First Choice Bancorp Reports Third Quarter 2018 Financial Results

and Declares Quarterly Dividend

 

Current Quarter Highlights

 

	●	Net income of $2.6 million, or $0.25 per diluted share
	●	Net income included after tax merger related expenses of $2.7 million, or $0.26 per diluted share
	●	Net interest margin expands to 4.97%
	●	Organic loan growth of $40.7 million, or 20.7% annualized
	●	Organic deposit growth of $47.2 million, or 24.1% annualized, with noninterest-bearing deposits increasing to 42.3% of total deposits
	●	Quarterly cash dividend of $0.20 declared
	●	Acquisition of Pacific Commerce Bancorp (“PCB”) completed on July 31, 2018

 

Cerritos, CA, October 30, 2018 – First Choice Bancorp, (“First Choice” or the “Company”) (NASDAQ: FCBP), today reported net income for the third quarter of 2018 of $2.6 million, or $0.25 per diluted share, compared to net income of $3.4 million, or $0.47 per diluted share, for the second quarter of 2018, and net income of $2.0 million, or $0.28 per diluted share, for the third quarter of 2017. After-tax merger, integration and registration related costs of $2.7 million and $246 thousand reduced diluted earnings per share $0.26 and $0.04 for the third quarter and second quarter of 2018.

 

On October 29, 2018, the Company declared a cash dividend of $0.20 per share payable on or about November 26, 2018 to shareholders of record on November 13, 2018.

 

“We are very pleased with the positive trends we are seeing across our operations,” said Peter Hui, Chairman of the Board of First Choice Bancorp. “Our strong performance enables us to consistently return capital to our shareholders in the form of a quarterly cash dividend. We appreciate the continued support of our shareholders as we execute on our growth strategies and build the First Choice Bank franchise.”

 

“We executed well in the third quarter, successfully completing our acquisition of Pacific Commerce Bancorp and making good progress on integrating their operations while generating strong organic balance sheet growth,” said Robert M. Franko, President and CEO of First Choice Bancorp. “We are seeing the positive benefits of the PCB acquisition in the form of a lower overall cost of funds and improved efficiencies driven by our larger scale. We also had a strong quarter of business development, generating $131.2 million in new loan commitments and effectively gathering new core deposits. This strong performance produced a significant improvement in our level of profitability, excluding merger, integration and public company registration costs. As we continue to realize the synergies from the PCB acquisition and capitalize on our larger presence in Southern California, we believe we will continue to drive solid earnings growth and enhance the value of our franchise going forward.”

 

Operating Results for the Third Quarter 2018

 

Net Interest Income

 

Net interest income for the third quarter of 2018 was $15.8 million, an increase of $5.0 million, from $10.8 million for the second quarter of 2018 as interest income increased $5.3 million and interest expense increased $297 thousand. The increase in interest income was due to higher average interest-earning assets of $343.5 million, primarily related to $399.8 million in net loans acquired in the PCB acquisition. The increase in interest expense is primarily attributed to the interest-bearing deposits added in the PCB acquisition offset by lower average short term borrowings.

 

 

Net Interest Margin

 

Net interest margin for the third quarter of 2018 was 4.97%, an increase from 4.73% for the second quarter of 2018. The increase was driven by loans repricing to higher market interest rates, higher rates on new loan production, higher yield on the acquired loan portfolio and the improved funding mix. The third and second quarters of 2018 included accelerated discount accretion due to early payoffs of loans of $230 thousand and $907 thousand which expanded the net interest margin 7 basis points and 40 basis points, respectively. The accretion of net discounts on the acquired PCB loans contributed $923 thousand, or 29 basis points to the third quarter of 2018 net interest margin.

 

The loan yield was 6.32% for the third quarter compared to 6.17% for the second quarter of 2018. The discount accretion from acquired loans and accelerated discount accretion due to early loan payoffs increased the loan yield 42 basis points for the third quarter of 2018 and 45 basis points for the second quarter of 2018. The average cost of funds was 84 basis points for the third quarter of 2018 compared to 103 basis points for the second quarter of 2018. The lower cost of funds was attributed to the more favorable mix of deposits added in the PCB acquisition. Average noninterest-bearing deposits represented 37.8% of average total deposits for the third quarter of 2018, compared to 26.9% for the second quarter of 2018. In addition, the cash balances acquired from PCB were utilized to reduce FHLB borrowings during the third quarter of 2018.

 

Non-interest Income

 

Non-interest income for the third quarter of 2018 was $705 thousand, a decrease of $74 thousand from $779 thousand for the second quarter of 2018 due to lower gain on sale of SBA loans and lower net servicing fees, which was largely offset by the partial quarter impact of fees generated from the acquired PCB’s operations. The Company sold $2.4 million in SBA loans, resulting in a gain on sale of $171 thousand in the third quarter of 2018 compared to $5.8 million in SBA loans sold, resulting in a gain on sale of $448 thousand in the second quarter of 2018. Net servicing fees decreased $87 thousand in the third quarter of 2018 due to higher servicing fee income of $119 thousand offset by higher servicing asset amortization of $206 thousand of which $173 thousand related to early loan pay-offs in the third quarter of 2018 compared to the prior quarter.

 

Non-interest Expense

 

Non-interest expense for the third quarter of 2018 was $12.4 million, an increase of $6.1 million or 95.7% from $6.3 million for the second quarter of 2018. The increase was primarily attributable to the partial quarter impact of the acquired PCB operations and higher merger, integration and public company registration costs of $3.4 million. Excluding merger, integration and public company registration costs, noninterest expense increased $2.6 million to $8.6 million, with increases in every overhead expense category including higher compensation and benefits, premises and occupancy, data processing and core deposit intangible amortization of $1.6 million, $324 thousand, $218 thousand, and $133 thousand, respectively.

 

The Company’s operating efficiency ratio was 74.9% in the third quarter of 2018, compared with 54.5% in the second quarter of 2018. Excluding the impact of the merger, integration and public company registration costs, the Company’s operating efficiency ratio was 51.9% in the third quarter of 2018, compared with 51.4% in the second quarter of 2018.

 

Income Taxes

 

The Company recorded income tax expense of $932 thousand for the third quarter of 2018, representing an effective tax rate of 26.4%, compared to 30.8% reported for the second quarter of 2018. The estimated annual effective tax rate for 2018 is 29.4%.

 

 

Loan Portfolio

 

Total loans held for investment were $1.2 billion at September 30, 2018, an increase of $441.9 million, or 56.4% from $783.5 million at June 30, 2018. The increase was primarily attributable to $414.9 million in gross loans gained in the PCB acquisition and $40.7 million of organic growth. During the third quarter of 2018, the Company originated $131.2 million in new loan commitments, which included $73.2 million in construction and commercial real estate loans, $46.1 million in SBA loans, and $11.7 million in commercial and industrial loans.

 

Deposits

 

Total deposits were $1.3 billion at September 30, 2018, an increase of $522.2 million or 66.5% from $785.0 million at June 30, 2018. Total non-maturity deposits totaled $1.0 billion, an increase of $498.3 million or 90.4% from June 30, 2018. The increase was primarily attributable to the acquisition of PCB, which contributed $474.9 million of deposits at the time of acquisition, and organic deposit growth of $47.2 million, mainly in noninterest-bearing deposits. Period end noninterest-bearing deposits represented 42.3% of total deposits at September 30, 2018 compared to 27.0% at June 30, 2018.

 

Credit Quality

 

Non-performing loans totaled $1.2 million, or 0.1% of total assets, at September 30, 2018, compared with $1.6 million, or 0.2% of total assets, at June 30, 2018. The decrease in non-performing loans was primarily attributable to the partial charge offs in two SBA loans and a full charge-off of a commercial and industrial loan totaling $320 thousand in the third quarter of 2018.

 

The Company recorded a provision for loan losses of $600 thousand for the third quarter of 2018 as a result of organic loan growth. Loan delinquencies totaled $5.4 million, or 0.4% of net loans held for investment at September 30, 2018, compared to no delinquencies at June 30, 2018; all delinquent loans were acquired in the PCB acquisition.

 

The Company’s allowance for loan losses (“ALLL”) was 0.87% of total loans held for investment and 881.4% of non-performing loans at September 30, 2018, compared with 1.32% and 657.5%, respectively, at June 30, 2018. The lower ALLL coverage ratio to total loans of 45 basis points is primarily due to the loans acquired from PCB that were recorded at fair market value, without a corresponding loan loss allowance. The net carrying value of loans acquired through the acquisition of PCB includes a remaining net discount of $10.9 million as of September 30, 2018, which represents 88 basis points of total gross loans.

 

Capital Ratios

 

At September 30, 2018, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution.

 

Bank Only		September 30, 2018				June 30, 2018				December 31, 2017
Total Capital (to Risk-Weighted Assets)			13.69	%			14.73	%			14.72	%
Tier 1 Capital (to Risk-Weighted Assets)			12.79	%			13.48	%			13.46	%
CET1 Capital (to Risk-Weighted Assets)			12.79	%			13.48	%			13.46	%
Tier 1 Capital (to Average Assets)			13.50	%			12.16	%			11.75	%

 

 

About First Choice Bancorp 

 

First Choice Bancorp is a community-based bank holding company headquartered in Cerritos, California, and it is the sole shareholder of First Choice Bank. As of September 30, 2018, the First Choice had total assets of approximately $1.6 billion. First Choice Bank, headquartered in Cerritos, California is a community-focused financial institution, serving primarily commercial and consumer clients in diverse communities and specializing in loans to small businesses, private banking clients, commercial and industrial (C&I) loans, and commercial real estate loans with a niche in providing financing for the hospitality industry. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. Founded in 2005, First Choice Bank has quickly become a leading provider of financial services that enable our customers to grow, maintain strength, and achieve their business objectives. We strive to surpass our clients’ expectations through our efficiency and professionalism and are committed to being “First in Speed, Service, and Solutions.” First Choice Bancorp stock is traded on the Nasdaq Capital Market under the ticker symbol “FCBP.”

 

First Choice Bank’s website is www.FirstChoiceBankCA.com.

 

Disclosure

 

This press release contains certain non-GAAP financial disclosures for tangible common equity and tangible assets and adjusted earnings. 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.

 

Forward-Looking Statements

 

Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations and our future financial position and operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities; our ability to attract deposits and other sources of funding or liquidity; supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate; a prolonged slowdown or decline in real estate construction, sales or leasing activities; changes in the financial performance and/or condition of our borrowers, depositors or key vendors or counterparties; changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs; the costs or effects of acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions; the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, employment, executive compensation, insurance, vendor management and information security) with which we and our subsidiaries must comply or believe we should comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk; inflation, interest rate, securities market and monetary fluctuations; changes in government interest rates or monetary policies; changes in the amount and availability of deposit insurance; cyber-security threats, including loss of system functionality or theft or loss of Company or customer data or money; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, drought, or the effects of pandemic diseases; the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by our customers and potential customers; the Company’s relationships with and reliance upon vendors with respect to the operation of certain of the Company’s key internal and external systems and applications; changes in commercial or consumer spending, borrowing and savings preferences or behaviors; technological changes and the expanding use of technology in banking (including the adoption of mobile banking and funds transfer applications); the ability to retain and increase market share, retain and grow customers and control expenses; changes in the competitive and regulatory environment among financial and bank holding companies, banks and other financial service providers; volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions; fluctuations in the price of the Company’s common stock or other securities; and the resulting impact on the Company’s ability to raise capital or make acquisitions, the effect of changes in accounting policies and practices, as may be adopted from time-to-time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, consumer or employee class action litigation), regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews; our ongoing relations with our various federal and state regulators, including the SEC, FDIC, FRB and California Department of Business Oversight; our success at managing the risks involved in the foregoing items and all other factors set forth in the Company’s public reports, including its registration statements as filed under Form S-4 and Form 8-A, and particularly the discussion of risk factors within those documents. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

 

Contacts

First Choice Bancorp

Robert M. Franko, 562.345.9241

President & Chief Executive Officer

or

Lynn M. Hopkins, 562.263.8327

Executive Vice President & Chief Financial Officer

 

 

First Choice Bancorp and Subsidiary

 

Income Statement Highlights and Selected Ratios (unaudited):

(dollars in thousands, except per share amounts)

 

		For the three months ended												For the nine months ended
		September30,				June 30,				September 30,				September 30,				September 30,
		2018				2018				2017 (restated 1)				2018				2017(restated 1)
Total interest income		$	18,189			$	12,915			$	10,754			$	42,293			$	29,452
Total interest expense			2,393				2,096				1,604				6,127				4,481
Net interest income			15,796				10,819				9,150				36,166				24,971
Provision for loan losses			600				320				1,000				1,120				1,000
Net interest income after provision for loan losses			15,196				10,499				8,150				35,046				23,971
Total noninterest income			705				779				1,433				2,047				4,126
Total noninterest expense			12,365				6,317				6,174				25,359				17,254
Income before taxes			3,536				4,961				3,409				11,734				10,843
Income taxes			932				1,526				1,418				3,317				4,444
NET INCOME		$	2,604			$	3,435			$	1,991			$	8,417			$	6,399
Selected financial and ratios:
Dividends declared per common share		$	0.20			$	0.20			$	0.20			$	0.40			$	0.40
Net income per share-basic		$	0.26			$	0.47			$	0.28			$	1.02			$	0.89
Net income per share-diluted 2		$	0.25			$	0.47			$	0.28			$	1.02			$	0.88
Weighted average shares - basic			10,144,954				7,172,020				7,111,331				8,170,234				7,098,560
Weighted average shares - diluted 2			10,357,069				7,214,473				7,146,869				8,211,020				7,134,056
Return on average assets (annualized)			0.78	%			1.48	%			0.88	%			1.06	%			0.97	%
Return on average equity (annualized)			5.23	%			12.51	%			7.48	%			8.06	%			8.12	%
Return on tangible equity 3 (annualized)			7.12	%			12.51	%			7.48	%			9.25	%			8.12	%
Net interest margin			4.97	%			4.73	%			4.04	%			4.73	%			3.84	%
Cost of deposits			0.81	%			0.98	%			0.79	%			0.85	%			0.77	%
Cost of funds			0.84	%			1.03	%			0.80	%			0.90	%			0.78	%
Efficiency ratio 2			74.93	%			54.47	%			58.34	%			66.36	%			59.30	%

 

(1)	Certain amounts have been restated to reflect adjustments related to the correction of an error.
(2)	Diluted shares are calculated using the two-class method.
(3)	Non-GAAP measure. See GAAP to non-GAAP reconciliation.

 

 

First Choice Bancorp and Subsidiary

 

Condensed Consolidated Balance Sheet (unaudited)

(dollars in thousands)

 

		September 30, 2018				June 30, 2018				December 31, 2017 (restated 1)
ASSETS
Cash and due from banks		$	12,140			$	5,837			$	5,405
Interest-bearing deposits at other banks			178,834				115,317				97,727
Securities purchased under agreements to resell			3,000				—				—
Total cash and cash equivalents			193,974				121,154				103,132
Investment securities, available-for-sale			28,473				29,732				35,002
Investment securities, held-to-maturity			5,333				5,344				5,300
Loans held for sale			26,122				11,466				10,599
Total loans held for investment			1,225,376				783,487				741,713
Allowance for loan losses			(10,656	)			(10,376	)			(10,497	)
Total loans held for investment, net			1,214,720				773,111				731,216
Federal Home Loan Bank, at cost			6,135				3,866				3,640
Equity securities, at fair value			2,500				2,506				—
Accrued interest receivable			4,996				3,274				3,108
Premises and equipment			2,131				1,242				1,035
Servicing assets			3,162				2,448				2,618
Deferred taxes			7,740				4,727				4,495
Goodwill			73,425				—				—
Core deposit intangible			6,775				—				—
Other assets			11,870				3,816				3,650
TOTAL ASSETS		$	1,587,356			$	962,686			$	903,795
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand		$	553,253			$	211,611			$	235,584
Money market, interest checking and savings			496,257				339,639				372,699
Time deposits			257,600				233,707				164,396
Total deposits			1,307,110				784,957				772,679
Short term borrowings			15,000				60,000				20,000
Senior secured debt			12,550				4,150				350
Accrued interest payable			366				200				114
Other liabilities			8,953				4,560				4,958
Total liabilities			1,343,979				853,867				798,101
Total shareholders’ equity			243,377				108,819				105,694
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,587,356			$	962,686			$	903,795

 

(1)	Certain amounts have been restated to reflect adjustments related to the correction of an error.

 

 

First Choice Bancorp and Subsidiary

 

Condensed Consolidated Statement of Income (unaudited)

(dollars in thousands)

 

		For the Three Months Ended												For the Nine Months Ended September 30,
		September 30, 2018				June 30, 2018				September 30, 2017 (restated 1)				2018				2017 (restated 1)
INTEREST INCOME
Interest and fees on loans		$	17,296			$	12,320			$	10,189			$	40,237			$	27,784
Interest on investment securities			226				233				231				698				731
Interest on deposits in financial institutions			621				294				278				1,176				733
Dividends on FHLB and other stock			46				68				56				182				204
Total interest income			18,189				12,915				10,754				42,293				29,452
INTEREST EXPENSE
Interest on savings, interest checking and money market accounts			1,223				969				996				3,012				3,023
Interest on time deposits			1,072				919				535				2,607				1,333
Interest on borrowings			98				208				73				508				125
Total interest expense			2,393				2,096				1,604				6,127				4,481
Net interest income			15,796				10,819				9,150				36,166				24,971
Provision for loan losses			600				320				1,000				1,120				1,000
Net interest income after provision for loan losses			15,196				10,499				8,150				35,046				23,971
NONINTEREST INCOME
Gain on sale of loans			171				448				1,075				866				3,163
Service charges and fees on deposit accounts			380				208				102				803				231
Net servicing fees			39				126				211				318				571
Other income (loss)			115				(3	)			45				60				161
Total noninterest income			705				779				1,433				2,047				4,126
NONINTEREST EXPENSE
Salaries and employee benefits			5,143				3,578				3,921				12,837				11,265
Occupancy and equipment			891				567				574				1,978				1,544
Professional fees			400				378				413				1,082				611
Data processing			666				448				398				1,536				1,084
Office, postage and telecommunications			256				193				202				641				523
Deposit insurance and regulatory assessments			143				86				97				339				316
Loan related			142				101				80				327				238
Customer service related			208				101				144				448				407
Merger, integration and public company registration costs			3,797				356				—				4,527				—
Amortization of core deposit intangible			133				—				—				133				—
Other expenses			586				509				345				1,511				1,266
Total noninterest expense			12,365				6,317				6,174				25,359				17,254
Income before taxes			3,536				4,961				3,409				11,734				10,843
Income taxes			932				1,526				1,418				3,317				4,444
Net income		$	2,604			$	3,435			$	1,991			$	8,417			$	6,399

 

(1)	Certain amounts have been restated to reflect adjustments related to the correction of an error.

 

 

First Choice Bancorp and Subsidiary

 

Average Balance Sheets

 

		Three Months Ended
		September 30, 2018												June 30, 2018												September 30, 2017
		Average Balance				Interest Income / Expense				Yield / Cost				Average Balance				Interest Income / Expense				Yield / Cost				Average Balance				Interest Income / Expense				Yield / Cost
			(in thousands)
Interest-earning assets:
Due from banks		$	130,537			$	611				1.86	%		$	74,325			$	294				1.59	%		$	86,141			$	275				1.27	%
Federal funds sold/resale agreements			1,989				10				1.99	%			—				—				N/A				569				3				1.98	%
Investment securities			37,064				226				2.42	%			38,153				233				2.45	%			40,779				231				2.24	%
Loans (1)			1,085,572				17,296				6.32	%			801,342				12,320				6.17	%			767,839				10,189				5.26	%
FHLB and other bank stock			6,180				46				2.95	%			4,071				68				6.70	%			3,933				56				5.63	%
Total interest-earning assets			1,261,342				18,189				5.72	%			917,891				12,915				5.64	%			899,261				10,754				4.74	%
Noninterest-earning assets			81,222												11,096												9,342
Total assets		$	1,342,564											$	928,987											$	908,603
Interest-bearing liabilities:
Interest checking		$	132,492			$	361				1.08	%		$	141,598			$	407				1.15	%		$	249,027			$	676				1.08	%
Money market accounts			260,468				781				1.19	%			151,248				455				1.21	%			77,709				127				0.65	%
Savings accounts			43,465				81				0.74	%			50,978				107				0.84	%			82,315				193				0.93	%
Time deposits			193,837				843				1.73	%			170,148				738				1.74	%			109,413				321				1.16	%
Brokered time deposits			70,031				229				1.30	%			52,801				181				1.37	%			52,877				214				1.61	%
Total interest-bearing deposits			700,293				2,295				1.30	%			566,773				1,888				1.34	%			571,341				1,531				1.06	%
Short term and other borrowings			5,514				30				2.16	%			35,724				167				1.87	%			24,199				73				1.19	%
Senior secured notes			5,018				68				5.38	%			3,218				41				5.11	%			—				—				—	%
Total interest-bearing liabilities			710,825				2,393				1.34	%			605,715				2,096				1.39	%			595,540				1,604				1.07	%
Noninterest-bearing liabilities:
Demand deposits			425,842												209,009												201,902
Other liabilities			6,627												4,450												4,719
Shareholders’ equity			199,270												109,813												106,442
Total liabilities and shareholders’ equity		$	1,342,564											$	928,987											$	908,603
Net interest spread						$	15,796				4.38	%						$	10,819				4.25	%						$	9,150				3.67	%
Net interest margin											4.97	%											4.73	%											4.04	%
Total deposits		$	1,126,135			$	2,295				0.81	%		$	775,782			$	1,888				0.98	%		$	773,243			$	1,531				0.79	%
Total funding sources		$	1,136,667			$	2,393				0.84	%		$	814,724			$	2,096				1.03	%		$	797,442			$	1,604				0.80	%

 

(1) Average loans include net discounts and net deferred fees. Interest income on loans includes $143 thousand, $142 thousand, and $137 thousand related to the accretion of net deferred loans fees and $1.2 million, $989 thousand, and $(108) thousand related to accretion (amortization) of discounts (premiums) for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively.

 

 

First Choice Bancorp and Subsidiary

 

Average Balance Sheets (continued)

 

		Nine Months Ended September 30,
		2018												2017
		Average Balance				Interest Income / Expense				Yield / Cost				Average Balance				Interest Income / Expense				Yield / Cost
		(in thousands)
Interest-earning assets:
Due from banks		$	90,874			$	1,166				1.72	%		$	90,022			$	698				1.04	%
Federal funds sold/resale agreements			670				10				2	%			2,970				35				1.57	%
Investment securities			38,232				698				2.44	%			43,367				731				2.25	%
Loans (1)			888,208				40,237				6.06	%			729,134				27,784				5.09	%
FHLB and other bank stock			4,736				182				5.14	%			3,863				204				7.07	%
Total interest-earning assets			1,022,720				42,293				5.53	%			869,356				29,452				4.53	%
Noninterest-earning assets			34,251												8,337
Total assets		$	1,056,971											$	877,693
Interest-bearing liabilities:
Interest checking		$	154,908			$	1,273				1.10	%		$	252,302			$	2,044				1.08	%
Money market accounts			168,240				1,401				1.11	%			75,914				367				0.65	%
Savings accounts			54,589				338				0.83	%			87,308				612				0.94	%
Time deposits			162,648				2,028				1.67	%			105,974				898				1.13	%
Brokered time deposits			58,477				579				1.32	%			42,384				435				1.37	%
Total interest-bearing deposits			598,862				5,619				1.25	%			563,882				4,356				1.03	%
Short term and other borrowings			29,529				386				1.75	%			15,152				125				1.09	%
Senior secured notes			3,134				122				5.20	%			—				—				—	%
Total interest-bearing liabilities			631,525				6,127				1.30	%			579,034				4,481				1.03	%
Noninterest-bearing liabilities:
Demand deposits			281,337												189,564
Other liabilities			4,946												4,068
Shareholders’ equity			139,163												105,027
Total liabilities and shareholders’ equity		$	1,056,971											$	877,693
Net interest spread						$	36,166				4.23	%						$	24,971				3.50	%
Net interest margin											4.73	%											3.84	%
Total deposits		$	880,199			$	5,619				0.85	%		$	753,446			$	4,356				0.77	%
Total funding sources		$	912,862			$	6,127				0.90	%		$	768,598			$	4,481				0.78	%

 

(1) Average loans include net discounts and deferred costs. Interest income on loans includes $315 thousand and $332 thousand related to the accretion of net deferred loans fees and $2.3 million and $(672) thousand related to accretion (amortization) of discounts (premiums) for the nine months ended September 30, 2018 and 2017, respectively.

 

 

First Choice Bancorp and Subsidiary

 

Loans Composition

 

		September 30, 2018								June 30, 2018								December 31, 2017
		Amount				Percentage of Total				Amount				Percentage of Total				Amount				Percentage of Total
		(in thousands)
Construction and land development		$	172,136				14.0	%		$	132,365				16.9	%		$	114,746				15.5	%
Real estate:
Residential			60,580				4.9	%			51,681				6.6	%			63,457				8.6	%
Commercial real estate - owner occupied			181,053				14.8	%			59,349				7.6	%			52,728				7.1	%
Commercial real estate - non-owner occupied			392,348				32.1	%			258,229				32.9	%			251,132				33.8	%
Commercial and industrial			270,867				22.1	%			192,099				24.5	%			169,342				22.8	%
SBA loans			148,392				12.1	%			89,764				11.5	%			89,482				12.1	%
Consumer			—				—	%			—				—	%			826				0.1	%
Total loans held for investment		$	1,225,376				100.0	%		$	783,487				100.0	%		$	741,713				100.0	%
Allowance for loan losses			(10,656	)							(10,376	)							(10,497	)
Total loans held for investment, net		$	1,214,720							$	773,111							$	731,216

 

		September 30, 2018				June 30, 2018				December 31, 2017
		(in thousands)
Gross loans (1)		$	1,239,442			$	787,175			$	745,887
Unamortized net discounts(2)			(13,906	)			(3,264	)			(3,774	)
Net unamortized deferred origination fees			(160	)			(424	)			(400	)
Total loans held for investment		$	1,225,376			$	783,487			$	741,713

 

	(1)	Gross loans includes purchased credit impaired loans with a net carrying value of $3.0 million, or 0.24% of gross loans.
	(2)	Unamortized net discounts includes discounts related to the retained portion of SBA loans and net discounts on acquired loans. At September 30, 2018 net discounts related to acquired loans totaled $11.3 million of which $10.9 million was associated with loans acquired in the PCB acquisition and expected to be accreted into interest income over a weighted average life of 6.0 years.

 

 

First Choice Bancorp and Subsidiary

 

Allowance for Loan losses

 

		For the three months ended												For the nine months ended
		September 30, 2018				June 30, 2018				September 30, 2017				September 30, 2018				September 30, 2017
		(in thousands)
Balance, beginning of period		$	10,376			$	10,010			$	11,333			$	10,497			$	11,599
Provision for loan losses			600				320				1,000				1,120				1,000
Charge-offs			(358	)			(21	)			(1,548	)			(1,133	)			(1,814	)
Recoveries			38				67				18				172				18
Net (charge-offs) recoveries			(320	)			46				(1,530	)			(961	)			(1,796	)
Balance, end of period		$	10,656			$	10,376			$	10,803			$	10,656			$	10,803
Annualized net (charge-offs) recoveries to average loans			(0.12	)%			0.02	%			(0.80	)%			(0.14	)%			(0.33	)%

 

Credit Quality (1)

 

		September 30, 2018				June 30, 2018				December 31, 2017
		(in thousands)
Accruing loans past due 90 days or more		$	—			$	—			$	—
Non-accrual loans			561				910				—
Troubled debt restructurings on non-accrual			648				668				1,834
Total nonperforming loans			1,209				1,578				1,834
Foreclosed assets			—				—				—
Total nonperforming assets		$	1,209			$	1,578			$	1,834
Troubled debt restructurings - on accrual		$	339			$	363			$	—
Nonperforming loans as a percentage of total loans held for investment			0.20	%			0.20	%			0.25	%
Nonperforming loans as a percentage of total assets			0.16	%			0.16	%			0.20	%
Allowance for loan losses as a percentage of total loans held for investment			0.87	%			1.32	%			1.42	%
Allowance for loan losses as a percentage of nonperforming loans			881.39	%			657.54	%			572.36	%
Accruing loans held for investment past due 30 - 89 days		$	5,398			$	—			$	1,079

 

(1) Excludes purchased credit impaired loans.

 

 

First Choice Bancorp and Subsidiary

 

The following table represents the fair value of assets acquired and liabilities assumed of PCB, as of July 31, 2018.

 

		Fair Value
		(in thousands)
Assets acquired:
Cash and cash equivalents		$	111,035
Loans			399,822
Investment in restricted stock, at cost			4,536
Premises and equipment			719
Servicing assets			1,054
Cash surrender value of bank-owned life insurance			4,712
Deferred taxes			4,612
Core deposit intangible			6,908
Accrued interest receivable and other assets			3,099
Total assets acquired		$	536,497
Liabilities assumed:
Deposits		$	474,925
Accrued interest payable and other liabilities			1,724
Total liabilities assumed			476,649
Net assets acquired		$	59,848
Purchase consideration:
Fair value of shares of First Choice issued in the merger		$	125,902
Fair value of equity awards exchanged			7,371
Total purchase consideration			133,273
Goodwill recognized		$	73,425

 

 

First Choice Bancorp and Subsidiary

 

GAAP to Non-GAAP Reconciliation

 

This press release contains certain non-GAAP financial disclosures for: (1) efficiency ratio, (2) return on average tangible equity, (3) tangible common equity ratio, and (4) tangible book value per share. The Company believes that the presentation of certain non-GAAP financial measures assists investors in evaluating our financial results. In particular, the use of return on average tangible equity, tangible common equity ratio, and tangible book value per share is prevalent among banking regulators, investors and analysts. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

 

The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:

 

		For the three months ended												For the nine months ended
		September 30,				June 30,				September 30,				September 30,				September 30,
		2018				2018				2017				2018				2017
		(in thousands)
Efficiency Ratio
Noninterest expense (numerator)		$	12,365			$	6,317			$	6,174			$	25,359			$	17,254
Less: merger, integration and public company registration costs			3,797				356				—				4,527				—
Noninterest expense without merger, integration and public company registration costs(numerator)		$	8,568			$	5,961			$	6,174			$	20,832			$	17,254
Net interest income		$	15,796			$	10,819			$	9,150			$	36,166			$	24,971
Plus: Noninterest income			705				779				1,433				2,047				4,126
Total net interest income and noninterest income (denominator)		$	16,501			$	11,598			$	10,583			$	38,213			$	29,097
Efficiency ratio			74.93	%			54.47	%			58.34	%			66.36	%			59.30	%
Efficiency ratio without merger, integration and public company registration costs			51.92	%			51.40	%			58.34	%			54.52	%			59.30	%
Return on Average Tangible Equity
Net earnings		$	2,604			$	3,435			$	1,991			$	8,417			$	6,399
Average shareholders’ equity		$	199,270			$	109,813			$	106,442			$	139,163			$	105,027
Less: Average intangible assets			53,078				—				—				17,887				—
Average tangible common equity		$	146,192			$	109,813			$	106,442			$	121,276			$	105,027
Return on average equity			5.23	%			12.51	%			7.48	%			8.06	%			8.12	%
Return on average tangible equity			7.12	%			12.51	%			7.48	%			9.25	%			8.12	%

 

 

First Choice Bancorp and Subsidiary

 

GAAP to Non-GAAP Reconciliation (continued)

 

Tangible Common Equity Ratio/		September 30,				June 30,				March 31,				December 31,
Tangible Book Value Per Share		2018				2018				2018				2017
		dollars in thousands, except per share amounts
Shareholders’ equity		$	243,377			$	108,819			$	106,481			$	105,694
Less: Intangible assets			80,200				—				—				—
Tangible common equity		$	163,177			$	108,819			$	106,481			$	105,694
Total assets		$	1,587,356			$	962,686			$	947,676			$	903,795
Less: Intangible assets			80,200				—				—				—
Tangible assets		$	1,507,156			$	962,686			$	947,676			$	903,795
Equity to assets ratio			15.33	%			11.30	%			11.24	%			11.69	%
Tangible common equity ratio			10.83	%			11.30	%			11.24	%			11.69	%
Book value per share		$	20.76			$	15.00			$	14.68			$	14.56
Tangible book value per share		$	13.92			$	15.00			$	14.68			$	14.56
Shares outstanding			11,720,551				7,253,787				7,251,584				7,260,119