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First Choice Bancorp Reports Third Quarter 2018 Financial Results and Declares Quarterly Dividend

First Choice Bancorp Reports Third Quarter 2018 Financial Results and Declares Quarterly Dividend

Current Quarter Highlights

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

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

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

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

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

Operating Results for the Third Quarter 2018

Net Interest Income

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

Net Interest Margin

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

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

Non-interest Income

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

Non-interest Expense

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

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

Income Taxes

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

Loan Portfolio

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

Deposits

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

Credit Quality

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

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

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

Capital Ratios

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

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

About First Choice Bancorp 

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

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

Disclosure

This press release contains certain non-GAAP financial disclosures for tangible common equity and tangible assets and adjusted earnings. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.

Forward-Looking Statements

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

First Choice Bancorp and Subsidiary

Income Statement Highlights and Selected Ratios (unaudited):
(dollars in thousands, except per share amounts)

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


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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheet (unaudited)
(dollars in thousands)

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


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

First Choice Bancorp and Subsidiary

Condensed Consolidated Statement of Income (unaudited)
(dollars in thousands)

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


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

First Choice Bancorp and Subsidiary
 Average Balance Sheets

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