Pacific City Financial Corporation Reports Earnings of $6.7 Million for Q4 2018

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Pacific City Financial Corporation (the "Company") PCB, the holding company of Pacific City Bank (the "Bank"), today reported net income of $6.7 million, or $0.41 per diluted common share for the fourth quarter of 2018, compared with $6.5 million, or $0.44 per diluted common share, in the previous quarter and $2.3 million, or $0.17 per diluted common share, in the fourth quarter of 2017.

Q4 2018 Financial Highlights

  • Net income totaled $6.7 million, or $0.41 per diluted common share;
  • Total assets were $1.70 billion at December 31, 2018, an increase of $33.2 million, or 2.0%, from $1.66 billion at September 30, 2018, and an increase of $255.0 million, or 17.7%, from $1.44 billion at December 31, 2017;
  • Loans held-for-investment, net of deferred costs (fees), were $1.34 billion at December 31, 2018, an increase of $29.6 million, or 2.3%, from $1.31 billion at September 30, 2018, and an increase of $148.7 million, or 12.5%, from $1.19 billion at December 31, 2017; and
  • Total deposits were $1.44 billion at December 31, 2018, an increase of $24.2 million, or 1.7%, from $1.42 billion at September 30, 2018, and an increase of $192.5 million, or 15.4%, from $1.25 billion at December 31, 2017.

"We are pleased to announce another strong quarter with record earnings of $6.7 million, and year-to-date increases of 12.5% for loans and 15.4% for deposits," stated Henry Kim, President and Chief Executive Officer. "We expanded our net interest margin to 4.33% in the fourth quarter of 2018 compared with 4.17% in the third quarter of 2018 and maintained a strong efficiency ratio of 50.44%. We are confident in our ability to continue our high performance and increase the franchise and shareholders values."

Financial Highlights

      Three Months Ended     Year Ended
(Unaudited)     (Unaudited)         (Unaudited)     (Unaudited)     (Unaudited)    
($ in thousands, except per share data) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change 12/31/2018 12/31/2017 % Change
Net income $ 6,732 $ 6,543 2.9 % $ 2,339 187.8 % $ 24,301 $ 16,403 48.1 %
Diluted earnings per common share $ 0.41 $ 0.44 (6.8 )% $ 0.17 141.2 % $ 1.66 $ 1.21 37.2 %
 
Net interest income $ 17,856 $ 16,716 6.8 % $ 14,933 19.6 % $ 65,748 $ 55,170 19.2 %
Provision for loan losses 294 417 (29.5 )% 1,713 (82.8 )% 1,231 1,827 (32.6 )%
Noninterest income 2,239 2,580 (13.2 )% 3,362 (33.4 )% 10,454 13,894 (24.8 )%
Noninterest expense 10,135 9,520 6.5 % 9,620 5.4 % 40,226 35,895 12.1 %
 
Return on average assets (1) 1.60 % 1.60 % 0.65 % 1.53 % 1.22 %
Return on average shareholders' equity (1), (2) 12.92 % 14.50 % 6.47 % 14.26 % 12.00 %
Net interest margin (1) 4.33 % 4.17 % 4.27 % 4.23 % 4.22 %
Efficiency ratio (3) 50.44 % 49.34 % 52.58 % 52.79 % 51.97 %
 
              (Unaudited)     (Unaudited)         (Unaudited)    
($ in thousands, except per share data) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change
Total assets $ 1,697,028 $ 1,663,787 2.0 % $ 1,441,999 17.7 %
Net loans held-for-investment 1,325,515 1,296,027 2.3 % 1,177,775 12.5 %
Total deposits 1,443,753 1,419,526 1.7 % 1,251,290 15.4 %
Book value per common share (2), (4) $ 13.16 $ 12.71 3.6 % $ 10.60 24.2 %
Tier 1 leverage ratio (consolidated) 12.60 % 12.59 % 10.01 %
Total shareholders' equity to total assets (2) 12.39 % 12.20 % 9.86 %
 

(1)

   

Ratios are presented on an annualized basis.

(2)

The Company did not have any intangible equity components for the presented periods.

(3)

The ratios are calculated by dividing noninterest expense by the sum of net interest income and noninterest income.

(4)

The ratios are calculated by dividing total shareholders' equity by the number of outstanding common shares.

 

Result of Operations

Net Interest Income and Net Interest Margin

Net interest income was $17.9 million for the three months ended December 31, 2018, an increase of $1.1 million, or 6.8%, from $16.7 million for the three months ended September 30, 2018, and an increase of $2.9 million, or 19.6%, from $14.9 million for the three months ended December 31, 2017. For the year ended December 31, 2018, net interest income was $65.7 million, an increase of $10.6 million, or 19.2%, from $55.2 million for the year ended December 31, 2017. These increases were primarily due to increases in average balance and average yield of interest-earning assets, partially offset by increases in average balance and average cost of interest-bearing liabilities.

Interest income on loans was $21.1 million for the three months ended December 31, 2018, an increase of $1.4 million, or 7.1%, from $19.7 million for the three months ended September 30, 2018, and an increase of $4.3 million, or 25.3%, from $16.8 million for the three months ended December 31, 2017. For the year ended December 31, 2018, interest income on loans was $76.8 million, an increase of $15.3 million, or 24.9%, from $61.5 million for the year ended December 31, 2017. The increases were primarily due to increases in both average balance and average yield of total loans (which includes both loans held-for-sale and loans held-for-investment, net of deferred cost (fees)). The increase in average yield on total loans was due to the Company' s high proportion of variable rate loans that have repriced in the current rising interest rate environment.

Average balance of total loans was $1.32 billion for the three months ended December 31, 2018, compared with $1.28 billion for the three months ended September 30, 2018, and $1.19 billion for the three months ended December 31, 2017. Average yield was 6.34%, 6.10% and 5.63% for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively. For the year ended December 31, 2018, average balance of and average yield on total loans were $1.26 billion and 6.08%, respectively, compared with $1.11 billion and 5.54%, respectively, for the year ended December 31, 2017.

The following table presents a composition of total loans by interest rate type accompanied with the weighted-average contractual rates as of the dates indicated:

      (Unaudited)       (Unaudited)       (Unaudited)
12/31/2018 9/30/2018 12/31/2017

% to Total

Loans

     

Weighted-

Average

Contractual

Rate

% to Total

Loans

     

Weighted-

Average

Contractual

Rate

% to Total

Loans

     

Weighted-

Average

Contractual

Rate

Fixed rate loans 34.4 % 5.13 % 32.3 % 5.10 % 26.6 % 5.09 %
Variable rate loans 65.6 % 6.30 % 67.7 % 6.03 % 73.4 % 5.38 %
 

Interest income on investment securities was $1.1 million for the three months ended December 31, 2018, an increase of $145 thousand, or 15.6%, from $931 thousand for the three months ended September 30, 2018, and an increase of $304 thousand, or 39.4%, from $772 thousand for the three months ended December 31, 2017. For the year ended December 31, 2018, interest income on investment securities was $3.7 million, an increase of $1.1 million, or 42.5%, from $2.6 million for the year ended December 31, 2017. The increases were primarily due to increases in both average balance and average yield. The increase in average yield was due to additional purchases of investment securities in the current rising rate environment. Average balance of investment securities was $165.6 million for the three months ended December 31, 2018, compared with $154.0 million for the three months ended September 30, 2018, and $147.5 million for the three months ended December 31, 2017. Average yield was 2.58%, 2.40% and 2.08% for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively. For the year ended December 31, 2018, average balance and average yield were $154.3 million and 2.41%, respectively, compared with $126.9 million and 2.06%, respectively, for the year ended December 31, 2017.

Total interest expense was $5.4 million for the three months ended December 31, 2018, an increase of $595 thousand, or 12.4%, from $4.8 million for the three months ended September 30, 2018, and an increase of $2.4 million, or 82.9%, compared with $2.9 million for the three months ended December 31, 2017. For the year ended December 31, 2018, total interest expense was $18.0 million, an increase of $7.9 million, or 77.8%, from $10.1 million for the year ended December 31, 2017. The increases were primarily due to increases in average balance and average cost of interest-bearing liabilities. The increase in average cost was primarily due to the current rising interest rate environment and high competition in the Company's deposit target markets.

Provision for Loan Losses

Provision for loan losses was $294 thousand for the three months ended December 31, 2018 compared with $417 thousand for the three months ended September 30, 2018 and $1.7 million for the three months ended December 31, 2017. For the year ended December 31, 2018, provision for loan losses was $1.2 million compared with $1.8 million for the year ended December 31, 2017. The Company has recognized additional provision for loan losses primarily due to an increase in the loans held-for-investment balance. During the three months ended December 31, 2018, the Company recorded a net charge-off of $223 thousand compared with a net recovery of $58 thousand for the three months ended September 30, 2018 and a net charge-off of $1.1 million for the three months ended December 31, 2017. For the years ended December 31, 2018 and 2017, net charge-off was $288 thousand and $923 thousand, respectively. Allowance for loan losses to total loans held-for-investment ratio was 0.98% at December 31, 2018, 1.00% at September 30, 2018, and 1.03% at December 31, 2017. The decrease in this ratio was primarily due to the decreases in historical loss rate and allowance for loan losses related to loans individually evaluated for impairment of $114 thousand.

Noninterest Income

The following table presents the components of noninterest income for the periods indicated:

      Three Months Ended     Year Ended
(Unaudited)     (Unaudited)         (Unaudited)     (Unaudited)     (Unaudited)    
($ in thousands) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change 12/31/2018 12/31/2017 % Change
Gain on sale of SBA loans $ 1,059 $ 1,306 (18.9 )% $ 2,109 (49.8 )% $ 5,278 $ 8,869 (40.5 )%
Gain on sale of residential property loans 6 22 (72.7 )% 18 (66.7 )% 220 131 67.9 %
Gain on sale of other loans 18   —   — % —   — % 62   —   — %
Total gain on sale of loans 1,083 1,328 (18.4 )% 2,127 (49.1 )% 5,560 9,000 (38.2 )%
Service charges and fees on deposits 398 377 5.6 % 357 11.5 % 1,500 1,377 8.9 %
Loan servicing income 371 578 (35.8 )% 605 (38.7 )% 2,160 2,446 (11.7 )%
Other income 387   297   30.3 % 273   41.8 % 1,234   1,071   15.2 %
Total noninterest income $ 2,239   $ 2,580   (13.2 )% $ 3,362   (33.4 )% $ 10,454   $ 13,894   (24.8 )%
 

The decreases in total noninterest income were primarily due to decreases in gain on sale of loans and loan servicing income, partially offset by increases in service charges and fees on deposits and other income.

The Company sold the guaranteed portion of SBA loans of $26.2 million, $23.1 million and $29.2 million, respectively, and residential property loans of $702 thousand, $2.2 million and $1.8 million, respectively, and other loans of $1.0 million, none and none, respectively, for the three months ended December 31, 2018, September 30, 2018 and December 31, 2017. For the years ended December 31, 2018 and 2017, the Company sold the guaranteed portion of SBA loans of $91.7 million and $127.3 million, respectively, residential property loans of $11.6 million and $12.4 million, respectively, and other loans of $2.1 million and none, respectively. The decrease in gain on sale of SBA loans was primarily due to decreases in sales volume and premium rates.

The decreases in loan servicing income were due to an increase in servicing asset amortization from a higher prepayment trend, partially offset by an increase in servicing fee income resulting from an increase in the average balance of loans being serviced. The increases in service charges and fees on deposits were primarily due to an increased transactions in deposits.

Noninterest Expense

The following table presents the components of noninterest expense for the periods indicated:

      Three Months Ended     Year Ended
(Unaudited)     (Unaudited)        

(Unaudited)

    (Unaudited)    

(Audited)

   
($ in thousands) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change 12/31/2018 12/31/2017 % Change
Salaries and employee benefits $ 6,234 $ 5,840 6.7 % $ 6,140 1.5 % $ 24,473 $ 22,829 7.2 %
Occupancy and equipment 1,358 1,244 9.2 % 1,167 16.4 % 4,992 4,426 12.8 %
Professional fees 452 213 112.2 % 501 (9.8 )% 2,176 1,842 18.1 %
Marketing and business promotion 526 555 (5.2 )% 427 23.2 % 2,010 1,647 22.0 %
Data processing 309 314 (1.6 )% 288 7.3 % 1,220 1,074 13.6 %
Director fees and expenses 281 220 27.7 % 216 30.1 % 942 757 24.4 %
Loan related expense 148 83 78.3 % 136 8.8 % 353 437 (19.2 )%
Regulatory assessments 75 192 (60.9 )% 114 (34.2 )% 544 423 28.6 %
Other expenses 752   859   (12.5 )% 631   19.2 % 3,516   2,460   42.9 %
Total noninterest expense $ 10,135   $ 9,520   6.5 % $ 9,620   5.4 % $ 40,226   $ 35,895   12.1 %
 

Overall, the increases in total noninterest expense were primarily due to growth in operations.

The increase in salaries and employee benefits compared with the three months ended September 30, 2018 was primarily due to increases in salaries and employee group insurance premiums, and prior quarter's adjustments made to compensation related accruals of $486 thousand, partially offset by a decrease in vacation accruals. The increases in salaries and employee benefits compared with the three months and the year ended December 31, 2017 was primarily due to increases in salaries and employee group insurance premiums, partially offset by decreases in bonus accruals.

The increases in professional fees were primarily due to increased audit and other professional fees as the Company became a public company and additional expenses related to the listing of its shares of common stock on the Nasdaq Global Select Market during 2018.

The decreases in regulatory assessments compared with the three months ended September 30, 2018 and December 31, 2017 were primarily due to a decrease in assessment rate, partially offset by balance sheet growth. The increase in regulatory assessments compared with the year ended December 31, 2017 was primarily due to balance sheet growth, partially offset by a decrease in assessment rate.

The increase in other expenses compared with the year ended December 31, 2018 was primarily due to a one-time expense of $577 thousand for a reimbursement for a SBA loan guarantee previously paid by the SBA on a loan originated in 2007 that subsequently defaulted and was ultimately determined to be ineligible for the SBA guaranty.

Income Tax Provision

Effective income tax rate was 30.4% and 30.1%, respectively, for the three months and year ended December 31, 2018 compared with 66.4% and 47.7%, respectively, for the three months and year ended December 31, 2017. The decreases were primarily due to the enactment of H.R. 1, also known as the Tax Cuts and Jobs Act, on December 22, 2017. Beginning in 2018, H.R. 1 reduced the U.S. federal corporate tax rate from 35% to 21% and changed or limited certain tax deductions. The Company also revalued its deferred tax assets and liabilities and recorded additional deferred income tax expense of $1.6 million during the three months ended December 31, 2017.

Balance Sheet

Loans

The following table presents a composition of total loans by loan type as of the dates indicated:

      (Unaudited)       (Unaudited)             (Unaudited)      
($ in thousands) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change
Real estate loans:
Commercial property $ 709,409 $ 702,487 1.0 % $ 662,031 7.2 %
Residential property 233,816 214,960 8.8 % 168,560 38.7 %
SBA property 120,939 128,149 (5.6 )% 131,740 (8.2 )%
Construction 27,323 28,838 (5.3 )% 23,117 18.2 %
Commercial and industrial loans:
Commercial term 102,133 96,017 6.4 % 77,402 32.0 %
Commercial lines of credit 80,473 72,234 11.4 % 60,822 32.3 %
SBA commercial term 27,147 28,493 (4.7 )% 30,376 (10.6 )%
Trade finance 11,521 10,357 11.2 % 1,929 497.3 %
Other consumer loans 25,921   27,589   (6.0 )% 34,022   (23.8 )%
Loans held-for-investment 1,338,682 1,309,124 2.3 % 1,189,999 12.5 %
Loans held-for-sale 5,781   12,957   (55.4 )% 5,297   9.1 %
Total loans $ 1,344,463   $ 1,322,081   1.7 % $ 1,195,296   12.5 %
 

The increase in loans held-for-investment for the three months ended December 31, 2018 was primarily due to new funding of $112.9 million and advances on lines of credit of $20.7 million, partially offset by pay-downs and pay-offs of $103.5 million, and charge-offs of $537 thousand. The increase in loans held-for-investment for the year ended December 31, 2018 was primarily due to new funding of $505.6 million and advances on lines of credit of $77.3 million, partially offset by pay-downs and pay-offs of $425.1 million and charge-offs of $1.0 million.

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The decrease in loans held-for-sale for the three months ended December 31, 2018 was primarily due to sales of $27.9 million, partially offset by new funding of $21.4 million. The increase in loans held-for-sale for the year ended December 31, 2018 was primarily due to new funding of $99.9 million and loans transferred from loans held-for-investment of $8.1 million, partially offset by sales of $105.4 million.

Credit Quality

The following table presents compositions of non-performing loans and non-performing assets as of the dates indicated:

      (Unaudited)       (Unaudited)             (Unaudited)      
($ in thousands) 12/31/2018 9/30/2018 % Change 12/31/2017 % Change
Nonaccrual loans:
Commercial property $ — $ 234 (100.0 )% $ 318 (100.0 )%
Residential property 302 — — % 730 (58.6 )%
SBA property 540 970 (44.3 )% 1,810 (70.2 )%
Commercial term — — — % 4 (100.0 )%
Commercial lines of credit — — — % 10 (100.0 )%
SBA commercial term 203 254 (20.1 )% 338 (39.9 )%
Consumer loans 16   114   (86.0 )% 24   (33.3 )%
Total nonaccrual loans held-for-investment 1,061 1,572 (32.5 )% 3,234 (67.2 )%
Loans past due 90 days or more and still accruing —   —   — % —   — %
Non-performing loans 1,061 1,572 (32.5 )% 3,234 (67.2 )%
Other real estate owned —   —   — % 99   (100.0 )%
Non-performing assets $ 1,061   $ 1,572   (32.5 )% $ 3,333   (68.2 )%
Loans past due 30 to 59 days and accruing $ 368 $ 337 9.2 % $ 1,213 (69.7 )%
Loans past due 60 to 89 days and accruing 9 426 (97.9 )% 128 (93.0 )%
Loans past due 90 days or more and still accruing —   —   — % —   — %
Total loans past due and accruing 377   763   (50.6 )% 1,341   (71.9 )%
Loans modified as troubled debt restructurings ("TDRs"):
Accruing TDRs $ 432 $ 467 (7.5 )% $ 592 (27.0 )%
Nonaccrual TDRs 131   458   (71.4 )% 1,675   (92.2 )%
Total TDRs $ 563   $ 925   (39.1 )% $ 2,267   (75.2 )%
NPLs to total loans held-for-investment 0.08 % 0.12 % 0.27 %
NPAs to total assets 0.06 % 0.09 % 0.23 %
 

Classified Assets

Classified loans were $6.9 million at December 31, 2018, an increase of $630 thousand, or 10.1%, from $6.2 million at September 30, 2018, and an increase of $1.9 million, or 37.8%, from $5.0 million at December 31, 2017. Classified assets, which consist of classified loans and OREO, and the classified assets to total assets ratios were $6.9 million and 0.40%, respectively, at December 31, 2018, $6.2 million and 0.37%, respectively, at September 30, 2018, and $5.1 million and 0.35%, respectively, at December 31, 2017.

Investment Securities

Total investment securities were $168.8 million at December 31, 2018, an increase of $11.7 million, or 7.4%, from $157.1 million at September 30, 2018, and an increase of $18.0 million, or 11.9%, from $150.8 million at December 31, 2017. The increase for the three months ended December 31, 2018 was primarily due to purchases of $15.9 million, partially offset by principal pay-downs and calls of $6.0 million, net premium amortization of $184 thousand and a decrease in fair value of securities available-for-sale of $2.0 million. The increase for the year ended December 31, 2018 was primarily due to purchases of $44.0 million, partially offset by principal pay-downs and calls of $24.7 million, net premium amortization of $790 thousand and a decrease in fair value of securities available-for-sale of $595 thousand.

Deposits

The following table presents deposit mix as of the dates indicated:

      (Unaudited)       (Unaudited)       (Unaudited)
12/31/2018 9/30/2018 12/31/2017
($ in thousands) Amount       % to Total Amount       % to Total Amount       % to Total
Noninterest-bearing demand deposits $ 329,279 22.8 % $ 350,346 24.7 % $ 319,026 25.5 %
Interest-bearing deposits:
NOW 24,683 1.7 % 11,638 0.8 % 10,324 0.8 %
Money market accounts 280,724 19.4 % 263,704 18.6 % 299,390 23.9 %
Savings 8,194 0.6 % 8,417 0.6 % 8,164 0.7 %
Time deposits of $250,000 or less 477,134 33.0 % 476,370 26.9 % 332,024 23.6 %
Time deposits of more than $250,000 181,239 12.6 % 161,551 18.0 % 129,862 13.3 %
State and brokered time deposits 142,500   9.9 % 147,500   10.4 % 152,500   12.2 %
Total interest-bearing deposits 1,114,474   77.2 % 1,069,180   75.3 % 932,264   74.5 %
Total deposits $ 1,443,753   100.0 % $ 1,419,526   100.0 % $ 1,251,290   100.0 %
 

The increase for the three months ended December 31, 2018 was primarily due to new accounts of $127.6 million, partially offset by closed accounts of $66.4 million and net balance decreases of $37.0 million. The increase for the year ended December 31, 2018 was primarily due to new accounts of $633.0 million, partially offset by closed accounts of $322.2 million and net balance decreases of $118.3 million.

Borrowings

Federal Home Loan Bank ("FHLB") advances were $30.0 million at December 31, 2018 and September 30, 2018, and $40.0 million at December 31, 2017. At December 31, 2018, borrowings from FHLB bore fixed interest rates with original maturity terms ranging from two to five years.

Shareholders' Equity

Shareholders' equity was $210.3 million at December 31, 2018, an increase of $7.4 million, or 3.6%, from $202.9 million at September 30, 2018, and an increase of $68.1 million, or 47.9%, from $142.2 million at December 31, 2017. The increase for the three months ended December 31, 2018 was primarily due to retention of earnings, partially offset by cash dividends paid on common stock. The increase for the year ended December 31, 2018 was primarily due to the net proceeds of $45.0 million from the completion of the Company's underwritten initial public offering and the exercise of the underwriters' 30-day option, which resulted in an issuance of 2,508,234 shares of the Company's common stock, as well as retention of earnings, partially offset by cash dividends paid on common stock.

Capital Ratios

The following table presents capital ratios for the Company and the Bank as of dates indicated:

      (Unaudited)           (Unaudited)          

(Audited)

12/31/2018 9/30/2018 12/31/2017
Pacific City Financial Corporation
Common tier 1 capital (to risk-weighted assets) 16.28 % 16.08 % 12.15 %
Total capital (to risk-weighted assets) 17.31 % 17.12 % 13.20 %
Tier 1 capital (to risk-weighted assets) 16.28 % 16.08 % 12.15 %
Tier 1 capital (to average assets) 12.60 % 12.59 % 10.01 %
Pacific City Bank
Common tier 1 capital (to risk-weighted assets) 16.19 % 15.89 % 12.06 %
Total capital (to risk-weighted assets) 17.21 % 16.93 % 13.12 %
Tier 1 capital (to risk-weighted assets) 16.19 % 15.89 % 12.06 %
Tier 1 capital (to average assets) 12.53 % 12.45 % 9.94 %
 

About Pacific City Financial Corporation

Pacific City Financial Corporation is the bank holding company for Pacific City Bank, a California state chartered bank, offering a full suite of commercial banking services to small to medium-sized businesses, individuals and professionals, primarily in Southern California, and predominantly in Korean-American and other minority communities.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as ‘‘may,'' "could," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "aim," "intend," "plan," or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. These and other important factors are detailed in various securities law filings made periodically by the Company, copies of which are available from the Company without charge. Actual results, performance or achievements could differ materially from those contemplated, expressed, or implied by the forward-looking statements. Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise, except as required by law.

                             

Pacific City Financial Corporation and Subsidiary

Consolidated Balance Sheets

($ in thousands, except share and per share data)

 
(Unaudited) (Unaudited)

(Unaudited)

12/31/2018 9/30/2018 % Change 12/31/2017 % Change
Assets
Cash and due from banks $ 24,121 $ 27,532 (12.4 )% $ 16,662 44.8 %
Interest-bearing deposits in financial institutions 138,152   136,524   1.2 % 56,996   142.4 %
Total cash and cash equivalents 162,273   164,056   (1.1 )% 73,658   120.3 %
Securities available-for-sale, at fair value 146,991 135,089 8.8 % 129,689 13.3 %
Securities held-to-maturity 21,760   21,991   (1.1 )% 21,070   3.3 %
Total investment securities 168,751   157,080   7.4 % 150,759   11.9 %
Loans held-for-sale 5,781 12,957 (55.4 )% 5,297 9.1 %
Loans held-for-investment, net of deferred loan costs (fees) 1,338,682 1,309,124 2.3 % 1,189,999 12.5 %
Allowance for loan losses (13,167 ) (13,097 ) 0.5 % (12,224 ) 7.7 %
Net loans held-for-investments 1,325,515   1,296,027   2.3 % 1,177,775   12.5 %
Premises and equipment, net 4,588 4,615 (0.6 )% 4,723 (2.9 )%
Federal Home Loan Bank and other bank stock 7,433 7,433 — % 6,589 12.8 %
Other real estate owned, net — — — % 99 (100.0 )%
Deferred tax assets, net 3,377 4,209 (19.8 )% 3,847 (12.2 )%
Servicing assets 7,666 8,114 (5.5 )% 8,973 (14.6 )%
Accrued interest receivable and other assets 11,644   9,296   25.3 % 10,279   13.3 %
Total assets $ 1,697,028   $ 1,663,787   2.0 % $ 1,441,999   17.7 %
 
Liabilities
Deposits:
Noninterest-bearing demand $ 329,279 $ 350,346 (6.0 )% $ 319,026 3.2 %
Savings, NOW and money market accounts 313,601 283,759 10.5 % 317,878 (1.3 )%
Time deposits of $250,000 or less 519,634 523,870 (0.8 )% 384,524 35.1 %
Time deposits of more than $250,000 281,239   261,551   7.5 % 229,862   22.4 %
Total deposits 1,443,753 1,419,526 1.7 % 1,251,290 15.4 %
Federal Home Loan Bank advances 30,000 30,000 — % 40,000 (25.0 )%
Accrued interest payable and other liabilities 12,979   11,323   14.6 % 8,525   52.2 %
Total liabilities 1,486,732   1,460,849   1.8 % 1,299,815   14.4 %
Commitments and contingent liabilities
 
Shareholders' equity
Common stock 171,067 171,495 (0.2 )% 125,430 36.4 %
Additional paid-in capital 3,299 3,158 4.5 % 2,941 12.2 %
Retained earnings 37,577 31,325 20.0 % 15,036 149.9 %
Accumulated other comprehensive loss, net (1,647 ) (3,040 ) (45.8 )% (1,223 ) 34.7 %
Total shareholders' equity 210,296   202,938   3.6 % 142,184   47.9 %
Total liabilities and shareholders' equity $ 1,697,028   $ 1,663,787   2.0 % $ 1,441,999   17.7 %
 
Outstanding common share 15,977,754 15,972,914 13,417,899
Book value per common share (1) $ 13.16 $ 12.71 $ 10.60
Total loan to total deposit ratio 93.12 % 93.14 % 95.53 %
Noninterest-bearing deposits to total deposits 22.81 % 24.68 % 25.50 %
 

(1)

   

The ratios are calculated by dividing total shareholders' equity by the number of outstanding common shares. The Company did not have any intangible equity components for the presented periods.

 
 
         

Pacific City Financial Corporation and Subsidiary

Consolidated Statements of Income

($ in thousands, except share and per share data)

 
Three Months Ended Year Ended
(Unaudited)     (Unaudited)         (Unaudited)     (Unaudited)     (Unaudited)    
12/31/2018 9/30/2018 % Change 12/31/2017 % Change 12/31/2018 12/31/2017 % Change
Interest income:
Interest and fees on loans $ 21,088 $ 19,699 7.1 % $ 16,832 25.3 % $ 76,837 $ 61,516 24.9 %
Interest on investment securities 1,076 931 15.6 % 772 39.4 % 3,724 2,614 42.5 %
Interest and dividend on other interest-earning assets 1,067   866   23.2 % 267   299.6 % 3,138   1,137   176.0 %
Total interest income 23,231 21,496 8.1 % 17,871 30.0 % 83,699 65,267 28.2 %
Interest expense:
Interest on deposits 5,239 4,643 12.8 % 2,766 89.4 % 17,340 9,749 77.9 %
Interest on other borrowings 136   137   (0.7 )% 172   (20.9 )% 611   348   75.6 %
Total interest expense 5,375   4,780   12.4 % 2,938   82.9 % 17,951   10,097   77.8 %
Net interest income 17,856 16,716 6.8 % 14,933 19.6 % 65,748 55,170 19.2 %
Provision for loan losses 294   417   (29.5 )% 1,713   (82.8 )% 1,231   1,827   (32.6 )%
Net interest income after provision for loan losses 17,562 16,299 7.7 % 13,220 32.8 % 64,517 53,343 20.9 %
Noninterest income:
Gain on sale of SBA loans 1,059 1,306 (18.9 )% 2,109 (49.8 )% 5,278 8,869 (40.5 )%
Gain on sale of residential property loans 6 22 (72.7 )% 18 (66.7 )% 220 131 67.9 %
Gain on sale of other loans 18 — — % — — % 62 — — %
Service charges and fees on deposits 398 377 5.6 % 357 11.5 % 1,500 1,377 8.9 %
Servicing income 371 578 (35.8 )% 605 (38.7 )% 2,160 2,446 (11.7 )%
Other income 387   297   30.3 % 273   41.8 % 1,234   1,071   15.2 %
Total noninterest income 2,239 2,580 (13.2 )% 3,362 (33.4 )% 10,454 13,894 (24.8 )%
Noninterest expense:
Salaries and employee benefits 6,234 5,840 6.7 % 6,140 1.5 % 24,473 22,829 7.2 %
Occupancy and equipment 1,358 1,244 9.2 % 1,167 16.4 % 4,992 4,426 12.8 %
Professional fees 452 213 112.2 % 501 (9.8 )% 2,176 1,842 18.1 %
Marketing and business promotion 526 555 (5.2 )% 427 23.2 % 2,010 1,647 22.0 %
Data processing 309 314 (1.6 )% 288 7.3 % 1,220 1,074 13.6 %
Director fees and expenses 281 220 27.7 % 216 30.1 % 942 757 24.4 %
Loan related expense 148 83 78.3 % 136 8.8 % 353 437 (19.2 )%
Regulatory assessments 75 192 (60.9 )% 114 (34.2 )% 544 423 28.6 %
Other expenses 752   859   (12.5 )% 631   19.2 % 3,516   2,460   42.9 %
Total noninterest expense 10,135   9,520   6.5 % 9,620   5.4 % 40,226   35,895   12.1 %
Income before income taxes 9,666 9,359 3.3 % 6,962 38.8 % 34,745 31,342 10.9 %
Income tax expense 2,934   2,816   4.2 % 4,623   (36.5 )% 10,444   14,939   (30.1 )%
Net income $ 6,732   $ 6,543   2.9 % $ 2,339   187.8 % $ 24,301   $ 16,403   48.1 %
Earnings per common share
Basic $ 0.42 $ 0.44 $ 0.17 $ 1.69 $ 1.22
Diluted $ 0.41 $ 0.44 $ 0.17 $ 1.66 $ 1.21
Average common shares outstanding
Basic 15,975,387 14,730,120 13,415,795 14,397,075 13,408,030
Diluted 16,244,837 14,924,546 13,569,503 14,669,379 13,540,293
 
Dividend paid per common share $ 0.03 $ 0.03 $ 0.03 $ 0.12 $ 0.12
Return on average assets (1) 1.60 % 1.60 % 0.65 % 1.53 % 1.22 %
Return on average shareholders' equity (1), (2) 12.92 % 14.50 % 6.47 % 14.26 % 12.00 %
Efficiency ratio (3) 50.44 % 49.34 % 52.58 % 52.79 % 51.97 %
 

(1)

   

Ratios are presented on an annualized basis.

(2)

The Company did not have any intangible equity components for the presented periods.

(3)

The ratios are calculated by dividing noninterest expense by the sum of net interest income and noninterest income.

 
 
     

Pacific City Financial Corporation and Subsidiary

Average Balance, Average Yield, and Average Rate

($ in thousands)

 
Three Months Ended
(Unaudited)     (Unaudited)     (Unaudited)
12/31/2018 9/30/2018 12/31/2017

Average

Balance

   

Interest

Income/

Expense

   

Avg.

Yield/

Rate

Average

Balance

   

Interest

Income/

Expense

   

Avg.

Yield/

Rate

Average

Balance

   

Interest

Income/

Expense

   

Avg.

Yield/

Rate

Assets  
Interest-earning assets:
Total loans (1) $ 1,319,403 $ 21,088 6.34 % $ 1,280,352 $ 19,699 6.10 % $ 1,185,966 $ 16,832 5.63 %
U.S. government agency securities 23,029 144 2.48 % 24,102 154 2.53 % 25,333 144 2.26 %
Mortgage-backed securities 80,967 534 2.62 % 69,592 414 2.36 % 66,594 333 1.98 %
Collateralized mortgage obligation 55,666 359 2.56 % 54,094 324 2.38 % 47,878 251 2.08 %
Municipal bonds (2) 5,892 39 2.63 % 6,232 39 2.48 % 7,666 44 2.28 %
Other interest-earning assets 152,894   1,067   2.77 % 156,831   866   2.19 % 53,872   267   1.97 %
Total interest-earning assets 1,637,851   23,231   5.63 % 1,591,203   21,496   5.36 % 1,387,309   17,871   5.11 %
Noninterest-earning assets:
Cash and cash equivalents 18,882 18,596 17,440
Allowance for loan losses (12,935 ) (12,774 ) (11,665 )
Other assets 25,972   26,828   28,891  
Total noninterest-earning assets 31,919   32,650   34,666  
Total assets $ 1,669,770   $ 1,623,853   $ 1,421,975  
 

Liabilities and

Shareholders' Equity

Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 301,700 1,110 1.46 % $ 269,514 834 1.23 % $ 314,237 813 1.03 %
Savings 8,364 8 0.38 % 8,717 6 0.27 % 8,870 7 0.31 %
Time deposits 790,453   4,121   2.07 % 795,202   3,803   1.90 % 585,163   1,946   1.32 %
Total interest-bearing deposits 1,100,517 5,239 1.89 % 1,073,433 4,643 1.72 % 908,270 2,766 1.21 %
Borrowings from Federal Home Loan Bank 30,000   136   1.80 % 30,000   137   1.81 % 40,000   172   1.71 %
Total interest-bearing liabilities 1,130,517   5,375   1.89 % 1,103,433   4,780   1.72 % 948,270   2,938   1.23 %
Noninterest-bearing liabilities
Noninterest-bearing demand 320,232 330,021 320,174
Other liabilities 12,281   11,325   10,133  
Total noninterest-bearing liabilities 332,513   341,346   330,307  
Total liabilities 1,463,030 1,444,779 1,278,577
Total shareholders' equity 206,740   179,074   143,398  
Total liabilities and shareholders' equity $ 1,669,770   $ 1,623,853   $ 1,421,975  
Net interest income $ 17,856   $ 16,716   $ 14,933  
Net interest spread (3) 3.74 % 3.64 % 3.88 %
Net interest margin (4) 4.33 % 4.17 % 4.27 %
Total deposits $ 1,420,749 $ 5,239 1.46 % $ 1,403,454 $ 4,643 1.31 % $ 1,228,444 $ 2,766 0.89 %
Total funding (5) $ 1,450,749 $ 5,375 1.47 % $ 1,433,454 $ 4,780 1.32 % $ 1,268,444 $ 2,938 0.92 %
 

(1)

   

Total loans include both loans held-for-sale and loans held-for-investment, net of deferred loan costs (fees).

(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 annualized net interest income by average interest-earning assets.

(5)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

 
 
     

Pacific City Financial Corporation and Subsidiary

Average Balance, Average Yield, and Average Rate (Continued)

($ in thousands)

 
Year Ended
(Unaudited)       (Unaudited)
12/31/2018 12/31/2017

Average

Balance

     

Interest

Income/

Expense

     

Avg.

Yield/

Rate

Average

Balance

     

Interest

Income/

Expense

     

Avg.

Yield/

Rate

Assets
Interest-earning assets:
Total loans (1) $ 1,264,166 $ 76,837 6.08 % $ 1,111,248 $ 61,516 5.54 %
U.S. government agency securities 23,671 576 2.43 % 24,762 571 2.31 %
Mortgage-backed securities 70,971 1,717 2.42 % 57,171 1,111 1.94 %
Collateralized mortgage obligation 53,312 1,272 2.39 % 36,660 746 2.03 %
Municipal bonds (2) 6,312 159 2.52 % 8,319 186 2.24 %
Other interest-earning assets 137,627   3,138   2.28 % 68,637   1,137   1.66 %
Total interest-earning assets 1,556,059   83,699   5.38 % 1,306,797   65,267   4.99 %
Noninterest-earning assets:
Cash and cash equivalents 19,079 16,973
Allowance for loan losses (12,632 ) (11,435 )
Other assets 26,827   27,793  
Total noninterest-earning assets 33,274   33,331  
Total assets $ 1,589,333   $ 1,340,128  
 
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Deposits:
NOW and money market accounts $ 287,131 3,477 1.21 % $ 320,701 3,244 1.01 %
Savings 8,613 26 0.30 % 8,873 25 0.28 %
Time deposits 758,029   13,837   1.83 % 539,068   6,480   1.20 %
Total interest-bearing deposits 1,053,773 17,340 1.65 % 868,642 9,749 1.12 %
Borrowings from Federal Home Loan Bank 34,904   611   1.75 % 20,384   348   1.71 %
Total interest-bearing liabilities 1,088,677   17,951   1.65 % 889,026   10,097   1.14 %
Noninterest-bearing liabilities
Noninterest-bearing demand 319,832 305,354
Other liabilities 10,395   9,026  
Total noninterest-bearing liabilities 330,227   314,380  
Total liabilities 1,418,904 1,203,406
Total shareholders' equity 170,429   136,722  
Total liabilities and shareholders' equity $ 1,589,333   $ 1,340,128  
Net interest income $ 65,748   $ 55,170  
Net interest spread (3) 3.73 % 3.85 %
Net interest margin (4) 4.23 % 4.22 %
Total deposits $ 1,373,605 $ 17,340 1.26 % $ 1,173,996 $ 9,749 0.83 %
Total funding (5) $ 1,408,509 $ 17,951 1.27 % $ 1,194,380 $ 10,097 0.85 %
 

(1)

   

Total loans include both loans held-for-sale and loans held-for-investment, net of deferred loan costs (fees).

(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 annualized net interest income by average interest-earning assets.

(5)

Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

 

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