Current Quarter Highlights
|?||Net income of $2.6 million, or $0.25 per diluted share|
|?||Net income included after tax merger related expenses of $2.7 million, or $0.26 per diluted share|
|?||Net interest margin expands to 4.97%|
|?||Organic loan growth of $40.7 million, or 20.7% annualized|
|?||Organic deposit growth of $47.2 million, or 24.1% annualized, with noninterest-bearing deposits increasing to 42.3% of total deposits|
|?||Quarterly cash dividend of $0.20 declared|
|?||Acquisition of Pacific Commerce Bancorp (“PCB”) completed on July 31, 2018|
Cerritos, CA, Oct. 30, 2018 (GLOBE NEWSWIRE) — First Choice Bancorp, (“First Choice” or the “Company”) (NASDAQ: FCBP), today reported net income for the third quarter of 2018 of $2.6 million, or $0.25 per diluted share, compared to net income of $3.4 million, or $0.47 per diluted share, for the second quarter of 2018, and net income of $2.0 million, or $0.28 per diluted share, for the third quarter of 2017. After-tax merger, integration and registration related costs of $2.7 million and $246 thousand reduced diluted earnings per share $0.26 and $0.04 for the third quarter and second quarter of 2018.
On October 29, 2018, the Company declared a cash dividend of $0.20 per share payable on or about November 26, 2018 to shareholders of record on November 13, 2018.
“We are very pleased with the positive trends we are seeing across our operations,” said Peter Hui, Chairman of the Board of First Choice Bancorp. “Our strong performance enables us to consistently return capital to our shareholders in the form of a quarterly cash dividend. We appreciate the continued support of our shareholders as we execute on our growth strategies and build the First Choice Bank franchise.”
“We executed well in the third quarter, successfully completing our acquisition of Pacific Commerce Bancorp and making good progress on integrating their operations while generating strong organic balance sheet growth,” said Robert M. Franko, President and CEO of First Choice Bancorp. “We are seeing the positive benefits of the PCB acquisition in the form of a lower overall cost of funds and improved efficiencies driven by our larger scale. We also had a strong quarter of business development, generating $131.2 million in new loan commitments and effectively gathering new core deposits. This strong performance produced a significant improvement in our level of profitability, excluding merger, integration and public company registration costs. As we continue to realize the synergies from the PCB acquisition and capitalize on our larger presence in Southern California, we believe we will continue to drive solid earnings growth and enhance the value of our franchise going forward.”
Operating Results for the Third Quarter 2018
Net Interest Income
Net interest income for the third quarter of 2018 was $15.8 million, an increase of $5.0 million, from $10.8 million for the second quarter of 2018 as interest income increased $5.3 million and interest expense increased $297 thousand. The increase in interest income was due to higher average interest-earning assets of $343.5 million, primarily related to $399.8 million in net loans acquired in the PCB acquisition. The increase in interest expense is primarily attributed to the interest-bearing deposits added in the PCB acquisition offset by lower average short term borrowings.
Net Interest Margin
Net interest margin for the third quarter of 2018 was 4.97%, an increase from 4.73% for the second quarter of 2018. The increase was driven by loans repricing to higher market interest rates, higher rates on new loan production, higher yield on the acquired loan portfolio and the improved funding mix. The third and second quarters of 2018 included accelerated discount accretion due to early payoffs of loans of $230 thousand and $907 thousand which expanded the net interest margin 7 basis points and 40 basis points, respectively. The accretion of net discounts on the acquired PCB loans contributed $923 thousand, or 29 basis points to the third quarter of 2018 net interest margin.
The loan yield was 6.32% for the third quarter compared to 6.17% for the second quarter of 2018. The discount accretion from acquired loans and accelerated discount accretion due to early loan payoffs increased the loan yield 42 basis points for the third quarter of 2018 and 45 basis points for the second quarter of 2018. The average cost of funds was 84 basis points for the third quarter of 2018 compared to 103 basis points for the second quarter of 2018. The lower cost of funds was attributed to the more favorable mix of deposits added in the PCB acquisition. Average noninterest-bearing deposits represented 37.8% of average total deposits for the third quarter of 2018, compared to 26.9% for the second quarter of 2018. In addition, the cash balances acquired from PCB were utilized to reduce FHLB borrowings during the third quarter of 2018.
Non-interest income for the third quarter of 2018 was $705 thousand, a decrease of $74 thousand from $779 thousand for the second quarter of 2018 due to lower gain on sale of SBA loans and lower net servicing fees, which was largely offset by the partial quarter impact of fees generated from the acquired PCB’s operations. The Company sold $2.4 million in SBA loans, resulting in a gain on sale of $171 thousand in the third quarter of 2018 compared to $5.8 million in SBA loans sold, resulting in a gain on sale of $448 thousand in the second quarter of 2018. Net servicing fees decreased $87 thousand in the third quarter of 2018 due to higher servicing fee income of $119 thousand offset by higher servicing asset amortization of $206 thousand of which $173 thousand related to early loan pay-offs in the third quarter of 2018 compared to the prior quarter.
Non-interest expense for the third quarter of 2018 was $12.4 million, an increase of $6.1 million or 95.7% from $6.3 million for the second quarter of 2018. The increase was primarily attributable to the partial quarter impact of the acquired PCB operations and higher merger, integration and public company registration costs of $3.4 million. Excluding merger, integration and public company registration costs, noninterest expense increased $2.6 million to $8.6 million, with increases in every overhead expense category including higher compensation and benefits, premises and occupancy, data processing and core deposit intangible amortization of $1.6 million, $324 thousand, $218 thousand, and $133 thousand, respectively.
The Company’s operating efficiency ratio was 74.9% in the third quarter of 2018, compared with 54.5% in the second quarter of 2018. Excluding the impact of the merger, integration and public company registration costs, the Company’s operating efficiency ratio was 51.9% in the third quarter of 2018, compared with 51.4% in the second quarter of 2018.
The Company recorded income tax expense of $932 thousand for the third quarter of 2018, representing an effective tax rate of 26.4%, compared to 30.8% reported for the second quarter of 2018. The estimated annual effective tax rate for 2018 is 29.4%.
Total loans held for investment were $1.2 billion at September 30, 2018, an increase of $441.9 million, or 56.4% from $783.5 million at June 30, 2018. The increase was primarily attributable to $414.9 million in gross loans gained in the PCB acquisition and $40.7 million of organic growth. During the third quarter of 2018, the Company originated $131.2 million in new loan commitments, which included $73.2 million in construction and commercial real estate loans, $46.1 million in SBA loans, and $11.7 million in commercial and industrial loans.
Total deposits were $1.3 billion at September 30, 2018, an increase of $522.2 million or 66.5% from $785.0 million at June 30, 2018. Total non-maturity deposits totaled $1.0 billion, an increase of $498.3 million or 90.4% from June 30, 2018. The increase was primarily attributable to the acquisition of PCB, which contributed $474.9 million of deposits at the time of acquisition, and organic deposit growth of $47.2 million, mainly in noninterest-bearing deposits. Period end noninterest-bearing deposits represented 42.3% of total deposits at September 30, 2018 compared to 27.0% at June 30, 2018.
Non-performing loans totaled $1.2 million, or 0.1% of total assets, at September 30, 2018, compared with $1.6 million, or 0.2% of total assets, at June 30, 2018. The decrease in non-performing loans was primarily attributable to the partial charge offs in two SBA loans and a full charge-off of a commercial and industrial loan totaling $320 thousand in the third quarter of 2018.
The Company recorded a provision for loan losses of $600 thousand for the third quarter of 2018 as a result of organic loan growth. Loan delinquencies totaled $5.4 million, or 0.4% of net loans held for investment at September 30, 2018, compared to no delinquencies at June 30, 2018; all delinquent loans were acquired in the PCB acquisition.
The Company’s allowance for loan losses (“ALLL”) was 0.87% of total loans held for investment and 881.4% of non-performing loans at September 30, 2018, compared with 1.32% and 657.5%, respectively, at June 30, 2018. The lower ALLL coverage ratio to total loans of 45 basis points is primarily due to the loans acquired from PCB that were recorded at fair market value, without a corresponding loan loss allowance. The net carrying value of loans acquired through the acquisition of PCB includes a remaining net discount of $10.9 million as of September 30, 2018, which represents 88 basis points of total gross loans.
At September 30, 2018, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution.
|Bank Only||September 30, 2018||June 30, 2018||December 31, 2017|
|Total Capital (to Risk-Weighted Assets)||13.69||%||14.73||%||14.72||%|
|Tier 1 Capital (to Risk-Weighted Assets)||12.79||%||13.48||%||13.46||%|
|CET1 Capital (to Risk-Weighted Assets)||12.79||%||13.48||%||13.46||%|
|Tier 1 Capital (to Average Assets)||13.50||%||12.16||%||11.75||%|
About First Choice Bancorp
First Choice Bancorp is a community-based bank holding company headquartered in Cerritos, California, and it is the sole shareholder of First Choice Bank. As of September 30, 2018, the First Choice had total assets of approximately $1.6 billion. First Choice Bank, headquartered in Cerritos, California is a community-focused financial institution, serving primarily commercial and consumer clients in diverse communities and specializing in loans to small businesses, private banking clients, commercial and industrial (C&I) loans, and commercial real estate loans with a niche in providing financing for the hospitality industry. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. Founded in 2005, First Choice Bank has quickly become a leading provider of financial services that enable our customers to grow, maintain strength, and achieve their business objectives. We strive to surpass our clients’ expectations through our efficiency and professionalism and are committed to being “First in Speed, Service, and Solutions.” First Choice Bancorp stock is traded on the Nasdaq Capital Market under the ticker symbol “FCBP.”
First Choice Bank’s website is www.FirstChoiceBankCA.com.
This press release contains certain non-GAAP financial disclosures for tangible common equity and tangible assets and adjusted earnings. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
Certain matters set forth herein (including the exhibits hereto) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations and our future financial position and operating results. These forward-looking statements are subject to risks and uncertainties that could cause actual results, performance and/or achievements to differ materially from those projected. These risks and uncertainties include, but are not limited to, local, regional, national and international economic and market conditions and events and the impact they may have on us, our customers and our assets and liabilities; our ability to attract deposits and other sources of funding or liquidity; supply and demand for real estate and periodic deterioration in real estate prices and/or values in California or other states where we lend, including both residential and commercial real estate; a prolonged slowdown or decline in real estate construction, sales or leasing activities; changes in the financial performance and/or condition of our borrowers, depositors or key vendors or counterparties; changes in our levels of delinquent loans, nonperforming assets, allowance for loan losses and charge-offs; the costs or effects of acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such acquisitions or dispositions, and/or our ability to realize the contemplated financial or business benefits associated with any such acquisitions or dispositions; the effect of changes in laws, regulations and applicable judicial decisions (including laws, regulations and judicial decisions concerning financial reforms, taxes, banking capital levels, consumer, commercial or secured lending, securities and securities trading and hedging, compliance, employment, executive compensation, insurance, vendor management and information security) with which we and our subsidiaries must comply or believe we should comply; changes in estimates of future reserve requirements and minimum capital requirements based upon the periodic review thereof under relevant regulatory and accounting requirements, including changes in the Basel Committee framework establishing capital standards for credit, operations and market risk; inflation, interest rate, securities market and monetary fluctuations; changes in government interest rates or monetary policies; changes in the amount and availability of deposit insurance; cyber-security threats, including loss of system functionality or theft or loss of Company or customer data or money; political instability; acts of war or terrorism, or natural disasters, such as earthquakes, drought, or the effects of pandemic diseases; the timely development and acceptance of new banking products and services and the perceived overall value of these products and services by our customers and potential customers; the Company’s relationships with and reliance upon vendors with respect to the operation of certain of the Company’s key internal and external systems and applications; changes in commercial or consumer spending, borrowing and savings preferences or behaviors; technological changes and the expanding use of technology in banking (including the adoption of mobile banking and funds transfer applications); the ability to retain and increase market share, retain and grow customers and control expenses; changes in the competitive and regulatory environment among financial and bank holding companies, banks and other financial service providers; volatility in the credit and equity markets and its effect on the general economy or local or regional business conditions; fluctuations in the price of the Company’s common stock or other securities; and the resulting impact on the Company’s ability to raise capital or make acquisitions, the effect of changes in accounting policies and practices, as may be adopted from time-to-time by our regulatory agencies, as well as by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard-setters; changes in our organization, management, compensation and benefit plans, and our ability to retain or expand our workforce, management team and/or our board of directors; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the initiation and resolution of legal proceedings (such as securities, consumer or employee class action litigation), regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews; our ongoing relations with our various federal and state regulators, including the SEC, FDIC, FRB and California Department of Business Oversight; our success at managing the risks involved in the foregoing items and all other factors set forth in the Company’s public reports, including its registration statements as filed under Form S-4 and Form 8-A, and particularly the discussion of risk factors within those documents. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law. Any statements about future operating results, such as those concerning accretion and dilution to the Company’s earnings or shareholders, are for illustrative purposes only, are not forecasts, and actual results may differ.
First Choice Bancorp and Subsidiary
Income Statement Highlights and Selected Ratios (unaudited):
(dollars in thousands, except per share amounts)
|For the three months ended||For the nine months ended|
|September30,||June 30,||September 30,||September 30,||September 30,|
|2018||2018||2017 (restated 1)||2018||2017(restated 1)|
|Total interest income||$||18,189||$||12,915||$||10,754||$||42,293||$||29,452|
|Total interest expense||2,393||2,096||1,604||6,127||4,481|
|Net interest income||15,796||10,819||9,150||36,166||24,971|
|Provision for loan losses||600||320||1,000||1,120||1,000|
|Net interest income after provision for loan losses||15,196||10,499||8,150||35,046||23,971|
|Total noninterest income||705||779||1,433||2,047||4,126|
|Total noninterest expense||12,365||6,317||6,174||25,359||17,254|
|Income before taxes||3,536||4,961||3,409||11,734||10,843|
|Selected financial and ratios:|
|Dividends declared per common share||$||0.20||$||0.20||$||0.20||$||0.40||$||0.40|
|Net income per share-basic||$||0.26||$||0.47||$||0.28||$||1.02||$||0.89|
|Net income per share-diluted 2||$||0.25||$||0.47||$||0.28||$||1.02||$||0.88|
|Weighted average shares – basic||10,144,954||7,172,020||7,111,331||8,170,234||7,098,560|
|Weighted average shares – diluted 2||10,357,069||7,214,473||7,146,869||8,211,020||7,134,056|
|Return on average assets (annualized)||0.78||%||1.48||%||0.88||%||1.06||%||0.97||%|
|Return on average equity (annualized)||5.23||%||12.51||%||7.48||%||8.06||%||8.12||%|
|Return on tangible equity 3 (annualized)||7.12||%||12.51||%||7.48||%||9.25||%||8.12||%|
|Net interest margin||4.97||%||4.73||%||4.04||%||4.73||%||3.84||%|
|Cost of deposits||0.81||%||0.98||%||0.79||%||0.85||%||0.77||%|
|Cost of funds||0.84||%||1.03||%||0.80||%||0.90||%||0.78||%|
|Efficiency ratio 2||74.93||%||54.47||%||58.34||%||66.36||%||59.30||%|
|(1||)||Certain amounts have been restated to reflect adjustments related to the correction of an error.|
|(2||)||Diluted shares are calculated using the two-class method.|
|(3||)||Non-GAAP measure. See GAAP to non-GAAP reconciliation.|
First Choice Bancorp and Subsidiary
Condensed Consolidated Balance Sheet (unaudited)
(dollars in thousands)
2017 (restated 1)
|Cash and due from banks||$||12,140||$||5,837||$||5,405|
|Interest-bearing deposits at other banks||178,834||115,317||97,727|
|Securities purchased under agreements to resell||3,000|