Pacific City Financial Corporation Reports Earnings of $6.6 million for Q1 2019 and Increased Cash Dividend

Pacific City Financial Corporation (the "Company") PCB, the holding company of Pacific City Bank (the "Bank"), today reported net income of $6.6 million, or $0.40 per diluted common share for the first quarter of 2019, compared with $6.7 million, or $0.41 per diluted common share, in the previous quarter and $6.3 million, or $0.46 per diluted common share, in the year-ago quarter.

Q1 2019 Financial Highlights

• Net income totaled $6.6 million or $0.40 per diluted common share;
• Total assets were $1.72 billion at March 31, 2019, an increase of $20.7 million, or 1.2%, from $1.70 billion at December 31, 2018 and an increase of $138.8 million, or 8.8%, from $1.58 billion at March 31, 2018;
• Loans held-for-investment, net of deferred costs (fees), were $1.34 billion at March 31, 2019, an increase of $4.5 million, or 0.3%, from $1.34 billion at December 31, 2018 and an increase of $119.9 million, or 9.8%, from $1.22 billion at March 31, 2018;
• Total deposits were $1.45 billion at March 31, 2019, an increase of $4.0 million, or 0.3%, from $1.44 billion at December 31, 2018, and an increase of $65.8 million, or 4.8%, from $1.38 billion at March 31, 2018;
• The board of directors approved a $6.5 million share repurchase program to begin in the second quarter of 2019; and
• Reflecting the Company's continued earnings performance in the first quarter of 2019, the Company declared an increased cash dividend of $0.06 per common share for shareholders of record on May 31, 2019, and payable on June 14, 2019.

"I am pleased with another strong financial performance for the quarter that is highlighted by earnings of $6.6 million, or $0.40 per diluted common share. I am also pleased with board's declaration of quarterly cash dividend of $0.06 per common share, or an increase of 20% from first quarter cash dividend of $0.05, that will be paid in June," stated Henry Kim, President and Chief Executive Officer. "Although our loan and deposit growth moderated during the quarter, we maintained net interest margin of 4.22% and efficiency ratio of 52.60%. Since the tail end of the first quarter, we are experiencing an increase in loan demand and stabilization in deposit costs, which lead us to be optimistic on our ability to deliver a continued strong financial performance for the remainder of 2019."

Financial Highlights (Unaudited)

Result of Operations (Unaudited)

Net Interest Income and Net Interest Margin

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

The decrease in net interest income compared with the previous quarter was primarily due to decreases in number of days and dividend on Federal Home Loan Bank ("FHLB") stock, and an increase in deposit cost in the current quarter. The increase compared with the year-ago quarter was 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.

The decrease in interest and fees on loans compared with the previous quarter was primarily due to a decrease in number of days, partially offset by an increase in average loan balance. The increase compared with the year-ago quarter was primarily due to increases in both average balance and average yield of loans. The increase in average yield on loans was primarily due to the Company's high proportion of variable rate loans that had repriced along with the rising interest rate environment in 2018. 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:

The increases in interest on investment securities were primarily due to increases in both average balance and average yield of investment securities. The increase in average yield on investment securities was primarily due to additional purchases of investment securities during the rising rate environment. The Company purchased investment securities of $4.1 million and $44.1 million, respectively, during the current quarter and last 12-month period.

The decrease in interest and dividend on other interest-earning assets compared with the previous quarter was primarily due to decreases in dividend on FHLB stock and average balance of interest-bearing deposits in other financial institutions. The increase compared with the year-ago quarter was primarily due to an increase in average balance of interest-bearing deposits in other financial institutions from excess cash generated from deposit growth and initial public offering ("IPO") completed in 2018, and higher interest rates earned on these deposits during the rising rate environment.

The increases in total interest expense were primarily due to increases in average balance and average cost of interest-bearing deposits. The increase in average cost on interest-bearing deposits was primarily due to the rising interest rate environment in 2018 and high competition in the Company's deposit target markets.

Provision (Reversal) for Loan Losses

Provision (reversal) for loan losses was $(85) thousand for the current quarter compared with $294 thousand for the previous quarter and $95 thousand for the year-ago quarter. The Company recognized reversal for loan losses primarily due to a decrease in historical loss rates, changes in qualitative adjustment factors and a net recovery during the current quarter. The Company recorded a net recovery of $55 thousand during the current quarter compared with a net charge-off of $223 thousand for the previous quarter and a net recovery of $52 thousand for the year-ago quarter. Allowance for loan losses to total loans held-for-investment ratio was 0.98% at March 31, 2019, 0.98% at December 31, 2018, and 1.01% at March 31, 2018.

Noninterest Income

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

The increase in total noninterest income compared with the previous quarter was primarily due to increases in gain on sale of loans and loan servicing income, partially offset by decreases in other income and service charges and fees on deposits. The decrease compared with the year-ago quarter was primarily due to a decrease in gain on sale of loans, partially offset by increases in the other noninterest income components.

The decreases in gain on sale of SBA loans in the current and previous quarters compared with the year-ago quarter were primarily due to decreases in sales volume and premium rates due to the conditions in the secondary market. The Company sold the guaranteed portion of SBA loans of $21.2 million, $26.2 million and $29.9 million, respectively, for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018. The Company also sold residential property loans of $2.4 million, $702 thousand and $1.2 million, respectively, and other real estate loans of none, $1.0 million and $1.1 million, respectively, for the three months ended March 31, 2019, December 31, 2018 and March 31, 2018.

The increase in loan servicing income compared with the previous quarter was primarily due to lower loan servicing income during the previous quarter from an increase in servicing asset amortization from a higher prepayment trend.

The decrease in other income compared with previous quarter was primarily due to decreases in wire fees and a non-recurring loan referral fee income of $33 thousand during the previous quarter.

Noninterest Expense

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

The increase in salaries and employee benefits compared with the previous quarter was primarily due to an increase in vacation accrual and a decrease in direct loan origination cost, which reduces salaries and benefits at origination, from a lower loan production during the current quarter. The increase compared with the year-ago quarter was primarily due to increases in number of employees, partially offset by a decrease in bonus accruals and a retirement bonus paid to the former chief executive officer of $192 thousand in the year-ago quarter.

The increases in occupancy and equipment in the current and previous quarters compared with the year-ago quarter was primarily due to increases in depreciation, occupancy lease, and maintenance expenses.

The increases in professional fees were primarily due to increased audit fees for the year-end process as the Company became a public company and increased professional fees for enhancement of the Bank's controls and processes on Bank Secrecy Act and Anti-Money Laundering compliance programs.

The decrease in market and business promotion compared with the previous quarter was primarily due to an additional expense incurred during the previous quarter for the year-end promotions and gifts for customers. The decrease compared with the year-ago quarter was due to a decrease in advertising expense.

The decreases in director fees and expenses was primarily due to a fewer number of directors during the current quarter as well as a severance payment of $68 thousand paid to the estate of former director and chairman, Kwang Jin Chung, who passed away during the previous quarter.

The increase in regulatory assessments compared with the previous quarter was due to an adjustment made for the assessment rate reduction in previous quarter. The decrease compared with the year-ago quarter was primarily due to a decrease in assessment rate, partially offset by balance sheet growth.

The decrease in other expenses compared with the previous quarter was primarily due to decreases in other loan related legal and office expenses. The increase compared with the year-ago period was primarily due to growth in operations.

Balance Sheet (Unaudited)

Loans

The following table presents a composition of total loans (includes both loans held-for-sale and loans held-for-investment, net of deferred costs (fees)) as of the dates indicated:

The increase in loans held-for-investment for the current quarter was primarily due to new funding of $73.2 million and advances on lines of credit of $23.5 million, partially offset by pay-downs and pay-offs of $91.8 million.

The decrease in loans held-for-sale for the current quarter was primarily due to sales of $23.6 million, partially offset by new funding of $21.5 million and a loan transferred from loans held-for-investment of $303 thousand.

Credit Quality

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

Classified Assets

Classified loans were $7.0 million at March 31, 2019, an increase of $814 thousand, or 13.1%, from $6.2 million at December 31, 2018, and an increase of $2.1 million, or 41.5%, from $5.0 million at March 31, 2018. Classified assets, which consist of classified loans and OREO, and the classified assets to total assets ratios were $7.4 million and 0.43%, respectively, at March 31, 2019, $6.2 million and 0.37%, respectively, at December 31, 2018, and $5.0 million and 0.32%, respectively, at March 31, 2018.

Investment Securities

Total investment securities were $167.7 million at March 31, 2019, a decrease of $1.1 million, or 0.6%, from $168.8 million at December 31, 2018, and an increase of $20.9 million, or 14.2%, from $146.8 million at March 31, 2018. The decrease for the current quarter was primarily due to principal pay-downs and calls of $6.2 million and net premium amortization of $188 thousand, partially offset by purchases of $4.1 million and an increase in fair value of securities available-for-sale of $1.2 million.

Deposits

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

The increase for the current quarter was primarily due to new accounts of $133.1 million, partially offset by closed accounts of $95.4 million and net balance decreases of $33.6 million on existing accounts.

Operating Lease Assets and Liabilities

During the current quarter, the Company adopted Accounting Standard Update ("ASU") 2016-02, "Leases (Topic 842)," and all subsequent ASUs that are related to Topic 842. The Company adopted this ASU using the optional transition method with a cumulative effect adjustment to retained earnings without restating prior financial statements for comparable amounts. As a result, the Company recognized right-of-use assets and liabilities of $9.6 million and $10.6 million, respectively, with a cumulative effect adjustment of $53 thousand to retained earnings at the date of adoption.

Shareholders' Equity

Shareholders' equity was $217.2 million at March 31, 2019, an increase of $6.9 million, or 3.3%, from $210.3 million at December 31, 2018, and an increase of $70.0 million, or 47.5%, from $147.2 million at March 31, 2018. The increase for the current quarter was primarily due to retention of earnings, partially offset by cash dividends paid on common stock. The year-over-year increase was primarily due to the IPO completed in August 2018 and retention of earnings, partially offset by cash dividends paid on common stock.

On March 28, 2019, the Company's Board of Directors approved the repurchase of up to $6.5 million of the Company's common stock through March 27, 2020.

Capital Ratios

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

Declaration of Increased Cash Dividend

On April 25, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.06 per common share, an increase of 20% from $0.05 per share in the prior quarter. The dividend will be paid on or about June 14, 2019, to shareholders of record as of the close of business on May 31, 2019.

"I am pleased to announce our seventeenth consecutive quarterly cash dividend and an increase in that cash dividend to $0.06 per share," said Henry Kim, President and Chief Executive Officer. "The decision is based on our strong financial performance and the Board of Directors' continuing confidence in our anticipated growth in 2019 and beyond."

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.