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First Choice Bancorp Announces Second Quarter 2019 Financial Results

First Choice Bancorp Announces Second Quarter 2019 Financial Results

Current Quarter Highlights

  Net income of $6.8 million, or $0.58 per diluted share
  Net interest margin of 5.14%
  Return on average assets and average equity of 1.73% and 10.86%
  Total loans held for investment increased $62.4 million, or 19.6% annualized
  Noninterest-bearing demand deposits increased $11.6 million and represented 43.6% of total deposits at June 30, 2019

Cerritos, CA, July 23, 2019 (GLOBE NEWSWIRE) -- First Choice Bancorp (FCBP) (the "Company"), the holding company of First Choice Bank (the "Bank"), today reported net income of $6.8 million for the second quarter of 2019, or $0.58 per diluted share, compared to net income of $7.0 million, or $0.59 per diluted share, for the first quarter of 2019.

“We are pleased to deliver another strong quarter for our shareholders,” said Peter Hui, Chairman of the Board of the Company. “Combined with our historical dividends and our current stock buyback program, we believe our strong operating performance continues to enhance shareholder value.”

“Our larger scale and geographic presence are positively impacting our business development efforts and our ability to attract high quality customers to First Choice Bank,” said Robert M. Franko, President and CEO of the Company. “We also continue to see healthy economic conditions throughout our Southern California markets, which is producing solid loan demand. We had a strong quarter of loan originations that contributed to our annualized year-to-date loan growth rate of nearly 14%, with well-balanced production across our major lending areas. The combination of strong balance sheet growth, a core net interest margin of 4.96%, and disciplined expense management is driving improved efficiencies throughout the Company and producing a high level of return on assets and equity. We continue to closely monitor the Federal Reserve's management of interest rates in order to appropriately plan and execute our strategy for the remainder of the year.”

STATEMENT OF INCOME

Net Interest Income

Net interest income for the second quarter of 2019 totaled $18.8 million, a decrease of $356 thousand from $19.2 million for the first quarter of 2019 due to higher interest expense of $736 thousand, partially offset by higher interest income of $380 thousand. The increase in interest income was due to strong loan growth and one additional day in the second quarter compared to the first quarter of 2019. Average loans increased $53.4 million to $1.33 billion for the second quarter. The increase in interest expense is attributed to higher average interest-bearing liabilities, a higher overall cost of such funds, and one additional day in the second quarter. Average interest-bearing deposits and borrowings increased $75.7 million to support loan growth. Deposit interest expense increased $473 thousand, due mostly to the cost associated with an increase in brokered time deposits, and borrowings interest expense increased $263 thousand.

Net Interest Margin

Net interest margin for the second quarter of 2019 decreased 36 basis points to 5.14% from 5.50% for the first quarter of 2019 due to lower discount accretion and prepayment penalties on loans and higher funding costs. The loan yield decreased 20 basis points to 6.42% for the second quarter of 2019 from 6.62% for the first quarter of 2019 due to lower scheduled and accelerated accretion of discounts on loans and prepayment penalties of $655 thousand as shown in the table below. The cost of funds increased 18 basis points to 1.03% for the second quarter of 2019 compared to 0.85% for the first quarter of 2019 due in part to average brokered time deposits and borrowings representing a higher percentage of total average funding sources. Average brokered time deposits and total borrowings increased $67.9 million and $41.8 million and average interest-bearing nonmaturity deposits and average noninterest-bearing demand deposits decreased $14.2 million and $27.7 million. The cost of interest-bearing deposits increased 19 basis points to 1.58% due to the mix of deposits and the higher cost of such deposits. During the second quarter of 2019, average noninterest-bearing demand deposits totaled $534.2 million, or 43.6% of total deposits, compared to $561.9 million, or 46.1% of total deposits, for the first quarter of 2019. The total cost of deposits increased 14 basis points to 0.89% from 0.75%.

The core net interest margin decreased 16 basis points to 4.96% for the second quarter compared to 5.12% for the first quarter of 2019 due to higher funding costs. The core loan yield increased 2 basis points to 6.23% for the second quarter compared to the first quarter of 2019. The following charts show how the net interest margin and loan yield are impacted by scheduled discount accretion on acquired loans and accelerated accretion and prepayment penalties from early loan payoffs for the periods indicated:

    Three Months Ended  
    June 30, 2019     March 31, 2019     Variance  
Net interest income and net interest margin   Net Interest Income     Net Interest Margin     Net Interest Income     Net Interest Margin     Net Interest Income     Net Interest Margin  
    (dollars in thousands)  
As reported   $ 18,836       5.14 %   $ 19,192       5.50 %   $ (356 )     (0.36 )%
Less: scheduled accretion income     499       0.14 %     526       0.15 %     (27 )     (0.01 )%
Less: accelerated accretion and prepayment penalties     155       0.04 %     783       0.23 %     (628 )     (0.19 )%
Core (non-GAAP)   $ 18,182       4.96 %   $ 17,883       5.12 %   $ 299       (0.16 )%


    Three Months Ended  
    June 30, 2019     March 31, 2019     Variance  
Loan interest income and loan yield   Loan Interest Income     Loan Yield     Loan Interest Income     Loan Yield     Loan Interest Income     Loan Yield  
    (dollars in thousands)  
As reported   $ 21,344       6.42 %   $ 20,916       6.62 %   $ 428       (0.20 )%
Less: scheduled accretion income     499       0.15 %     526       0.17 %     (27 )     (0.02 )%
Less: accelerated accretion and prepayment penalties     155       0.04 %     783       0.24 %     (628 )     (0.20 )%
Core (non-GAAP)   $ 20,690       6.23 %   $ 19,607       6.21 %   $ 1,083       0.02 %

Noninterest Income

Noninterest income for the second quarter of 2019 was $2.3 million, an increase of $200 thousand from $2.1 million for the first quarter of 2019 due to higher gains on sale of SBA loans, service charges and fees on deposit accounts and net servicing fees, offset by lower other income. SBA loans sold totaled $16.4 million resulting in a gain on sale of loans of $1.3 million in the second quarter of 2019 compared to $18.6 million in SBA loans sold and a gain on sale of loans of $928 thousand in the first quarter of 2019. Other income for the first quarter of 2019 included a Bank Enterprise Award of $233 thousand from the U.S. Treasury’s Community Development Financial Institutions Fund to recognize the Bank's efforts in providing affordable housing development and small business loans within distressed communities; there was no similar income in the current quarter.

Noninterest Expense

Noninterest expense decreased $95 thousand to $10.6 million for the second quarter of 2019 from $10.7 million for the first quarter of 2019. This decrease was due to lower occupancy and equipment expense of $442 thousand and lower deposit insurance and regulatory assessments of $75 thousand, offset by higher salaries and employee benefits of $634 thousand. The decrease in occupancy expenses was due to first quarter impairment charges related to the right-of-use assets for operating leases and fixed assets for the branch consolidations of $400 thousand; there were no impairment charges in the current quarter. The decrease in deposit insurance and regulatory assessments was due primarily to a decrease in FDIC assessment rates. The increase in salaries and employee benefits was due to higher commissions and incentives related to loan and deposit growth, higher salary expense attributed to additional staff, annual pay increases being included for a full quarter, and higher restricted stock expense, offset by lower payroll tax expense.

The operating efficiency ratio was 50.1% in the second quarter of 2019, compared with 50.2% in the first quarter of 2019.

Income Taxes

Income tax expense was $3.2 million for the second quarter of 2019, compared to $3.3 million for the first quarter of 2019. The effective tax rate was at 31.9% for the second quarter of 2019 and 31.7% for the first quarter of 2019. The effective tax rate for the full year of 2019 is expected to be approximately 31.0%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment increased $62.4 million, or 4.90%, to $1.34 billion at June 30, 2019. The increase was driven by new loan commitments across most of the Company's major lending areas of $135.2 million, including $72.2 million in construction and commercial real estate loans, $41.3 million in commercial and industrial loans, and $21.7 million in SBA loans.

Deposits

Total deposits increased $40.7 million, or 3.3%, to $1.26 billion at June 30, 2019 due to higher noninterest-bearing demand deposits of $11.6 million and higher time deposits of $51.4 million, partially offset by lower interest-bearing non-maturity deposits of $22.3 million. Brokered time deposits increased $52.0 million to $152.3 million, of which $134.5 million are callable or mature within six months. Noninterest-bearing deposits totaled $547.4 million and represented 43.6% of total deposits at June 30, 2019 compared to $535.9 million and 44.1% of total deposits at March 31, 2019.

Credit Quality

Non-performing loans totaled $2.7 million at June 30, 2019 and $1.7 million at March 31, 2019, and represented 0.15% and 0.10% of total assets. Net recoveries for the second quarter of 2019 were $77 thousand, or 0.02% of average loans on an annualized basis, compared to net recoveries of $20 thousand for the first quarter of 2019.

Loan delinquencies (30-89 days) totaled $909 thousand, or 0.07% of total loans held for investment at June 30, 2019, compared to $2.6 million, or 0.20% of total loans held for investment at March 31, 2019.

The Company recorded a provision for loan losses of $550 thousand for the second quarter of 2019. The provision for loan losses related primarily to net loan portfolio growth. The allowance for loan losses represented 0.90% of total loans held for investment and 449.9% of nonperforming loans at June 30, 2019, compared with 0.90% and 684.2% at March 31, 2019. At June 30, 2019, the net carrying value of acquired loans totaled $304.0 million and included a remaining net discount of $8.1 million. Such discount is available to absorb losses on the acquired loans and represented 0.60% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

At June 30, 2019, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a “well-capitalized” financial institution.

Bank Only   June 30, 2019
Preliminary
    December 31, 2018  
Total Capital (to Risk-Weighted Assets)     14.09 %     14.18 %
Tier 1 Capital (to Risk-Weighted Assets)     13.15 %     13.26 %
CET1 Capital (to Risk-Weighted Assets)     13.15 %     13.26 %
Tier 1 Capital (to Average Assets)     12.55 %     12.03 %

Stock Repurchase Program

During the second quarter of 2019, the Company repurchased 12,824 shares at an average price of $21.30 and a total cost of $273 thousand under the stock repurchase program announced in December 2018. For the six months ended June 30, 2019, the Company repurchased 328,770 shares at an average price of $21.54 and a total cost of $7.1 million. The remaining number of shares authorized to be repurchased under this program was 834,947 shares at June 30, 2019.

Timing of Dividend Declarations

Beginning with the second quarter of 2019, the Company has moved up the timing of the release of its quarterly financial results. Accordingly, any announcement of quarterly dividend declarations is no longer expected to coincide with the release of quarterly financial results.

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 June 30, 2019, First Choice Bancorp had total consolidated assets of $1.73 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 with a specialization in providing financial solutions for the hospitality industry. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through 9 full-service branches, and 2 lending 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 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 operational performance and to enhance investors' overall understanding of such financial performance, 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 non-GAAP financial measures to GAAP measures is included in the accompanying financial tables.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, shareholder value creation and tax rates. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the Securities and Exchange Commission.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company's earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.

Contacts
First Choice Bancorp
Robert M. Franko, 562.345.9241
President & Chief Executive Officer
or
Lynn M. Hopkins, 562.263.8327
Executive Vice President & Chief Financial Officer


First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

    At or for the Three Months Ended     At or for the Six Months Ended  
    June 30, 2019     March 31, 2019     June 30, 2018     June 30, 2019     June 30, 2018  
    (dollars in thousands, except per share amounts)  
Total interest and dividend income   $ 22,219     $ 21,839     $ 12,915     $ 44,058     $ 24,104  
Total interest expense     3,383       2,647       2,096       6,030       3,733  
Net interest income     18,836       19,192       10,819       38,028       20,371  
Provision for loan losses     550       350       320       900       520  
Net interest income after provision for loan losses     18,286       18,842       10,499       37,128       19,851  
Total noninterest income     2,322       2,122       787       4,444       1,356  
Total noninterest expense     10,605       10,700       6,325       21,305       13,008  
Income before taxes     10,003       10,264       4,961       20,267       8,199  
Income taxes     3,192       3,256       1,526       6,448       2,385  
NET INCOME   $ 6,811     $ 7,008     $ 3,435     $ 13,819     $ 5,814  
                                         
Total assets   $ 1,730,433     $ 1,649,759     $ 962,686     $ 1,730,433     $ 962,686  
Total loans held for investment     1,336,015       1,273,577       783,487       1,336,015       783,487  
Total deposits     1,255,878       1,215,170       784,957       1,255,878       784,957  
Noninterest-bearing deposits     547,434       535,867       211,611       547,434       211,611  
Dividends declared per common share   $ 0.20     $ 0.20     $ 0.20     $ 0.40     $ 0.40  
Net income per share-diluted   $ 0.58     $ 0.59     $ 0.47     $ 1.17     $ 0.80  
Return on average assets     1.73 %     1.87 %     1.48 %     1.80 %     1.29 %
Return on average equity     10.86 %     11.45 %     12.55 %     11.15 %     10.80 %
Return on average tangible common equity (1)     15.89 %     16.89 %     12.55 %     16.38 %     10.80 %
Net interest margin     5.14 %     5.50 %     4.73 %     5.32 %     4.56 %
Core net interest margin (1)     4.96 %     5.12 %     4.32 %     5.04 %     4.34 %
Average loan yield     6.42 %     6.62 %     6.17 %     6.52 %     5.87 %
Core average loan yield (1)     6.23 %     6.21 %     5.70 %     6.21 %     5.63 %
Cost of deposits     0.89 %     0.75 %     0.98 %     0.82 %     0.89 %
Cost of funds     1.03 %     0.85 %     1.03 %     0.94 %     0.94 %
Efficiency ratio (1)     50.1 %     50.2 %     54.5 %     50.2 %     59.9 %
Noninterest-bearing deposits to total deposits     43.6 %     44.1 %     27.0 %     43.6 %     27.0 %
Equity to assets ratio     14.69 %     15.04 %     11.30 %     14.69 %     11.30 %
Tangible common equity ratio (1)     10.57 %     10.72 %     11.30 %     10.57 %     11.30 %
Book value per share   $ 21.65     $ 21.30     $ 15.00     $ 21.65     $ 15.00  
Tangible book value per share (1)   $ 14.87     $ 14.45     $ 15.00     $ 14.87     $ 15.00  

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


First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

    June 30, 2019     March 31, 2019     December 31, 2018  
    (dollars in thousands, except per share amounts)  
ASSETS                  
Cash and due from banks   $ 9,340     $ 10,352     $ 17,874  
Interest-bearing deposits at other banks     228,263       197,330       176,502  
Federal funds sold           3,000       3,000  
Total cash and cash equivalents     237,603       210,682       197,376  
Investment securities, available-for-sale     28,558       29,064       29,543  
Investment securities, held-to-maturity     5,076       5,311       5,322  
Equity securities, at fair value     2,647       2,590       2,538  
Restricted stock investments, at cost     12,927       12,867       12,855  
Loans held for sale     8,428       18,147       28,022  
Total loans held for investment     1,336,015       1,273,577       1,250,981  
Allowance for loan losses     (12,053 )     (11,426 )     (11,056 )
Total loans held for investment, net     1,323,962       1,262,151       1,239,925  
Accrued interest receivable     5,643       5,560       5,069  
Premises and equipment     1,742       1,673       1,973  
Servicing asset     3,482       3,351       3,186  
Deferred taxes     6,625       6,875       8,666  
Goodwill     73,425       73,425       73,425  
Core deposit intangible     6,183       6,380       6,576  
Other assets     14,132       11,683       8,025  
TOTAL ASSETS   $ 1,730,433     $ 1,649,759     $ 1,622,501  
                         
LIABILITIES AND SHAREHOLDERS’ EQUITY                        
Deposits:                        
Noninterest-bearing demand   $ 547,434     $ 535,867     $ 546,713  
Money market, interest checking and savings     400,943       423,220       465,123  
Time deposits     307,501       256,083       240,503  
Total deposits     1,255,878       1,215,170       1,252,339  
Short term borrowings     195,000       160,000       104,998  
Senior secured debt     12,800       14,200       8,450  
Other liabilities     12,634       12,254       8,645  
Total liabilities     1,476,312       1,401,624       1,374,432  
Total shareholders’ equity     254,121       248,135       248,069  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 1,730,433     $ 1,649,759     $ 1,622,501  
                         
Shares outstanding     11,737,441       11,650,020       11,726,074  
Book value per share   $ 21.65     $ 21.30     $ 21.16  
Tangible book value per share (1)   $ 14.87     $ 14.45     $ 14.33  

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


Condensed Consolidated Statements of Income (unaudited)

    Three Months Ended     Six Months Ended June 30,  
    June 30, 2019     March 31, 2019     June 30, 2018     2019     2018  
    (dollars in thousands, except per share amounts)  
INTEREST and DIVIDEND INCOME                                        
Interest and fees on loans   $ 21,344     $ 20,916     $ 12,320     $ 42,260     $ 22,941  
Interest on investment securities     215       236       233       451       472  
Interest on deposits in financial institutions     454       445       294       899       554  
Dividends on FHLB and other stock     206       242       68       448       137  
Total interest and dividend income     22,219       21,839       12,915       44,058       24,104  
INTEREST EXPENSE                                        
Interest on savings, interest checking and money market accounts     1,254       1,239       969       2,493       1,788  
Interest on time deposits     1,463       1,005       919       2,468       1,535  
Interest on borrowings     666       403       208       1,069       410  
Total interest expense     3,383       2,647       2,096       6,030       3,733  
Net interest income     18,836       19,192       10,819       38,028       20,371  
Provision for loan losses     550       350       320       900       520  
Net interest income after provision for loan losses     18,286       18,842       10,499       37,128       19,851  
NONINTEREST INCOME                                        
Gain on sale of loans     1,271       928       448       2,199       695  
Service charges and fees on deposit accounts     564       540       208       1,104       423  
Net servicing fees     287       234       126       521       279  
Other income (loss)     200       420       5       620       (41 )
Total noninterest income     2,322       2,122       787       4,444       1,356  
NONINTEREST EXPENSE                                        
Salaries and employee benefits     6,857       6,223       3,482       13,080       7,502  
Occupancy and equipment     987       1,429       575       2,416       1,101  
Data processing     639       604       448       1,243       869  
Professional fees     426       419       378       845       682  
Office, postage and telecommunications     255       272       193       527       385  
Deposit insurance and regulatory assessments     120       195       86       315       197  
Loan related     71       214       101       285       185  
Customer service related     273       477       101       750       241  
Merger, integration and public company registration costs                 356             730  
Amortization of core deposit intangible     197       196             393        
Other expenses     780       671       605       1,451       1,116  
Total noninterest expense     10,605       10,700       6,325       21,305       13,008  
Income before taxes     10,003       10,264       4,961       20,267       8,199  
Income taxes     3,192       3,256       1,526       6,448       2,385  
Net income   $ 6,811     $ 7,008     $ 3,435     $ 13,819     $ 5,814  
                                         
Net income per share-diluted   $ 0.58     $ 0.59     $ 0.47     $ 1.17     $ 0.80  
Weighted average shares - diluted     11,675,057       11,813,018       7,214,473       11,741,910       7,207,295  


First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

null
    Three Months Ended  
    June 30, 2019     March 31, 2019     June 30, 2018  
    Average
Balance
    Interest
Income /
Expense
    Yield /
Cost
    Average
Balance
    Interest
Income /
Expense
    Yield /
Cost
    Average
Balance
    Interest
Income /
Expense
    Yield /
Cost
 
Interest-earning assets:   (dollars in thousands)  
Loans (1)   $ 1,334,188     $ 21,344       6.42 %   $ 1,280,743     $ 20,916       6.62 %   $ 801,342     $ 12,320       6.17 %
Investment securities     36,337       215       2.37 %     37,094       236       2.58 %     38,153       233       2.45 %
Due from banks     83,183       442       2.13 %     80,800       427       2.14 %     74,325       294       1.59 %
Federal funds sold/resale agreements     2,018       12       2.39 %     3,000       18       2.43 %                 %
FHLB and other bank stock     13,932       206       5.93 %     13,891       242       7.07 %     4,071       68       6.70 %
Total interest-earning assets     1,469,658       22,219       6.06 %     1,415,528       21,839       6.26 %     917,891       12,915       5.64 %
                                                                         
Noninterest-earning assets     110,082                       107,736                       10,875                  
Total assets   $ 1,579,740                     $ 1,523,264                     $ 928,766                  
                                                                         
Interest-bearing liabilities:                                                                        
Interest checking   $ 111,116     $ 298       1.08 %   $ 118,882     $ 309       1.05 %   $ 141,598     $ 407       1.15 %
Money market accounts     271,067       900       1.33 %     271,980       868       1.29 %     151,248       455       1.21 %
Savings accounts     28,825       56       0.78 %     34,357       62       0.73 %     50,978       107       0.84 %
Time deposits     150,601       674       1.80 %     170,365       730       1.74 %     170,148       738       1.74 %
Brokered time deposits     128,555       789       2.46 %     60,699       275       1.84 %     52,801       181       1.37 %
Total interest-bearing deposits     690,164       2,717       1.58 %     656,283       2,244       1.39 %     566,773       1,888       1.34 %
Short term and other borrowings     77,442       484       2.51 %     36,123       230       2.58 %     35,724       167       1.86 %
Senior secured notes     12,398       182       5.89 %     11,901       173       5.90 %     3,218       41       5.11 %
Total interest-bearing liabilities     780,004       3,383       1.74 %     704,307       2,647       1.52 %     605,715       2,096       1.39 %
                                                                         
Noninterest-bearing liabilities:                                                                        
Demand deposits     534,192                       561,868