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


Fourth Quarter Highlights

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

Full Year Highlights

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

COVID-19 Updates

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

Cerritos, CA, Jan. 26, 2021 (GLOBE NEWSWIRE) -- First Choice Bancorp (NASDAQ: FCBP) ("us," "we," "our," or the "Company"), the holding company of First Choice Bank (the "Bank"), today reported net income of $10.8 million for the fourth quarter of 2020, or $0.92 per diluted share, compared to net income of $7.9 million, or $0.67 per diluted share, for the third quarter of 2020. Pre-tax pre-provision income was $15.4 million for the fourth quarter of 2020, an increase of $3.3 million, compared to the pre-tax pre-provision income of $12.1 million for the third quarter of 2020.

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

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

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

STATEMENT OF INCOME

Net Interest Income

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

Net Interest Margin

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

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

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

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

Provision for Loan Losses

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

Noninterest Income

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

Noninterest Expense

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

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

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

Income Taxes

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

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

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

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

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

PPP Loans

PPP loans, net of deferred fees of $6.6 million, totaled $320.1 million at December 31, 2020, compared to $390.2 million at September 30, 2020. The net deferred fees are being accreted to income based on the two-year contractual maturity, and are accelerated to interest income upon forgiveness or early payoff. At December 31, 2020, the Company had not originated any PPP loans having a 5-year contractual maturity. For loans originated under the SBA's PPP loan program, interest and principal payment on these loans were originally deferred for six months following the funding date, during which time interest would continue to accrue. On October 7, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”) extended the deferral period for borrower payments of principal, interest, and fees on all PPP loans to the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period). The extension of the deferral period under the Flexibility Act automatically applied to all PPP loans.

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

Main Street Lending Program

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

Deposits

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

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

Borrowings

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

Credit Quality

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

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

The allowance for loan losses increased 2.3% to $19.2 million and represented 1.02% of total loans held for investment and 297.35% of nonperforming loans at December 31, 2020, compared to 0.99% and 144.21% at September 30, 2020, respectively. The allowance for loan losses as a percentage of total loans held for investment excluding PPP loans, was 1.23% at December 31, 2020. At December 31, 2020, the net carrying value of acquired loans totaled $164.5 million and included a remaining net discount of $3.9 million. The discount is available to absorb losses on the acquired loans and represented 2.4% of the net carrying value of acquired loans and 0.21% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

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

At December 31, 2020, the Bank's preliminary CBLR ratio was 10.28% which exceeded the regulatory capital requirements of the CBLR framework and, accordingly, the Bank is considered to be ‘‘well-capitalized’’.

Stock Repurchase Program

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

Sale of Rowland Heights Branch

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

About First Choice Bancorp

First Choice Bancorp, headquartered in Cerritos, California, is the sole shareholder of and the registered bank holding company for, First Choice Bank. As of December 31, 2020, First Choice Bancorp had total consolidated assets of $2.28 billion. First Choice Bank, also headquartered in Cerritos, California, is a community-based financial institution that serves primarily commercial and consumer clients in diverse communities and specializes in loans to small- to medium-sized businesses and private banking clients, commercial and industrial loans, and commercial real estate loans. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through nine full-service branches and two loan production offices located in Los Angeles, Orange and San Diego Counties. Founded in 2005, First Choice Bank has quickly become a leading provider of financial services that enable our customers to grow, maintain strength, and achieve their business objectives. We strive to surpass our clients’ expectations through our efficiency, personalized services and financial solutions and professionalism and are committed to being “First in Speed, Service, and Solutions.” First Choice Bank is a strong believer in social justice and equality and is proud of its cultural- and gender-diverse workforce. As of December 31, 2020, more than 74% of the Company's total workforce identified as ethnic minorities and more than 66% of its workforce and more than 50% of its senior management identified as female. First Choice Bancorp stock is traded on the Nasdaq Capital Market under the ticker symbol “FCBP.”

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

Non-GAAP Financial Measures

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

Forward-Looking Statements

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

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

Contacts
First Choice Bancorp
Robert M. Franko, 562.345.9241
President, Chief Executive Officer and Chief Financial Officer

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

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

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

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

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

  December 31,
2020
  September 30,
2020
  December 31,
2019
(audited)
 
  (dollars in thousands, except per share amounts) 
ASSETS            
Cash and due from banks $18,011  $23,611  $27,359 
Interest-bearing deposits at other banks  218,370   157,925   134,442 
Total cash and cash equivalents  236,381   181,536   161,801 
Investment securities, available-for-sale  42,027   37,999   26,653 
Investment securities, held-to-maturity  1,358   1,680   5,056 
Equity securities, at fair value  2,798   2,792   2,694 
Restricted stock investments, at cost  12,999   12,999   12,986 
Loans held for sale  9,932   36,474   7,659 
Total loans held for investment  1,880,777   1,884,930   1,374,675 
Allowance for loan losses  (19,167)  (18,734)  (13,522)
Total loans held for investment, net  1,861,610   1,866,196   1,361,153 
Accrued interest receivable  9,569   11,500   5,451 
Premises and equipment  2,149   2,341   1,542 
Servicing asset  2,860   2,368   3,202 
Deferred taxes  7,385   6,095   6,163 
Goodwill  73,425   73,425   73,425 
Core deposit intangible  4,956   5,149   5,728 
Other assets  15,666   15,788   16,811 
TOTAL ASSETS $2,283,115  $2,256,342  $1,690,324 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Deposits:            
Noninterest-bearing demand $820,711  $736,118  $626,569 
Money market, interest checking and savings  639,630   649,613   514,366 
Time deposits  173,817   174,181   172,758 
Total deposits  1,634,158   1,559,912   1,313,693 
Borrowings  145,000   150,000   90,000 
Paycheck Protection Program Liquidity Facility  204,719   253,140    
Senior secured notes  2,000   4,400   9,600 
Accrued interest payable and other liabilities  16,497   16,419   15,226 
Total liabilities  2,002,374   1,983,871   1,428,519 
Total shareholders’ equity  280,741   272,471   261,805 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $2,283,115  $2,256,342  $1,690,324 
             
Shares outstanding  11,705,684   11,705,878   11,635,531 
Book value per share $23.98  $23.28  $22.50 
Tangible book value per share (1) $17.29  $16.56  $15.70 

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

  Three Months Ended  Year Ended December 31, 
  December 31,
2020
  September 30,
2020
  December 31,
2019
  2020  2019 
  (dollars in thousands, except per share amounts) 
INTEREST and DIVIDEND INCOME                    
Interest and fees on loans $24,411  $22,671  $20,741  $89,210  $86,207 
Interest on investment securities  154   180   194   777   853 
Interest on deposits at other financial institutions  129   103   805   825   2,405 
Dividends on FHLB and other stock  179   200   213   803   889 
Total interest and dividend income  24,873   23,154   21,953   91,615   90,354 
INTEREST EXPENSE                    
Interest on savings, interest checking and money market accounts  344   382   1,222   2,153   4,998 
Interest on time deposits  555   588   1,200   2,994   5,273 
Interest on borrowings  205   207   176   985   1,143 
Interest on PPP Liquidity Facility  216   212      540    
Interest on senior secured notes  20   39   147   207   678 
Total interest expense  1,340   1,428   2,745   6,879   12,092 
Net interest income  23,533   21,726   19,208   84,736   78,262 
Provision for loan losses  100   1,000   1,200   5,900   2,800 
Net interest income after provision for loan losses  23,433   20,726   18,008   78,836   75,462 
NONINTEREST INCOME                    
Gain on sale of loans  3,286   990   947   4,653   3,674 
Service charges and fees on deposit accounts  468   495   363   1,965   1,942 
Net servicing fees  201   228   87   644   850 
Other income  239   230   186   1,345   1,234 
Total noninterest income  4,194   1,943   1,583   8,607   7,700 
NONINTEREST EXPENSE                    
Salaries and employee benefits  7,884   7,126   6,139   28,626   25,691 
Occupancy and equipment  1,168   1,137   1,893   4,476   5,406 
Data processing  1,017   955   903   3,653   2,864 
Professional fees  462   492   396   1,875   1,633 
Office, postage and telecommunications  300   274   252   1,121   1,032 
Deposit insurance and regulatory assessments  318   386   47   963   392 
Loan related  84   59   165   644   694 
Customer service related  60   81   568   841   1,755 
Amortization of core deposit intangible  192   193   258   771   848 
Other expenses  836   825   663   3,498   2,925 
Total noninterest expense  12,321   11,528   11,284   46,468   43,240 
Income before taxes  15,306   11,141   8,307   40,975   39,922 
Income taxes  4,512   3,260   2,349   12,024   12,074 
Net income $10,794  $7,881  $5,958  $28,951  $27,848 
                     
Net income per share - diluted $0.92  $0.67  $0.51  $2.47  $2.36 
Weighted average shares - diluted  11,620,582   11,612,270   11,607,176   11,617,780   11,687,089 

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

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

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

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

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

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

First Choice Bancorp and Subsidiary

Loan Composition

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

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

Total loans held for investment

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

Allowance for Loan losses

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

Credit Quality (1)

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

(1) Excludes purchased credit impaired loans with a net carrying value of $761 thousand, $792 thousand and $1.1 million at December 31, 2020, September 30, 2020 and December 31, 2019.

GAAP to Non-GAAP Reconciliation

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

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


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