First Choice Bancorp Announces Third Quarter of 2020 Financial Results

UNITED STATES


Current Quarter Highlights

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

COVID-19 Updates

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

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

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

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

STATEMENT OF INCOME

Net Interest Income

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

Net Interest Margin

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

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

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

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

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

Provision for Loan Losses

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

Noninterest Income

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

Noninterest Expense

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

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

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

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

Income Taxes

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

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

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

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

PPP Loans

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

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

Main Street Lending Program

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

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

Loan Deferrals

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

Deposits

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

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

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

Borrowings

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

Credit Quality

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

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

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

CAPITAL POSITION

Capital Ratios

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

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

Stock Repurchase Program

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

About First Choice Bancorp

First Choice Bancorp, headquartered in Cerritos, California, is the sole shareholder of and the registered bank holding company for, First Choice Bank. As of September 30, 2020, First Choice Bancorp had total consolidated assets of $2.26 billion. First Choice Bank, also headquartered in Cerritos, California, is a community-based financial institution that serves primarily commercial and consumer clients in diverse communities and specializes in loans to small- to medium-sized businesses and private banking clients, commercial and industrial loans, and commercial real estate loans. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through nine full-service branches and two loan production offices located in Los Angeles, Orange and San Diego Counties. Founded in 2005, First Choice Bank has quickly become a leading provider of financial services that enable our customers to grow, maintain strength, and achieve their business objectives. We strive to surpass our clients’ expectations through our efficiency, personalized services and financial solutions and professionalism and are committed to being “First in Speed, Service, and Solutions.” First Choice Bank is a strong believer in social justice and equality and is proud of its cultural- and gender-diverse workforce. As of September 30, 2020, more than 71% of the Company's total workforce identified as ethnic minorities and more than 66% of its workforce and more than 50% of its senior management identified as female. First Choice Bancorp stock is traded on the Nasdaq Capital Market under the ticker symbol “FCBP.”

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

Non-GAAP Financial Measures

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

Forward-Looking Statements

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

Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Many factors could cause actual results to differ materially from those contemplated by these forward-looking statements. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company's earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the SEC, including under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as may be supplemented and/or amended by our Quarterly Reports on Form 10-Q as filed subsequent thereto.

Contacts

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

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

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

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

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

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

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

 Three Months Ended Nine Months Ended September 30,
 September 30, 2020 June 30, 2020 September 30, 2019 2020 2019
 (dollars in thousands, except per share amounts)
INTEREST and DIVIDEND INCOME         
Interest and fees on loans$22,671   $21,348    $23,206   $64,799   $65,466  
Interest on investment securities180   225    208   623   659  
Interest on deposits at other financial institutions103   92    701   696   1,600  
Dividends on FHLB and other stock200   179    228   624   676  
Total interest and dividend income23,154   21,844    24,343   66,742   68,401  
INTEREST EXPENSE         
Interest on savings, interest checking and money market accounts382   318    1,283   1,809   3,776  
Interest on time deposits588   856    1,605   2,439   4,073  
Interest on borrowings207   197    253   780   967  
Interest on PPP Liquidity Facility212   112    —   324   —  
Interest on senior secured notes39   57    176   187   531  
Total interest expense1,428   1,540    3,317   5,539   9,347  
Net interest income21,726   20,304    21,026   61,203   59,054  
Provision for loan losses1,000   2,100    700   5,800   1,600  
Net interest income after provision for loan losses20,726   18,204    20,326   55,403   57,454  
NONINTEREST INCOME         
Gain on sale of loans990   —    528   1,367   2,727  
Service charges and fees on deposit accounts495   447    475   1,497   1,579  
Net servicing fees (expense)228   (9)  242   443   763  
Other income230   617    428   1,106   1,048  
Total noninterest income1,943   1,055    1,673   4,413   6,117  
NONINTEREST EXPENSE         
Salaries and employee benefits7,126   6,386    6,472   20,742   19,552  
Occupancy and equipment1,137   1,108    1,097   3,308   3,513  
Data processing955   874    718   2,636   1,961  
Professional fees492   450    392   1,413   1,237  
Office, postage and telecommunications274   289    253   821   780  
Deposit insurance and regulatory assessments386   198    30   645   345  
Loan related59   226    244   560   529  
Customer service related81   328    437   781   1,187  
Amortization of core deposit intangible193   193    197   579   590  
Other expenses825   1,048    811   2,662   2,262  
Total noninterest expense11,528   11,100    10,651   34,147   31,956  
Income before taxes11,141   8,159    11,348   25,669   31,615  
Income taxes3,260   2,429    3,277   7,512   9,725  
Net income$7,881   $5,730    $8,071   $18,157   $21,890  
          
Net income per share - diluted$0.67   $0.49    $0.68   $1.55   $1.85  
Weighted average shares - diluted11,612,270   11,606,280    11,659,146   11,616,839   11,714,020  

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

 Three Months Ended
 September 30, 2020 June 30, 2020 September 30, 2019
 Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost
Interest-earning assets:(dollars in thousands)
Loans (1)$1,892,450   $22,671   4.77 % $1,738,172   $21,348   4.94 % $1,328,088   $23,206   6.93 %
Investment securities43,154   180   1.66 % 42,553   225   2.13 % 35,651   208   2.31 %
Deposits at other financial institutions184,606   103   0.22 % 186,741   92   0.20 % 134,557   701   2.07 %
Restricted stock investments and other bank stocks14,534   200   5.47 % 14,534   179   4.95 % 13,988   228   6.47 %
Total interest-earning assets2,134,744   23,154   4.31 % 1,982,000   21,844   4.43 % 1,512,284   24,343   6.39 %
                  
Noninterest-earning assets119,717       127,208       108,520      
Total assets$2,254,461       $2,109,208       $1,620,804      
                  
Interest-bearing liabilities:                 
Interest checking$279,945   $111   0.16 % $251,398   $101   0.16 % $116,107   $337   1.15 %
Money market accounts338,970   260   0.31 % 298,040   207   0.28 % 267,493   890   1.32 %
Savings accounts31,639   11   0.14 % 30,104   10   0.13 % 29,070   56   0.76 %
Time deposits81,837   201   0.98 % 91,051   292   1.29 % 147,568   676   1.82 %
Brokered time deposits107,347   387   1.43 % 90,349   564   2.51 % 138,682   929   2.66 %
Total interest-bearing deposits839,738   970   0.46 % 760,942   1,174   0.62 % 698,920   2,888   1.64 %
Borrowings152,762   207   0.54 % 145,440   197   0.54 % 48,263   253   2.08 %
Paycheck Protection Program Liquidity Facility240,602   212   0.35 % 127,962   112   0.35 % —   —   — %
Senior secured notes4,620   39   3.36 % 6,754   57   3.39 % 12,267   176   5.69 %
Total interest-bearing liabilities1,237,722   1,428   0.46 % 1,041,098   1,540   0.59 % 759,450   3,317   1.73 %
                  
Noninterest-bearing liabilities:                 
Demand deposits730,306       783,258       590,212      
Other liabilities15,530       16,684       13,984      
Shareholders’ equity270,903       268,168       257,158      
                  
Total liabilities and shareholders' equity$2,254,461       $2,109,208       $1,620,804      
                  
Net interest spread  $21,726   3.85 %   $20,304   3.84 %   $21,026   4.66 %
Net interest margin    4.05 %     4.12 %     5.52 %
                  
Total deposits$1,570,044   $970   0.25 % $1,544,200   $1,174   0.31 % $1,289,132   $2,888   0.89 %
Total funding sources$1,968,028   $1,428   0.29 % $1,824,356   $1,540   0.34 % $1,349,662   $3,317   0.98 %

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

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

 Nine Months Ended September 30,
 2020 2019
 Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost
Interest-earning assets:(dollars in thousands)
Loans (1)$1,679,206   $64,799   5.15 % $1,314,513   $65,466   6.66 %
Investment securities40,645   623   2.05 % 36,355   659   2.42 %
Deposits at other financial institutions176,393   696   0.53 % 99,711   1,570   2.11 %
Federal funds sold/resale agreements—   —   — % 1,662   30   2.41 %
FHLB and other bank stock14,531   624   5.74 % 13,937   676   6.48 %
Total interest-earning assets1,910,775   66,742   4.67 % 1,466,178   68,401   6.24 %
            
Noninterest-earning assets120,400       108,782      
 $2,031,175       $1,574,960      
            
Interest-bearing liabilities:           
Interest checking$229,436   $473   0.28 % $115,358   $944   1.09 %
Money market accounts318,567   1,267   0.53 % 270,163   2,658   1.32 %
Savings accounts30,008   69   0.31 % 30,731   174   0.76 %
Time deposits96,764   983   1.36 % 156,095   2,080   1.78 %
Brokered time deposits96,885   1,456   2.01 % 109,598   1,993   2.43 %
Total interest-bearing deposits771,660   4,248   0.74 % 681,945   7,849   1.54 %
Borrowings130,344   780   0.80 % 53,987   967   2.39 %
Paycheck Protection Program Liquidity Facility123,138   324   0.35 % —   —   — %
Senior secured notes6,458   187   3.87 % 12,190   531   5.82 %
Total interest-bearing liabilities1,031,600   5,539   0.72 % 748,122   9,347   1.67 %
            
Noninterest-bearing liabilities:           
Demand deposits715,180       562,195      
Other liabilities16,405       12,281      
Shareholders’ equity267,990       252,362      
            
Total liabilities and shareholders' equity$2,031,175       $1,574,960      
            
Net interest spread  $61,203   3.95 %   $59,054   4.57 %
Net interest margin    4.28 %     5.39 %
            
Total deposits$1,486,840   $4,248   0.38 % $1,244,140   $7,849   0.84 %
Total funding sources$1,746,780   $5,539   0.42 % $1,310,317   $9,347   0.95 %

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

First Choice Bancorp and Subsidiary

Loan Composition

 September 30, 2020 June 30, 2020 December 31, 2019
 AmountPercentage of Total AmountPercentage of Total AmountPercentage of Total
 (dollars in thousands)
Construction and land development$215,109   11.3 % $218,226   11.8 % $249,504   18.1 %
Real estate:        
Residential30,067   1.6 % 39,145   2.1 % 43,736   3.2 %
Commercial real estate - owner occupied159,603   8.4 % 162,508   8.8 % 171,595   12.5 %
Commercial real estate - non-owner occupied528,201   27.9 % 502,693   27.3 % 423,823   30.8 %
Commercial and industrial361,170   19.0 % 335,411   18.2 % 309,011   22.5 %
SBA loans (1)602,407   31.8 % 586,820   31.8 % 177,633   12.9 %
Consumer  — % 34   — % 430   — %
Total loans held for investment, net of discounts$1,896,565   100.0 % $1,844,837   100.0 % $1,375,732   100.0 %
Net deferred loan fees (1)(11,635)   (13,218)   (1,057)  
Total loans held for investment$1,884,930     $1,831,619     $1,374,675    
Allowance for loan losses(18,734)   (17,822)   (13,522)  
Total loans held for investment, net$1,866,196     $1,813,797     $1,361,153    

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

Total loans held for investment

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

Allowance for Loan losses

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

Credit Quality (1)

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

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

GAAP to Non-GAAP Reconciliation

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

 Three Months Ended Nine Months Ended September 30,
 September 30, 2020 June 30,
2020
 September 30, 2019 2020 2019
Efficiency Ratio(dollars in thousands)
Noninterest expense (numerator)$11,528   $11,100   $10,651   $34,147   $31,956  
          
Net interest income$21,726   $20,304   $21,026   $61,203   $59,054  
Plus: Noninterest income1,943   1,055   1,673   4,413   6,117  
Total net interest income and noninterest income (denominator)$23,669   $21,359   $22,699   $65,616   $65,171  
Efficiency ratio48.7 % 52.0 % 46.9 % 52.0 % 49.0 %
          
Pre-tax pre-provision income         
Net interest income$21,726   $20,304   $21,026   $61,203   $59,054  
Noninterest income1,943   1,055   1,673   4,413   6,117  
Total net interest income and noninterest income23,669   21,359   22,699   65,616   65,171  
Less: Noninterest expense11,528   11,100   10,651   34,147   31,956  
Pre-tax pre-provision income$12,141   $10,259   $12,048   $31,469   $33,215  
          
Return on Average Assets, Equity, Tangible Equity         
Net income$7,881   $5,730   $8,071   $18,157   $21,890  
          
Average assets$2,254,461   $2,109,208   $1,620,804   $2,031,175   $1,574,960  
Average shareholders’ equity270,903   268,168   257,158   267,990   252,362  
Less: Average intangible assets78,696   78,901   79,535   78,888   79,730  
Average tangible common equity$192,207   $189,267   $177,623   $189,102   $172,632  
          
Return on average assets1.39 % 1.09 % 1.98 % 1.19 % 1.86 %
Return on average equity11.57 % 8.59 % 12.45 % 9.05 % 11.60 %
Return on average tangible common equity16.31 % 12.18 % 18.03 % 12.83 % 16.95 %


 As of
 September 30, 2020 June 30,
2020
 December 31, 2019
Tangible Common Equity Ratio/Tangible Book Value Per Share(dollars in thousands, except per share amounts)
Shareholders’ equity$272,471   $266,949   $261,805  
Less: Intangible assets78,574   78,767   79,153  
Tangible common equity$193,897   $188,182   $182,652  
      
Total assets$2,256,342   $2,223,603   $1,690,324  
Less: Intangible assets78,574   78,767   79,153  
Tangible assets$2,177,768   $2,144,836   $1,611,171  
      
Equity to assets ratio12.08 % 12.01 % 15.49 %
Tangible common equity to tangible asset ratio8.90 % 8.77 % 11.34 %
      
Shares outstanding11,705,878   11,697,766   11,635,531  
Book value per share$23.28   $22.82   $22.50  
Tangible book value per share$16.56   $16.09   $15.70