First Choice Bancorp Reports Fourth Quarter and Full Year 2018 Financial Results and Declares Quarterly Dividend


Current Quarter Highlights

 Net income of $6.7 million, or $0.56 per diluted share
   
 Net income included after tax merger related expenses of $606 thousand, or $0.05 per diluted share
   
 Net interest margin expands to 5.34%
   
 Total loans held for investment increased $25.6 million, or 8.4% annualized
   
 Noninterest-bearing deposits at 43.7% of total deposits
   
 Cash dividend of $0.20 per share paid
   
 First quarter of 2019 cash dividend of $0.20 per share declared

Full Year Highlights

 Net income of $15.1 million, a 105.7% increase over prior year
   
 Diluted earnings per share of $1.64, a 60.8% increase over prior year
   
 Net interest margin of 4.93%
   
 Total loans held for investment increased $509.3 million; includes organic loan growth of $109.4 million, or 14.8%
   
 Deposit growth of $479.7 million
   
 Acquisition of Pacific Commerce Bank
   
 Cash dividends of $0.80 per share paid

Cerritos, CA, Jan. 28, 2019 (GLOBE NEWSWIRE) -- First Choice Bancorp (NASDAQ: FCBP), today reported net income for the fourth quarter of 2018 of $6.7 million, or $0.56 per diluted share, compared to net income of $2.6 million, or $0.25 per diluted share, for the third quarter of 2018. After-tax merger, integration and public company registration costs of $606 thousand and $2.7 million reduced diluted earnings per share $0.05 and $0.26 for the fourth quarter and third quarter of 2018.

Net income for the full year of 2018 was $15.1 million, or $1.64 per diluted share, compared to net income for the full year 2017 of $7.4 million, or $1.02 per diluted share. After-tax merger, integration and public company registration costs of $4.0 million reduced diluted earnings per share by $0.44 for the full year of 2018. Net income for the fourth quarter and full year of 2017 included a $1.8 million income tax write-down adjustment related to the decline in value of the Company’s net deferred tax assets (“DTA”) to reflect the reduction in the federal corporate tax rate as a result of the “Tax Cuts and Jobs Act” that was enacted into law on December 22, 2017. This DTA write-down reduced diluted earnings per share for the fourth quarter and full year of 2017 by $0.25 for the respective reporting periods. The net income and diluted earnings per share increases for all of the periods presented were largely driven by the acquisition of Pacific Commerce Bancorp (“PCB”) which was completed on July 31, 2018. PCB’s operating results have been included since the date of acquisition.

“Our fourth quarter performance capped a milestone year for First Choice Bancorp that included listing on the NASDAQ stock exchange and completing our merger with Pacific Commerce Bancorp,” said Peter Hui, Chairman of the Board of First Choice Bancorp. “We believe these accomplishments have created significant value for our franchise. Going forward, we believe that the strong returns generated from our business model will provide us the flexibility to return capital to shareholders through dividends and stock buybacks, while also supporting our continued growth.”

“We had a very productive quarter, as we continued to generate solid organic loan growth while fully integrating the operations of Pacific Commerce Bank and ensuring a smooth transition for our new clients and employees,” said Robert M. Franko, President and CEO of First Choice Bancorp. “With the beneficial impact of PCB’s operations, we are seeing positive trends across our key performance metrics including lower funding costs, an expanding net interest margin, and an improved efficiency ratio. We also continue to have outstanding asset quality and had no net charge-offs in the quarter. In 2019, we will remain focused on the disciplined expense management that has been in place since the merger. We also expect to capitalize on our larger presence in Southern California to continue attracting new customers to the company, generating solid balance sheet growth, and delivering another strong year of earnings growth for our shareholders.”

STATEMENT OF INCOME

Operating Results for the Fourth Quarter 2018

Net Interest Income

Net interest income for the fourth quarter of 2018 was $19.5 million, an increase of $3.7 million, from $15.8 million for the third quarter of 2018 due to higher interest income of $3.9 million partially offset by higher interest expense of $190 thousand. Interest income increased due to higher average interest earning assets and higher yields on such earning assets for the fourth quarter of 2018. Average interest-earning assets increased $186.2 million for the fourth quarter due primarily to the full quarter impact of the PCB acquisition. The earning asset yield increased 33 basis points during the fourth quarter due in part to higher accelerated accretion from early loan payoffs of $400 thousand and higher Federal Reserve Bank (“FRB”) and Federal Home Loan Bank of San Francisco (“FHLB”) dividends of $200 thousand. The fourth quarter of 2018 included FRB dividends of $100 thousand and a special FHLB dividend of $100 thousand; there were no similar amounts in the third quarter of 2018. First Choice Bank purchased $6.7 million of FRB stock in conjunction with becoming a state member bank of the Federal Reserve in the fourth quarter of 2018.

Net Interest Margin

Net interest margin for the fourth quarter of 2018 increased 37 basis points to 5.34% from 4.97% for the third quarter of 2018. The increase was driven by higher market rates on new loan production and loan repricing, higher accelerated accretion of discounts due to early loan payoffs, the FRB and special FHLB dividends, and the improved funding mix. The loan yield for the fourth quarter of 2018 increased 17 basis points to 6.49% from 6.32% for the third quarter of 2018. The discount accretion from acquired loans and accelerated discount accretion due to early loan payoffs contributed 47 basis points to the fourth quarter of 2018 loan yield and 42 basis points to the third quarter of 2018 loan yield. The fourth and third quarters of 2018 included accelerated discount accretion due to early payoffs of loans of $630 thousand and $230 thousand which expanded the net interest margin 17 basis points and 7 basis points, respectively. The accretion of net discounts on the acquired PCB loans contributed $882 thousand, or 24 basis points to the fourth quarter of 2018 net interest margin, compared to $923 thousand, or 29 basis points in the third quarter of 2018. The fourth quarter of 2018 also benefited from the addition of the special FHLB dividend which increased the net interest margin by 3 basis points. The following chart shows the impact of discount accretion from acquired loans, accelerated discount accretion due to early loan payoffs, and the special FHLB dividends on net interest income and the net interest margin for periods indicated:

  Three Months Ended
  December 31, 2018  September 30, 2018  Variance 
  Interest Income  Yield  Interest Income  Yield  Interest Income  Yield 
  (dollars in thousands) 
Net interest margin $19,502   5.34% $15,796   4.97% $3,706   0.37%
Less:                        
Accretion income from acquisition  882   0.24%  923   0.29%  (41)  (0.05)%
Accelerated accretion income  630   0.17%  230   0.07%  400   0.10%
FHLB special dividend income  100   0.03%     %  100   0.03%
Core net interest margin $17,890   4.90% $14,643   4.61% $3,247   0.29%

The cost of funds decreased 6 basis points to 78 basis points for the fourth quarter of 2018 compared to 84 basis points for the third quarter of 2018. The lower cost of funds was attributed to a higher percentage of average noninterest-bearing deposits. Average noninterest-bearing deposits increased $140.4 million, and average total deposits increased $167.2 million due mostly to including PCB’s operations for the full fourth quarter of 2018. Average noninterest-bearing deposits totaled $566.3 million and represented 43.8% of average total deposits for the fourth quarter of 2018, compared to $425.8 million and 37.8% for the third quarter of 2018.

Noninterest Income

Noninterest income for the fourth quarter of 2018 was $1.6 million, an increase of $858 thousand from $705 thousand for the third quarter of 2018 due to higher gain on sale of SBA loans, net servicing fees, and other income. SBA loans sold totaled $13.3 million, resulting in a gain on sale of $639 thousand in the fourth quarter of 2018 compared to $2.4 million in SBA loans sold, resulting in a gain on sale of $171 thousand in the third quarter of 2018. Net servicing fees increased $152 thousand in the fourth quarter of 2018 due to the combination of higher servicing fee income of $35 thousand and lower servicing asset amortization of $117 thousand. The decrease in servicing asset amortization was due to lower amortization related to early loan payoffs; the fourth quarter of 2018 included amortization related to early loan payoffs of $162 thousand, compared to $285 thousand in the prior quarter. Other income for the fourth quarter of 2018 included returns related to a CRA investment of $92 thousand; there was no similar income in the other periods presented.

Noninterest Expense

Noninterest expense for the fourth quarter of 2018 was $10.8 million, a decrease of $1.5 million from $12.4 million for the third quarter of 2018. The decrease was primarily attributable to a $2.9 million decrease in merger, integration and public company registration costs to $859 thousand in the fourth quarter of 2018 from $3.8 million in the third quarter of 2018. Excluding merger, integration and public company registration costs, noninterest expense increased $1.4 million to $10.0 million, with increases in most overhead expense categories resulting primarily from the full quarter impact of PCB’s operations.

The operating efficiency ratio was 51.4% in the fourth quarter of 2018, compared with 74.9% in the third quarter of 2018. Excluding the impact of the merger, integration and public company registration costs, the operating efficiency ratio was 47.3% in the fourth quarter of 2018, compared with 51.9% in the third quarter of 2018.

Income Taxes

Income tax expense of $3.1 million for the fourth quarter of 2018 represented an effective tax rate of 31.7%, compared to 26.4% reported for the third quarter of 2018. The increase in the effective tax rate was due mostly to the prior quarter including a tax benefit related to the re-measurement of the impact of the “Tax Cut and Jobs Act” on the deferred tax amount. The effective tax rate for the full year of 2018 was 29.8%. The effective tax rate for 2019 is expected to be 29.6%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment increased $25.6 million, or 2.1%, to $1.25 billion at December 31, 2018, from $1.23 billion at September 30, 2018. The increase was due to organic growth across most of the Company’s major lending areas. During the fourth quarter of 2018, new loan commitments originated totaled $115.2 million, including $78.0 million in construction and commercial real estate loans, $25.1 million in SBA loans, and $12.1 million in commercial and industrial loans. The Company originates SBA loans, some of which get retained in the Company’s portfolio, and some of which are sold into the secondary market. As a result of the US Government shutdown which began on December 22, 2018, no new SBA preferred lender approvals have been received, and no new SBA loans can be approved and originated until the SBA reopens. If the shutdown continues, it will significantly reduce SBA originations in the first quarter of 2019.

Deposits

Total deposits decreased $54.8 million, or 4.2%, to $1.25 billion at December 31, 2018, from $1.31 billion at September 30, 2018. Total non-maturity deposits totaled $1.01 billion, a decrease of $37.7 million or 3.6% from September 30, 2018; the decrease was attributed primarily to our deposit customers’ year-end cash needs. Noninterest-bearing deposits represented 43.7% of total deposits at December 31, 2018 compared to 42.3% at September 30, 2018.

Time deposits totaled $240.5 million at December 31, 2018, compared to $257.6 million at September 30, 2018. Brokered time deposits remained the same totaling $53.4 million at December 31, 2018 and September 30, 2018. The $17.1 million decrease in time deposits was due mostly to a $15 million maturity redemption from the State of California public deposit program.

Credit Quality

Non-performing loans totaled $1.7 million, or 0.11% of total assets, at December 31, 2018, compared with $1.1 million, or 0.07% of total assets, at September 30, 2018. Net charge-offs for the fourth quarter of 2018 were zero, compared to $320 thousand, or 0.12% of average loans on an annualized basis for the third quarter of 2018.

Loan delinquencies (30-89 days) totaled $484 thousand at December 31, 2018, compared to $5.4 million, or 0.4% of total loans held for investment at September 30, 2018.

The Company recorded a provision for loan losses of $400 thousand for the fourth quarter of 2018. The provision for loan losses primarily relates to growth in the loan portfolio. The allowance for loan losses (“ALLL”) represented 0.88% of total loans held for investment and 642.0% of nonperforming loans at December 31, 2018, compared with 0.87% and 945.5%, respectively, at September 30, 2018. At December 31, 2018, the net carrying value of loans acquired through the acquisition of PCB of $351.4 million includes a remaining net discount of $9.5 million; such discount is available to absorb losses on loans in the acquired portfolio and it represents 0.75% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

At December 31, 2018, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution.

Bank Only December 31, 2018  September 30, 2018  December 31, 2017 
Total Capital (to Risk-Weighted Assets)  14.18%  13.69%  14.72%
Tier 1 Capital (to Risk-Weighted Assets)  13.26%  12.79%  13.46%
CET1 Capital (to Risk-Weighted Assets)  13.26%  12.79%  13.46%
Tier 1 Capital (to Average Assets)  12.03%  13.50%  11.75%

Stock Repurchase Program

During the fourth quarter of 2018, the Company repurchased 36,283 shares at an average price of $21.82 under the stock repurchase program announced in December 2018. The remaining number of shares authorized to be repurchased under this program is 1,163,717 shares at December 31, 2018.

Quarterly Cash Dividend Declared

On January 24, 2019, the Company declared a cash dividend of $0.20 per share payable on or about February 21, 2019 to shareholders of record on February 7, 2019.

About First Choice Bancorp

First Choice Bancorp is a community-based bank holding company headquartered in Cerritos, California, and it is the sole shareholder of First Choice Bank. As of December 31, 2018, First Choice Bancorp had total assets of approximately $1.6 billion. First Choice Bank, headquartered in Cerritos, California is a community-focused financial institution, serving primarily commercial and consumer clients in diverse communities and specializing in loans to small businesses, private banking clients, commercial and industrial loans, and commercial real estate loans with a niche in providing financing for the hospitality industry. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through 11 full service branches, and 1 lending office 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 and professionalism and are committed to being “First in Speed, Service, and Solutions.” First Choice Bancorp stock is traded on the Nasdaq Capital Market under the ticker symbol “FCBP.”

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

Disclosure

This press release contains certain non-GAAP financial disclosures for efficiency ratio, adjusted efficiency ratio, adjusted net income, adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity ratio, and tangible book value per share. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.

Forward-Looking Statements

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

Contacts

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

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

  At or for the three months ended  At or for the twelve months ended 
  December 31,  September 30,  December 31,  December 31,  December 31, 
  2018  2018  2017  2018  2017 
  (dollars in thousands, except per share amounts) 
Total interest income $22,085  $18,189  $11,367  $64,377  $40,819 
Total interest expense  2,583   2,393   1,560   8,710   6,041 
Net interest income  19,502   15,796   9,807   55,667   34,778 
Provision for (reversal of) loan losses  400   600   (358)  1,520   642 
Net interest income after provision for loan losses  19,102   15,196   10,165   54,147   34,136 
Total noninterest income  1,563   705   935   3,610   5,061 
Total noninterest expense  10,833   12,365   6,500   36,192   23,754 
Income before taxes  9,832   3,536   4,600   21,565   15,443 
Income taxes  3,119   932   3,645   6,435   8,089 
NET INCOME $6,713  $2,604  $955  $15,130  $7,354 
                     
Total assets $1,622,501  $1,587,356  $903,795  $1,622,501  $903,795 
Total loans held for investment  1,250,981   1,225,376   741,713   1,250,981   741,713 
Total deposits  1,252,339   1,307,110   772,679   1,252,339   772,679 
Noninterest-bearing deposits  546,713   553,253   235,584   546,713   235,584 
                     
Selected financial highlights and ratios:                    
Dividends declared per common share $0.20  $0.20  $0.20  $0.80  $0.80 
Net income per share-diluted 1 $0.56  $0.25  $0.13  $1.64  $1.02 
Return on average assets (annualized)  1.7%  0.8%  0.4%  1.3%  0.8%
Return on average equity (annualized)  10.8%  5.2%  3.6%  9.1%  7.0%
Return on tangible equity 2(annualized)  16.0%  7.1%  3.6%  11.4%  7.0%
Net interest margin  5.34%  4.97%  4.35%  4.93%  3.97%
Cost of deposits  0.75%  0.81%  0.76%  0.82%  0.77%
Cost of funds  0.78%  0.84%  0.78%  0.86%  0.78%
Efficiency ratio 2  51.4%  74.9%  60.5%  61.1%  59.6%
Noninterest-bearing deposits to total deposits  43.7%  42.3%  30.5%  43.7%  30.5%
Equity to assets ratio  15.3%  15.3%  11.7%  15.3%  11.7%
Tangible common equity ratio 2  10.9%  10.8%  11.7%  10.9%  11.7%
Book value per share $21.16  $20.76  $14.56  $21.16  $14.56 
Tangible book value per share 2 $14.33  $13.92  $14.56  $14.33  $14.56 

(1) Diluted earnings per share is based on the two class method; net income available to common shareholders includes dividends and earnings allocated to participating securities.

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

  December 31, 2018  September 30, 2018  December 31, 2017 
  (dollars in thousands, except per share amounts) 
ASSETS         
Cash and due from banks $17,874  $12,140  $5,405 
Interest-bearing deposits at other banks  176,502   178,834   97,727 
Securities purchased under agreements to resell  3,000   3,000    
Total cash and cash equivalents  197,376   193,974   103,132 
Investment securities, available-for-sale  29,543   28,473   32,460 
Investment securities, held-to-maturity  5,322   5,333   5,300 
Loans held for sale  28,022   26,122   10,599 
Total loans held for investment  1,250,981   1,225,376   741,713 
Allowance for loan losses  (11,056)  (10,656)  (10,497)
Total loans held for investment, net  1,239,925   1,214,720   731,216 
Restricted stock investments, at cost  12,855   6,135   3,640 
Equity securities, at fair value  2,538   2,500   2,542 
Accrued interest receivable  5,069   4,996   3,108 
Premises and equipment  1,973   2,131   1,035 
Servicing asset  3,186   3,162   2,618 
Deferred taxes  8,666   7,740   4,495 
Goodwill  73,425   73,425    
Core deposit intangible  6,576   6,775    
Other assets  8,025   11,870   3,650 
TOTAL ASSETS $1,622,501  $1,587,356  $903,795 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Deposits:            
Noninterest-bearing demand $546,713  $553,253  $235,584 
Money market, interest checking and savings  465,123   496,257   372,699 
Time deposits  240,503   257,600   164,396 
Total deposits  1,252,339   1,307,110   772,679 
Short term borrowings  104,998   15,000   20,000 
Senior secured debt  8,450   12,550   350 
Accrued interest payable  165   366   114 
Other liabilities  8,480   8,953   4,958 
Total liabilities  1,374,432   1,343,979   798,101 
Total shareholders’ equity  248,069   243,377   105,694 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,622,501  $1,587,356  $903,795 
             
Shares outstanding  11,726,074   11,720,582   7,260,119 
Book value per share $21.16  $20.76  $14.56 
Tangible book value per share $14.33  $13.92  $14.56 


Condensed Consolidated Statements of Income (unaudited)

  For the Three Months Ended  For the Twelve Months Ended December 31, 
  December 31, 2018  September 30, 2018  December 31, 2017  2018  2017 
  (dollars in thousands, except per share amounts) 
INTEREST INCOME                    
Interest and fees on loans $20,838  $17,296  $10,840  $61,075  $38,624 
Interest on investment securities  224   226   228   922   959 
Interest on deposits in financial institutions  697   621   237   1,872   970 
Dividends on FHLB and other stock  326   46   62   508   266 
Total interest income  22,085   18,189   11,367   64,377   40,819 
INTEREST EXPENSE                    
Interest on savings, interest checking and money market accounts  1,353   1,223   887   4,364   3,911 
Interest on time deposits  1,078   1,072   558   3,686   1,890 
Interest on borrowings  152   98   115   660   240 
Total interest expense  2,583   2,393   1,560   8,710   6,041 
Net interest income  19,502   15,796   9,807   55,667   34,778 
Provision for (reversal of) loan losses  400   600   (358)  1,520   642 
Net interest income after provision for loan losses  19,102   15,196   10,165   54,147   34,136 
NONINTEREST INCOME                    
Gain on sale of loans  639   171   433   1,505   3,596 
Service charges and fees on deposit accounts  437   380   97   1,241   329 
Net servicing fees  191   39   130   509   701 
Other income  296   115   275   355   435 
Total noninterest income  1,563   705   935   3,610   5,061 
NONINTEREST EXPENSE                    
Salaries and employee benefits  5,530   5,046   3,523   18,077   14,560 
Occupancy and equipment  1,070   891   540   3,049   2,084 
Professional fees  515   400   512   1,598   972 
Data processing  757   666   412   2,293   1,491 
Office, postage and telecommunications  297   256   197   938   720 
Deposit insurance and regulatory assessments  121   143   151   460   467 
Loan related  155   142   106   483   345 
Customer service related  416   208   206   865   618 
Merger, integration and public company registration costs  859   3,797      5,385    
Amortization of core deposit intangible  199   133      332    
Other expenses  914   683   853   2,712   2,497 
Total noninterest expense  10,833   12,365   6,500   36,192   23,754 
Income before taxes  9,832   3,536   4,600   21,565   15,443 
Income taxes  3,119   932   3,645   6,435   8,089 
Net income $6,713  $2,604  $955  $15,130  $7,354 
                     
Net income per share-diluted 1 $0.56  $0.25  $0.13  $1.64  $1.02 
Weighted average shares - diluted  11,880,163   10,357,069   7,220,494   9,143,242   7,138,404 

(1) Diluted earnings per share is based on the two class method; net income available to common shareholders includes dividends and earnings allocated to participating securities.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

  Three Months Ended 
  December 31, 2018  September 30, 2018  December 31, 2017 
  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) $1,274,252  $20,838   6.49% $1,085,572  $17,296   6.32% $771,983  $10,840   5.57%
Investment securities  35,889   224   2.48%  37,064   226   2.42%  39,753   228   2.28%
Due from banks  120,553   682   2.24%  130,537   611   1.86%  78,377   237   1.20%
Federal funds sold/resale agreements  3,000   15   1.98%  1,989   10   1.99%        N/A 
FHLB and other bank stock  13,890   326   9.31%  6,180   46   2.95%  3,933   62   6.25%
Total interest-earning assets  1,447,584   22,085   6.05%  1,261,342   18,189   5.72%  894,046   11,367   5.04%
                                     
Noninterest-earning assets  114,591           81,222           10,374         
Total assets $1,562,175          $1,342,564          $904,420         
                                     
Interest-bearing liabilities:                                    
Interest checking $148,935  $407   1.08% $132,492  $361   1.08% $217,649  $588   1.07%
Money market accounts  281,829   874   1.23%  260,468   781   1.19%  67,268   115   0.68%
Savings accounts  41,358   72   0.69%  43,465   81   0.74%  79,403   184   0.92%
Time deposits  201,523   862   1.70%  210,158   863   1.63%  109,977   345   1.24%
Brokered time deposits  53,382   216   1.61%  53,710   209   1.54%  51,760   213   1.63%
Total interest-bearing deposits  727,027   2,431   1.33%  700,293   2,295   1.30%  526,057   1,445   1.09%
Short term and other borrowings  4,321   26   2.39%  5,514   30   2.15%  36,281   115   1.26%
Senior secured notes  8,727   126   5.73%  5,018   68   5.38%        N/A 
Total interest-bearing liabilities  740,075   2,583   1.38%  710,825   2,393   1.34%  562,338   1,560   1.10%
                                     
Noninterest-bearing liabilities:                                    
Demand deposits  566,277           425,842           230,039         
Other liabilities  8,297           6,627           4,617         
Shareholders’ equity  247,526           199,270           107,426         
                                     
Total liabilities and shareholders’ equity $1,562,175          $1,342,564          $904,420         
                                     
Net interest spread     $19,502   4.67%     $15,796   4.38%     $9,807   3.94%
Net interest margin          5.34%          4.97%          4.35%
                                     
Total deposits $1,293,304  $2,431   0.75% $1,126,135  $2,295   0.81% $756,096  $1,445   0.76%
Total funding sources $1,306,352  $2,583   0.78% $1,136,667  $2,393   0.84% $792,377  $1,560   0.78%

(1) Average loans include net discounts and net deferred fees. Interest income on loans includes $154 thousand, $143 thousand, and $107 thousand related to the accretion of net deferred loans fees and $1.6 million, $1.2 million, and $380 thousand related to accretion of discounts for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

  Twelve Months Ended December 31, 
  2018  2017 
  Average
Balance
  Interest
Income / Expense
  Yield / Cost  Average
Balance
  Interest
Income / Expense
  Yield / Cost 
  (dollars in thousands) 
Interest-earning assets:                        
Loans (1) $985,513  $61,075   6.20% $739,935  $38,624   5.22%
Investment securities  37,642   922   2.45%  42,456   959   2.26%
Due from banks  98,353   1,847   1.88%  87,087   935   1.07%
Federal funds sold/resale agreements  1,258   25   1.99%  2,221   35   1.57%
FHLB and other bank stock  7,043   508   7.21%  3,881   266   6.86%
Total interest-earning assets  1,129,809   64,377   5.70%  875,580   40,819   4.66%
                         
Noninterest-earning assets  54,500           8,850         
  $1,184,309          $884,430         
                         
Interest-bearing liabilities:                        
Interest checking $153,403  $1,679   1.09% $243,568  $2,631   1.08%
Money market accounts  196,871   2,275   1.16%  73,734   483   0.66%
Savings accounts  51,254   410   0.80%  85,315   797   0.93%
Time deposits  176,761   2,912   1.65%  107,606   1,242   1.15%
Brokered time deposits  52,879   774   1.46%  44,125   648   1.47%
Total interest-bearing deposits  631,168   8,050   1.28%  554,348   5,801   1.05%
Short term and other borrowings  23,176   412   1.78%  20,475   239   1.16%
Senior secured notes  4,544   248   5.46%  3   1   %
Total interest-bearing liabilities  658,888   8,710   1.32%  574,826   6,041   1.05%
                         
Noninterest-bearing liabilities:                        
Demand deposits  353,157           199,766         
Other liabilities  5,790           4,206         
Shareholders’ equity  166,474           105,632         
                         
Total liabilities and shareholders’ equity $1,184,309          $884,430         
                         
Net interest spread     $55,667   4.38%     $34,778   3.61%
Net interest margin          4.93%          3.97%
                         
Total deposits $984,325  $8,050   0.82% $754,114  $5,801   0.77%
Total funding sources $1,012,045  $8,710.4   0.86% $774,592  $6,040.75   0.78%

(1) Average loans include net discounts and deferred costs. Interest income on loans includes $469 thousand and $439 thousand related to the accretion of net deferred loans fees and $4.0 million and $(293) thousand related to accretion (amortization) of discounts (premiums) for the year ended December 31, 2018 and 2017, respectively.

First Choice Bancorp and Subsidiary

Loans Composition

  December 31, 2018  September 30, 2018  December 31, 2017 
  Amount  Percentage of Total  Amount  Percentage of Total  Amount  Percentage of Total 
  (dollars in thousands) 
                   
Construction and land development $184,177   14.7% $172,938   14.1% $115,427   15.6%
Real estate:                        
Residential  57,443   4.6%  60,570   4.9%  63,415   8.5%
Commercial real estate - owner occupied  179,494   14.3%  181,089   14.8%  52,753   7.1%
Commercial real estate - non-owner occupied  401,272   32.2%  392,919   32.1%  251,821   33.9%
Commercial and industrial  282,111   22.5%  270,661   22.1%  169,183   22.8%
SBA loans  146,462   11.7%  147,359   12.0%  88,688   12.0%
Consumer  159   %     %  826   0.1%
Total loans held for investment, net of discounts $1,251,118   100.0% $1,225,536   100.0% $742,113   100.0%
Deferred loan fees, net of costs  (137)      (160)      (400)    
Total loans held for investment $1,250,981      $1,225,376      $741,713     
Allowance for loan losses  (11,056)      (10,656)      (10,497)    
Total loans held for investment, net $1,239,925      $1,214,720      $731,216     


  December 31,
2018
  September 30,
2018
  December 31,
2017
 
  (dollars in thousands) 
Gross loans held for investment (1) $1,263,891  $1,239,442  $745,887 
Unamortized net discounts(2)  (12,773)  (13,906)  (3,774)
Net unamortized deferred origination fees  (137)  (160)  (400)
Total loans held for investment $1,250,981  $1,225,376  $741,713 

(1) Gross loans includes purchased credit impaired loans with a net carrying value of $2.6 million, or 0.21% of gross loans at December 31, 2018, and $3.0 million, or 0.24% of gross loans at September 30, 2018.

(2) Unamortized net discounts includes discounts related to the retained portion of SBA loans and net discounts on acquired loans. At December 31, 2018 unamortized net discounts totaled $12.8 million of which $9.5 million was associated with loans acquired in the PCB acquisition and expected to be accreted into interest income over a weighted average life of 5.8 years.

First Choice Bancorp and Subsidiary

Allowance for Loan losses

  For the three months ended  For the twelve months ended 
  December 31,
2018
  September 30,
2018
  December 31,
2017
  December 31,
2018
  December 31, 2017 
  (dollars in thousands) 
Balance, beginning of period $10,656  $10,376  $10,803  $10,497  $11,599 
Provision for (reversal of) loan losses  400   600   (358)  1,520   642 
Charge-offs  (17)  (358)  (30)  (1,149)  (1,845)
Recoveries  17   38   82   188   101 
Net (charge-offs) recoveries     (320)  52   (961)  (1,744)
Balance, end of period $11,056  $10,656  $10,497  $11,056  $10,497 
                     
Annualized net (charge-offs) recoveries to average loans  %  (0.12)%  0.03%  (0.10)%  (0.24)%

Credit Quality (1)

  December 31,
2018
  September 30,
2018
  December 31,
2017
 
  (dollars in thousands) 
Accruing loans past due 90 days or more $  $  $ 
Non-accrual loans  1,128   561    
Troubled debt restructurings on non-accrual  594   566   1,761 
Total nonperforming loans  1,722   1,127   1,761 
Foreclosed assets         
Total nonperforming assets $1,722  $1,127  $1,761 
Troubled debt restructurings - on accrual $328  $329  $ 
             
Nonperforming loans as a percentage of total loans held for investment  0.14%  0.09%  0.24%
Nonperforming loans as a percentage of total assets  0.11%  0.07%  0.19%
Allowance for loan losses as a percentage of total loans held for investment  0.88%  0.87%  1.41%
Allowance for loan losses as a percentage of nonperforming loans  642.0%  945.5%  596.1%
Accruing loans held for investment past due 30 - 89 days $484  $5,398  $1,079 

(1) Excludes purchased credit impaired loans with a carrying value of $ 2.6 million at December 31, 2018, $3.0 million at September 30, 2018, and $0 at December 31, 2017.

First Choice Bancorp and Subsidiary

GAAP to Non-GAAP Reconciliation

This press release contains certain non-GAAP financial disclosures for: (1) efficiency ratio, (2) adjusted efficiency ratio, (3) adjusted net income, (4) adjusted return on average assets, (5) adjusted return on average equity, (6) return on average tangible equity, (7) adjusted return on average tangible equity, (8) tangible common equity ratio, and (9) tangible book value per share. The Company believes the presentation of certain non-GAAP financial measures assists investors in evaluating our financial results. In particular, the use of return on average tangible equity, tangible common equity ratio, and tangible book value per share is prevalent among banking regulators, investors and analysts. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

The tables below present the reconciliations certain GAAP financial measures to the related non-GAAP financial measures:

  For the three months ended  For the twelve months ended 
  December 31,  September 30,  December 31,  December 31,  December 31, 
  2018  2018  2017  2018  2017 
  (dollars in thousands) 
Efficiency Ratio                    
Noninterest expense (numerator) $10,833  $12,365  $6,500  $36,192  $23,754 
Less: merger, integration and public company registration costs  859   3,797      5,385    
Noninterest expense without merger, integration and public company registration costs(numerator) $9,974  $8,568  $6,500  $30,807  $23,754 
                     
Net interest income $19,502  $15,796  $9,807  $55,667  $34,778 
Plus: Noninterest income  1,563   705   935   3,610   5,061 
Total net interest income and noninterest income (denominator) $21,065  $16,501  $10,742  $59,277  $39,839 
Efficiency ratio  51.4%  74.9%  60.5%  61.1%  59.6%
Adjusted efficiency ratio(excluding merger, integration and public company registration costs)  47.3%  51.9%  60.5%  52.0%  59.6%
                     
Return on Average Assets, Equity, Tangible Equity                    
Net income $6,713  $2,604  $955  $15,130  $7,354 
Add: After-tax merger, integration and public company registration costs  606   2,716      4,029    
Adjusted net income $7,319  $5,320  $955  $19,159  $7,354 
                     
Average assets $1,562,175  $1,342,564  $904,420  $1,184,309  $884,430 
Average shareholders’ equity $247,526  $199,270  $107,426  $166,474  $105,632 
Less: Average intangible assets  80,125   53,078      33,575    
Average tangible common equity $167,401  $146,192  $107,426  $132,899  $105,632 
                     
Return on average assets  1.7%  0.8%  0.4%  1.3%  0.8%
Adjusted return on average assets  1.9%  1.6%  0.4%  1.6%  0.8%
                     
Return on average equity  10.8%  5.2%  3.6%  9.1%  7.0%
Adjusted return on average equity  11.8%  10.7%  3.6%  11.5%  7.0%
                     
Return on average tangible common equity  16.0%  7.1%  3.6%  11.4%  7.0%
Adjusted return on average tangible common equity  17.5%  14.6%  3.6%  14.4%  7.0%

First Choice Bancorp and Subsidiary

GAAP to Non-GAAP Reconciliation (continued)

Tangible Common Equity Ratio/ December 31,  September 30,  December 31, 
Tangible Book Value Per Share 2018  2018  2017 
  (dollars in thousands, except per share amounts) 
Shareholders’ equity $248,069  $243,377  $105,694 
Less: Intangible assets  80,001   80,200    
Tangible common equity $168,068  $163,177  $105,694 
             
Total assets $1,622,501  $1,587,356  $903,795 
Less: Intangible assets  80,001   80,200    
Tangible assets $1,542,500  $1,507,156  $903,795 
             
Equity to assets ratio  15.3%  15.3%  11.7%
Tangible common equity ratio  10.9%  10.8%  11.7%
             
Shares outstanding  11,726,074   11,720,582   7,260,119 
Book value per share $21.16  $20.76  $14.56 
Tangible book value per share $14.33  $13.92  $14.56