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First Choice Bancorp Announces Fourth Quarter and Full Year 2020 Financial Results

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Fourth Quarter Highlights

  • Net income of $10.8 million, up 37.0% over Q3'20 and up 81.2% over Q4'19
  • Diluted earnings per common share of $0.92, up 37.3% over Q3'20 and up 80.4% over Q4'19
  • Pre-tax pre-provision income was $15.4 million, up 26.9% from Q3'20 and up 62.0% over Q4'19
  • Net interest margin of 4.31%, up 26 bps from Q3'20 and down 54 bps from Q4'19
  • Cost of funds of 0.27%, down 2 bps from Q3'20 and down 50 bps from Q4'19
  • Return on average assets of 1.88%, compared to 1.39% for Q3'20 and 1.40% for Q4'19
  • Return on average equity of 15.44%, compared to 11.57% for Q3'20 and 9.02% for Q4'19
  • Efficiency ratio of 44.4%, compared to 48.7% for Q3'20 and 54.3% for Q4'19
  • Provision for loan loss expense of $100 thousand, down $900 thousand from Q3'20 and down $1.1 million from Q4'19
  • Total loans held for investment excluding Paycheck Protection Program ("PPP") loans increased $66.0 million from Q3'20, or 17.7% annualized
  • Noninterest-bearing demand deposits increased $84.6 million, up 11.5% over Q3'20, up 31.0% over Q4'19 and represented 50.2% of total deposits at December 31, 2020
  • Tangible book value per share of $17.29, up $0.73 per share from Q3'20 and up $1.59 per share from Q4'19
  • Community bank leverage ratio (preliminary) was 10.28% at December 31, 2020
  • Quarterly cash dividend of $0.25 per share

Full Year Highlights

  • Net income of $29.0 million, up 4.0% over 2019
  • Diluted EPS of $2.47 per share, up 4.7% over 2019
  • Pre-tax pre-provision income of $46.9 million, up 9.7% from 2019
  • Net interest margin of 4.28%, down 96 bps from 2019
  • Cost of funds of 0.38%, down 53 bps from 2019
  • Return on average assets of 1.38%, compared to 1.74% in 2019
  • Return on average equity of 10.70%, compared to 10.93% in 2019
  • Efficiency ratio of 49.8%, compared to 50.3% in 2019
  • Provision for loan loss expense of $5.9 million, up $3.1 million due primarily to COVID-19 and organic loan growth
  • Total loans held for investment excluding PPP loans increased $186.0 million, an increase of 13.5% over 2019
  • Noninterest-bearing demand deposits increased $194.1 million, up 31.0% over 2019
  • Cash dividends paid totaling $1.00 per share

COVID-19 Updates

  • At December 31, 2020, PPP loans outstanding principal before net deferred fees totaled $326.7 million
  • $73 million of PPP loans were forgiven by the SBA or repaid by the borrowers as of December 31, 2020
  • Originated 32 loans under the Main Street Lending Program totaling $172.2 million in principal and sold 95% participation interest to Main Street Lending Facilities, resulting in a gain on sale of $1.1 million for the year ended 2020
  • Continue leveraging technology to increase operational efficiencies and employee productivity

Cerritos, CA, Jan. 26, 2021 (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 $10.8 million for the fourth quarter of 2020, or $0.92 per diluted share, compared to net income of $7.9 million, or $0.67 per diluted share, for the third quarter of 2020. Pre-tax pre-provision income was $15.4 million for the fourth quarter of 2020, an increase of $3.3 million, compared to the pre-tax pre-provision income of $12.1 million for the third quarter of 2020.

Net income for the full year of 2020 was $29.0 million, or $2.47 per diluted share, compared to net income for the full year 2019 of $27.8 million, or $2.36 per diluted share. Pre-tax pre-provision income was $46.9 million for the full year of 2020, an increase of $4.2 million, compared to the pre-tax pre-provision income of $42.7 million for the full year of 2019. Financial results for the full year of 2020 include a provision for loan losses of $5.9 million, compared to a $2.8 million provision for loan losses for the full year of 2019. 

"First Choice finished 2020 with strong fourth quarter results, bringing to close a year in which we navigated a challenging environment while delivering high-quality results," said Peter Hui, Chairman of the Board of the Company. "We believe that we are entering 2021 well-positioned for continued profitable growth in this still uncertain environment. I am proud of how the First Choice team tirelessly worked together last year to be ‘First in Speed, Service, and Solutions'. The daily efforts of our employees and the pride they take in their work are what makes First Choice successful."

"The fourth quarter demonstrated the strength of our bank as we continued to profitably grow core assets and improve our deposit franchise," said Robert M. Franko, President and CEO of the Company. "We remain focused on becoming Southern California's premier community bank, despite the pandemic's disruption to the economy and people's lives. Last year, we used the Paycheck Protection and Main Street Lending programs to provide hundreds of millions of dollars of financial support to our clients and communities the Company serves. We expect to be involved in government programs again this year to help our local businesses weather the deleterious effects of the pandemic on their operations and employees. We know that uncertainty remains, however, we are optimistic about the future and we remain focused on profitable growth and continuing to deliver exceptional value to our clients and our shareholders."

STATEMENT OF INCOME

Net Interest Income

Net interest income for the fourth quarter of 2020 totaled $23.5 million, an increase of $1.8 million from the third quarter of 2020 due to higher interest income of $1.7 million, coupled with lower interest expense of $88 thousand. The increase in net interest income was due primarily to the accelerated accretion of deferred fee income from PPP loan forgiveness, organic loan growth, and lower cost of funds. Average loans decreased by $7.0 million due primarily to average PPP loan forgiveness of $27.0 million, which was offset by average organic loan growth of $20.0 million in the fourth quarter of 2020. The decrease in interest expense for the fourth quarter of 2020 was due primarily to run-off of higher-cost time deposits. Interest expense on interest-bearing deposits decreased $71 thousand, coupled with a decrease of $17 thousand on total borrowings. Interest expense on the PPP Liquidity Facility ("PPPLF") was $216 thousand for the fourth quarter of 2020, compared to $212 thousand in the third quarter of 2020 due to higher average borrowings.

Net Interest Margin

The net interest margin for the fourth quarter of 2020 increased 26 basis points to 4.31% from 4.05% for the third quarter of 2020. The increase in the net interest margin was due primarily to a 38 basis point increase in loan yields (including fees and discounts), coupled with a 2 basis point decrease in total funding costs. The increase in loan yields was due primarily to the accelerated net deferred fee income from PPP loan forgiveness in the fourth quarter of 2020. The accelerated net deferred fee income from PPP loan forgiveness totaled $1.8 million and contributed 32 basis points to the net interest margin and 37 basis points to the loan yield in the fourth quarter of 2020. There was no similar income in the third quarter of 2020. The net interest margin without PPP loans was 4.30% and 4.41% for the fourth and third quarter of 2020, respectively. 

The decrease in the other interest-earning assets yield was driven by lower market interest rates. The weighted average loan yield for PPP loans was 4.62% including the accelerated accretion of deferred fee income from PPP loan forgiveness, or 2.68% without the accelerated accretion income. The yield on loans, excluding PPP loans, was stable at 5.28% and 5.31% for the fourth and third quarters of 2020, respectively.

The cost of funds decreased to 0.27% for the fourth quarter of 2020, compared to 0.29% for the third quarter of 2020, due primarily to lower market interest rates and run-off of higher-cost time deposits. Average noninterest-bearing demand deposits increased $64.2 million to $794.5 million and represented 49.7% of total average deposits for the fourth quarter of 2020, compared to $730.3 million, or 46.5% of total average deposits, for the third quarter of 2020. The increase in average noninterest-bearing demand deposits was attributable to core customer growth during the fourth quarter of 2020. The total cost of deposits decreased 3 basis points to 0.22% for the fourth quarter of 2020, compared to 0.25% for the third quarter of 2020.

Average borrowings and senior secured notes decreased $5.1 million and $2.4 million to $147.7 million and $2.3 million, respectively for the fourth quarter of 2020. These decreases were partially offset by a slight increase of $4.0 million in average PPPLF outstanding during the fourth quarter of 2020 with an average interest rate of 0.35%. The average cost of borrowings remained relatively stable at 0.55% for the fourth quarter of 2020. The average cost of senior secured notes was 3.50% for the fourth quarter of 2020.

Provision for Loan Losses

The provision for loan losses for the fourth quarter of 2020 decreased $900 thousand to $100 thousand, compared to $1.0 million for the third quarter of 2020. The decrease in the fourth quarter provision for loan losses was driven primarily by $333 thousand in net recoveries, a decrease in specific reserves of $98 thousand from special asset resolutions, and lower historical loss rates in the fourth quarter of 2020, partially offset with the increased reserves required for organic loan growth. With the recent extension of stay-at-home orders and an increase in reported COVID cases in the fourth quarter of 2020, the timing of an economic recovery continues to remain uncertain. Accordingly, the assumptions underlying the COVID-19 related qualitative factors we analyzed in determining the adequacy of the provision for loan losses included (a) uncertain and volatile macro-economic conditions caused by the pandemic; (b) a stabilized unemployment rate; and (c) the additional government stimulus package signed into law in December of 2020. No provision for loan losses was recognized on PPP loans as the SBA guarantees 100% of loan principal under the program.

Noninterest Income

Noninterest income for the fourth quarter of 2020 was $4.2 million, an increase of $2.3 million from $1.9 million for the third quarter of 2020. The increase was due primarily to higher gains on loan sales. SBA loans sold during the fourth quarter of 2020 totaled $36.7 million resulting in a gain on sale of $2.6 million, compared to $6.2 million resulting in a gain on sale of $504 thousand for the third quarter of 2020. Gain on loan sales for the fourth quarter of 2020 also included the sale of 95% participation interests in the Main Street loans resulting in gains of $660 thousand, compared to $486 thousand in the third quarter of 2020. 

Noninterest Expense

Noninterest expense increased $793 thousand to $12.3 million for the fourth quarter of 2020 from $11.5 million for the third quarter of 2020. This increase was due primarily to higher salaries and employee benefit expenses and higher data processing expenses, partially offset by lower FDIC assessment fees. 

The $758 thousand increase in salaries and employee benefits was due primarily to higher incentive accruals resulting from an increase in organic loan production and PPP loan incentives approved in the fourth quarter of 2020.

The efficiency ratio remained favorable and decreased to 44.4% in the fourth quarter of 2020, compared to 48.7% in the third quarter of 2020. The lower efficiency ratio in the fourth quarter of 2020 was driven primarily by higher revenues including gains from SBA and Main Street loan sales.

Income Taxes

Income tax expense was $4.5 million for the fourth quarter of 2020 compared to $3.3 million for the third quarter of 2020. The effective tax rate was 29.5% for the fourth quarter of 2020 and 29.3% for the third quarter of 2020. The effective tax rate for the full year of 2020 was 29.3%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment decreased $4.2 million in the fourth quarter of 2020 to $1.88 billion at December 31, 2020 due primarily to the $73 million of payments received from PPP loans in the fourth quarter of 2020, partially offset by organic loan growth and the Company's participation in the Main Street Lending program. Loans held for sale decreased $26.5 million to $9.9 million as $36.7 million of SBA 7a loans were sold in the fourth quarter of 2020. These sales were partially offset by SBA 7a loan originations held for sale of $10.1 million during the fourth quarter of 2020.

New loan commitments from organic growth and Main Street loans, totaled $202.9 million for the fourth quarter of 2020, compared to $226.1 million for the third quarter of 2020 and included $107.9 million in construction and commercial real estate loans, $43.8 million in commercial and industrial loans, and $51.2 million of SBA loans. 

Total unfunded loan commitments increased $42.4 million to $433.3 million at December 31, 2020 from $390.9 million at September 30, 2020 due to new commitments and higher repayments, partially offset by higher utilization on existing lines of credit. During the fourth quarter of 2020, new unfunded commitments totaled $77.7 million and borrower drawdown on existing lines of credit totaled $63.4 million.

PPP Loans

PPP loans, net of deferred fees of $6.6 million, totaled $320.1 million at December 31, 2020, compared to $390.2 million at September 30, 2020. The net deferred fees are being accreted to income based on the two-year contractual maturity, and are accelerated to interest income upon forgiveness or early payoff. At December 31, 2020, the Company had not originated any PPP loans having a 5-year contractual maturity. 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.

The SBA began approving forgiveness applications and making payments as forgiveness was approved in the fourth quarter of 2020. At December 31, 2020, approximately $73 million of PPP loans were forgiven by the SBA or repaid by the borrowers. The net deferred fees of $1.8 million was accelerated to income at the time of SBA forgiveness or borrower repayments. The Company plans to participate in the First Draw and Second Draw PPP Loan Program signed into law on December 27, 2020 as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Act), which was included in the Consolidated Appropriations Act, 2021. 

Main Street Lending Program

The Company participated in the Main Street Lending Program in the second half of 2020. During the fourth quarter of 2020, the Bank originated 28 loans under the Main Street Lending Program totaling $102.4 million in principal and sold 95% participation interests totaling $97.3 million to the Main Street Facilities, LLC, a special purpose vehicle ("SPV"), resulting in a gain on sale of $660 thousand. For the full year of 2020, the Bank originated 32 loans under the Main Street Lending Program totaling $172.2 million in principal and sold 95% participation interests totaling $163.6 million to the SPV, resulting in a gain on sale of $1.1 million. The Bank retains servicing rights with respect to the Main Street loans it participated to the SPV for which it receives a 25-basis point fee annually. The program expired on January 8, 2021.

Deposits

Total deposits increased $74.2 million from the prior quarter to $1.63 billion at December 31, 2020 due primarily to an increase in noninterest-bearing deposit accounts, partially offset by decreases in interest-bearing nonmaturity deposits and time deposit accounts.

At December 31, 2020, total noninterest-bearing demand deposits increased $84.6 million to $820.7 million and represented 50.2% of total deposits, compared to $736.1 million and 47.2% of total deposits at September 30, 2020. This increase was due primarily to the increase in core customer deposits, partially offset by the decrease in PPP deposits as customers used the PPP funds during the fourth quarter of 2020. Interest-bearing nonmaturity deposits decreased $10.0 million due primarily to a decrease in brokered deposits, partially offset by increases in core customer interest checking and money market deposit accounts. 

Borrowings

At December 31, 2020, FHLB borrowings decreased $5.0 million to $145.0 million in the fourth quarter of 2020, compared to $150.0 million at September 30, 2020. The Company's borrowings under the PPPLF totaled $204.7 million, a decrease of $48.4 million in the fourth quarter of 2020, compared to $253.1 million at September 30, 2020. The decreases were due primarily to the additional liquidity received from PPP loan forgiveness and the growth in noninterest-bearing deposits during the fourth quarter of 2020. At December 31, 2020, senior secured notes totaled $2.0 million, a decrease of $2.4 million in the fourth quarter of 2020, compared to $4.4 million at September 30, 2020. The Company was able to paydown the senior secured notes due to increased earnings in the fourth quarter of 2020. 

Credit Quality

Nonperforming loans decreased to $6.4 million at December 31, 2020, compared to $13.0 million at September 30, 2020, representing 0.34% and 0.69% of total loans held for investment, respectively. The decrease in nonperforming loans was due primarily to the resolution of three loan relationships totaling $6.0 million during the fourth quarter of 2020. A single non-accrual loan of $202 thousand was classified as a new non-accrual troubled-debt restructurings ("TDR") during the fourth quarter of 2020. There were no loans over 90 days past due that were still accruing interest at December 31, 2020. Substandard loans increased $373 thousand to $18.4 million, compared to $18.0 million at September 30, 2020, due primarily to seven loans totaling $7.4 million from three loan relationships being downgraded to substandard, partially offset by the resolution of nonperforming loans and payoffs. Net recoveries for the fourth quarter of 2020 were $333 thousand, or 0.07% of average loans on an annualized basis, compared to net charge-offs of $88 thousand or 0.02% of average loans on an annualized basis for the third quarter of 2020. Nonperforming assets totaled $6.4 million at December 31, 2020, compared to $13.0 million at September 30, 2020, and represented 0.28% and 0.58% of total assets, respectively.

Loan delinquencies (30-89 days past due) totaled $54 thousand at December 31, 2020, compared to $1.2 million at September 30, 2020.

The allowance for loan losses increased 2.3% to $19.2 million and represented 1.02% of total loans held for investment and 297.35% of nonperforming loans at December 31, 2020, compared to 0.99% and 144.21% at September 30, 2020, respectively. The allowance for loan losses as a percentage of total loans held for investment excluding PPP loans, was 1.23% at December 31, 2020. At December 31, 2020, the net carrying value of acquired loans totaled $164.5 million and included a remaining net discount of $3.9 million. The discount is available to absorb losses on the acquired loans and represented 2.4% of the net carrying value of acquired loans and 0.21% 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. Although, the minimum CBLR was originally set at 9%, 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 these interim rules, the minimum CBLR was set at 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 December 31, 2020, the Bank's preliminary CBLR ratio was 10.28% which exceeded the regulatory capital requirements of the CBLR framework and, accordingly, the Bank is considered to be ‘‘well-capitalized''.

Stock Repurchase Program

The Company suspended the stock repurchase program on March 17, 2020. There were no repurchases of common stock since the second quarter of 2020. The remaining number of shares authorized to be repurchased under this program was 695,489 shares at December 31, 2020.

Sale of Rowland Heights Branch

During the fourth quarter of 2020, the Company entered into an agreement to sell its Rowland Heights branch office, consisting primarily of deposits of approximately $29 million at December 31, 2020; no loans will be sold as part of the transaction. The parties have received the requisite regulatory approvals and non-objections to consummate the transaction which is expected to close in January of 2021. 

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 December 31, 2020, First Choice Bancorp had total consolidated assets of $2.28 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 December 31, 2020, more than 74% 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 and Chief Financial Officer

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

First Choice Bank
Mag Wangsuwana, 562.263.8340
Senior Vice President and Chief Financial Officer

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

    At or for the Three Months Ended     At or for the Year Ended  
    December 31,
2020
    September 30,
2020
    December 31,
2019
    December 31,
2020
    December 31,
2019 (audited)
 
    (dollars in thousands, except per share amounts)  
Total interest and dividend income   $ 24,873     $ 23,154     $ 21,953     $ 91,615     $ 90,354  
Total interest expense     1,340       1,428       2,745       6,879       12,092  
Net interest income     23,533       21,726       19,208       84,736       78,262  
Total noninterest income     4,194       1,943       1,583       8,607       7,700  
Total net interest income and noninterest income     27,727       23,669       20,791       93,343       85,962  
Total noninterest expense     12,321       11,528       11,284       46,468       43,240  
Pre-tax pre-provision income (1)     15,406       12,141       9,507       46,875       42,722  
Provision for loan losses     100       1,000       1,200       5,900       2,800  
Income before taxes     15,306       11,141       8,307       40,975       39,922  
Income taxes     4,512       3,260       2,349       12,024       12,074  
NET INCOME   $ 10,794     $ 7,881     $ 5,958     $ 28,951     $ 27,848  
                                         
Total assets   $ 2,283,115     $ 2,256,342     $ 1,690,324     $ 2,283,115     $ 1,690,324  
Total loans held for investment     1,880,777       1,884,930       1,374,675       1,880,777       1,374,675  
Total loans held for investment excluding PPP loans     1,560,687       1,494,715       1,374,675       1,560,687       1,374,675  
Noninterest-bearing deposits     820,711       736,118       626,569       820,711       626,569  
Total deposits     1,634,158       1,559,912       1,313,693       1,634,158       1,313,693  
Dividends declared per common share   $ 0.25     $ 0.25     $ 0.25     $ 1.00     $ 0.85  
Net income per share-diluted   $ 0.92     $ 0.67     $ 0.51     $ 2.47     $ 2.36  
Return on average assets     1.88 %     1.39 %     1.40 %     1.38 %     1.74 %
Return on average equity     15.44 %     11.57 %     9.02 %     10.70 %     10.93 %
Return on average tangible common equity (1)     21.52 %     16.31 %     12.95 %     15.10 %     15.90 %
Net interest margin     4.31 %     4.05 %     4.85 %     4.28 %     5.24 %
Average loan yield     5.15 %     4.77 %     6.21 %     5.15 %     6.54 %
Cost of deposits     0.22 %     0.25 %     0.71 %     0.34 %     0.81 %
Cost of funds     0.27 %     0.29 %     0.77 %     0.38 %     0.91 %
Efficiency ratio (1)     44.4 %     48.7 %     54.3 %     49.8 %     50.3 %
Noninterest-bearing deposits to total deposits     50.2 %     47.2 %     47.7 %     50.2 %     47.7 %
Equity to assets ratio     12.30 %     12.08 %     15.49 %     12.30 %     15.49 %
Tangible common equity to tangible asset ratio (1)     9.18 %     8.90 %     11.34 %     9.18 %     11.34 %
Book value per share   $ 23.98     $ 23.28     $ 22.50     $ 23.98     $ 22.50  
Tangible book value per share (1)   $ 17.29     $ 16.56     $ 15.70     $ 17.29     $ 15.70  

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

    December 31,
2020
    September 30,
2020
    December 31,
2019
(audited)
 
    (dollars in thousands, except per share amounts)  
ASSETS                        
Cash and due from banks   $ 18,011     $ 23,611     $ 27,359  
Interest-bearing deposits at other banks     218,370       157,925       134,442  
Total cash and cash equivalents     236,381       181,536       161,801  
Investment securities, available-for-sale     42,027       37,999       26,653  
Investment securities, held-to-maturity     1,358       1,680       5,056  
Equity securities, at fair value     2,798       2,792       2,694  
Restricted stock investments, at cost     12,999       12,999       12,986  
Loans held for sale     9,932       36,474       7,659  
Total loans held for investment     1,880,777       1,884,930       1,374,675  
Allowance for loan losses     (19,167 )     (18,734 )     (13,522 )
Total loans held for investment, net     1,861,610       1,866,196       1,361,153  
Accrued interest receivable     9,569       11,500       5,451  
Premises and equipment     2,149       2,341       1,542  
Servicing asset     2,860       2,368       3,202  
Deferred taxes     7,385       6,095       6,163  
Goodwill     73,425       73,425       73,425  
Core deposit intangible     4,956       5,149       5,728  
Other assets     15,666       15,788       16,811  
TOTAL ASSETS   $ 2,283,115     $ 2,256,342     $ 1,690,324  
                         
LIABILITIES AND SHAREHOLDERS' EQUITY                        
Deposits:                        
Noninterest-bearing demand   $ 820,711     $ 736,118     $ 626,569  
Money market, interest checking and savings     639,630       649,613       514,366  
Time deposits     173,817       174,181       172,758  
Total deposits     1,634,158       1,559,912       1,313,693  
Borrowings     145,000       150,000       90,000  
Paycheck Protection Program Liquidity Facility     204,719       253,140        
Senior secured notes     2,000       4,400       9,600  
Accrued interest payable and other liabilities     16,497       16,419       15,226  
Total liabilities     2,002,374       1,983,871       1,428,519  
Total shareholders' equity     280,741       272,471       261,805  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 2,283,115     $ 2,256,342     $ 1,690,324  
                         
Shares outstanding     11,705,684       11,705,878       11,635,531  
Book value per share   $ 23.98     $ 23.28     $ 22.50  
Tangible book value per share (1)   $ 17.29     $ 16.56     $ 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     Year Ended December 31,  
    December 31,
2020
    September 30,
2020
    December 31,
2019
    2020     2019  
    (dollars in thousands, except per share amounts)  
INTEREST and DIVIDEND INCOME                                        
Interest and fees on loans   $ 24,411     $ 22,671     $ 20,741     $ 89,210     $ 86,207  
Interest on investment securities     154       180       194       777       853  
Interest on deposits at other financial institutions     129       103       805       825       2,405  
Dividends on FHLB and other stock     179       200       213       803       889  
Total interest and dividend income     24,873       23,154       21,953       91,615       90,354  
INTEREST EXPENSE                                        
Interest on savings, interest checking and money market accounts     344       382       1,222       2,153       4,998  
Interest on time deposits     555       588       1,200       2,994       5,273  
Interest on borrowings     205       207       176       985       1,143  
Interest on PPP Liquidity Facility     216       212             540        
Interest on senior secured notes     20       39       147       207       678  
Total interest expense     1,340       1,428       2,745       6,879       12,092  
Net interest income     23,533       21,726       19,208       84,736       78,262  
Provision for loan losses     100       1,000       1,200       5,900       2,800  
Net interest income after provision for loan losses     23,433       20,726       18,008       78,836       75,462  
NONINTEREST INCOME                                        
Gain on sale of loans     3,286       990       947       4,653       3,674  
Service charges and fees on deposit accounts     468       495       363       1,965       1,942  
Net servicing fees     201       228       87       644       850  
Other income     239       230       186       1,345       1,234  
Total noninterest income     4,194       1,943       1,583       8,607       7,700  
NONINTEREST EXPENSE                                        
Salaries and employee benefits     7,884       7,126       6,139       28,626       25,691  
Occupancy and equipment     1,168       1,137       1,893       4,476       5,406  
Data processing     1,017       955       903       3,653       2,864  
Professional fees     462       492       396       1,875       1,633  
Office, postage and telecommunications     300       274       252       1,121       1,032  
Deposit insurance and regulatory assessments     318       386       47       963       392  
Loan related     84       59       165       644       694  
Customer service related     60       81       568       841       1,755  
Amortization of core deposit intangible     192       193       258       771       848  
Other expenses     836       825       663       3,498       2,925  
Total noninterest expense     12,321       11,528       11,284       46,468       43,240  
Income before taxes     15,306       11,141       8,307       40,975       39,922  
Income taxes     4,512       3,260       2,349       12,024       12,074  
Net income   $ 10,794     $ 7,881     $ 5,958     $ 28,951     $ 27,848  
                                         
Net income per share - diluted   $ 0.92     $ 0.67     $ 0.51     $ 2.47     $ 2.36  
Weighted average shares - diluted     11,620,582       11,612,270       11,607,176       11,617,780       11,687,089  

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

    Three Months Ended  
    December 31, 2020     September 30, 2020     December 31, 2019  
    Average
Balance
    Interest
Income / Expense
    Yield / Cost     Average
Balance
    Interest
Income / Expense
    Yield / Cost     Average
Balance
    Interest
Income / Expense
    Yield / Cost  
      (dollars in thousands)  
Interest-earning assets:                                                                        
Loans (1)   $ 1,885,451     $ 24,411       5.15 %   $ 1,892,450     $ 22,671       4.77 %   $ 1,325,748     $ 20,741       6.21 %
Investment securities     46,292       154       1.32 %     43,154       180       1.66 %     34,483       194       2.23 %
Deposits at other financial institutions     223,939       129       0.23 %     184,606       103       0.22 %     198,082       805       1.61 %
Restricted stock investments and other bank stocks     15,056       179       4.73 %     14,534       200       5.47 %     14,078       213       6.00 %
Total interest-earning assets     2,170,738       24,873       4.56 %     2,134,744       23,154       4.31 %     1,572,391       21,953       5.54 %
                                                                         
Noninterest-earning assets     117,467                       119,717                       116,193                  
Total assets   $ 2,288,205                     $ 2,254,461                     $ 1,688,584                  
                                                                         
Interest-bearing liabilities:                                                                        
Interest checking   $ 276,539     $ 119       0.17 %   $ 279,945     $ 111       0.16 %   $ 135,732     $ 324       0.95 %
Money market accounts     317,173       214       0.27 %     338,970       260       0.31 %     301,552       841       1.11 %
Savings accounts     32,655       11       0.13 %     31,639       11       0.14 %     30,243       57       0.75 %
Time deposits     78,775       134       0.68 %     81,837       201       0.98 %     131,603       567       1.71 %
Brokered time deposits     97,749       421       1.71 %     107,347       387       1.43 %     103,094       633       2.44 %
Total interest-bearing deposits     802,891       899       0.45 %     839,738       970       0.46 %     702,224       2,422       1.37 %
Borrowings     147,663       205       0.55 %     152,762       207       0.54 %     37,826       176       1.85 %
Paycheck Protection Program Liquidity Facility     244,638       216       0.35 %     240,602       212       0.35 %                 N/A  
Senior secured notes     2,252       20       3.50 %     4,620       39       3.36 %     11,171       147       5.22 %
Total interest-bearing liabilities     1,197,444       1,340       0.45 %     1,237,722       1,428       0.46 %     751,221       2,745       1.45 %
                                                                         
Noninterest-bearing liabilities:                                                                        
Demand deposits     794,542                       730,306                       658,654                  
Other liabilities     18,170                       15,530                       16,793                  
Shareholders' equity     278,049                       270,903                       261,916                  
                                                                         
Total liabilities and shareholders' equity   $ 2,288,205                     $ 2,254,461                     $ 1,688,584                  
                                                                         
Net interest spread           $ 23,533       4.11 %           $ 21,726       3.85 %           $ 19,208       4.09 %
Net interest margin                     4.31 %                     4.05 %                     4.85 %
                                                                         
Total deposits   $ 1,597,433     $ 899       0.22 %   $ 1,570,044     $ 970       0.25 %   $ 1,360,878     $ 2,422       0.71 %
Total funding sources   $ 1,991,986     $ 1,340       0.27 %   $ 1,968,028     $ 1,428       0.29 %   $ 1,409,875     $ 2,745       0.77 %

(1) Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes the accretion of net deferred loan fees of $3.4 million, of which $1.8 million related to the accelerated accretion of deferred fee income from PPP loans for the three months ended December 31, 2020. For the three months ended September 30, 2020 and December 31, 2019, the accretion of net deferred loan fees were $1.7 million and $237 thousand, and there was no accelerated accretion of deferred fee income from PPP loans. In addition, interest income includes $287 thousand, $835 thousand and $806 thousand of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

    Year Ended December 31,  
    2020     2019  
    Average
Balance
    Interest
Income / Expense
    Yield / Cost     Average
Balance
    Interest
Income / Expense
    Yield / Cost  
      (dollars in thousands)  
Interest-earning assets:        
Loans (1)   $ 1,731,049     $ 89,210       5.15 %   $ 1,317,345     $ 86,207       6.54 %
Investment securities     42,064       777       1.85 %     35,883       853       2.38 %
Deposits at other financial institutions     188,345       825       0.44 %     124,506       2,375       1.91 %
Federal funds sold/resale agreements                 N/A       1,243       30       2.41 %
Restricted stock investments and other bank stocks     14,663       803       5.48 %     13,973       889       6.36 %
Total interest-earning assets     1,976,121       91,615       4.64 %     1,492,950       90,354       6.05 %
                                                 
Noninterest-earning assets     119,663                       110,650                  
Total assets   $ 2,095,784                     $ 1,603,600                  
                                                 
Interest-bearing liabilities:                                                
Interest checking   $ 241,275     $ 592       0.25 %   $ 120,494     $ 1,268       1.05 %
Money market accounts     318,216       1,481       0.47 %     278,075       3,498       1.26 %
Savings accounts     30,674       80       0.26 %     30,608       232       0.76 %
Time deposits     92,242       1,117       1.21 %     149,921       2,647       1.77 %
Brokered time deposits     97,102       1,877       1.93 %     107,958       2,626       2.43 %
Total interest-bearing deposits     779,509       5,147       0.66 %     687,056       10,271       1.49 %
Borrowings     134,696       985       0.73 %     49,914       1,143       2.29 %
Paycheck Protection Program Liquidity Facility     153,679       540       0.35 %                 N/A  
Senior secured notes     5,401       207       3.83 %     11,933       678       5.68 %
Total interest-bearing liabilities     1,073,285       6,879       0.64 %     748,903       12,092       1.61 %
                                                 
Noninterest-bearing liabilities:                                                
Demand deposits     735,129                       586,508                  
Other liabilities     16,849                       13,419                  
Shareholders' equity     270,521                       254,770                  
                                                 
Total liabilities and shareholders' equity   $ 2,095,784                     $ 1,603,600                  
                                                 
Net interest spread           $ 84,736       4.00 %           $ 78,262       4.44 %
Net interest margin                     4.28 %                     5.24 %
                                                 
Total deposits   $ 1,514,638     $ 5,147       0.34 %   $ 1,273,564     $ 10,271       0.81 %
Total funding sources   $ 1,808,414     $ 6,879       0.38 %   $ 1,335,411     $ 12,092       0.91 %

(1) Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes the accretion of net deferred loan fees of $6.7 million, of which $1.8 million related to the accelerated accretion of deferred fee income from PPP loans for the year ended December 31, 2020. For the year ended December 31, 2019, the accretion of net deferred loan fees were $958 thousand and there was no accelerated accretion of deferred fee income from PPP loans. In addition, interest income includes $2.2 million and $4.6 million of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the years ended December 31, 2020 and 2019.

First Choice Bancorp and Subsidiary

Loan Composition

    December 31, 2020     September 30, 2020     December 31, 2019  
    Amount     Percentage of Total     Amount     Percentage of Total     Amount     Percentage of Total  
    (dollars in thousands)  
Construction and land development   $ 229,394       12.1 %   $ 215,109       11.3 %   $ 249,504       18.1 %
Real estate:                                                
Residential     27,683       1.5 %     30,067       1.6 %     43,736       3.2 %
Commercial real estate - owner occupied     165,581       8.8 %     159,603       8.4 %     171,595       12.5 %
Commercial real estate - non-owner occupied     533,270       28.2 %     528,201       27.9 %     423,823       30.8 %
Commercial and industrial     370,814       19.6 %     361,170       19.0 %     309,011       22.5 %
SBA loans (1)     562,842       29.8 %     602,407       31.8 %     177,633       12.9 %
Consumer     1       %     8       %     430       %
Total loans held for investment, net of discounts   $ 1,889,585       100.0 %   $ 1,896,565       100.0 %   $ 1,375,732       100.0 %
Net deferred loan fees (1)     (8,808 )             (11,635 )             (1,057 )        
Total loans held for investment   $ 1,880,777             $ 1,884,930             $ 1,374,675          
Allowance for loan losses     (19,167 )             (18,734 )             (13,522 )        
Total loans held for investment, net   $ 1,861,610             $ 1,866,196             $ 1,361,153          

(1) Includes PPP loans with total outstanding principal of $326.7 million and $400.1 million and net deferred fees of $6.6 million and $9.9 million at December 31, 2020 and September 30, 2020.

Total loans held for investment

    December 31,
2020
    September 30,
2020
    December 31,
2019
 
    (dollars in thousands)  
Gross loans held for investment (1)   $ 1,897,599     $ 1,904,019     $ 1,385,142  
Unamortized net discounts (2)     (8,014 )     (7,454 )     (9,410 )
Net unamortized deferred origination fees (1)     (8,808 )     (11,635 )     (1,057 )
Total loans held for investment   $ 1,880,777     $ 1,884,930     $ 1,374,675  
  1. Includes PPP loans with total outstanding principal of $326.7 million and $400.1 million and net deferred fees of $6.6 million and $9.9 million at December 31, 2020 and September 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 December 31, 2020, net discounts related to loans acquired in the PCB acquisition totaled $3.9 million that is expected to be accreted into interest income over a weighted average remaining life of 3.8 years. At September 30, 2020 and December 31, 2019, net discounts related to loans acquired in the PCB acquisition totaled $4.3 million and $6.0 million.

Allowance for Loan losses

    Three Months Ended     Year Ended December 31,  
    December 31,
2020
    September 30,
2020
    December 31,
2019
    2020     2019  
    (dollars in thousands)  
Balance, beginning of period   $ 18,734     $ 17,822     $ 12,340     $ 13,522     $ 11,056  
Provision for loan losses     100       1,000       1,200       5,900       2,800  
Charge-offs     (5 )     (194 )     (18 )     (777 )     (579 )
Recoveries     338       106             522       245  
Net recoveries (charge-offs)     333       (88 )     (18 )     (255 )     (334 )
Balance, end of period   $ 19,167     $ 18,734     $ 13,522     $ 19,167     $ 13,522  
                                         
Annualized net recoveries (charge-offs) to average loans     0.07 %     (0.02 )%     (0.01 )%     (0.01 )%     (0.03 )%

Credit Quality (1)

    December 31,
2020
    September 30,
2020
    December 31,
2019
 
    (dollars in thousands)  
Accruing loans past due 90 days or more   $     $     $  
Non-accrual loans     6,099       12,847       11,107  
Troubled debt restructurings on non-accrual     347       144       158  
Total nonperforming loans     6,446       12,991       11,265  
Foreclosed assets                  
Total nonperforming assets   $ 6,446     $ 12,991     $ 11,265  
Troubled debt restructurings - on accrual   $ 319     $ 320     $ 321  
                         
Nonperforming loans as a percentage of total loans held for investment     0.34 %     0.69 %     0.82 %
Nonperforming assets as a percentage of total assets     0.28 %     0.58 %     0.67 %
Allowance for loan losses as a percentage of total loans held for investment     1.02 %     0.99 %     0.98 %
Allowance for loan losses as a percentage of total loans held for investment excluding PPP loans     1.23 %     1.25 %     0.98 %
Allowance for loan losses as a percentage of nonperforming loans     297.35 %     144.21 %     120.04 %
Allowance for loan losses as a percentage of nonperforming assets     297.35 %     144.21 %     120.04 %
Accruing loans held for investment past due 30 - 89 days   $ 54     $ 1,233     $ 1,767  

(1) Excludes purchased credit impaired loans with a net carrying value of $761 thousand, $792 thousand and $1.1 million at December 31, 2020, September 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     Year Ended December 31,  
    December 31, 2020     September 30,
2020
    December 31, 2019     2020     2019  
      (dollars in thousands)  
Efficiency Ratio                                        
Noninterest expense (numerator)   $ 12,321     $ 11,528     $ 11,284     $ 46,468     $ 43,240  
                                         
Net interest income     23,533       21,726       19,208       84,736       78,262  
Plus: Noninterest income     4,194       1,943       1,583       8,607       7,700  
Total net interest income and noninterest income (denominator)   $ 27,727     $ 23,669     $ 20,791     $ 93,343     $ 85,962  
Efficiency ratio     44.4 %     48.7 %     54.3 %     49.8 %     50.3 %
                                         
Pre-tax pre-provision income                                        
Net interest income   $ 23,533     $ 21,726     $ 19,208     $ 84,736     $ 78,262  
Noninterest income     4,194       1,943       1,583       8,607       7,700  
Total net interest income and noninterest income     27,727       23,669       20,791       93,343       85,962  
Less: Noninterest expense     12,321       11,528       11,284       46,468       43,240  
Pre-tax pre-provision income   $ 15,406     $ 12,141     $ 9,507     $ 46,875     $ 42,722  
                                         
Return on Average Assets, Equity, Tangible Equity                                        
Net income   $ 10,794     $ 7,881     $ 5,958     $ 28,951     $ 27,848  
                                         
Average assets     2,288,205       2,254,461       1,688,584       2,095,784       1,603,600  
Average shareholders' equity     278,049       270,903       261,916       270,521       254,770  
Less: Average intangible assets     78,501       78,696       79,336       78,790       79,631  
Average tangible common equity   $ 199,548     $ 192,207     $ 182,580     $ 191,731     $ 175,139  
                                         
Return on average assets     1.88 %     1.39 %     1.40 %     1.38 %     1.74 %
Return on average equity     15.44 %     11.57 %     9.02 %     10.70 %     10.93 %
Return on average tangible common equity     21.52 %     16.31 %     12.95 %     15.10 %     15.90 %


    As of  
    December 31, 2020     September 30,
2020
    December 31, 2019  
      (dollars in thousands, except per share amounts)  
Tangible Common Equity Ratio/Tangible Book Value Per Share        
Shareholders' equity   $ 280,741     $ 272,471     $ 261,805  
Less: Intangible assets     78,381       78,574       79,153  
Tangible common equity   $ 202,360     $ 193,897     $ 182,652  
                         
Total assets   $ 2,283,115     $ 2,256,342     $ 1,690,324  
Less: Intangible assets     78,381       78,574       79,153  
Tangible assets   $ 2,204,734     $ 2,177,768     $ 1,611,171  
                         
Equity to assets ratio     12.30 %     12.08 %     15.49 %
Tangible common equity to tangible asset ratio     9.18 %     8.90 %     11.34 %
                         
Shares outstanding     11,705,684       11,705,878       11,635,531  
Book value per share   $ 23.98     $ 23.28     $ 22.50  
Tangible book value per share   $ 17.29     $ 16.56     $ 15.70  


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