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

First Choice Bancorp
43 min read
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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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