms of 6-months or less and loans that were granted modifications related to the COVID-19 pandemic in excess of 6 months, on a cumulative basis, were classified as special mention or substandard. In addition, all loans under modified terms related to the COVID-19 pandemic were current and on accrual status as of December 31, 2020; however, all of these loans were monitored on an ongoing basis in accordance with each loan’s covenants and conditions for potential downgrade or change in accrual status.
Small Business Administration Paycheck Protection Program
The Small Business Administration (“SBA”) launched the Paycheck Protection Program (“PPP”) to provide a direct incentive for small businesses to keep their workers on the payroll in response to the COVID-19 pandemic. The SBA guarantees 100% of the PPP loans made to eligible borrowers, and the loans are eligible to be forgiven if certain conditions are met, at which point the SBA will make payments to the Bank for the forgiven amounts. These loans are included in the commercial and industrial loans portfolio and have an interest rate of 1%. The substantial majority of the SBA PPP loans funded in 2020 in the Company’s portfolio have a maturity of two years. On January 13, 2021, the SBA began accepting applications for second draw PPP loans. During the nine months ended September 30, 2021, the Company had funded 1,153 SBA PPP loans totaling $107.0 million, net of unamortized deferred fees and costs. SBA PPP loans funded in 2021 have a maturity of five years.
As of September 30, 2021, the Company had 800 SBA PPP loans totaling $101.9 million, net of unamortized deferred fees and costs, and recognized $145.4 million in forgiveness for 1,992 SBA PPP loans. The Company defers loan origination fees on SBA PPP loans and amortizes these deferred fees and costs without prepayment assumption using the contractual lives of SBA PPP loans.
The SBA guarantee on PPP loans cannot be separated from the loan and therefore is not a separate unit of account. The Company considered the SBA guarantee in the allowance for loan losses evaluation and determined that it is not required to reserve an allowance on SBA PPP loans at September 30, 2021 and December 31, 2020.
Adopted Accounting Pronouncements
During the nine months ended September 30, 2021, there were no significant accounting pronouncements applicable to the Company that became effective.
Recent Accounting Pronouncements Not Yet Adopted
The following is recently issued accounting pronouncements applicable to the Company that has not yet been adopted:
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 delays the effective date to 2023 for certain SEC filers that are Smaller Reporting Companies, which would apply to the Company. The Company plans to adopt this ASU at the delayed effective date of January 1, 2023.
13

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.
Impaired loans: Certain collateral-dependent impaired loans 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 impaired loans 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.
14

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
September 30, 2021
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ —  $ 91,485  $ —  $ 91,485 
Residential collateralized mortgage obligations
—  21,198  —  21,198 
SBA loan pool securities
—  9,667  —  9,667 
Municipal bonds
—  5,708  —  5,708 
Corporate bonds —  5,044  —  5,044 
Total securities available-for-sale
—  133,102  —  133,102 
Total assets measured at fair value on a recurring basis
$ —  $ 133,102  $ —  $ 133,102 
Total liabilities measured at fair value on a recurring basis
$ —  $ —  $ —  $ — 
December 31, 2020
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ —  $ 76,154  $ —  $ 76,154 
Residential collateralized mortgage obligations
—  26,467  —  26,467 
SBA loan pool securities
—  12,080  —  12,080 
Municipal bonds
—  5,826  —  5,826 
Total securities available-for-sale
—  120,527  —  120,527 
Total assets measured at fair value on a recurring basis
$ —  $ 120,527  $ —  $ 120,527 
Total liabilities measured at fair value on a recurring basis
$ —  $ —  $ —  $ — 
15

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
September 30, 2021
Total assets measured at fair value on a non-recurring basis
$ —  $ —  $ —  $ — 
Total liabilities measured at fair value on a non-recurring basis
$ —  $ —  $ —  $ — 
December 31, 2020
Impaired loans:
SBA property
$ —  $ —  $ 218  $ 218 
Commercial lines of credit
—  —  904  904 
SBA commercial term —  —  255  255 
Total impaired loans
—  —  1,377  1,377 
Total assets measured at fair value on a non-recurring basis
$ —  $ —  $ 1,377  $ 1,377 
Total liabilities measured at fair value on a non-recurring basis
$ —  $ —  $ —  $ — 
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis as of the dates indicated:
($ in thousands) Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted-Average)
December 31, 2020
Impaired loans:
SBA property
$ 218  Fair value of collateral NM NM
Commercial lines of credit
$ 904  Sales comparison approach Adjustment for differences between the comparable estate sales
5% to 9% (7.6%)
SBA commercial term $ 255  Fair value of collateral NM NM
For assets measured at fair value, the following table presents the total net gains (losses), which include charge-offs, recoveries, and specific reserves recorded for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Collateral dependent impaired loans:
SBA property
$ —  $ (9) $ 32  $ (147)
Commercial lines of credit
—  (79) (136) (799)
SBA commercial term
—  —  (30) (164)
Other real estate owned
—  —  74  — 
Net gains (losses) recognized $ —  $ (88) $ (60) $ (1,110)
16

Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on financial instruments both on and off the consolidated balance sheet without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value estimates and have not been considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments.
Financial assets: The carrying amounts of interest-bearing deposits with other financial institutions and accrued interest receivable are considered to approximate fair value. The fair values of investment securities are generally based on matrix pricing (Level 2). The fair value of loans is estimated based on a discounted cash flow approach under an exit price notion. The fair value reflects the estimated yield that would be negotiated with a willing market participant. Because sale transactions of such loans are not readily observable, as many of the loans have unique risk characteristics, the valuation is based on significant unobservable inputs (Level 3). It is not practical to determine the fair value of Federal Home Loan Bank (“FHLB”) and other restricted stock due to restrictions placed on its transferability.
Financial liabilities: The carrying amounts of accrued interest payable are considered to approximate fair value. The fair value of deposits is estimated based on discounted cash flows. The discount rate is derived from the interest rates currently being offered for similar remaining maturities. Non-maturity deposits are estimated based on their historical decaying experiences (Level 3). The fair value of FHLB advances is estimated based on discounted cash flows. The discount rate is derived from the current market rates for borrowings with similar remaining maturities (Level 2).
Off-balance-sheet financial instruments: The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements. The fair value of these financial instruments is not material and is excluded from the table below.

17

The following table presents the carrying value and estimated fair values of financial assets and liabilities as of the dates indicated:
Carrying Value
Fair Value
Fair Value Measurements
($ in thousands) Level 1 Level 2 Level 3
September 30, 2021
Financial assets:
Interest-bearing deposits in other financial institutions
$ 195,285  $ 195,285  $ 195,285  $ —  $ — 
Securities available-for-sale
133,102  133,102  —  133,102  — 
Loans held-for-sale
29,020  32,003  —  32,003  — 
Net loans held-for-investment
1,684,071  1,698,852  —  —  1,698,852 
FHLB and other restricted stock
8,577   N/A  N/A  N/A N/A
Accrued interest receivable
5,515  5,515  7  280  5,228 
Financial liabilities:
Deposits
$ 1,832,666  $ 1,753,463  $ —  $ —  $ 1,753,463 
FHLB advances
10,000  10,142  —  10,142  — 
Accrued interest payable
745  745  —  1  744 
December 31, 2020
Financial assets:
Interest-bearing deposits in other financial institutions
$ 174,493  $ 174,493  $ 174,493  $ —  $ — 
Securities available-for-sale
120,527  120,527  —  120,527  — 
Loans held-for-sale
1,979  2,112  —  2,112  — 
Net loans held-for-investment
1,557,068  1,574,063  —  —  1,574,063 
FHLB and other restricted stock
8,447   N/A  N/A  N/A  N/A
Accrued interest receivable
9,334  9,334  1  322  9,011 
Financial liabilities:
Deposits
$ 1,594,851  $ 1,594,112  $ —  $ —  $ 1,594,112 
FHLB advances
80,000  80,321  —  80,321  — 
Accrued interest payable
2,226  2,226  —  2  2,224 

18

Note 3 - Investment Securities
The following table presents the amortized cost and fair value of the securities available-for-sale as of the dates indicated:
($ in thousands)
Amortized Cost
Gross Unrealized Gain Gross Unrealized Loss
Fair Value
September 30, 2021
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ 91,446  $ 976  $ (937) $ 91,485 
Residential collateralized mortgage obligations
21,079  172  (53) 21,198 
SBA loan pool securities
9,406  266  (5) 9,667 
Municipal bonds
5,339  369  —  5,708 
Corporate bonds 5,000  44  —  5,044 
Total securities available-for-sale
$ 132,270  $ 1,827  $ (995) $ 133,102 
December 31, 2020
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ 74,622  $ 1,558  $ (26) $ 76,154 
Residential collateralized mortgage obligations
26,216  294  (43) 26,467 
SBA loan pool securities
11,753  349  (22) 12,080 
Municipal bonds
5,370  456  —  5,826 
Total securities available-for-sale
$ 117,961  $ 2,657  $ (91) $ 120,527 
As of September 30, 2021 and December 31, 2020, pledged securities were $110.8 million and $117.8 million, respectively. These securities were pledged for the State Deposit from the California State Treasurer.
The following table presents the amortized cost and fair value of the investment securities by contractual maturity as of September 30, 2021. Expected maturities may differ from contractual maturities, if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
Securities Available-For-Sale
($ in thousands)
Amortized Cost
Fair Value
Within one year
$ 307  $ 311 
One to five years
1,858  1,917 
Five to ten years
5,834  5,898 
Greater than ten years
2,340  2,626 
Residential mortgage-backed securities, residential collateralized mortgage obligations and SBA loan pool securities
121,931  122,350 
Total
$ 132,270  $ 133,102 
The following table presents proceeds from sales and calls of securities available-for-sale and the associated gross gains and
losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Gross realized gains on sales and calls of securities available-for-sale $ —  $ —  $ —  $ — 
Gross realized losses on sales and calls of securities available-for-sale —  —  —  — 
Net realized gains (losses) on sales and calls of securities available-for-sale $ —  $ —  $ —  $ — 
Proceeds from sales and calls of securities available-for-sale $ —  $ 185  $ —  $ 185 
Tax expense on sales and calls of securities available-for-sale $ —  $ —  $ —  $ — 
19

The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous unrealized loss position as of the dates indicated:
Length of Time that Individual Securities Have Been In a Continuous Unrealized Loss Position
Less Than 12 Months 12 Months or Longer Total
($ in thousands)
Fair Value
Gross Unrealized Losses
Number of Securities
Fair Value
Gross Unrealized Losses
Number of Securities
Fair Value
Gross Unrealized Losses
Number of Securities
September 30, 2021
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ 51,552  $ (868) 28  $ 1,904  $ (69) 1  $ 53,456  $ (937) 29 
Residential collateralized mortgage obligations
2,794  (53) 1  —  —  —  2,794  (53) 1 
SBA loan pool securities
—  —  —  158  (5) 1  158  (5) 1 
Total securities available-for-sale
$ 54,346  $ (921) 29  $ 2,062  $ (74) 2  $ 56,408  $ (995) 31 
December 31, 2020
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ 5,773  $ (26) 4  $ —  $ —  —  $ 5,773  $ (26) 4 
Residential collateralized mortgage obligations
2,424  (4) 3  5,127  (39) 6  7,551  (43) 9 
SBA loan pool securities
1,677  (4) 2  1,869  (18) 4  3,546  (22) 6 
Total securities available-for-sale
$ 9,874  $ (34) 9  $ 6,996  $ (57) 10  $ 16,870  $ (91) 19 
The Company performs an other-than-temporary impairment (“OTTI”) assessment at least on a quarterly basis. OTTI is recognized when fair value is below the amortized cost where: (i) an entity has the intent to sell the security; (ii) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (iii) an entity does not expect to recover the entire amortized cost basis of the security.
All individual securities in a continuous unrealized loss position for 12 months or more as of September 30, 2021 and December 31, 2020 had an investment grade rating upon purchase. The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of September 30, 2021 and December 31, 2020. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis. The Company determined that the investment securities with unrealized losses for twelve months or more are not other-than-temporary impaired, and, therefore, no impairment was recognized during the three and nine months ended September 30, 2021 and 2020.
20

Note 4 - Loans and Allowance for Loan Losses
Loans Held-For-Investment
The following table presents, by recorded investment, the composition of the Company’s loans held-for-investment (net of deferred fees and costs) as of the dates indicated:
($ in thousands) September 30, 2021 December 31, 2020
Real estate loans:
Commercial property
$ 1,054,351  $ 880,736 
Residential property
201,635  198,431 
SBA property
127,845  126,570 
Construction
6,572  15,199 
Total real estate loans
1,390,403  1,220,936 
Commercial and industrial loans:
Commercial term
74,390  87,250 
Commercial lines of credit
101,456  96,087 
SBA commercial term
18,338  21,878 
SBA PPP
101,901  135,654 
Total commercial and industrial loans
296,085  340,869 
Other consumer loans
21,390  21,773 
Loans held-for-investment
1,707,878  1,583,578 
Allowance for loan losses
(23,807) (26,510)
Net loans held-for-investment
$ 1,684,071  $ 1,557,068 
In the ordinary course of business, the Company may grant loans to certain officers and directors, and the companies with which they are associated. As of September 30, 2021 and December 31, 2020, the Company had $398 thousand and $3.9 million, respectively, of such loans outstanding.
SBA PPP loans
The following table presents a summary of SBA PPP loans as of September 30, 2021:
($ in thousands) Number of Loans Amount
Loan amount:
$50,000 or less 436  $ 8,913 
Over $50,000 and less than $350,000 286  39,689 
Over $350,000 and less than $2,000,000 77  50,116 
$2,000,000 or more 1  3,183 
Total 800  $ 101,901 

21

Allowance for Loan Losses
The following table presents the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the three months ended September 30, 2021 and 2020:
($ in thousands) Real Estate Commercial and Industrial Other Consumer Total
Balance at July 1, 2021 $ 18,672  $ 5,866  $ 351  $ 24,889 
Charge-offs
—  (84) (43) (127)
Recoveries on loans previously charged off
—  94  4  98 
Provision (reversal) for loan losses
(733) (336) 16  (1,053)
Balance at September 30, 2021 $ 17,939  $ 5,540  $ 328  $ 23,807 
Balance at July 1, 2020 $ 15,545  $ 4,337  $ 366  $ 20,248 
Charge-offs
—  —  (102) (102)
Recoveries on loans previously charged off
—  18  56  74 
Provision (reversal) for loan losses
2,556  1,686  84  4,326 
Balance at September 30, 2020 $ 18,101  $ 6,041  $ 404  $ 24,546 
The following table presents the activities in allowance for loan losses by portfolio segment, which is consistent with the Company’s methodology for determining allowance for loan losses, for the nine months ended September 30, 2021 and 2020:
($ in thousands) Real Estate Commercial and Industrial Other Consumer Total
Balance at January 1, 2021 $ 18,894  $ 7,222  $ 394  $ 26,510 
Charge-offs
(18) (100) (87) (205)
Recoveries on loans previously charged off
47  553  36  636 
Provision (reversal) for loan losses
(984) (2,135) (15) (3,134)
Balance at September 30, 2021 $ 17,939  $ 5,540  $ 328  $ 23,807 
Balance at January 1, 2020 $ 9,854  $ 4,354  $ 172  $ 14,380 
Charge-offs
(138) (916) (241) (1,295)
Recoveries on loans previously charged off
56  223  105  384 
Provision (reversal) for loan losses
8,329  2,380  368  11,077 
Balance at September 30, 2020 $ 18,101  $ 6,041  $ 404  $ 24,546 


22

The following table presents the information on allowance for loan losses and recorded investments by portfolio segment and impairment methodology as of the dates indicated:
($ in thousands) Real Estate Commercial and Industrial Other Consumer Total
September 30, 2021
Allowance for loan losses:
Individually evaluated for impairment
$ —  $ —  $ —  $ — 
Collectively evaluated for impairment
17,939  5,540  328  23,807 
Total
$ 17,939  $ 5,540  $ 328  $ 23,807 
Loans receivable:
Individually evaluated for impairment
$ 1,344  $ 325  $ —  $ 1,669 
Collectively evaluated for impairment
1,389,059  295,760  21,390  1,706,209 
Total
$ 1,390,403  $ 296,085  $ 21,390  $ 1,707,878 
December 31, 2020
Allowance for loan losses:
Individually evaluated for impairment
$ 3  $ 2  $ —  $ 5 
Collectively evaluated for impairment
18,891  7,220  394  26,505 
Total
$ 18,894  $ 7,222  $ 394  $ 26,510 
Loans receivable:
Individually evaluated for impairment
$ 2,200  $ 1,531  $ —  $ 3,731 
Collectively evaluated for impairment
1,218,736  339,338  21,773  1,579,847 
Total
$ 1,220,936  $ 340,869  $ 21,773  $ 1,583,578 
Credit Quality Indicators
The Company classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans in regards to credit risk. This analysis typically includes non-homogeneous loans, such as commercial property and commercial and industrial loans, and is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:
Pass - Loans classified as pass include non-homogeneous loans not meeting the risk ratings defined below and smaller, homogeneous loans not assessed on an individual basis.
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or repayment in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

23

The following table presents the risk categories for the recorded investment in loans by portfolio segment as of dates indicated:
($ in thousands) Pass Special Mention Substandard Doubtful Total
September 30, 2021
Real estate loans:
Commercial property
$ 1,040,685  $ 11,801  $ 1,865  $ —  $ 1,054,351 
Residential property
201,635  —  —  —  201,635 
SBA property
125,672  254  1,919  —  127,845 
Construction
6,572  —  —  —  6,572 
Commercial and industrial loans:
Commercial term
69,694  3,550  1,146  —  74,390 
Commercial lines of credit
100,007  1,449  —  —  101,456 
SBA commercial term
17,695  261  382  —  18,338 
SBA PPP
101,901  —  —  —  101,901 
Other consumer loans
21,357  —  33  —  21,390 
Total
$ 1,685,218  $ 17,315  $ 5,345  $ —  $ 1,707,878 
December 31, 2020
Real estate loans:
Commercial property
$ 866,508  $ 10,268  $ 3,960  $ —  $ 880,736 
Residential property
198,242  —  189  —  198,431 
SBA property
123,147  251  3,172  —  126,570 
Construction
15,199  —  —  —  15,199 
Commercial and industrial loans:
Commercial term
81,724  4,362  1,164  —  87,250 
Commercial lines of credit
93,883  1,299  905  —  96,087 
SBA commercial term
20,923  281  674  —  21,878 
SBA PPP
135,654  —  —  —  135,654 
Other consumer loans
21,707  —  66  —  21,773 
Total
$ 1,556,987  $ 16,461  $ 10,130  $ —  $ 1,583,578 
The Company had no loans under modified terms related to the COVID-19 pandemic as of September 30, 2021. The following table presents the risk categories for the recorded investment in loans under modified terms related to the COVID-19 pandemic by portfolio segment as of December 31, 2020:
($ in thousands) Pass Special Mention Substandard Doubtful Total
December 31, 2020
Real estate loans:
Commercial property
$ 13,158  $ 10,268  $ 706  $ —  $ 24,132 
Residential property
425  —  —  —  425 
SBA property
3,941  251  —  —  4,192 
Commercial and industrial loans:
Commercial term
—  4,362  1,165  —  5,527 
SBA commercial term
1,769  —  72  —  1,841 
Total
$ 19,293  $ 14,881  $ 1,943  $ —  $ 36,117 
Loans that were granted modifications related to the COVID-19 pandemic in excess of 6 months, on a cumulative basis, were classified as special mention or substandard.
24

Past Due and Nonaccrual Loans
The following table presents the aging of past due recorded investment in accruing loans and nonaccrual loans by portfolio segment as of dates indicated:
Still Accruing
($ in thousands) 30 to 59 Days Past Due 60 to 89 Days Past Due 90 or More Days Past Due Nonaccrual Total Past Due and Nonaccrual
September 30, 2021
Real estate loans:
Residential property
$ 189  $ —  $ —  $ —  $ 189 
SBA property
—  —  —  766  766 
Commercial and industrial loans:
Commercial term
—  —  3  —  3 
SBA commercial term
—  —  —  314  314 
SBA PPP 62  —  —  —  62 
Other consumer loans
41  —  —  33  74 
Total
$ 292  $ —  $ 3  $ 1,113  $ 1,408 
December 31, 2020
Real estate loans:
Commercial property $ —  $ —  $ —  $ 524  $ 524 
Residential property
182  —  —  189  371 
SBA property
—  —  —  885  885 
Commercial and industrial loans:
Commercial lines of credit
—  —  —  904  904 
SBA commercial term
—  —  —  595  595 
Other consumer loans
120  36  —  66  222 
Total
$ 302  $ 36  $ —  $ 3,163  $ 3,501 
There were no nonaccrual loans guaranteed by a U.S. government agency at September 30, 2021 and December 31, 2020.
All loans under modified terms related to the COVID-19 pandemic were on accrual status and current at December 31, 2020.
25

Impaired Loans
The following table presents loans individually evaluated for impairment by portfolio segment as of the dates indicated. The recorded investment presents customer balances net of any partial charge-offs recognized on the loans and net of any deferred fees and costs.
With No Allowance Recorded With an Allowance Recorded
($ in thousands) Recorded Investment Unpaid Principal Balance Recorded Investment Unpaid Principal Balance Related Allowance
September 30, 2021
Real estate loans:
Commercial property
$ 328  $ 327  $ —  $ —  $ — 
SBA property
1,016  1,062  —  —  — 
Commercial and industrial loans:
Commercial term
5  5  —  —  — 
SBA commercial term
320  332  —  —  — 
Total
$ 1,669  $ 1,726  $ —  $ —  $ — 
December 31, 2020
Real estate loans:
Commercial property
$ 856  $ 855  $ —  $ —  $ — 
Residential property 189  189  —  —  — 
SBA property
1,108  1,198  47  45  3 
Commercial and industrial loans:
Commercial term
18  18  —  —  — 
Commercial lines of credit
905  905  —  —  — 
SBA commercial term
592  632  16  18  2 
Total
$ 3,668  $ 3,797  $ 63  $ 63  $ 5 

26

The following table presents information on the recorded investment in impaired loans by portfolio segment for the three months ended September 30, 2021 and 2020:
Three Months Ended September 30,
2021 2020
($ in thousands) Average Recorded Investment
Interest Income
Average Recorded Investment
Interest Income
Real estate loans:
Commercial property
$ 329  $ 6  $ 336  $ 6 
SBA property
1,026  3  1,203  4 
Commercial and industrial loans:
Commercial term
8  —  24  — 
Commercial lines of credit
—  —  1,747  — 
SBA commercial term
327  —  395  — 
Total
$ 1,690  $ 9  $ 3,705  $ 10 
The following table presents information on the recorded investment in impaired loans by portfolio segment for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
($ in thousands) Average Recorded Investment
Interest Income
Average Recorded Investment
Interest Income
Real estate loans:
Commercial property
$ 330  $ 17  $ 337  $ 17 
SBA property
1,140  13  1,554  13 
Commercial and industrial loans:
Commercial term
12  —  25  1 
Commercial lines of credit
—  —  2,085  — 
SBA commercial term
410  1  451  1 
Total
$ 1,892  $ 31  $ 4,452  $ 32 
The following presents a summary of interest foregone on impaired loans for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Interest income that would have been recognized had impaired loans performed in accordance with their original terms
$ 23  $ 53  $ 78  $ 198 
Less: interest income recognized on impaired loans on a cash basis
(9) (10) (31) (32)
Interest income foregone on impaired loans
$ 14  $ 43  $ 47  $ 166 
27

Troubled Debt Restructurings
The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated:
September 30, 2021 December 31, 2020
($ in thousands) Accruing Nonaccrual Total Accruing Nonaccrual Total
Real estate loans:
Commercial property
$ 328  $ —  $ 328  $ 333  $ —  $ 333 
SBA property
250  26  276  270  5  275 
Commercial and industrial loans:
Commercial term
5  —  5  18  —  18 
SBA commercial term
6  —  6  13  —  13 
Total
$ 589  $ 26  $ 615  $ 634  $ 5  $ 639 
There were no new loans that were modified as TDRs for the three months ended September 30, 2021 or 2020. The following table presents information on new loans that were modified as TDRs for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
($ in thousands)
Number of Loans
Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Commercial and industrial loans:
SBA commercial term (1)
—  $ —  $ —  2  $ 37  $ 37 
Total
—  $ —  $ —  2  $ 37  $ 37 
(1)    Modified by deferral of principal payment.
The Company had no commitments to lend to customers with outstanding loans that were classified as TDRs as of September 30, 2021 and December 31, 2020.
The determination of the allowance for loan losses related to TDRs depends on the collectability of principal and interest, according to the modified repayment terms. Loans that were modified as TDRs were individually evaluated for impairment and the Company allocated no allowance for loan losses as of September 30, 2021 and December 31, 2020.
There were no loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the three months ended September 30, 2021 or 2020. The following table presents information on loans that were modified as TDRs for which there was a payment default within twelve months following the modification for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
($ in thousands) Number of Loans Recorded Investment at Date of Default Number of Loans Recorded Investment at Date of Default
Commercial and industrial loans:
SBA commercial term
—  $ —  1  $ 26 
Total
—  $ —  1  $ 26 
28

Purchases, Sales, and Transfers
The following table presents a summary of loans held-for-investment transferred to loans held-for-sale for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Real estate loans:
Commercial property
$ 3,452  $ —  $ 5,162  $ — 
Residential property
—  —  189  1,125 
Commercial and industrial loans:
SBA commercial term
—  —  —  230 
Total
$ 3,452  $ —  $ 5,351  $ 1,355 
The following table presents a summary of loans held-for-sale transferred to loans held-for-investment for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Real estate loans:
Residential property
$ —  $ —  $ —  $ 697 
Total
$ —  $ —  $ —  $ 697 
The following table presents a summary of purchases of loans held-for-investment for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Real estate loans:
Residential property
$ 803  $ —  $ 1,439  $ — 
Total
$ 803  $ —  $ 1,439  $ — 
Loans Held-For-Sale
The following table presents a composition of loans held-for-sale as of the dates indicated:
($ in thousands) September 30, 2021 December 31, 2020
Real estate loans:
Residential property
$ —  $ 300 
SBA property
28,036  1,411 
Commercial and industrial loans:
SBA commercial term
984  268 
Total
$ 29,020  $ 1,979 
Loans held-for-sale are carried at the lower of cost or fair value. When a determination is made at the time of commitment to originate as held-for-investment, it is the Company’s intent to hold these loans to maturity or for the “foreseeable future,” subject to periodic reviews under the Company’s management evaluation processes, including asset/liability management and credit risk management. When the Company subsequently changes its intent to hold certain loans, the loans are transferred to held-for-sale at the lower of cost or fair value. Certain loans are transferred to held-for-sale with write-downs to allowance for loan losses.
29

Note 5 - Servicing Assets
At September 30, 2021 and December 31, 2020, total servicing assets were $7.0 million and $6.4 million, respectively. The Company sells SBA loans and certain residential property loans with servicing retained. The Company sold loans of $45.0 million and $8.6 million, respectively, with the servicing rights retained and recognized a net gain on sale of $4.3 million and $689 thousand, respectively, during the three months ended September 30, 2021 and 2020. During the nine months ended September 30, 2021 and 2020, the Company sold $90.1 million and $47.1 million, respectively, with the servicing rights retained and recognized a net gain on sale of $9.4 million and $2.8 million, respectively. Loan servicing income was $655 thousand and $856 thousand for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, loan servicing income was $2.1 million and $2.3 million, respectively,
The following table presents the composition of servicing assets with key assumptions used to estimate the fair value as of the dates indicated:
September 30, 2021 December 31, 2020
($ in thousands) Residential Property SBA Property SBA Commercial Term Residential Property SBA Property SBA Commercial Term
Carrying amount
$ 87  $ 6,398  $ 524  $ 109  $ 5,642  $ 649 
Fair value
$ 119  $ 11,286  $ 787  $ 133  $ 8,498  $ 888 
Discount rate
6.33  % 8.75  % 9.64  % 11.25  % 13.25  % 12.75  %
Prepayment speed
26.40  % 8.82  % 12.31  % 27.20  % 9.99  % 11.01  %
Weighted average remaining life
22.1 years 21.3 years 6.3 years 23.1 years 21.1 years 6.6 years
Underlying loans being serviced
$ 17,604  $ 430,084  $ 64,241  $ 22,299  $ 400,982  $ 75,514 
The following table presents activity in servicing assets for the three months ended September 30, 2021 and 2020:
Three Months Ended September 30,
2021 2020
($ in thousands) Residential Property SBA Property SBA Commercial Term Residential Property SBA Property SBA Commercial Term
Balance at beginning of period
$ 96  $ 5,800  $ 586  $ 125  $ 5,554  $ 720 
Additions
—  1,040  13  —  140  16 
Amortization
(9) (442) (75) (8) (320) (61)
Balance at end of period
$ 87  $ 6,398  $ 524  $ 117  $ 5,374  $ 675 
The following table presents activity in servicing assets for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
($ in thousands) Residential Property SBA Property SBA Commercial Term Residential Property SBA Property SBA Commercial Term
Balance at beginning of period
$ 109  $ 5,642  $ 649  $ 171  $ 5,805  $ 822 
Additions
—  2,021  84  —  653  100 
Amortization
(22) (1,265) (209) (54) (1,084) (247)
Balance at end of period
$ 87  $ 6,398  $ 524  $ 117  $ 5,374  $ 675 
30

Note 6 - Other Real Estate Owned
The following table presents activity in OREO for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Balance at beginning of period $ —  $ 376  $ 1,401  $ — 
Additions —  2,490  1,960  2,866 
Sales —  (2,490) (3,361) (2,490)
Net change in valuation allowance —  —  —  — 
Balance at end of period $ —  $ 376  $ —  $ 376 
The following table presents activity in OREO valuation allowance for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Balance at beginning of period $ —  $ —  $ —  $ — 
Additions —  —  —  — 
Net direct write-downs and removal from sale —  —  —  — 
Balance at end of period $ —  $ —  $ —  $ — 
The following table presents expenses related to OREOs for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Net gain (loss) on sales $ —  $ —  $ 74  $ — 
Operating expenses, net of rental income —  (2) (81) (2)
Total $ —  $ (2) $ (7) $ (2)
The Company did not provide loans to finance the sale of its OREO property during the nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, the Company provided a loan of $1.5 million to finance the sale of its OREO property.
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Note 7 - Operating Leases
The following table presents operating lease cost and supplemental cash flow information related to leases for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Operating lease cost (1)
$ 611  $ 669  $ 1,913  $ 1,985 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$ 654  $ 680  $ 2,051  $ 2,107 
Right of use assets obtained in exchange for lease obligations
$ 1,111  $ 51  $ 1,247  $ 105 
(1)    Included in Occupancy and Equipment on the Consolidated Statements of Income.
The Company used the incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The following table presents supplemental balance sheet information related to leases as of the dates indicated:
($ in thousands) September 30, 2021 December 31, 2020
Operating leases:
Operating lease assets
$ 7,164  $ 7,616 
Operating lease liabilities
$ 7,862  $ 8,455 
Weighted-average remaining lease term
4.1 years 4.3 years
Weighted-average discount rate
2.36  % 2.60  %
The following table presets maturities of operating lease liabilities as of September 30, 2021:
($ in thousands) September 30, 2021
Maturities:
2021
$ 684 
2022
2,712 
2023
2,230 
2024
793 
2025 753 
After 2025 1,193 
Total lease payment
8,365 
Imputed Interest
(503)
Present value of operating lease liabilities
$ 7,862 
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Note 8 - Federal Home Loan Bank Advances and Other Borrowings
FHLB Advances
The Company had outstanding FHLB advances of $10.0 million and $80.0 million at September 30, 2021 and December 31, 2020, respectively. FHLB advances consisted of a fixed interest rate term borrowing with a maturity date of June 29, 2022 (original maturity term of five years) and an interest rate of 2.07% at September 30, 2021. At December 31, 2020, FHLB advances consisted of fixed interest rate term borrowings with original maturity terms ranging from one to five years and weighted-average interest rate of 0.67%. Each borrowing is payable at its maturity date. Borrowings paid early are subject to a prepayment penalty.
At September 30, 2021 and December 31, 2020, loans pledged to secure borrowings from the FHLB were $885.1 million and $834.4 million, respectively. The Company’s investment in capital stock of the FHLB of San Francisco totaled $8.4 million and $8.3 million at September 30, 2021 and December 31, 2020, respectively. The Company had additional borrowing capacity of $505.0 million and $425.3 million from the FHLB as of September 30, 2021 and December 31, 2020, respectively.
Other Borrowing Arrangements
At September 30, 2021, the Company had $36.9 million of unused borrowing capacity from the Federal Reserve Discount Window, to which the Company pledged loans with a carrying value of $45.1 million with no outstanding borrowings. In addition, the Company may borrow up to approximately $65.0 million overnight federal funds lines with correspondent financial institutions at September 30, 2021.
Note 9 - Shareholders’ Equity
Stock Repurchase
On January 23, 2020, the Company announced that on November 22, 2019, its Board of Directors approved a $6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021. The Company completed the repurchase program in March 2020. The Company repurchased and retired 428,474 shares of common stock at a weighted-average price of $15.14 per share, totaling $6.5 million under this repurchase program.
On April 8, 2021, the Company’s Board of Directors approved a repurchase program authorizing the repurchase of up to 5% of the Company’s outstanding common stock as of the date of the board meeting, which represented 775,000 shares, through September 7, 2021. As of September 30, 2021, the Company repurchased and retired 680,269 shares of common stock at a weighted-average price of $15.99 per share, totaling $10.9 million under this repurchase program.
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Note 10 - Share-Based Compensation
On July 25, 2013, the Company adopted the 2013 Equity Based Stock Compensation Plan (“2013 EBSC Plan”) approved by its shareholders to replace the 2003 Stock Option Plan. The 2013 EBSC Plan provides 1,114,446 shares of common stock for equity based compensation awards including incentive and non-qualified stock options and restricted stock awards. As of September 30, 2021, there were 483,170 shares available for future grants.
Share-Based Compensation Expense
The following table presents share-based compensation expense and the related tax benefits for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Share-based compensation expense related to:
Stock options
$ 52  $ 162  $ 130  $ 478 
Restricted stock awards
64  38  193  114 
Total share-based compensation expense
$ 116  $ 200  $ 323  $ 592 
Related tax benefits
$ 21  $ 21  $ 62  $ 61 
The following table presents unrecognized share-based compensation expense as of September 30, 2021:
($ in thousands) Unrecognized Expense Weighted-Average Remaining Expected Recognition Period
Unrecognized share-based compensation expense related to:
Stock options
$ 322  2.3 years
Restricted stock awards
607  2.4 years
Total unrecognized share-based compensation expense
$ 929  2.3 years
Stock Options
The Company has issued stock options to certain employees, officers and directors. Stock options are issued with exercise prices of the closing market price of the Company’s stock on the grant date, and generally have a three-to five-year vesting period with contractual terms of ten years. The following table represents stock option activity for the three months ended September 30, 2021:
Three Months Ended September 30, 2021
($ in thousands except per share data)
Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Contractual Term Aggregated Intrinsic Value
Outstanding at beginning of period
646,948  $ 10.98  4.8 years $ 3,310 
Granted
15,000  $ 20.28  10.0 years
Exercised
(19,977) $ 12.69  5.3 years
Outstanding at end of period
641,971  $ 11.15  4.6 years $ 5,625 
Exercisable at end of period
537,872  $ 10.23  4.0 years $ 5,205 

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The following table represents stock option activity for the nine months ended September 30, 2021:
Nine Months Ended September 30, 2021
($ in thousands except per share data)
Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Contractual Term Aggregated Intrinsic Value
Outstanding at beginning of period
718,935  $ 10.87  5.1 years $ — 
Granted
35,000  $ 15.84  10.0 years
Exercised
(101,964) $ 10.15  3.8 years
Forfeited
(10,000) $ 17.47  8.0 years
Outstanding at end of period
641,971  $ 11.15  4.6 years $ 5,625 
Exercisable at end of period
537,872  $ 10.23  4.0 years $ 5,205 
The following table represents information regarding unvested stock options for the three and nine months ended September 30, 2021:
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Number of Shares Weighted-Average Exercise Price Per Share Number of Shares Weighted-Average Exercise Price Per Share
Outstanding at beginning of period
93,099  $ 15.09  121,199  $ 15.68 
Granted
15,000  $ 20.28  35,000  $ 15.84 
Vested (4,000) $ 14.00  (42,100) $ 14.89 
Forfeited
—  $ —  (10,000) $ 17.47 
Outstanding at end of period
104,099  $ 15.88  104,099  $ 15.88 
Restricted Stock Awards
The Company also has granted restricted stock awards (“RSAs”) to certain employees and officers. The RSAs are valued at the closing market price of the Company’s stock on the grant date and generally have a three-to five-year vesting period. The following table represents RSAs activity for the three and nine months ended September 30, 2021:
Three Months Ended September 30, 2021
Nine Months Ended September 30, 2021
Number of Shares Weighted-Average Grant Date Fair Value Per Share Number of Shares Weighted-Average Grant Date Fair Value Per Share
Outstanding at beginning of period
62,884  $ 13.13  30,300  $ 16.27 
Granted
1,800  $ 19.12  35,584  $ 10.80 
Vested (9,100) $ 16.52  (9,300) $ 16.46 
Forfeited
(300) $ 9.33  (1,300) $ 13.23 
Outstanding at end of period
55,284  $ 12.79  55,284  $ 12.79 
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Note 11 - Income Taxes
Income tax expense was $4.6 million and $1.5 million, respectively, and the effective tax rate was 29.5% and 29.8%, respectively, for the three months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and 2020, income tax expense was $12.3 million and $4.4 million, respectively, and the effective tax rate was 29.5% and 29.7%, respectively.
At September 30, 2021 and December 31, 2020, the Company had no unrecognized tax benefits or related accrued interest.
The Company and its subsidiaries are subject to U.S. federal and various state jurisdictions income tax examinations. As of September 30, 2021, the Company is no longer subject to examination by taxing authorities for tax years before 2017 for federal taxes and before 2016 for various state jurisdictions. The statute of limitations vary by state, and state taxes other than California have been minimal and immaterial to the Company’s financial results.
Note 12 - Earnings Per Share
The following table presents the computations of basic and diluted EPS for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands, except per share)
2021 2020 2021 2020
Basic earnings per share:
Net income
$ 11,023  $ 3,449  $ 29,427  $ 10,388 
Less: income allocated to unvested restricted stock
(43) (8) (116) (25)
Net income allocated to common stock
$ 10,980  $ 3,441  $ 29,311  $ 10,363 
Weighted-average total common shares outstanding
14,837,000  15,378,374  15,150,635  15,432,353 
Less: weighted-average unvested restricted stock
(57,293) (34,486) (59,646) (36,878)
Weighted-average common shares outstanding, basic
14,779,707  15,343,888  15,090,989  15,395,475 
Basic earnings per share
$ 0.74  $ 0.22  $ 1.94  $ 0.67 
Diluted earnings per share:
Net income allocated to common stock
$ 10,980  $ 3,441  $ 29,311  $ 10,363 
Weighted-average common shares outstanding, basic
14,779,707  15,343,888  15,090,989  15,395,475 
Diluted effect of stock options
251,851  33,643  207,076  70,732 
Weighted-average common shares outstanding, diluted
15,031,558  15,377,531  15,298,065  15,466,207 
Diluted earnings per share
$ 0.73  $ 0.22  $ 1.92  $ 0.67 
There were 50,000 and 660,859 stock options excluded in computing diluted EPS because they were anti-dilutive for three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, there were 104,000 and 163,000 stock options excluded in computing diluted EPS because they were anti-dilutive.
Note 13 - Commitments and Contingencies
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 and letters of credit. Those instruments involve to varying degrees, elements of credit, and interest rate risk not recognized in the Company’s consolidated financial statements.
As of September 30, 2021 and December 31, 2020, the Company had the following outstanding financial commitments whose contractual amount represents credit risk:
September 30, 2021 December 31, 2020
($ in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate
Unused lines of credit $ 5,852  $ 150,559  $ 6,623  $ 150,247 
Unfunded loan commitments 130  33,798  1,752  34,874 
Standby letters of credit
3,037  1,431  2,971  1,814 
Commercial letters of credit
353  —  —  — 
Total
$ 9,372  $ 185,788  $ 11,346  $ 186,935 
Unfunded loan commitments are generally made for periods of 90 days or less, except for SBA loans that are generally made for periods of 180 days or less.

36

The Company’s exposure to loan loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for the loans reflected in the consolidated financial statements. The Company maintained a reserve for off-balance sheet items of $191 thousand and $238 thousand, respectively, at September 30, 2021 and December 31, 2020, in Accrued Interest Payable and Other Liabilities in the Consolidated Balance Sheets.
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 credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company is based on management’s credit evaluation of the customer.
Litigation
The Company is involved in various matters of litigation, which have arisen in the ordinary course of business. In the opinion of management, the disposition of pending matters of litigation will not have a material effect on the Company’s consolidated financial statements.
COVID-19 Pandemic
The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on global economic and market conditions, including significant disruption of, and volatility in, financial markets; global supply chain disruptions; and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company’s operations and a large majority of its customers are located. These conditions have impacted and may in the future impact its business, results of operations, and financial condition negatively.
Network and Data Incident
On August 30, 2021, the Bank identified unusual activity on its network, responded promptly to disable the activity, investigate its source and monitor the Bank’s network. The Bank subsequently became aware of claims that it had been the target of a ransomware attack, and on September 7, 2021, determined that an external actor had accessed or acquired certain data on its network. The Bank has been working with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and what clients were impacted. The investigation revealed that this incident impacted files containing certain Bank customer information, including in some cases personal information of customers and customers’ employees. The Bank has notified or will notify all individuals identified to date, consistent with applicable laws, whose information may have been impacted. All impacted individuals will be offered free Equifax Complete Premier credit monitoring and identity theft protection services. The Bank has notified law enforcement and appropriate authorities of the incident.
The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began. During the three months ended September 30, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income (Unaudited), totaled $100 thousand, which represents the retention amount on its insurance claims. The Company anticipates additional expenses will be incurred in future periods; however, the Company does have a cyber-liability insurance policy that should provide insurance coverage for this incident. To date, no litigation has resulted from the data incident.
During its most recent review of disclosure controls and procedures, the Company considered the data incident and concluded that its disclosure controls and procedures were effective. Nevertheless, the Company continues to enhance and update its disclosure controls and procedures, including as part of its efforts to enhance its cybersecurity safeguards and measures. With respect to the data incident, upon discovery the Bank engaged experienced outside counsel and continues to work with its experienced third-party forensics firm to investigate and remediate the matter. The Board of Directors was kept apprised of, and a director with experience in data security participated in, the investigation and remediation efforts. As a result of this incident and based on information known at this date, the Company determined that its disclosure controls and procedures were effective and the data incident did not materially affect, nor was it reasonably likely to affect, the Company’s internal control over financial reporting.
37

Note 14 - Regulatory Matters
Under the final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”), the Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. Management believes as of September 30, 2021 and December 31, 2020, the Bank met all capital adequacy requirements to which they are subject to. Based on changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets in August 2018, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in the following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums. The Company and the Bank’s capital conservation buffer was 8.32% and 8.01%, respectively, as of September 30, 2021, and 9.22% and 8.95%, respectively, as of December 31, 2020. Unrealized gain or loss on securities available-for-sale is not included in computing regulatory capital. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:
Actual Minimum Capital Requirement To Be Well Capitalized Under Prompt Corrective Provisions
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
September 30, 2021
PCB Bancorp
Common tier 1 capital (to risk-weighted assets)
$ 246,341  15.07  % $ 73,553  4.5  %  N/A  N/A
Total capital (to risk-weighted assets)
266,817  16.32  % 130,762  8.0  %  N/A  N/A
Tier 1 capital (to risk-weighted assets)
246,341  15.07  % 98,071  6.0  %  N/A  N/A
Tier 1 capital (to average assets)
246,341  11.91  % 82,728  4.0  %  N/A  N/A
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)
$ 241,177  14.76  % $ 73,550  4.5  % $ 106,239  6.5  %
Total capital (to risk-weighted assets)
261,652  16.01  % 130,756  8.0  % 163,445  10.0  %
Tier 1 capital (to risk-weighted assets)
241,177  14.76  % 98,067  6.0  % 130,756  8.0  %
Tier 1 capital (to average assets)
241,177  11.66  % 82,725  4.0  % 103,407  5.0  %
December 31, 2020
PCB Bancorp
Common tier 1 capital (to risk-weighted assets)
$ 231,183  15.97  % $ 65,162  4.5  %  N/A  N/A
Total capital (to risk-weighted assets)
249,391  17.22  % 115,843  8.0  %  N/A  N/A
Tier 1 capital (to risk-weighted assets)
231,183  15.97  % 86,882  6.0  %  N/A  N/A
Tier 1 capital (to average assets)
231,183  11.94  % 77,452  4.0  %  N/A  N/A
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)
$ 227,268  15.70  % $ 65,160  4.5  % $ 94,120  6.5  %
Total capital (to risk-weighted assets)
245,474  16.95  % 115,840  8.0  % 144,800  10.0  %
Tier 1 capital (to risk-weighted assets)
227,268  15.70  % 86,880  6.0  % 115,840  8.0  %
Tier 1 capital (to average assets)
227,268  11.74  % 77,450  4.0  % 96,813  5.0  %
The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholder during the same period. As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a balance sheet test. Under the retained earnings test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights. Under the balance sheet test, the Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.

38

The Federal Reserve, the Federal Deposit Insurance Corporation (the “FDIC”) and the California Department of Financial Protection and Innovation (the “CDFPI”) periodically examine the Company’s business, including compliance with laws and regulations. If, as a result of an examination, a banking agency were to determine that the Company’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of the Company’s operations had become unsatisfactory, or that the Company was in violation of any law or regulation, they may take a number of different remedial actions as they deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in Company’s capital, to restrict growth, to assess civil money penalties, to fine or remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate the Company’s deposit insurance and place the Company into receivership or conservatorship.
Note 15 - Revenue Recognition
The following table presents revenue from contracts with customers within the scope of ASC 606, Revenue from Contracts with Customers, for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Noninterest income in-scope of Topic 606
Service charges and fees on deposits:
Monthly service fees
$ 21  $ 19  $ 60  $ 68 
Account analysis fees
220  206  649  634 
Non-sufficient funds charges
35  39  130  181 
Other deposit related fees
16  16  48  62 
Total service charges and fees on deposits
292  280  887  945 
Debit card fees
86  67  222  185 
Gain (loss) on sale of other real estate owned —  —  74  — 
Wire transfer fees
159  137  435  391 
Other service charges
50  47  150  139 
Total
$ 587  $ 531  $ 1,768  $ 1,660 
Note 16 - Subsequent Events
Dividend Declared on Common Stock. On October 28, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.12 per common share. The dividend will be paid on or about November 19, 2021, to shareholders of record as of the close of business on November 12, 2021.
Appointment of New Director. On October 28, 2021, the Company’s Board of Directors appointed Janice Chung to the Board of Directors of the Company and the Bank effective November 1, 2021.
The Company has evaluated the effects of events that have occurred subsequent to September 30, 2021 through the issuance date of these consolidated financial statements (unaudited). Other than the events described above, there have been no material events that would require disclosure in the consolidated financial statements or in the notes to the consolidated financial statements.
39

Item 2 - 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 and nine months ended September 30, 2021. This analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and with the unaudited consolidated financial statements and notes (unaudited) thereto set forth in this Quarterly Report on Form 10-Q.
Critical Accounting Policies
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 Policies” 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, 2020 and in Note 1 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.
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 exclude (or include) 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 table presents reconciliation of allowance for loan losses to loans held-for-investment, excluding SBA PPP loans to its most comparable GAAP measure. The Company believes that this non-GAAP measure enhance comparability to prior periods and provide supplemental information regarding the Company’s credit quality trend.
($ in thousands) September 30, 2021 December 31, 2020 September 30, 2020
Loans held-for-investment $ 1,707,878  $ 1,583,578  $ 1,578,804 
Less: SBA PPP loans 101,901  135,654  136,418 
Loans held-for-investment, excluding SBA PPP loans $ 1,605,977  $ 1,447,924  $ 1,442,386 
Allowance for loan losses $ 23,807  $ 26,510  $ 24,546 
Allowance for loan losses to loans held-for-investment 1.39  % 1.67  % 1.55  %
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans 1.48  % 1.83  % 1.70  %
40


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 September 30,
As of or For the Nine Months Ended September 30,
($ in thousands, except per share data) 2021 2020 2021 2020
Selected balance sheet data:
Cash and cash equivalents
$ 214,973  $ 257,382  $ 214,973  $ 257,382 
Securities available-for-sale
133,102  128,982  133,102  128,982 
Loans held-for-sale
29,020  30,878  29,020  30,878 
Loans held-for-investment, net of deferred loan costs (fees)
1,707,878  1,578,804  1,707,878  1,578,804 
Allowance for loan losses
(23,807) (24,546) (23,807) (24,546)
Total assets
2,104,699  2,021,187  2,104,699  2,021,187 
Total deposits
1,832,666  1,647,107  1,832,666  1,647,107 
Shareholders’ equity
247,598  229,339  247,598  229,339 
Selected income statement data:
Interest income
$ 21,168  $ 19,620  $ 60,477  $ 60,253 
Interest expense
941  2,767  3,435  11,471 
Net interest income
20,227  16,853  57,042  48,782 
Provision (reversal) for loan losses (1,053) 4,326  (3,134) 11,077 
Noninterest income
5,588  2,272  13,596  7,216 
Noninterest expense
11,232  9,886  32,040  30,149 
Income before income taxes
15,636  4,913  41,732  14,772 
Income tax expense
4,613  1,464  12,305  4,384 
Net income
11,023  3,449  29,427  10,388 
Per share data:
Earnings per common share, basic
$ 0.74  $ 0.22  $ 1.94  $ 0.67 
Earnings per common share, diluted
0.73  0.22  1.92  0.67 
Book value per common share (1)
16.68  14.91  16.68  14.91 
Cash dividends declared per common share
0.12  0.10  0.32  0.30 
Outstanding share data:
Number of common shares outstanding
14,841,626  15,379,538  14,841,626  15,379,538 
Weighted-average common shares outstanding, basic 14,779,707  15,343,888  15,090,989  15,395,475 
Weighted-average common shares outstanding, diluted 15,031,558  15,377,531  15,298,065  15,466,207 
Selected performance ratios:
Return on average assets (2)
2.11  % 0.69  % 1.94  % 0.73  %
Return on average shareholders’ equity (2)
17.98  % 5.98  % 16.40  % 6.10  %
Dividend payout ratio (3)
16.22  % 45.45  % 16.49  % 44.78  %
Efficiency ratio (4)
43.51  % 51.69  % 45.36  % 53.84  %
Yield on average interest-earning assets (2)
4.12  % 4.00  % 4.05  % 4.31  %
Cost of funds (2)
0.21  % 0.63  % 0.26  % 0.92  %
Net interest spread (2)
3.75  % 3.08  % 3.62  % 3.03  %
Net interest margin (2), (5)
3.93  % 3.43  % 3.82  % 3.49  %
Total loans to total deposits ratio (6)
94.77  % 97.73  % 94.77  % 97.73  %
41

As of or For the Three Months Ended September 30,
As of or For the Nine Months Ended September 30,
($ in thousands, except per share data) 2021 2020 2021 2020
Asset quality:
Loans 30 to 89 days past due and still accruing
$ 292  $ 301  $ 292  $ 301 
Nonperforming loans (7)
1,116  3,592  1,116  3,592 
Nonperforming assets (8)
1,116  3,968  1,116  3,968 
Net charge-offs (recoveries) 29  28  (431) 911 
Loans 30 to 89 days past due and still accruing to loans held-for-investment
0.02  % 0.02  % 0.02  % 0.02  %
Nonperforming loans to loans held-for-investment
0.07  % 0.23  % 0.07  % 0.23  %
Nonperforming loans to allowance for loan losses
4.69  % 14.63  % 4.69  % 14.63  %
Nonperforming assets to total assets
0.05  % 0.20  % 0.05  % 0.20  %
Allowance for loan losses to loans held-for-investment
1.39  % 1.55  % 1.39  % 1.55  %
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (9)
1.48  % 1.70  % 1.48  % 1.70  %
Allowance for loan losses to nonaccrual loans 2,138.99  % 848.46  % 2,138.99  % 848.46  %
Allowance for loan losses to nonperforming loans
2,133.24  % 683.35  % 2,133.24  % 683.35  %
Net charge-offs (recoveries) to average loans held-for-investment (2)
0.01  % 0.01  % (0.04) % 0.08  %
Capital ratios:
Shareholders’ equity to total assets
11.76  % 11.35  % 11.76  % 11.35  %
Average equity to average assets
11.75  % 11.52  % 11.84  % 11.92  %
PCB Bancorp
Common tier 1 capital (to risk-weighted assets)
15.07  % 15.60  % 15.07  % 15.60  %
Total capital (to risk-weighted assets)
16.32  % 16.86  % 16.32  % 16.86  %
Tier 1 capital (to risk-weighted assets)
15.07  % 15.60  % 15.07  % 15.60  %
Tier 1 capital (to average assets)
11.91  % 11.40  % 11.91  % 11.40  %
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)
14.76  % 15.34  % 14.76  % 15.34  %
Total capital (to risk-weighted assets)
16.01  % 16.60  % 16.01  % 16.60  %
Tier 1 capital (to risk-weighted assets)
14.76  % 15.34  % 14.76  % 15.34  %
Tier 1 capital (to average assets)
11.66  % 11.21  % 11.66  % 11.21  %
(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, net of unearned loan costs (fees).
(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.
42

Executive Summary
Q3 2021 Financial Highlights
•Net income was $11.0 million for the three months ended September 30, 2021, an increase of $7.6 million, or 219.6%, from $3.4 million for the three months ended September 30, 2020;
◦The Company recorded a provision (reversal) for loan losses of $(1.1) million for the three months ended September 30, 2021 compared with $4.3 million for the three months ended September 30, 2020.
◦Net interest income was $20.2 million for the three months ended September 30, 2021 compared with $16.9 million for the three months ended September 30, 2020. Net interest margin was 3.93% for the three months ended September 30, 2021 compared with 3.43% for the three months ended September 30, 2020.
◦Gain on sale of loans was $4.3 million for the three months ended September 30, 2021 compared with $821 thousand for the three months ended September 30, 2020.
•Total assets were $2.10 billion at September 30, 2021, an increase of $181.8 million, or 9.5%, from $1.92 billion at December 31, 2020;
•Loans held-for-investment, net of deferred costs (fees), were $1.71 billion at September 30, 2021, an increase of $124.3 million, or 7.8%, from $1.58 billion at December 31, 2020; and
◦SBA PPP loans totaled $101.9 million and $135.7 million at September 30, 2021 and December 31, 2020, respectively. During the nine months ended September 30, 2021, the Company funded SBA PPP loans of $107.3 million and recognized $144.9 million in forgiveness and payoffs.
◦Loans under modified terms related to COVID-19 pandemic totaled none and $36.1 million at September 30, 2021 and December 31, 2020, respectively.
◦Allowance for loan losses to total loans held-for-investment ratio was 1.39% at September 30, 2021 compared with 1.67% at December 31, 2020.
•Total deposits were $1.83 billion at September 30, 2021, an increase of $237.8 million, or 14.9%, from $1.59 billion at December 31, 2020.
The ongoing COVID-19 pandemic, and governmental and societal responses thereto, have had a severe impact on recent global economic and market conditions, including significant disruption of, and volatility in, financial markets; global supply chain disruptions; and the institution of social distancing and shelter-in-place requirements that have resulted in temporary closures of many businesses, lost revenues, and increased unemployment throughout the U.S., but also specifically in California, where most of the Company’s operations and a large majority of its customers are located. While California’s and New York’s shelter-at-home limits were largely lifted in June, the local economies in the Company’s primary markets have not yet fully recovered. Since the beginning of the crisis, the Company has taken a number of steps to protect the safety of its employees and to support its customers. The Company has enabled its staff to work remotely and established safety measures within its bank premises and branches for both employees and customers.
In order to support its customers, the Company has been in close contact with its customers, assessing the level of impact on their businesses, and putting a process in place to evaluate each client’s specific situation and provide relief programs where appropriate.
In addition, the Company has been monitoring its liquidity and capital closely. As of September 30, 2021, the Company maintained $215.0 million, or 10.2% of total assets, of cash and cash equivalents and $606.9 million, or 28.8% of total assets, of available borrowing capacity. All regulatory capital ratios were also well above the regulatory well capitalized requirements as of September 30, 2021. At this time, the Company cannot estimate the long term impact of the COVID-19 pandemic, but these conditions impacted and are expected to impact its business, results of operations, and financial condition negatively.
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.
43

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the periods indicated:
Three Months Ended September 30,
2021 2020
($ in thousands) Average Balance Interest
Yield/ Cost (6)
Average Balance Interest
Yield/ Cost (6)
Interest-earning assets:
Total loans (1)
$ 1,715,106  $ 20,537  4.75  % $ 1,564,704  $ 18,938  4.81  %
Mortgage backed securities
95,908  278  1.15  % 75,832  339  1.78  %
Collateralized mortgage obligation
22,534  57  1.00  % 33,393  82  0.98  %
SBA loan pool securities
10,390  45  1.72  % 12,996  57  1.74  %
Municipal bonds - tax exempt (2)
5,759  36  2.48  % 5,991  37  2.46  %
Corporate bonds 2,283  21  3.65  % —  —  —  %
Interest-bearing deposits in other financial institutions
179,560  69  0.15  % 251,979  64  0.10  %
FHLB and other bank stock
8,577  125  5.78  % 8,447  103  4.85  %
Total interest-earning assets
2,040,117  21,168  4.12  % 1,953,342  19,620  4.00  %
Noninterest-earning assets:
Cash and cash equivalents
19,915  17,094 
Allowance for loan losses (24,854) (21,268)
Other assets
35,187  42,446 
Total noninterest earning assets
30,248  38,272 
Total assets
$ 2,070,365  $ 1,991,614 
Interest-bearing liabilities:
Deposits:
NOW and money market accounts
$ 387,661  291  0.30  % $ 365,093  391  0.43  %
Savings
12,806  2  0.06  % 9,517  2  0.08  %
Time deposits
599,865  592  0.39  % 689,352  2,206  1.27  %
Borrowings
18,152  56  1.22  % 130,000  168  0.51  %
Total interest-bearing liabilities
1,018,484  941  0.37  % 1,193,962  2,767  0.92  %
Noninterest-bearing liabilities:
Demand deposits
794,165  552,255 
Other liabilities
14,531  15,934 
Total noninterest-bearing liabilities
808,696  568,189 
Total liabilities
1,827,180  1,762,151 
Shareholders’ equity
243,185  229,463 
Total liabilities and shareholders’ equity
$ 2,070,365  $ 1,991,614 
Net interest income
$ 20,227  $ 16,853 
Net interest spread (3)
3.75  % 3.08  %
Net interest margin (4)
3.93  % 3.43  %
Cost of funds (5)
0.21  % 0.63  %
(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 (cost) of $3.4 million and $1.2 million, respectively, and net accretion of discount on loans of $1.9 million and $743 thousand, respectively, are included in the interest income for the three months ended September 30, 2021 and 2020.
(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.
44

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
2021 2020
($ in thousands) Average Balance Interest
Yield/ Cost (6)
Average Balance Interest
Yield/ Cost (6)
Interest-earning assets:
Total loans (1)
$ 1,683,084  $ 58,792  4.67  % $ 1,524,628  $ 57,617  5.05  %
Mortgage backed securities
90,095  726  1.08  % 65,713  985  2.00  %
Collateralized mortgage obligation
23,442  168  0.96  % 37,500  402  1.43  %
SBA loan pool securities
10,959  148  1.81  % 13,351  198  1.98  %
Municipal bonds - tax exempt (2)
5,774  109  2.52  % 5,807  113  2.60  %
Corporate bonds 769  21  3.65  % —  —  —  %
Interest-bearing deposits in other financial institutions
172,136  156  0.12  % 213,292  585  0.37  %
FHLB and other bank stock
8,527  357  5.60  % 8,406  353  5.61  %
Total interest-earning assets
1,994,786  60,477  4.05  % 1,868,697  60,253  4.31  %
Noninterest-earning assets:
Cash and cash equivalents
19,359  17,324 
Allowance for loan losses (25,753) (17,676)
Other assets
37,371  38,255 
Total noninterest earning assets
30,977  37,903 
Total assets
$ 2,025,763  $ 1,906,600 
Interest-bearing liabilities:
Deposits:
NOW and money market accounts
$ 398,459  941  0.32  % $ 367,222  2,058  0.75  %
Savings
11,676  4  0.05  % 7,706  8  0.14  %
Time deposits
616,707  2,251  0.49  % 725,927  8,934  1.64  %
Borrowings
37,363  239  0.86  % 95,276  471  0.66  %
Total interest-bearing liabilities
1,064,205  3,435  0.43  % 1,196,131  11,471  1.28  %
Noninterest-bearing liabilities:
Demand deposits
707,800  465,634 
Other liabilities
13,925  17,493 
Total noninterest-bearing liabilities
721,725  483,127 
Total liabilities
1,785,930  1,679,258 
Shareholders’ equity
239,833  227,342 
Total liabilities and shareholders’ equity
$ 2,025,763  $ 1,906,600 
Net interest income
$ 57,042  $ 48,782 
Net interest spread (3)
3.62  % 3.03  %
Net interest margin (4)
3.82  % 3.49  %
Cost of funds (5)
0.26  % 0.92  %
(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 (cost) of $4.7 million and $2.0 million, respectively, and net accretion of discount on loans of $2.7 million and $2.3 million, respectively, are included in the interest income for the nine months ended September 30, 2021 and 2020.
(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.
45

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 September 30, Nine Months Ended September 30,
2021 vs. 2020 2021 vs. 2020
Increase (Decrease) Due to Net Increase (Decrease) Increase (Decrease) Due to Net Increase (Decrease)
($ in thousands) Volume Rate Volume Rate
Interest earned on:
Total loans
$ 1,820  $ (221) $ 1,599  $ 5,988  $ (4,813) $ 1,175 
Investment securities
35  (113) (78) 120  (646) (526)
Other interest-earning assets
(46) 73  27  (174) (251) (425)
Total interest income
1,809  (261) 1,548  5,934  (5,710) 224 
Interest incurred on:
Savings, NOW, and money market deposits
27  (127) (100) 194  (1,315) (1,121)
Time deposits
(286) (1,328) (1,614) (1,344) (5,339) (6,683)
Borrowings
(145) 33  (112) (286) 54  (232)
Total interest expense
(404) (1,422) (1,826) (1,436) (6,600) (8,036)
Change in net interest income
$ 2,213  $ 1,161  $ 3,374  $ 7,370  $ 890  $ 8,260 
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
The following table presents the components of net interest income for the periods indicated:
Three Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Interest income:
Interest and fees on loans
$ 20,537  $ 18,938  $ 1,599  8.4  %
Interest on investment securities 437  515  (78) (15.1) %
Interest and dividends on other interest-earning assets
194  167  27  16.2  %
Total interest income
21,168  19,620  1,548  7.9  %
Interest expense:
Interest on deposits
885  2,599  (1,714) (65.9) %
Interest on borrowings
56  168  (112) (66.7) %
Total interest expense
941  2,767  (1,826) (66.0) %
Net interest income
$ 20,227  $ 16,853  $ 3,374  20.0  %
Net interest income increased primarily due to a 55 basis point decrease in average cost on interest-bearing liabilities, a 12 basis point increase in average yield on interest-earning assets, a 4.4% increase in average balance of interest-earning assets, and a 14.7% decrease in average balance of interest-bearing liabilities.
Interest and fees on loans increased primarily due to a 9.6% increase in average balance, partially offset by a 6 basis point decrease in average yield. The decrease in average yield was primarily due to the lower market rates, partially offset by increases in amortization of net deferred fees and net accretion of discount. The increase in net accretion of discount was primarily due to an increase in loan payoffs on SBA loans. The increase in amortization of net deferred fees was primarily due to the payoffs and forgiveness of SBA PPP loans.
Interest on investment securities decreased primarily due to a 33 basis point decrease in average yield, partially offset by a 6.8% increase in average balance. The decrease in average yield and the increase in average balance were primarily due to new investment securities purchased under low market rates during the past 12-month period. The Company purchased new investment securities of $50.0 million during the past 12-month period. For the three months ended September 30, 2021 and 2020, yield on total investment securities was 1.27% and 1.60%, respectively.

46

Interest income on other interest-earning assets increased primarily due to a 15 basis point increase in average yield, partially offset by a 27.8% decrease in average balance. The increase in average yield was primarily due to an increase in dividend income on Federal Home Loan Bank stock. The decrease in average balance was primarily due to an increase in loans, partially offset by an increase in deposits. For the three months ended September 30, 2021 and 2020, yield on total other interest-earning assets was 0.41% and 0.26%, respectively.
Interest expense on deposits decreased primarily due to a 62 basis point decrease in average cost of interest-bearing deposits and a 13.0% decrease in average balance of time deposits, partially offset by a 6.9% increase in savings, NOW and money market accounts. The decrease in average cost was primarily due to the lower market rates. The decrease in average balance of time deposits was primarily due to a lower level of new time deposits. For the three months ended September 30, 2021 and 2020, average cost on total interest-bearing deposits was 0.35% and 0.97%, respectively, and average cost on total deposits were 0.20% and 0.64%, respectively.
Interest expense on borrowings decreased primarily due to a decrease in average balance, partially offset by an increase in average cost of FHLB advances. The Company maintained a lower balance of other borrowings primarily due to the increase in deposits.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents the components of net interest income for the periods indicated:
Nine Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Interest income:
Interest and fees on loans
$ 58,792  $ 57,617  $ 1,175  2.0  %
Interest on investment securities 1,172  1,698  (526) (31.0) %
Interest and dividends on other interest-earning assets
513  938  (425) (45.3) %
Total interest income
60,477  60,253  224  0.4  %
Interest expense:
Interest on deposits
3,196  11,000  (7,804) (70.9) %
Interest on borrowings
239  471  (232) (49.3) %
Total interest expense
3,435  11,471  (8,036) (70.1) %
Net interest income
$ 57,042  $ 48,782  $ 8,260  16.9  %
Net interest income increased primarily due to an 85 basis point decrease in average cost on interest-bearing liabilities, a 6.7% increase in average balance of interest-earning assets, and an 11.0% decrease in average balance of interest-bearing liabilities, partially offset by a 26 basis point decrease in average yield on interest-earning assets.
Interest and fees on loans increased primarily due to a 10.4% increase in average balance, partially offset by a 38 basis point decrease in average yield. The decrease in average yield was primarily due to the lower market rates, partially offset by increases in amortization of net deferred fees and net accretion of discount. The increase in net accretion of discount was primarily due to an increase in loan payoffs on SBA loans. The increase in amortization of net deferred fees was primarily due to the payoffs and forgiveness of SBA PPP loans.
Interest on investment securities decreased primarily due to a 65 basis point decrease in average yield, partially offset by a 7.1% increase in average balance. The decrease in average yield and the increase in average balance were primarily due to new investment securities purchased under low market rates during the past 12-month period. The Company purchased new investment securities of $50.0 million during the past 12-month period. For the nine months ended September 30, 2021 and 2020, yield on total investment securities was 1.20% and 1.85%, respectively.
Interest income on other interest-earning assets decreased primarily due to a 19 basis point decrease in average yield and an 18.5% decrease in average balance. The decrease in average yield was primarily due to the lower rates on the account with Federal Reserve Bank. The decrease in average balance was primarily due to an increase in loans, partially offset by an increase in deposits. For the nine months ended September 30, 2021 and 2020, yield on total other interest-earning assets was 0.38% and 0.57%, respectively.

47

Interest expense on deposits decreased primarily due to a 91 basis point decrease in average cost of interest-bearing deposits and a 15.0% decrease in average balance of time deposits, partially offset by a 9.4% increase in savings, NOW and money market accounts. The decrease in average cost was primarily due to the lower market rates. The decrease in average balance of time deposits was primarily due to a lower level of new time deposits. For the nine months ended September 30, 2021 and 2020, average cost on total interest-bearing deposits was 0.42% and 1.33%, respectively, and average cost on total deposits were 0.25% and 0.94%, respectively.
Interest expense on borrowings decreased primarily due to a decrease in average balance, partially offset by an increase in average cost of FHLB advances. The Company maintained a lower balance of other borrowings primarily due to the increase in deposits.
Provision (reversal) for Loan Losses
Provision (reversal) for loan losses was $(1.1) million and $4.3 million for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020, provision (reversal) for loan losses was $(3.1) million and $11.1 million, respectively. The reversal for loan losses for the three and nine months ended September 30, 2021 was primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions, partially offset by an increase in commercial property loans.
See further discussion in “Allowance for Loan Losses.”
48

Noninterest Income
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
The following table presents the components of noninterest income for the periods indicated:
Three Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Service charges and fees on deposits
$ 292  $ 280  $ 12  4.3  %
Loan servicing income
655  856  (201) (23.5) %
Gain on sale of loans
4,269  821  3,448  420.0  %
Other income
372  315  57  18.1  %
Total noninterest income
$ 5,588  $ 2,272  $ 3,316  146.0  %
Service charges and fees on deposits increased primarily due to an increase in fee-based transactions.
Loan servicing income decreased primarily due to an increase in servicing asset amortization from an increase in loan payoffs. Servicing asset amortization was $525 thousand and $388 thousand, respectively, for the three months ended September 30, 2021 and 2020.
Gain on sale of loans increased primarily due to a higher level of premiums on SBA loans in the secondary market and an increase in sale volume of SBA loans. The Company sold SBA loans of $45.0 million with a gain of $4.3 million, residential property loans of $301 thousand with a gain of $2 thousand, and certain commercial property loans of $3.5 million with a gain of $4 thousand during the three months ended September 30, 2021. During the three months ended September 30, 2020, the Company sold SBA loans of $8.6 million with a gain of $689 thousand and residential property loans of $16.6 million with a gain of $132 thousand.
Other income primarily included wire transfer fees of $159 thousand and $137 thousand, respectively, and debit card interchange fees of $86 thousand and $67 thousand, respectively, for the three months ended September 30, 2021 and 2020.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents the components of noninterest income for the periods indicated:
Nine Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Service charges and fees on deposits
$ 887  $ 945  $ (58) (6.1) %
Loan servicing income
2,082  2,312  (230) (9.9) %
Gain on sale of loans
9,558  3,044  6,514  214.0  %
Other income
1,069  915  154  16.8  %
Total noninterest income
$ 13,596  $ 7,216  $ 6,380  88.4  %
Service charges and fees on deposits decreased primarily due to a decrease in fee-based transactions.
Loan servicing income decreased primarily due to a decrease in servicing fee income and an increase in servicing asset amortization. Servicing asset amortization was $1.5 million and $1.4 million, respectively, for the nine months ended September 30, 2021 and 2020.
Gain on sale of loans increased primarily due to a higher level of premiums on SBA loans in the secondary market and an increase in sale volume of SBA loans. The Company sold SBA loans of $90.1 million with a gain of $9.4 million, residential property loans of $9.8 million with a gain of $142 thousand, and certain commercial property loans of $5.2 million with a gain of $4 thousand during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company sold SBA loans of $47.4 million with a gain of $2.8 million and residential property loans of $24.8 million with a gain of $203 thousand.
Other income primarily included wire transfer fees of $435 thousand and $391 thousand, respectively, and debit card interchange fees of $222 thousand and $185 thousand, respectively, for the nine months ended September 30, 2021 and 2020. For the nine months end September 30, 2021, other income also included gain on sale of other real estate owned of $74 thousand.
49

Noninterest Expense
Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020
The following table presents the components of noninterest expense for the periods indicated:
Three Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Salaries and employee benefits
$ 7,606  $ 6,438  $ 1,168  18.1  %
Occupancy and equipment
1,399  1,416  (17) (1.2) %
Professional fees
422  325  97  29.8  %
Marketing and business promotion
416  193  223  115.5  %
Data processing
391  373  18  4.8  %
Director fees and expenses
144  125  19  15.2  %
Regulatory assessments
12  267  (255) (95.5) %
Other expenses
842  749  93  12.4  %
Total noninterest expense
$ 11,232  $ 9,886  $ 1,346  13.6  %
Salaries and employee benefits increased primarily due to increases in salaries, bonus accrual, and the incentive tied to the sales of Loan Production Offices (“LPO”) originated SBA loans and the incentive for SBA PPP loan production paid during the three months ended September 30, 2021, partially offset by decreases in vacation accrual and stock compensation expense. The number of full-time equivalent employees was 249 at September 30, 2021 compared to 252 at September 30, 2020.
Marketing and business promotion expense increased primarily due to an increase in advertisement.
Regulatory assessment expense decreased primarily due to an adjustment made for the assessment rate decrease, partially offset by an increase in balance sheet growth.
Other expenses primarily included $42 thousand and $111 thousand in loan related expenses, $378 thousand and $345 thousand in office expense, and $144 thousand and $125 thousand in armed guard expense for the three months ended September 30, 2021 and 2020, respectively.

50

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents the components of noninterest expense for the periods indicated:
Nine Months Ended September 30,
Amount Change Percentage Change
($ in thousands) 2021 2020
Salaries and employee benefits
$ 20,913  $ 18,750  $ 2,163  11.5  %
Occupancy and equipment
4,158  4,196  (38) (0.9) %
Professional fees
1,574  1,631  (57) (3.5) %
Marketing and business promotion
1,070  920  150  16.3  %
Data processing
1,164  1,097  67  6.1  %
Director fees and expenses
433  453  (20) (4.4) %
Regulatory assessments
399  728  (329) (45.2) %
Other expenses
2,329  2,374  (45) (1.9) %
Total noninterest expense
$ 32,040  $ 30,149  $ 1,891  6.3  %
Salaries and employee benefits increased primarily due to increases in salaries, bonus accrual, and the incentive tied to the incentives for LPO originated SBA loan sales and SBA PPP loan production, partially offset by decreases in vacation accrual and stock compensation expense. Direct loan origination cost related to SBA PPP loan production totaled $812 thousand and $1.1 million for nine months ended September 30, 2021 and 2020, respectively. The number of full-time equivalent employees was 249 at September 30, 2021 compared to 252 at September 30, 2020.
Professional fees decreased primarily due to decreases in expenses related to decreases in expenses related to the Bank’s Bank Secrecy Act and Anti-Money Laundering (“BSA/AML”) compliance enhancements.
Marketing and business promotion expense increased primarily due to an increase in advertisement.
Regulatory assessment expense decreased primarily due to to an adjustment made for the assessment rate decrease, partially offset by an increase in balance sheet growth.
Other expenses primarily included $263 thousand and $328 thousand in loan related expenses, $1.0 million and $1.1 million in office expense, and $388 thousand and $379 thousand in armed guard expense for the nine months ended September 30, 2021 and 2020, respectively.
Income Tax Expense
Income tax expense was $4.6 million and $1.5 million, respectively, and the effective tax rate was 29.5% and 29.8%, respectively, for the three months ended September 30, 2021 and 2020. For the nine months ended September 30, 2021 and 2020, income tax expense was $12.3 million and $4.4 million, respectively, and the effective tax rate was 29.5% and 29.7%, respectively.
51

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.
On June 30, 2020, the Company transferred securities held-to-maturity to securities available-for-sale as a part of the Company’s liquidity management plan in response to the COVID-19 pandemic. Management determined that its securities held-to-maturity no longer adhere to the Company’s current liquidity management plan and could be sold to potentially improve liquidity position. Accordingly, the Company was no longer able to assert that it had the intent to hold these securities until maturity and the Company’s ability to assert that it has the intent and ability to hold to maturity debt securities will be limited for up to two years from the date of transfer. The Company transferred all securities held-to-maturity of $18.8 million to securities available-for-sale, which resulted in a pre-tax increase to accumulated other comprehensive income of $787 thousand.
The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:
September 30, 2021 December 31, 2020
($ in thousands) Amortized Cost
Fair Value
Unrealized Gain (Loss) Amortized Cost
Fair Value
Unrealized Gain (Loss)
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise securities:
Residential mortgage-backed securities
$ 91,446  $ 91,485  $ 39  $ 74,622  $ 76,154  $ 1,532 
Residential collateralized mortgage obligations
21,079  21,198  119  26,216  26,467  251 
SBA loan pool securities
9,406  9,667  261  11,753  12,080  327 
Municipal bonds
5,339  5,708  369  5,370  5,826  456 
Corporate bonds 5,000  5,044  44  —  —  — 
Total securities available-for-sale
$ 132,270  $ 133,102  $ 832  $ 117,961  $ 120,527  $ 2,566 
Total investment securities were $133.1 million at September 30, 2021, an increase of $12.6 million, or 10.4%, from $120.5 million at December 31, 2020. The increase was primarily due to purchases of $47.3 million, partially offset by principal paydowns of $32.2 million, a decrease in fair value of securities available-for-sale of $1.7 million, and net premium amortization of $811 thousand.
The Company performs an OTTI assessment at least on a quarterly basis. OTTI is recognized when fair value is below the amortized cost where: (i) an entity has the intent to sell the security; (ii) it is more likely than not that an entity will be required to sell the security before recovery of its amortized cost basis; or (iii) an entity does not expect to recover the entire amortized cost basis of the security. All individual securities in a continuous unrealized loss position for 12 months or more as of September 30, 2021 and December 31, 2020 had an investment grade rating upon purchase. The issuers of these securities have not established any cause for default on these securities and various rating agencies have reaffirmed their long-term investment grade status as of September 30, 2021 and December 31, 2020. These securities have fluctuated in value since their purchase dates as market interest rates fluctuated. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of its amortized cost basis. The Company determined that the investment securities with unrealized losses for twelve months or more are not other-than-temporary impaired, and, therefore, no impairment was recognized during the three and nine months ended September 30, 2021 and 2020.

52

The following table presents the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of September 30, 2021:
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
$ —  —  % $ 604  1.53  % $ 8,709  1.53  % $ 82,133  1.32  % $ 91,446  1.35  %
Residential collateralized mortgage obligations
—  —  % —  —  % 10,717  0.70  % 10,362  1.46  % 21,079  1.07  %
SBA loan pool securities
—  —  % 519  2.58  % 1,509  0.67  % 7,378  2.01  % 9,406  1.82  %
Municipal bonds
307  1.72  % 1,858  2.07  % 834  2.27  % 2,340  3.53  % 5,339  2.72  %
Corporate bonds —  —  % —  —  % 5,000  3.75  % —  —  % 5,000  3.75  %
Total securities available-for-sale
$ 307  1.72  % $ 2,981  2.05  % $ 26,769  1.59  % $ 102,213  1.44  % $ 132,270  1.48  %

53

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 allowance for loan losses. The following table presents a composition of loans held-for-sale as of the dates indicated:
($ in thousands) September 30, 2021 December 31, 2020
Real estate loans:
Residential property
$ —  $ 300 
SBA property
28,036  1,411 
Commercial and industrial loans:
SBA commercial term
984  268 
Total
$ 29,020  $ 1,979 
Loans held-for-sale were $29.0 million at September 30, 2021, an increase of $27.0 million, or 1,366.4%, from $2.0 million at December 31, 2020. The increase was primarily due to new funding of $126.8 million and a loan transferred from loans held-for-investment of $5.4 million, partially offset by sales of $105.1 million.
Loans Held-For-Investment and Allowance for Loan Losses
The following table presents the composition of the Company’s loans held-for-investment as of the dates indicated:
September 30, 2021 December 31, 2020
($ in thousands) Amount Percentage to Total Amount Percentage to Total
Real estate loans:
Commercial property
$ 1,054,351  61.6  % $ 880,736  55.5  %
Residential property
201,635  11.8  % 198,431  12.5  %
SBA property
127,845  7.5  % 126,570  8.0  %
Construction
6,572  0.4  % 15,199  1.0  %
Total real estate loans
1,390,403  81.3  % 1,220,936  77.0  %
Commercial and industrial loans:
Commercial term
74,390  4.4  % 87,250  5.5  %
Commercial lines of credit
101,456  5.9  % 96,087  6.1  %
SBA commercial term
18,338  1.1  % 21,878  1.4  %
SBA PPP
101,901  6.0  % 135,654  8.6  %
Total commercial and industrial loans
296,085  17.4  % 340,869  21.6  %
Other consumer loans
21,390  1.3  % 21,773  1.4  %
Loans held-for-investment
1,707,878  100.0  % 1,583,578  100.0  %
Allowance for loan losses
(23,807) (26,510)
Net loans held-for-investment
$ 1,684,071  $ 1,557,068 
Loans held-for-investment, net of deferred loan costs (fees) were $1.71 billion at September 30, 2021, an increase of $124.3 million, or 7.8%, from $1.58 billion at December 31, 2020. The increase was primarily due to new funding of $498.9 million and advances of $88.9 million, partially offset by paydowns and payoffs of $457.9 million. During the nine months ended September 30, 2021, SBA PPP loans of $144.9 million were paid off and related unamortized net deferred fees were recognized through interest income. Commercial property loan production contributed significantly to the Company’s loan growth for the nine months ended September 30, 2021.

54

Loan Modifications Related to the COVID-19 Pandemic
The Company provided modifications, including payment deferments and interest only payments, to customers that were adversely affected by the COVID-19 pandemic. As of September 30, 2021, all loans under modified terms related to the COVID-19 pandemic were accounted for under section 4013 of the CARES Act and not considered TDRs.
The following table presents a summary of loans previously modified in response to the COVID-19 pandemic, but that have reverted back to previous contractual payment terms as of September 30, 2021:
($ in thousands)
Carrying Value
Accrued Interest Receivable
Real estate loans:
Commercial property
$ 328,847  $ 992 
Residential property
28,566  615 
SBA property 4,173  8 
Commercial and industrial loans:
Commercial term
39,629  121 
SBA commercial term 1,795  6 
Other consumer loans 797  2 
Total
$ 403,807  $ 1,744 

The following table presents activity in loans under modified terms related to the COVID-19 pandemic for the nine months ended September 30, 2021.
Real Estate Loans Commercial and Industrial Loans
($ in thousands) Commercial Property Residential Property SBA Property Commercial Term SBA Commercial Term Total
Balance at January 1, 2021 $ 24,132  $ 425  $ 4,192  $ 5,527  $ 1,841  $ 36,117 
Modification early terminated (1)
—  —  (2,576) —  (1,338) (3,914)
Modification expired (33,943) (1,100) (1,627) (8,330) (513) (45,513)
Subsequent modification 11,829  328  —  2,878  —  15,035 
New modification —  349  —  —  —  349 
Amortization (2,018) (2) 11  (75) 10  (2,074)
Balance at September 30, 2021 $ —  $ —  $ —  $ —  $ —  $ — 
(1)    Termination of modifications at the request of the borrower.
SBA Paycheck Protection Program
The following table presents a summary of SBA PPP loans as of September 30, 2021:
($ in thousands) Number of Loans
Carrying Value
Contractual Balance
Loan amount:
$50,000 or less 436  $ 8,913  $ 9,469 
Over $50,000 and less than $350,000 286  39,689  40,955 
Over $350,000 and less than $2,000,000
77  50,116  51,121 
$2,000,000 or more
1  3,183  3,187 
Total
800  $ 101,901  $ 104,732 
55

Allowance for loan losses
The Company’s methodology for assessing the appropriateness of the allowance for loan losses includes a general allowance for performing loans, which are grouped based on similar characteristics, and a specific allowance for individual impaired loans or loans considered by management to be in a high-risk category. General allowances are established based on a number of factors, including historical loss rates, an assessment of portfolio trends and conditions, accrual status and economic conditions.
For any loan held for investment, a specific allowance may be assigned based on an impairment analysis. Loans are considered impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of impairment is based on an analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the estimated market value or the fair value of the underlying collateral. Interest income on impaired loans is accrued as earned, unless the loan is placed on nonaccrual status.
Individual loans considered to be uncollectible are charged off against the allowance for loan losses. Factors used in determining the amount and timing of charge-offs on loans include consideration of the loan type, length of delinquency, sufficiency of collateral value, lien priority and the overall financial condition of the borrower. Collateral value is determined using updated appraisals and/or other market comparable information. Charge-offs are generally taken on loans once the impairment is confirmed. Recoveries on loans previously charged off are added to the allowance for loan losses.
The decrease in allowance for loan losses to loans held-for-investment was primarily due to a decrease in historical loss and qualitative adjustment factor allocations as a result of improving economic conditions, partially offset by an increase in commercial property loans.
The Company analyzes the loan portfolio, including delinquencies, concentrations, and risk characteristics, at least quarterly in order to assess the overall level of the allowance for loan losses. The Company also relies on internal and external loan review procedures to further assess individual loans and loan pools, and economic data for overall industry and geographic trends.
In determining the allowance and the related provision for loan losses, the Company considers three principal elements: (i) valuation allowances based upon probable incurred losses identified during the review of impaired commercial and industrial, commercial property and construction loans, (ii) allocations, by loan classes, on loan portfolios based on historical loan loss experience and (iii) qualitative factors. Provisions for loan losses are charged to operations to record changes to the allowance for loan losses to a level deemed appropriate.
The SBA guarantee on PPP loans cannot be separated from the loan and therefore is not a separate unit of account. The Company considered the SBA guarantee in the allowance for loan losses evaluation and determined that it is not required to reserve an allowance on SBA PPP loans at September 30, 2021 and December 31, 2020.

56

The following table provides an analysis of the allowance for loan losses, provision for loan losses and net charge-offs as of the dates or for the periods indicated:
As of or For the Three Months Ended September 30,
As of or For the Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Allowance for loan losses:
Balance at beginning of period
$ 24,889  $ 20,248  $ 26,510  $ 14,380 
Charge-offs:
Real estate
—  —  18  138 
Commercial and industrial
84  —  100  916 
Other consumer
43  102  87  241 
Total charge-offs
127  102  205  1,295 
Recoveries on loans previously charged off
Real estate
—  —  47  56 
Commercial and industrial
94  18  553  223 
Other consumer
4  56  36  105 
Total recoveries
98  74  636  384 
Net charge-offs (recoveries) 29  28  (431) 911 
Provision (reversal) for loan losses
(1,053) 4,326  (3,134) 11,077 
Balance at end of period
$ 23,807  $ 24,546  $ 23,807  24,546 
Loans held-for-investment:
Balance at end of period
$ 1,707,878  $ 1,578,804  $ 1,707,878  $ 1,578,804 
Average balance
1,688,468  1,546,900  1,539,161  1,509,963 
Ratios:
Annualized net charge-offs (recoveries) to average loans held-for-investment 0.01  % 0.01  % (0.04) % 0.08  %
Allowance for loan losses to loans held-for-investment
1.39  % 1.55  % 1.39  % 1.55  %
Allowance for loan losses to loans held-for-investment, excluding SBA PPP loans (1)
1.48  % 1.70  % 1.48  % 1.70  %
(1)    Non-GAAP measure. See "Non-GAAP Measures" for a reconciliation to its most comparable GAAP measure.
57

Nonperforming Loans and Nonperforming Assets
The following table presents a summary of total non-performing assets as of the dates indicated:
($ in thousands) September 30, 2021 December 31, 2020 Amount Change Percentage Change
Nonaccrual loans
Real estate loans:
Commercial property
$ —  $ 524  $ (524) (100.0) %
Residential property
—  189  (189) (100.0) %
SBA property
766  885  (119) (13.4) %
Total real estate loans
766  1,598  (832) (52.1) %
Commercial and industrial loans:
Commercial lines of credit
—  904  (904) (100.0) %
SBA commercial term
314  595  (281) (47.2) %
Total commercial and industrial loans
314  1,499  (1,185) (79.1) %
Other consumer loans
33  66  (33) (50.0) %
Total nonaccrual loans
1,113  3,163  (2,050) (64.8) %
Loans past due 90 days or more still on accrual
3  —  3  —  %
Total nonperforming loans
1,116  3,163  (2,047) (64.7) %
Other real estate owned
—  1,401  (1,401) (100.0) %
Total nonperforming assets
$ 1,116  $ 4,564  $ (3,448) (75.5) %
Nonperforming loans to loans held-for-investment
0.07  % 0.20  %
Nonperforming assets to total assets
0.05  % 0.24  %
The decrease in total nonaccrual loans was primarily due to paydowns and payoffs of $2.0 million and a loan transferred to OREO of $905 thousand, partially offset by loans placed on nonaccrual status of $949 thousand during the nine months ended September 30, 2021. 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 $15 thousand and $44 thousand would have been recorded during the three and nine months ended September 30, 2021, respectively, had these loans been paid in accordance with their original terms throughout the periods indicated.
Troubled Debt Restructurings
Loans that the Bank modifies or restructures where the debtor is experiencing financial difficulties and makes a concession to the borrower in the form of changes in the amortization terms, reductions in the interest rates, the acceptance of interest only payments and, in limited cases, reductions in the outstanding loan balances are classified as TDRs. TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition. A workout plan between a borrower and the Bank is designed to provide a bridge for the cash flow shortfalls in the near term. If the borrower works through the near term issues, in most cases, the original contractual terms of the loan will be reinstated. The following table presents the composition of loans that were modified as TDRs by portfolio segment as of the dates indicated:
September 30, 2021 December 31, 2020
($ in thousands) Accruing Nonaccrual Total Accruing Nonaccrual Total
Real estate loans:
Commercial property
$ 328  $ —  $ 328  $ 333  $ —  $ 333 
SBA property
250  26  276  270  5  275 
Commercial and industrial loans:
Commercial term
5  —  5  18  —  18 
SBA commercial term
6  —  6  13  —  13 
Total
$ 589  $ 26  $ 615  $ 634  $ 5  $ 639 
58

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) September 30, 2021 December 31, 2020 Amount Change Percentage Change
Noninterest-bearing demand deposits
$ 832,240  $ 538,009  $ 294,231  54.7  %
Interest-bearing deposits:
Savings
13,294  10,481  2,813  26.8  %
NOW
20,461  21,604  (1,143) (5.3) %
Retail money market accounts
376,333  351,739  24,594  7.0  %
Brokered money market accounts
4  25,002  (24,998) (100.0) %
Retail time deposits of:
$250,000 or less
262,207  299,431  (37,224) (12.4) %
More than $250,000
163,127  168,683  (5,556) (3.3) %
Time deposits from internet rate service providers
—  24,902  (24,902) —  %
Brokered time deposits
65,000  55,000  10,000  18.2  %
Time deposits from California State Treasurer
100,000  100,000  —  —  %
Total interest-bearing deposits
1,000,426  1,056,842  (56,416) (5.3) %
Total deposits
$ 1,832,666  $ 1,594,851  $ 237,815  14.9  %
The increase in noninterest-bearing demand deposits was primarily due to the overall liquid deposit market, as well as the deposit increases from customers with SBA PPP loans, SBA Revitalization Funds and SBA Economic Injury Disaster Loans. A total of $93.9 million of SBA PPP loans were funded through the Bank's noninterest-bearing demand deposits and deposit customers also received $138.2 million of SBA Revitalization Funds and SBA Economic Injury Disaster Loans during the nine months ended September 30, 2021.
The decrease in retail time deposits was primarily due to matured and closed accounts of $457.6 million, partially offset by new accounts of $76.4 million and renewals of the matured accounts of $328.5 million.
As of September 30, 2021 and December 31, 2020, total deposits were comprised of 45.4% and 33.7%, respectively, of noninterest-bearing demand accounts, 22.4% and 25.7%, respectively, of savings, NOW and money market accounts, and 32.2% and 40.6%, respectively, of time deposits.
Deposits from certain officers, directors and their related interests with which they are associated held by the Company were $5.6 million and $2.7 million, respectively, at September 30, 2021 and December 31, 2020.
The following table presents the maturity of time deposits as of the dates indicated:
($ in thousands) Three Months or Less Three to Six Months Six Months to One Year One to Three Years Over Three Years Total
September 30, 2021
Time deposits less than $100,000
$ 31,309  $ 74,233  $ 32,399  $ 5,627  $ 597  $ 144,165 
Time deposits of $100,000 through $250,000
47,758  68,019  67,147  118  —  183,042 
Time deposits of more than $250,000
142,938  57,823  60,053  2,313  —  263,127 
Total
$ 222,005  $ 200,075  $ 159,599  $ 8,058  $ 597  $ 590,334 
December 31, 2020
Time deposits less than $100,000
$ 83,751  $ 18,482  $ 32,112  $ 7,975  $ 1,528  $ 143,848 
Time deposits of $100,000 through $250,000
91,727  57,715  81,622  4,421  —  235,485 
Time deposits of more than $250,000
156,507  35,000  72,553  4,623  —  268,683 
Total
$ 331,985  $ 111,197  $ 186,287  $ 17,019  $ 1,528  $ 648,016 
59

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 $247.6 million at September 30, 2021, an increase of $13.8 million, or 5.9%, from $233.8 million at December 31, 2020. The increase was primarily due to net income of $29.4 million and cash proceeds from exercise of stock options of $1.0 million, partially offset by repurchases of common stock of $10.9 million, dividends declared on common stock of $4.9 million and a decrease in accumulated other comprehensive income of $1.2 million.
Regulatory Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. The Company is not currently subject to separate minimum capital measurements under the definition of a “Small Bank Holding Company.” At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank.
Federal banking agencies also require a capital conservation buffer of 2.50% in addition to the ratios required to generally be considered “adequately capitalized” under the prompt corrective action (“PCA”) regulations. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for the PCA, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
The following table presents a summary of the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of September 30, 2021 and December 31, 2020. For comparison purpose, the Company’s ratios are included as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums.
PCB Bancorp Pacific City Bank Minimum Regulatory Requirements Well Capitalized Requirements (Bank)
September 30, 2021
Common tier 1 capital (to risk-weighted assets)
15.07  % 14.76  % 4.5  % 6.5  %
Total capital (to risk-weighted assets)
16.32  % 16.01  % 8.0  % 10.0  %
Tier 1 capital (to risk-weighted assets)
15.07  % 14.76  % 6.0  % 8.0  %
Tier 1 capital (to average assets)
11.91  % 11.66  % 4.0  % 5.0  %
December 31, 2020
Common tier 1 capital (to risk-weighted assets)
15.97  % 15.70  % 4.5  % 6.5  %
Total capital (to risk-weighted assets)
17.22  % 16.95  % 8.0  % 10.0  %
Tier 1 capital (to risk-weighted assets)
15.97  % 15.70  % 6.0  % 8.0  %
Tier 1 capital (to average assets)
11.94  % 11.74  % 4.0  % 5.0  %
The Company and the Bank’s capital conservation buffer was 8.32% and 8.01%, respectively, as of September 30, 2021, and 9.22% and 8.95%, respectively, as of December 31, 2020.

60

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 Company had $10.0 million and $80.0 million of outstanding FHLB advances at September 30, 2021 and December 31, 2020, respectively. Based on the values of loans pledged as collateral, the Company had $505.0 million and $425.3 million of additional borrowing capacity with FHLB as of September 30, 2021 and December 31, 2020, respectively. The Company also had $65.0 million and $65.0 million, respectively, of available unused unsecured federal funds lines at September 30, 2021 and December 31, 2020.
In addition, available unused secured borrowing capacity from Federal Reserve Discount Window at September 30, 2021 and December 31, 2020 was $36.9 million and $35.8 million, respectively. Federal Reserve Discount Window was collateralized by loans totaling $45.1 million and $44.1 million as of September 30, 2021 and December 31, 2020, respectively. The Company’s borrowing capacity from the Federal Reserve Discount Window is limited by eligible collateral. The Company also maintains relationships in the capital markets with brokers and dealers to issue time deposits and money market accounts. As of September 30, 2021 and December 31, 2020, total cash and cash equivalents represented 10.2% and 10.1% of total assets, respectively.
On June 30, 2020, the Company also transferred securities held-to-maturity of $18.8 million to securities available-for-sale in order to secure additional liquidity on balance sheet. As of September 30, 2021, management was able to maintain strong on-and off-balance sheet liquidity as a result of proactive liquidity management in response to the COVID-19 pandemic.
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.

61

Off-Balance Sheet Activities and Contractual Obligations
Off-Balance Sheet Arrangements
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 credit worthiness 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:
September 30, 2021 December 31, 2020
($ in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate
Unused lines of credit $ 5,852  $ 150,559  $ 6,623  $ 150,247 
Unfunded loan commitments 130  33,798  1,752  34,874 
Standby letters of credit
3,037  1,431  2,971  1,814 
Commercial letters of credit
353  —  —  — 
Total
$ 9,372  $ 185,788  $ 11,346  $ 186,935 
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
September 30, 2021
Time deposits
$ 581,679  $ 8,058  $ 597  $ —  $ 590,334 
FHLB advances
10,000  —  —  —  10,000 
Operating leases
2,728  3,500  1,341  796  8,365 
Total
$ 594,407  $ 11,558  $ 1,938  $ 796  $ 608,699 
December 31, 2020
Time deposits
$ 629,469  $ 17,019  $ 1,528  $ —  $ 648,016 
FHLB advances
70,000  10,000  —  —  80,000 
Operating leases
2,494  4,342  1,413  818  9,067 
Total
$ 701,963  $ 31,361  $ 2,941  $ 818  $ 737,083 
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.

62

Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss due to changes in market values of assets and liabilities. Market risk occurs in the normal course of business through exposures to market interest rates, equity prices, and credit spreads.
Overview
Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).
The Company’s Board asset liability committee (“Board ALCO”) establishes broad policy limits with respect to interest rate risk. Board ALCO establishes specific operating guidelines within the parameters of the Board of Directors’ policies. In general, The Company seeks to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Board ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the Board of Directors’ approved risk limits. As discussed earlier, the Company also has a Management ALCO, which is comprised of the senior management team and Chief Executive Officer, to proactively monitor its market risk.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on interest-earning assets would reprice upward more quickly than rates paid on interest-bearing liabilities, thus expanding net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on interest-bearing liabilities would reprice upward more quickly than rates earned on interest-earning assets, thus compressing net interest margin.
Measurement
Interest rate risk measurement is calculated and reported to the Board ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
The Company uses two approaches to model interest rate risk: Net Interest Income at Risk (“NII at Risk”), and Economic Value of Equity (“EVE”). The Company uses a static balance sheet to perform these analysis. Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, liabilities, and derivatives. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement and provides a comparatively broader scope than NII at Risk since it captures all anticipated cash flows.
The following table presents the projected changes in NII at Risk and EVE that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change as of the dates indicated:
September 30, 2021 December 31, 2020
Simulated Rate Changes Net Interest Income Sensitivity Economic Value of Equity Sensitivity Net Interest Income Sensitivity Economic Value of Equity Sensitivity
+300 30.1  % 21.5  % 28.9  % 17.4  %
+200
20.1  % 15.6  % 19.4  % 13.3  %
+100
10.4  % 8.6  % 9.8  % 7.6  %

63

Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Act”), as of September 30, 2021 was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and other members of the Company’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

64

Part II - Other Information
Item 1 - Legal Proceedings
In the normal course of business, the Company is involved in various legal claims. Management has reviewed all legal claims against the Company with counsel and have taken into consideration the views of such counsel as to the potential outcome of the claims in determining the accrued loss contingency. The Company did not have any accrued loss contingencies for legal claims at September 30, 2021. It is reasonably possible the Company may incur losses in addition to the amounts currently accrued. However, at this time, the Company is unable to estimate the range of additional losses that are reasonably possible because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, the Company believes have little to no merit. Management has considered these and other possible loss contingencies and does not expect the amounts to be material to the consolidated financial statements.
Item 1A - Risk Factors
System failure or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
The computer systems and network infrastructure we use could be vulnerable to hardware and cyber-security issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal or external sources, including our third-party vendors. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure utilized by us, including our internet banking activities, against damage from physical break-ins, cyber-security breaches and other disruptive problems caused by the internet or other users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our internet banking services by current and potential customers.
We rely heavily on communications, information systems (both internal and provided by third-parties) and the internet to conduct our business. Our business is dependent on our ability to process and monitor large numbers of daily transactions in compliance with legal, regulatory and internal standards and specifications. In addition, a significant portion of our operations relies heavily on the secure processing, storage and transmission of personal and confidential information, such as the personal information of our customers and clients. In recent periods, several governmental agencies and large corporations, including financial service organizations and retail companies, have suffered major data breaches, in some cases exposing not only their confidential and proprietary corporate information, but also sensitive financial and other personal information of their clients or clients and their employees or other third-parties, and subjecting those agencies and corporations to potential fraudulent activity and their clients, clients and other third-parties to identity theft and fraudulent activity in their credit card and banking accounts. Therefore, security breaches and cyber-attacks can cause significant increases in operating costs, including the costs of compensating clients and customers for any resulting losses they may incur and the costs and capital expenditures required to correct the deficiencies in and strengthen the security of data processing and storage systems. These risks may increase in the future as we continue to increase mobile payments and other internet-based product offerings and expand our internal usage of web-based products and applications.
Other potential attacks have attempted to obtain unauthorized access to confidential information, steal money, or manipulate or destroy data, often through the introduction of computer viruses or malware, cyber-attacks and other means. Other threats of this type may include fraudulent or unauthorized access to data processing or data storage systems used by us or by our clients, electronic identity theft, “phishing,” account takeover, and malware or other cyber-attacks. To date, none of these types of attacks have had a material effect on our business or operations. Such security attacks can originate from a wide variety of sources, including persons who are involved with organized crime or who may be linked to terrorist organizations or hostile foreign governments. Those same parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third-party could result in legal liabilities, remediation costs, regulatory actions and reputational harm.

65

As cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities or incidents. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, the public perception that a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third-parties with whom we do business.
On August 30, 2021, the Bank identified unusual activity on its network, responded promptly to disable the activity, investigate its source and monitor the Bank’s network. The Bank subsequently became aware of claims that it had been the target of a ransomware attack, and on September 7, 2021, determined that an external actor had accessed or acquired certain data on its network. The Bank has been working with third-party forensic investigators to understand the nature and scope of the incident and determine what information may have been accessed and what clients were impacted. The investigation revealed that this incident impacted files containing certain Bank customer information, including in some cases personal information of customers and customers’ employees. The Bank has notified or will notify all individuals identified to date, consistent with applicable laws, whose information may have been impacted. All impacted individuals will be offered free Equifax Complete Premier credit monitoring and identity theft protection services. The Bank has notified law enforcement and appropriate authorities of the incident.
The Company continues to monitor and evaluate the data incident for its magnitude and concomitant financial, legal or reputational consequences. To date, such consequences are not material, however the data incident is still recent and notices to affected individuals only recently began. During the three months ended September 30, 2021, expenses associated with the data incident, all of which are included in Other Expense in Consolidated Statements of Income (Unaudited), totaled $100 thousand, which represents the retention amount on its insurance claims. The Company anticipates additional expenses will be incurred in future periods; however, the Company does have a cyber-liability insurance policy that should provide insurance coverage for this incident. To date, no litigation has resulted from the data incident.
Management is not aware of any material changes, other than the noted above, to the risk factors that appeared under “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2020, which could materially and adversely affect the Company’s business, financial condition, results of operations and stock price. The risks described in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not presently known to management or that management presently believes not to be material may also result in material and adverse effects on the Company’s business, financial condition, and results of operations.

66

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three months ended September 30, 2021.
The following table presents share repurchase activities during the three months ended September 30, 2021:
($ in thousands, except per share data) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Number of Shares That May Yet Be Purchased Under the Program
From July 1, 2021 to July 31, 2021 33,935  $ 15.99  33,935  — 
From August 1, 2021 to August 31, 2021 —  —  —  — 
From September 1, 2021 to September 30, 2021 —  —  —  — 
Total
33,935  $ 15.99  33,935 
On January 23, 2020, the Company announced that on November 22, 2019, its Board of Directors approved a $6.5 million stock repurchase program to commence upon the opening of the Company’s trading window for the first quarter of 2020 and continue through November 20, 2021. The Company completed the repurchase program in March 2020. The Company repurchased and retired 428,474 shares of common stock at a weighted-average price of $15.14 per share.
On April 8, 2021, the Company’s Board of Directors approved a repurchase program authorizing the repurchase of up to 5% of the Company’s outstanding common stock as of the date of the board meeting, which represented 775,000 shares, through September 7, 2021. The Company repurchased and retired 680,269 shares of common stock at a weighted-average price of $15.99 per share under this repurchase program.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Mine Safety Disclosures
Not applicable.
Item 5 - Other Information
None
67

Item 6 - Exhibits
Exhibit Number Description Form File No. Exhibit Filing Date
3.1 10-Q 001-38621 3.1 August 8, 2019
3.2 8-K 001-38621 3.2 July 2, 2019
4.1 10-Q 001-38621 4.1 August 8, 2019
4.2 10-K 001-38621 4.2 March 9, 2020
10.1 S-1 333-226208 10.1 July 17, 2018
10.1A
10.2 S-1 333-226208 10.2 July 17, 2018
10.3 S-1 333-226208 10.3 July 17, 2018
10.4 S-1 333-226208 10.4 July 17, 2018
10.5 S-1 333-226208 10.5 July 17, 2018
10.6 S-1 333-226208 10.6 July 17, 2018
31.1
31.2
32.1
32.2
101.INS The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104 Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101)*
* Filed herewith
** Furnished herewith
68

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PCB Bancorp
Date: November 8, 2021 /s/ Henry Kim
Henry Kim
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 8, 2021 /s/ Timothy Chang
Timothy Chang
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

69

Ex. 10.1A
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT

THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (the “First Amendment”) is entered into as of August 26, 2021, by and between Pacific City Bank (“Bank”), PCB Bancorp (formerly known as Pacific City Financial Corporation), a California corporation and registered bank holding company (“Company”) and Henry Kim (“Executive”).

WHEREAS, the Bank and Company entered into an Employment Agreement with Executive (the “Agreement”) dated January 1, 2018; and

WHEREAS, Executive, the Bank and Company have agreed to amend the Agreement to extend its term;

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Bank and Company and the Executive hereto agree as follows:

1. Section 4 of the Agreement is amended and restated in its entirety to read as follows:

Term of Agreement. Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive’s employment shall be deemed to have commenced as of January 1, 2021 and shall continue for a term of five (5) years thereafter until 12:00 midnight December 31, 2026, unless sooner terminated. If the Bank and Company do not intend to retain Executive as an employee after the Expiration of the Term, the Bank and Company shall give Executive not less than 90 days prior to the expiration of the Term written notice of such decision and upon expiration of the Term after such notice, Executive’s employment and position as an officer and director of the Bank and Company shall cease without further liability of the parties to each other. Executive’s employment and position as an officer and director of the Bank and Company shall also terminate, and the Term of this Agreement will expire, upon Executive’s resignation, retirement, death or Disability, or upon Executive’s Termination for Cause.

2.    All other terms and conditions of the Agreement to remain in full force and effect.






[Signature page to First Amendment to Employment Agreement]
IN WITNESS WHEREOF, the parties hereto have executed this First Agreement as of the day and year first above written.

THE EXECUTIVE PACIFIC CITY BANK
/s/ Henry Kim By: /s/ Sang Young Lee
Henry Kim Sang Young Lee
Chairman of the Board
PCB BANCORP
By: /s/ Sang Young Lee
Sang Young Lee
Chairman of the Board


Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Henry Kim, certify that:
1.I have reviewed this periodic report on Form 10-Q of PCB Bancorp;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this reports;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d)disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: November 8, 2021 /s/ Henry Kim
Henry Kim
President and Chief Executive Officer
(Principal Executive Officer)



Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy Chang, certify that:
1.I have reviewed this periodic report on Form 10-Q of PCB Bancorp;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this reports;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d)disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the Audit Committee of the Registrant’s Board of Directors (or persons performing the equivalent functions):
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date: November 8, 2021 /s/ Timothy Chang
Timothy Chang
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)



Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the periodic report of PCB Bancorp (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Report”), I, Henry Kim, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:
(1)the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date: November 8, 2021 /s/ Henry Kim
Henry Kim
President and Chief Executive Officer
(Principal Executive Officer)



Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the periodic report of PCB Bancorp (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Report”), I, Timothy Chang, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that:
(1)the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date: November 8, 2021 /s/ Timothy Chang
Timothy Chang
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)