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First Choice Bancorp Announces Third Quarter of 2020 Financial Results

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Current Quarter Highlights

  • Net income of $7.9 million, up 37.5% over Q2'20
  • Diluted earnings per common share of $0.67, up 36.7% over Q2'20
  • Pre-tax pre-provision income was $12.1 million, up 18.3% from Q2'20
  • Net interest margin of 4.05%, down 7 bps from Q2'20
  • Cost of funds of 0.29%, down 5 bps from Q2'20, due to active balance sheet management
  • Return on average assets and average equity of 1.39% and 11.57%
  • Efficiency ratio of 48.7%
  • Provision for loan loss expense of $1.0 million, down $1.1 million from Q2'20
  • Total loans held for investment increased $53.3 million, up 2.9% over Q2'20
  • Noninterest-bearing demand deposits were $736.1 million, representing 47.2% of total deposits
  • Tangible book value per share of $16.56, up $0.47 per share from Q2'20
  • Community bank leverage ratio (preliminary) was 10.29% at September 30, 2020
  • Quarterly cash dividend of $0.25 per share

COVID-19 Updates

  • At September 30, 2020, non Paycheck Protection Program ("PPP") loans granted a 90-day principal and/or interest deferment totaled $37 million, down from $626 million at June 30, 2020
  • Over 97% of non-PPP loans that were granted a deferral have resumed regular payments or paid off
  • Five loans totaling $12 million have been granted a second 90-day deferment
  • Total outstanding principal before unearned fees of PPP loans was $400.1 million at September 30, 2020
  • No PPP loans were forgiven as of September 30, 2020
  • Originated four Main Street loans totaling $69.8 million and sold 95% of principal to Main Street Lending Facilities, resulting in a gain on sale of $486 thousand during Q3'20
  • All branches opened with appropriate safety precautions in place
  • Continue to leverage technology to increase operational efficiency and employee productivity

Cerritos, CA, Oct. 20, 2020 (GLOBE NEWSWIRE) -- First Choice Bancorp (NASDAQ:FCBP) ("us," "we," "our," or the "Company"), the holding company of First Choice Bank (the "Bank"), today reported net income of $7.9 million for the third quarter of 2020, or $0.67 per diluted share, compared to net income of $5.7 million, or $0.49 per diluted share, for the second quarter of 2020. Pre-tax pre-provision income was $12.1 million for the third quarter of 2020, an increase of $1.9 million, compared to the pre-tax pre-provision income of $10.3 million for the second quarter of 2020.

"Our third quarter results demonstrate the progress we have made transforming First Choice into a community-focused commercial bank that can provide financial solutions to our clients and financial performance to our shareholders," said Peter Hui, Chairman of the Board. "While uncertainty remains, we believe our management experience, capital strength and focus on providing exceptional customer service position us to increase our market share over the coming months."

"The promising trends we observed last quarter continued as 97% of deferred loans returned to regular payment schedules, operating leverage drove a 49% efficiency ratio, our net interest margin remained above 4% and we made progress increasing our market share in the Southern California market," said Robert M. Franko, President and CEO of the Company. "We acted quickly to offer the Main Street Lending Program to eligible borrowers and believe it represents an attractive and profitable opportunity to assist new and existing clients, despite some of the well-known operating issues associated with the program. While we are concerned by the recent economic and social turmoil, we believe we can best serve our clients, our communities and our shareholders by continuing to act as a pillar of financial stability in the Southern California markets in which we operate."

STATEMENT OF INCOME

Net Interest Income

Net interest income for the third quarter of 2020 totaled $21.7 million, an increase of $1.4 million from the second quarter of 2020 due to higher interest income of $1.3 million, coupled with lower interest expense of $112 thousand. The increase in net interest income was due primarily to higher discount accretion from loans acquired in a business combination, full quarter impact of interest income from PPP loans, strong organic loan growth, and lower cost of interest-bearing time deposits. Average loans increased by $154.3 million from organic loan growth and PPP loans in the third quarter of 2020. The decrease in interest expense for the third quarter of 2020 was due primarily to a higher run-off of high cost time deposits and the Company's proactive strategy to lower the cost of interest-bearing customer deposits and wholesale brokered CDs. Interest expense on interest-bearing deposits decreased $204 thousand, partially offset by an increase of $92 thousand on total borrowings. Interest expense on the PPP Liquidity Facility ("PPPLF") was $212 thousand for the third quarter of 2020, compared to $112 thousand in the second quarter of 2020 due to higher average borrowings.

Net Interest Margin

Net interest margin for the third quarter of 2020 decreased 7 basis points to 4.05% from 4.12% for the second quarter of 2020.

The decrease in the net interest margin was due primarily to a 17 basis point decrease in loan yields (including fees and discounts), partially offset by a 5 basis point decrease in total funding costs. The decrease in loan yields were partially offset by higher accelerated discount accretion in the third quarter of 2020. The discount accretion from loans acquired in a business combination of $835 thousand contributed 16 basis points to the net interest margin in the third quarter of 2020 compared to $421 thousand and 9 basis points in the second quarter of 2020.

The decrease in the interest-earning assets yield and loan yield were driven by the lower market interest rates and the lower-yielding PPP loans. The yield on loans decreased to 4.77% for the third quarter of 2020, compared to 4.94% for the second quarter of 2020. The weighted average loan yield for PPP loans was 2.66%, which lowered the total loan yield by 54 basis points for the third quarter of 2020, compared to 46 basis points for the second quarter of 2020.

The cost of funds decreased to 0.29% for the third quarter of 2020, compared to 0.34% for the second quarter of 2020, due primarily to lower market interest rates, runoff of higher cost time deposits and active balance sheet management. Average noninterest-bearing demand deposits decreased $53.0 million to $730.3 million and represented 46.5% of total average deposits for the third quarter of 2020, compared to $783.3 million, or 50.7% of total average deposits, for the second quarter of 2020. The decrease in average noninterest-bearing demand deposits was primarily due to our customers' use of funds during the third quarter of 2020 for the new deposit accounts opened for PPP loans in the second quarter of 2020. The total cost of deposits decreased 6 basis points to 0.25% for the third quarter of 2020, compared to 0.31% for the second quarter of 2020.

Average borrowings increased $7.3 million to $152.8 million, coupled with an increase of $112.6 million in average PPPLF outstanding with an average rate of 0.35% to support the PPP loans funded. The average cost of total borrowings remained relatively flat at 0.54% for the third quarter of 2020. Average senior secured notes decreased $2.1 million to $4.6 million and the average cost of such borrowings decreased 3 basis points to 3.36% for the third quarter of 2020.

Provision for Loan Losses

The provision for loan losses for the third quarter of 2020 decreased $1.1 million to $1.0 million, compared to $2.1 million for the second quarter of 2020. The driver for the third quarter provision was organic growth in the loan portfolio. While the economy gradually reopened in the second quarter of 2020, the timing of an economic recovery continues to remain uncertain. The assumptions underlying the COVID-19 related qualitative factors included (a) uncertain and volatile macro-economic conditions caused by the pandemic; (b) a stabilized unemployment rate; and (c) the loan deferment program and Main Street Lending Program. No provision for loan losses was taken on PPP loans as the SBA guarantees 100% of loan principal under the program.

Noninterest Income

Noninterest income for the third quarter of 2020 was $1.9 million, an increase of $888 thousand from $1.1 million for the second quarter of 2020 due primarily to higher gains on loan sales of $990 thousand and higher net servicing fees of $237 thousand, partially offset by lower other income of $387 thousand. SBA loans sold during the third quarter of 2020 totaled $6.2 million resulting in a gain on sale of $504 thousand. Gains on loan sales for the third quarter of 2020 also included the sale of 95% of the principal balance of Main Street loans resulting in gains of $486 thousand. There were no gains on loan sales in the second quarter of 2020. The $237 thousand increase in net servicing fees was due primarily to lower amortization of servicing asset from early loan pay-offs which totaled $68 thousand for the third quarter of 2020 compared to $277 thousand for the second quarter of 2020. Other income decreased $387 thousand for the third quarter of 2020 due to $153 thousand gain on sale of foreclosed assets and $233 thousand Community Development Financial Institutions Bank Enterprise Award ("CDFI BEA") recognized in the second quarter of 2020. There was no similar income in the third quarter of 2020.

Noninterest Expense

Noninterest expense increased $428 thousand to $11.5 million for the third quarter of 2020 from $11.1 million for the second quarter of 2020. This increase was due primarily to higher salaries and employee benefit expenses, higher FDIC assessment fees, offset by lower loan related expenses, lower customer service related expenses, and lower other expenses.

The $740 thousand increase in salaries and employee benefits was due to higher incentive accruals resulting from an increase in organic loan production in the third quarter of 2020. The $188 thousand increase in FDIC assessment fees was due primarily to the organic growth in the total assets during the third quarter of 2020.

The $167 thousand decrease in loan related expenses was due primarily to a recovery of expenses in the third quarter of 2020 and lower expense incurred for the roll-out of PPP loans in the third quarter of 2020. The $247 thousand decrease in customer service related expenses was due primarily to lower average demand deposits for certain deposit accounts during the third quarter of 2020. The decrease in other expenses resulted from no provision for unfunded loan commitments recognized in the third quarter of 2020 compared to a $300 thousand provision for unfunded loan commitments in the second quarter of 2020. Total unfunded loan commitments decreased $2.5 million to $390.9 million at September 30, 2020 from $393.4 million at June 30, 2020.

The efficiency ratio remained favorable and decreased to 48.7% in the third quarter of 2020, compared to 52.0% in the second quarter of 2020. The lower efficiency ratio in the third quarter of 2020 was driven by higher revenue including the gains from SBA and Main Street loan sales.

Income Taxes

Income tax expense was $3.3 million for the third quarter of 2020 compared to $2.4 million for the second quarter of 2020. The effective tax rate was 29.3% for the third quarter of 2020 and 29.8% for the second quarter of 2020. The effective tax rate for the full year of 2020 is expected to be in the range of 29% to 30%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment increased $53.3 million in the third quarter of 2020, or 2.9%, to $1.88 billion at September 30, 2020 due primarily to the organic loan growth and the Company's participation in the Main Street Lending program. Loans held for sale increased $16.1 million to $36.5 million as the Company continued to originate new SBA 7a loans in the third quarter of 2020.

New loan commitments from organic growth, excluding PPP loans, totaled $226.2 million for the third quarter of 2020, compared to $94.3 million for the second quarter of 2020. The third quarter new loan commitments included $47.3 million in construction and commercial real estate loans, $119.0 million in commercial and industrial loans, $23.4 million in SBA loans held for investment and $36.5 million of SBA loans held for sale. Total unfunded loan commitments decreased $2.5 million to $390.9 million at September 30, 2020 from $393.4 million at June 30, 2020 due to higher utilization on existing lines of credit. During the third quarter of 2020, borrower drawdown on existing lines of credit totaled $59.4 million, partially offset by repayments and new commitments.

PPP Loans

PPP loans, net of unearned fees of $9.9 million, totaled $390.2 million at September 30, 2020. The unearned fees are being accreted to income based on the two-year contractual maturity. The SBA did not act on any PPP loan forgiveness applications in the third quarter of 2020 and, accordingly, no PPP loans were forgiven in the quarter. The Company anticipates that the SBA may begin making determination as to PPP forgiveness applications in the fourth quarter of 2020 through the first quarter of 2021, at which point the recognition of fee income will be accelerated.

For loans originated under the SBA's PPP loan program, interest and principal payment on these loans were originally deferred for six months following the funding date, during which time interest would continue to accrue. On October 7, 2020, the Paycheck Protection Program Flexibility Act of 2020 ("Flexibility Act") extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that the SBA remits the borrower's loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower's loan forgiveness covered period). The extension of the deferral period under the Flexibility Act automatically applied to all PPP loans. At September 30, 2020, the entire portfolio of PPP loans are expected to have the 10 months extension until the loan is forgiven by the SBA.

Main Street Lending Program

The Company participated in the Main Street Lending Program to support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic. Under this program, the Bank originates loans to borrowers meeting the terms and requirements of the program, including requirements as to eligibility, use of proceeds and priority, and sells a 95% participation interest in these loans to Main Street Facilities, LLC, a special purpose vehicle ("SPV") organized by the Federal Reserve to purchase the participation interest from eligible lenders, including the Bank.

During the third quarter of 2020, the Bank originated four Main Street loans totaling $69.8 million in principal amount and sold participation interest totaling $66.3 million to the Main Street SPV, resulting in a gain on sale of $486 thousand.

Loan Deferrals

At September 30, 2020, the Company had 12 non-PPP loans totaling $37 million on payment deferral for COVID-related reasons, down from $626 million at June 30, 2020. Over 97% of loans that were granted a deferral have resumed making regular, contractually agreed-upon payments or were paid off. As a part of the CARES Act, the SBA is paying six months of loan payments for the Company's SBA 7a borrowers. One deferred payment loan is reported as past due, two are reported as nonaccrual and none are reported as troubled debt restructurings ("TDRs") under Section 4013 of the CARES Act.

Deposits

Total deposits decreased $45.1 million from the prior quarter to $1.56 billion at September 30, 2020 due to a decrease in noninterest-bearing deposit accounts and time deposit accounts, partially offset by increases in interest-bearing nonmaturity deposits.

At September 30, 2020, noninterest-bearing deposits totaled $736.1 million, a decrease of $53.7 million in the third quarter of 2020, of which $45 million of the decrease was due to the customers' use of PPP funds during the third quarter of 2020. Interest-bearing nonmaturity deposits increased $28.9 million due primarily to an increase in brokered deposits. Noninterest-bearing deposits were $736.1 million and represented 47.2% of total deposits at September 30, 2020, compared to $789.8 million and 49.2% of total deposits at June 30, 2020.

Time deposits decreased $20.3 million due to a decrease in higher rate customer time deposits which matured in the third quarter of 2020, coupled with a decrease in brokered time deposits. At September 30, 2020, brokered time deposits totaled $101.3 million, compared to $115.5 million at June 30, 2020.

Borrowings

At September 30, 2020, the Company had $253.1 million in borrowings under the PPPLF with a fixed-rate of 0.35% which was collateralized by PPP loans. The Company also participated in the FHLB San Francisco's new Recovery Advance loan program for $10 million at zero percent interest at September 30, 2020 with maturity dates in November 2020 and May 2021.

Credit Quality

Nonperforming loans increased to $13.0 million at September 30, 2020, compared to $8.4 million at June 30, 2020, and represented 0.69% and 0.46% of total loans held for investment, respectively. The increase in nonperforming loans was due to two loans from one relationship totaling $5 million, which were downgraded to nonaccrual during the third quarter of 2020. These loans represent completed construction loans on two high quality ocean view homes in Malibu, California with recent appraisals indicating less than 50% Loan-to-Appraised Value. There were no loans over 90 days past due that were still accruing interest at September 30, 2020. Net charge-offs for the third quarter of 2020 were $88 thousand, or 0.02% of average loans on an annualized basis, compared to $496 thousand or 0.11% of average loans on an annualized basis for the second quarter of 2020. In the third quarter of 2020, the Company sold all of its foreclosed assets. Nonperforming assets totaled $13.0 million at September 30, 2020, compared to $9.0 million at June 30, 2020, and represented 0.58% and 0.41% of total assets, respectively.

Loan delinquencies (30-89 days past due) totaled $1.2 million at September 30, 2020, compared to $353 thousand at June 30, 2020. Deferred payment loans which met the requirement under Section 4013 of the CARES Act are not considered past due or TDRs.

The allowance for loan losses increased 5.1% to $18.7 million and represented 0.99% of total loans held for investment and 144.2% of nonperforming loans at September 30, 2020, compared to 0.97% and 211.8% at June 30, 2020, respectively. The allowance for loan losses as a percentage of total loans held for investment excluding PPP loans, was 1.25% at September 30, 2020. At September 30, 2020, the net carrying value of acquired loans totaled $173.8 million and included a remaining net discount of $4.3 million. The discount is available to absorb losses on the acquired loans and represented 2.5% of the net carrying value of acquired loans and 0.22% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

The Bank opted into the Community Bank Leverage Ratio ("CBLR") framework, beginning with the Call Report filed for the first quarter of 2020. The CBLR replaces the risk-based and leverage capital requirements in the generally applicable capital rules. The minimum CBLR was originally 9%, however, on April 23, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, issued interim rules which modified the CBLR framework so that: (i) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%. Under the interim rules, the minimum CBLR is 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The interim rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable community bank leverage ratio. In addition, assets originated under the PPP and covered loans pledged under the PPPLF are deducted from the average total consolidated assets for purposes of calculating the CBLR. However, such assets are included in total consolidated assets for purposes of determining the eligibility to opt into the CBLR framework.

At September 30, 2020, the Bank's preliminary CBLR ratio was 10.29% which exceeded all regulatory capital requirements under the CBLR framework and, accordingly, the Bank was considered to be ‘‘well-capitalized''.

Stock Repurchase Program

The Company suspended the stock repurchase program on March 17, 2020. During the third and second quarter of 2020, there were no repurchases of common stock. The remaining number of shares authorized to be repurchased under this program was 695,489 shares at September 30, 2020. Suspending the stock repurchase program allows the Company to preserve capital and provide liquidity during the COVID-19 pandemic to meet the credit needs of the Company's customers, as well as support small businesses and the local economies served by the Company through the Bank's lending and other important services.

About First Choice Bancorp

First Choice Bancorp, headquartered in Cerritos, California, is the sole shareholder of and the registered bank holding company for, First Choice Bank. As of September 30, 2020, First Choice Bancorp had total consolidated assets of $2.26 billion. First Choice Bank, also headquartered in Cerritos, California, is a community-based financial institution that serves primarily commercial and consumer clients in diverse communities and specializes in loans to small- to medium-sized businesses and private banking clients, commercial and industrial loans, and commercial real estate loans. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through nine full-service branches and two loan production offices located in Los Angeles, Orange and San Diego Counties. 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, personalized services and financial solutions and professionalism and are committed to being "First in Speed, Service, and Solutions." First Choice Bank is a strong believer in social justice and equality and is proud of its cultural- and gender-diverse workforce. As of September 30, 2020, more than 71% of the Company's total workforce identified as ethnic minorities and more than 66% of its workforce and more than 50% of its senior management identified as female. 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.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's results of operations and financial condition and to enhance investors' overall understanding of such results of operations and financial condition, permit investors to effectively analyze financial trends of our business activities, and enhance comparability with peers across the financial services sector. These non-GAAP financial measures are not a substitute for GAAP measures and should be read in conjunction with the Company's GAAP financial information. A reconciliation of GAAP financial measures to non-GAAP financial measures is included in the accompanying financial tables.

Forward-Looking Statements

In addition to historical information, certain matters set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to management's beliefs, projections and assumptions concerning future results and events. Forward-looking statements include descriptions of management's plans or objectives for future operations, products or services, and forecasts of the Company's revenues, earnings or other measures of economic performance. As well, forward-looking statements may relate to future outlook and anticipated events, such as the Company's plans and protocols with regard to managing potential impacts related to the COVID-19 virus, the Company's strategy to help keep its workforce and local communities safe, the Company's business continuity protocols and the potential impact on operations related to COVID-19, and the Company's ability to successfully advance its development and expansion projects and achieve its growth objectives. These forward-looking statements involve risks and uncertainties, based on the beliefs and assumptions of management and on the information available to management at the time that this presentation was prepared and can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words or phrases such as "aim," "can," "may," "could," "predict," "should," "will," "would," "believe," "anticipate," "estimate," "expect," "hope," "intend," "plan," "potential," ‘project," "will likely result," "continue," "seek," "shall," "possible," "projection," "optimistic," and "outlook," and variations of these words and similar expressions or the negative version of those words or phrases.

Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Many factors could cause actual results to differ materially from those contemplated by these forward-looking statements. 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. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the SEC, including under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as may be supplemented and/or amended by our Quarterly Reports on Form 10-Q as filed subsequent thereto.

Contacts

First Choice Bancorp
Robert M. Franko, 562.345.9241
President & Chief Executive Officer

First Choice Bancorp
Khoi D. Dang, Esq., 562.263.8336
Executive Vice President and General Counsel

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

    At or for the Three Months Ended   At or for the Nine Months Ended
    September 30, 2020   June 30,
2020
  September 30, 2019   September 30, 2020   September 30, 2019
    (dollars in thousands, except per share amounts)
Total interest and dividend income   $ 23,154      $ 21,844      $ 24,343      $ 66,742      $ 68,401   
Total interest expense   1,428      1,540      3,317      5,539      9,347   
Net interest income   21,726      20,304      21,026      61,203      59,054   
Total noninterest income   1,943      1,055      1,673      4,413      6,117   
Total net interest income and noninterest income   23,669      21,359      22,699      65,616      65,171   
Total noninterest expense   11,528      11,100      10,651      34,147      31,956   
Pre-tax pre-provision income (1)   12,141      10,259      12,048      31,469      33,215   
Provision for loan losses   1,000      2,100      700      5,800      1,600   
Income before taxes   11,141      8,159      11,348      25,669      31,615   
Income taxes   3,260      2,429      3,277      7,512      9,725   
NET INCOME   $ 7,881      $ 5,730      $ 8,071      $ 18,157      $ 21,890   
                     
Total assets   $ 2,256,342      $ 2,223,603      $ 1,655,595      $ 2,256,342      $ 1,655,595   
Total loans held for investment   1,884,930      1,831,619      1,316,620      1,884,930      1,316,620   
Noninterest-bearing deposits   736,118      789,770      666,271      736,118      666,271   
Total deposits   1,559,912      1,604,997      1,339,538      1,559,912      1,339,538   
Dividends declared per common share   $ 0.25      $ 0.25      $ 0.20      $ 0.75      $ 0.60   
Net income per share-diluted   $ 0.67      $ 0.49      $ 0.68      $ 1.55      $ 1.85   
Return on average assets   1.39  %   1.09  %   1.98  %   1.19  %   1.86  %
Return on average equity   11.57  %   8.59  %   12.45  %   9.05  %   11.60  %
Return on average tangible common equity (1)   16.31  %   12.18  %   18.03  %   12.83  %   16.95  %
Net interest margin   4.05  %   4.12  %   5.52  %   4.28  %   5.39  %
Average loan yield   4.77  %   4.94  %   6.93  %   5.15  %   6.66  %
Cost of deposits   0.25  %   0.31  %   0.89  %   0.38  %   0.84  %
Cost of funds   0.29  %   0.34  %   0.98  %   0.42  %   0.95  %
Efficiency ratio (1)   48.7  %   52.0  %   46.9  %   52.0  %   49.0  %
Noninterest-bearing deposits to total deposits   47.2  %   49.2  %   49.7  %   47.2  %   49.7  %
Equity to assets ratio   12.08  %   12.01  %   15.62  %   12.08  %   15.62  %
Tangible common equity to tangible asset ratio (1)   8.90  %   8.77  %   11.37  %   8.90  %   11.37  %
Book value per share   $ 23.28      $ 22.82      $ 22.20      $ 23.28      $ 22.20   
Tangible book value per share (1)   $ 16.56      $ 16.09      $ 15.38      $ 16.56      $ 15.38   

(1) Non-GAAP measure. See GAAP to non-GAAP Reconciliation.

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

    September 30, 2020   June 30,
2020
  December 31,
2019
(audited)
    (dollars in thousands, except per share amounts)
ASSETS            
Cash and due from banks   $ 23,611        $ 20,954        $ 27,359     
Interest-bearing deposits at other banks   157,925        196,875        134,442     
Total cash and cash equivalents   181,536        217,829        161,801     
Investment securities, available-for-sale   37,999        36,783        26,653     
Investment securities, held-to-maturity   1,680        1,691        5,056     
Equity securities, at fair value   2,792        2,782        2,694     
Restricted stock investments, at cost   12,999        12,999        12,986     
Loans held for sale   36,474        20,326        7,659     
Total loans held for investment   1,884,930        1,831,619        1,374,675     
Allowance for loan losses   (18,734 )     (17,822 )     (13,522 )  
Total loans held for investment, net   1,866,196        1,813,797        1,361,153     
Accrued interest receivable   11,500        13,809        5,451     
Premises and equipment   2,341        2,551        1,542     
Servicing asset   2,368        2,516        3,202     
Deferred taxes   6,095        5,829        6,163     
Goodwill   73,425        73,425        73,425     
Core deposit intangible   5,149        5,342        5,728     
Foreclosed assets, net   —        602        —     
Other assets   15,788        13,322        16,811     
TOTAL ASSETS   $ 2,256,342        $ 2,223,603        $ 1,690,324     
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Deposits:            
Noninterest-bearing demand   $ 736,118        $ 789,770        $ 626,569     
Money market, interest checking and savings   649,613        620,719        514,366     
Time deposits   174,181        194,508        172,758     
Total deposits   1,559,912        1,604,997        1,313,693     
Borrowings   150,000        150,000        90,000     
Paycheck Protection Program Liquidity Facility   253,140        179,125        —     
Senior secured debt   4,400        6,500        9,600     
Accrued interest payable and other liabilities   16,419        16,032        15,226     
Total liabilities   1,983,871        1,956,654        1,428,519     
Total shareholders' equity   272,471        266,949        261,805     
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 2,256,342        $ 2,223,603        $ 1,690,324     
             
Shares outstanding   11,705,878        11,697,766        11,635,531     
Book value per share   $ 23.28        $ 22.82        $ 22.50     
Tangible book value per share (1)   $ 16.56        $ 16.09        $ 15.70     
             

(1) Non-GAAP measure. See GAAP to non-GAAP Reconciliation.

First Choice Bancorp and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

  Three Months Ended   Nine Months Ended September 30,
  September 30, 2020   June 30, 2020   September 30, 2019   2020   2019
  (dollars in thousands, except per share amounts)
INTEREST and DIVIDEND INCOME                  
Interest and fees on loans $ 22,671      $ 21,348        $ 23,206      $ 64,799      $ 65,466   
Interest on investment securities 180      225        208      623      659   
Interest on deposits at other financial institutions 103      92        701      696      1,600   
Dividends on FHLB and other stock 200      179        228      624      676   
Total interest and dividend income 23,154      21,844        24,343      66,742      68,401   
INTEREST EXPENSE                  
Interest on savings, interest checking and money market accounts 382      318        1,283      1,809      3,776   
Interest on time deposits 588      856        1,605      2,439      4,073   
Interest on borrowings 207      197        253      780      967   
Interest on PPP Liquidity Facility 212      112        —      324      —   
Interest on senior secured notes 39      57        176      187      531   
Total interest expense 1,428      1,540        3,317      5,539      9,347   
Net interest income 21,726      20,304        21,026      61,203      59,054   
Provision for loan losses 1,000      2,100        700      5,800      1,600   
Net interest income after provision for loan losses 20,726      18,204        20,326      55,403      57,454   
NONINTEREST INCOME                  
Gain on sale of loans 990      —        528      1,367      2,727   
Service charges and fees on deposit accounts 495      447        475      1,497      1,579   
Net servicing fees (expense) 228      (9 )     242      443      763   
Other income 230      617        428      1,106      1,048   
Total noninterest income 1,943      1,055        1,673      4,413      6,117   
NONINTEREST EXPENSE                  
Salaries and employee benefits 7,126      6,386        6,472      20,742      19,552   
Occupancy and equipment 1,137      1,108        1,097      3,308      3,513   
Data processing 955      874        718      2,636      1,961   
Professional fees 492      450        392      1,413      1,237   
Office, postage and telecommunications 274      289        253      821      780   
Deposit insurance and regulatory assessments 386      198        30      645      345   
Loan related 59      226        244      560      529   
Customer service related 81      328        437      781      1,187   
Amortization of core deposit intangible 193      193        197      579      590   
Other expenses 825      1,048        811      2,662      2,262   
Total noninterest expense 11,528      11,100        10,651      34,147      31,956   
Income before taxes 11,141      8,159        11,348      25,669      31,615   
Income taxes 3,260      2,429        3,277      7,512      9,725   
Net income $ 7,881      $ 5,730        $ 8,071      $ 18,157      $ 21,890   
                   
Net income per share - diluted $ 0.67      $ 0.49        $ 0.68      $ 1.55      $ 1.85   
Weighted average shares - diluted 11,612,270      11,606,280        11,659,146      11,616,839      11,714,020   

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

  Three Months Ended
  September 30, 2020   June 30, 2020   September 30, 2019
  Average
Balance
  Interest
Income / Expense
  Yield / Cost   Average
Balance
  Interest
Income / Expense
  Yield / Cost   Average
Balance
  Interest
Income / Expense
  Yield / Cost
Interest-earning assets: (dollars in thousands)
Loans (1) $ 1,892,450      $ 22,671      4.77  %   $ 1,738,172      $ 21,348      4.94  %   $ 1,328,088      $ 23,206      6.93  %
Investment securities 43,154      180      1.66  %   42,553      225      2.13  %   35,651      208      2.31  %
Deposits at other financial institutions 184,606      103      0.22  %   186,741      92      0.20  %   134,557      701      2.07  %
Restricted stock investments and other bank stocks 14,534      200      5.47  %   14,534      179      4.95  %   13,988      228      6.47  %
Total interest-earning assets 2,134,744      23,154      4.31  %   1,982,000      21,844      4.43  %   1,512,284      24,343      6.39  %
                                   
Noninterest-earning assets 119,717              127,208              108,520           
Total assets $ 2,254,461              $ 2,109,208              $ 1,620,804           
                                   
Interest-bearing liabilities:                                  
Interest checking $ 279,945      $ 111      0.16  %   $ 251,398      $ 101      0.16  %   $ 116,107      $ 337      1.15  %
Money market accounts 338,970      260      0.31  %   298,040      207      0.28  %   267,493      890      1.32  %
Savings accounts 31,639      11      0.14  %   30,104      10      0.13  %   29,070      56      0.76  %
Time deposits 81,837      201      0.98  %   91,051      292      1.29  %   147,568      676      1.82  %
Brokered time deposits 107,347      387      1.43  %   90,349      564      2.51  %   138,682      929      2.66  %
Total interest-bearing deposits 839,738      970      0.46  %   760,942      1,174      0.62  %   698,920      2,888      1.64  %
Borrowings 152,762      207      0.54  %   145,440      197      0.54  %   48,263      253      2.08  %
Paycheck Protection Program Liquidity Facility 240,602      212      0.35  %   127,962      112      0.35  %   —      —      —  %
Senior secured notes 4,620      39      3.36  %   6,754      57      3.39  %   12,267      176      5.69  %
Total interest-bearing liabilities 1,237,722      1,428      0.46  %   1,041,098      1,540      0.59  %   759,450      3,317      1.73  %
                                   
Noninterest-bearing liabilities:                                  
Demand deposits 730,306              783,258              590,212           
Other liabilities 15,530              16,684              13,984           
Shareholders' equity 270,903              268,168              257,158           
                                   
Total liabilities and shareholders' equity $ 2,254,461              $ 2,109,208              $ 1,620,804           
                                   
Net interest spread     $ 21,726      3.85  %       $ 20,304      3.84  %       $ 21,026      4.66  %
Net interest margin         4.05  %           4.12  %           5.52  %
                                   
Total deposits $ 1,570,044      $ 970      0.25  %   $ 1,544,200      $ 1,174      0.31  %   $ 1,289,132      $ 2,888      0.89  %
Total funding sources $ 1,968,028      $ 1,428      0.29  %   $ 1,824,356      $ 1,540      0.34  %   $ 1,349,662      $ 3,317      0.98  %

(1) Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes $1.7 million, $1.3 million and $254 thousand related to the accretion of net deferred loan fees for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019. In addition, interest income includes $835 thousand, $421 thousand and $2.2 million of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

  Nine Months Ended September 30,
  2020   2019
  Average
Balance
  Interest
Income / Expense
  Yield / Cost   Average
Balance
  Interest
Income / Expense
  Yield / Cost
Interest-earning assets: (dollars in thousands)
Loans (1) $ 1,679,206      $ 64,799      5.15  %   $ 1,314,513      $ 65,466      6.66  %
Investment securities 40,645      623      2.05  %   36,355      659      2.42  %
Deposits at other financial institutions 176,393      696      0.53  %   99,711      1,570      2.11  %
Federal funds sold/resale agreements —      —      —  %   1,662      30      2.41  %
FHLB and other bank stock 14,531      624      5.74  %   13,937      676      6.48  %
Total interest-earning assets 1,910,775      66,742      4.67  %   1,466,178      68,401      6.24  %
                       
Noninterest-earning assets 120,400              108,782           
  $ 2,031,175              $ 1,574,960           
                       
Interest-bearing liabilities:                      
Interest checking $ 229,436      $ 473      0.28  %   $ 115,358      $ 944      1.09  %
Money market accounts 318,567      1,267      0.53  %   270,163      2,658      1.32  %
Savings accounts 30,008      69      0.31  %   30,731      174      0.76  %
Time deposits 96,764      983      1.36  %   156,095      2,080      1.78  %
Brokered time deposits 96,885      1,456      2.01  %   109,598      1,993      2.43  %
Total interest-bearing deposits 771,660      4,248      0.74  %   681,945      7,849      1.54  %
Borrowings 130,344      780      0.80  %   53,987      967      2.39  %
Paycheck Protection Program Liquidity Facility 123,138      324      0.35  %   —      —      —  %
Senior secured notes 6,458      187      3.87  %   12,190      531      5.82  %
Total interest-bearing liabilities 1,031,600      5,539      0.72  %   748,122      9,347      1.67  %
                       
Noninterest-bearing liabilities:                      
Demand deposits 715,180              562,195           
Other liabilities 16,405              12,281           
Shareholders' equity 267,990              252,362           
                       
Total liabilities and shareholders' equity $ 2,031,175              $ 1,574,960           
                       
Net interest spread     $ 61,203      3.95  %       $ 59,054      4.57  %
Net interest margin         4.28  %           5.39  %
                       
Total deposits $ 1,486,840      $ 4,248      0.38  %   $ 1,244,140      $ 7,849      0.84  %
Total funding sources $ 1,746,780      $ 5,539      0.42  %   $ 1,310,317      $ 9,347      0.95  %

(1) Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes $3.3 million and $721 thousand related to the accretion of net deferred loan fees for the nine months ended September 30, 2020 and September 30, 2019. In addition, interest income includes $1.9 million and $3.8 million of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the nine months ended September 30, 2020 and September 30, 2019.

First Choice Bancorp and Subsidiary

Loan Composition

  September 30, 2020   June 30, 2020   December 31, 2019
  Amount Percentage of Total   Amount Percentage of Total   Amount Percentage of Total
  (dollars in thousands)
Construction and land development $ 215,109      11.3  %   $ 218,226      11.8  %   $ 249,504      18.1  %
Real estate:                
Residential 30,067      1.6  %   39,145      2.1  %   43,736      3.2  %
Commercial real estate - owner occupied 159,603      8.4  %   162,508      8.8  %   171,595      12.5  %
Commercial real estate - non-owner occupied 528,201      27.9  %   502,693      27.3  %   423,823      30.8  %
Commercial and industrial 361,170      19.0  %   335,411      18.2  %   309,011      22.5  %
SBA loans (1) 602,407      31.8  %   586,820      31.8  %   177,633      12.9  %
Consumer     —  %   34      —  %   430      —  %
Total loans held for investment, net of discounts $ 1,896,565      100.0  %   $ 1,844,837      100.0  %   $ 1,375,732      100.0  %
Net deferred loan fees (1) (11,635 )       (13,218 )       (1,057 )    
Total loans held for investment $ 1,884,930          $ 1,831,619          $ 1,374,675       
Allowance for loan losses (18,734 )       (17,822 )       (13,522 )    
Total loans held for investment, net $ 1,866,196          $ 1,813,797          $ 1,361,153       

(1) Includes PPP loans with total outstanding principal of $400.1 million and $400.7 million and net unearned fees of $9.9 million and $11.5 million at September 30, 2020 and June 30, 2020.

Total loans held for investment

  September 30, 2020 June 30,
2020
December 31, 2019
  (dollars in thousands)
Gross loans held for investment (1) $ 1,904,019        $ 1,852,768        $ 1,385,142     
Unamortized net discounts (2) (7,454 )     (7,931 )     (9,410 )  
Net unamortized deferred origination fees (1) (11,635 )     (13,218 )     (1,057 )  
Total loans held for investment $ 1,884,930        $ 1,831,619        $ 1,374,675     
           
  1. Includes PPP loans with total outstanding principal of $400.1 million and $400.7 million and net unearned fees of $9.9 million and $11.5 million at September 30, 2020 and June 30, 2020.
  2. Unamortized net discounts include discounts related to the retained portion of SBA loans and net discounts on Non-PCI acquired loans. At September 30, 2020, net discounts related to loans acquired in the PCB acquisition totaled $4.3 million that is expected to be accreted into interest income over a weighted average remaining life of 4.1 years. At June 30, 2020 and December 31, 2019, net discounts related to loans acquired in the PCB acquisition totaled $4.8 million and $6.0 million.

Allowance for Loan losses

    Three Months Ended   Nine Months Ended September 30,
    September 30, 2020   June 30,
2020
  September 30, 2019   2020   2019
    (dollars in thousands)
Balance, beginning of period   $ 17,822        $ 16,218        $ 12,053        $ 13,522        $ 11,056     
Provision for loan losses   1,000        2,100        700        5,800        1,600     
Charge-offs   (194 )     (550 )     (437 )     (772 )     (561 )  
Recoveries   106        54        24        184        245     
Net charge-offs   (88 )     (496 )     (413 )     (588 )     (316 )  
Balance, end of period   $ 18,734        $ 17,822        $ 12,340        $ 18,734        $ 12,340     
                     
Annualized net charge-offs to average loans   (0.02 ) %   (0.11 ) %   (0.12 ) %   (0.05 ) %   (0.03 ) %

Credit Quality (1)

    September 30, 2020   June 30,
2020
  December 31, 2019
    (dollars in thousands)
Accruing loans past due 90 days or more   $ —      $ 267      $ —   
Non-accrual loans   12,847      7,999      11,107   
Troubled debt restructurings on non-accrual   144      150      158   
Total nonperforming loans   12,991      8,416      11,265   
Foreclosed assets   —      602      —   
Total nonperforming assets   $ 12,991      $ 9,018      $ 11,265   
Troubled debt restructurings - on accrual   $ 320      $ 319      $ 321   
             
Nonperforming loans as a percentage of total loans held for investment   0.69  %   0.46  %   0.82  %
Nonperforming assets as a percentage of total assets   0.58  %   0.41  %   0.67  %
Allowance for loan losses as a percentage of total loans held for investment   0.99  %   0.97  %   0.98  %
Allowance for loan losses as a percentage of total loans held for investment excluding PPP loans   1.25  %   1.24  %   0.98  %
Allowance for loan losses as a percentage of nonperforming loans   144.21  %   211.76  %   120.04  %
Allowance for loan losses as a percentage of nonperforming assets   144.21  %   197.63  %   120.04  %
Accruing loans held for investment past due 30 - 89 days   $ 1,233      $ 353      $ 1,767   

(1) Excludes purchased credit impaired loans with a net carrying value of $792 thousand, $1.0 million and $1.1 million at September 30, 2020, June 30, 2020 and December 31, 2019.

GAAP to Non-GAAP Reconciliation

The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for: (1) efficiency ratio, (2) pre-tax pre-provision income, (3) average tangible common equity, (4) return on average tangible common equity, (5) tangible common equity, (6) tangible assets, (7) tangible common equity to tangible asset ratio, and (8) tangible book value per share. We believe the presentation of certain non-GAAP financial measures provides useful information to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

  Three Months Ended   Nine Months Ended September 30,
  September 30, 2020   June 30,
2020
  September 30, 2019   2020   2019
Efficiency Ratio (dollars in thousands)
Noninterest expense (numerator) $ 11,528      $ 11,100      $ 10,651      $ 34,147      $ 31,956   
                   
Net interest income $ 21,726      $ 20,304      $ 21,026      $ 61,203      $ 59,054   
Plus: Noninterest income 1,943      1,055      1,673      4,413      6,117   
Total net interest income and noninterest income (denominator) $ 23,669      $ 21,359      $ 22,699      $ 65,616      $ 65,171   
Efficiency ratio 48.7  %   52.0  %   46.9  %   52.0  %   49.0  %
                   
Pre-tax pre-provision income                  
Net interest income $ 21,726      $ 20,304      $ 21,026      $ 61,203      $ 59,054   
Noninterest income 1,943      1,055      1,673      4,413      6,117   
Total net interest income and noninterest income 23,669      21,359      22,699      65,616      65,171   
Less: Noninterest expense 11,528      11,100      10,651      34,147      31,956   
Pre-tax pre-provision income $ 12,141      $ 10,259      $ 12,048      $ 31,469      $ 33,215   
                   
Return on Average Assets, Equity, Tangible Equity                  
Net income $ 7,881      $ 5,730      $ 8,071      $ 18,157      $ 21,890   
                   
Average assets $ 2,254,461      $ 2,109,208      $ 1,620,804      $ 2,031,175      $ 1,574,960   
Average shareholders' equity 270,903      268,168      257,158      267,990      252,362   
Less: Average intangible assets 78,696      78,901      79,535      78,888      79,730   
Average tangible common equity $ 192,207      $ 189,267      $ 177,623      $ 189,102      $ 172,632   
                   
Return on average assets 1.39  %   1.09  %   1.98  %   1.19  %   1.86  %
Return on average equity 11.57  %   8.59  %   12.45  %   9.05  %   11.60  %
Return on average tangible common equity 16.31  %   12.18  %   18.03  %   12.83  %   16.95  %


  As of
  September 30, 2020   June 30,
2020
  December 31, 2019
Tangible Common Equity Ratio/Tangible Book Value Per Share (dollars in thousands, except per share amounts)
Shareholders' equity $ 272,471      $ 266,949      $ 261,805   
Less: Intangible assets 78,574      78,767      79,153   
Tangible common equity $ 193,897      $ 188,182      $ 182,652   
           
Total assets $ 2,256,342      $ 2,223,603      $ 1,690,324   
Less: Intangible assets 78,574      78,767      79,153   
Tangible assets $ 2,177,768      $ 2,144,836      $ 1,611,171   
           
Equity to assets ratio 12.08  %   12.01  %   15.49  %
Tangible common equity to tangible asset ratio 8.90  %   8.77  %   11.34  %
           
Shares outstanding 11,705,878      11,697,766      11,635,531   
Book value per share $ 23.28      $ 22.82      $ 22.50   
Tangible book value per share $ 16.56      $ 16.09      $ 15.70   
           
           

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