FCBP - First Choice Bancorp Announces Second Quarter 2019 Financial Results

Current Quarter Highlights

Cerritos, CA, July 23, 2019 (GLOBE NEWSWIRE) -- First Choice Bancorp (NASDAQ: FCBP) (the "Company"), the holding company of First Choice Bank (the "Bank"), today reported net income of $6.8 million for the second quarter of 2019, or $0.58 per diluted share, compared to net income of $7.0 million, or $0.59 per diluted share, for the first quarter of 2019.

“We are pleased to deliver another strong quarter for our shareholders,” said Peter Hui, Chairman of the Board of the Company. “Combined with our historical dividends and our current stock buyback program, we believe our strong operating performance continues to enhance shareholder value.”

“Our larger scale and geographic presence are positively impacting our business development efforts and our ability to attract high quality customers to First Choice Bank,” said Robert M. Franko, President and CEO of the Company. “We also continue to see healthy economic conditions throughout our Southern California markets, which is producing solid loan demand. We had a strong quarter of loan originations that contributed to our annualized year-to-date loan growth rate of nearly 14%, with well-balanced production across our major lending areas. The combination of strong balance sheet growth, a core net interest margin of 4.96%, and disciplined expense management is driving improved efficiencies throughout the Company and producing a high level of return on assets and equity. We continue to closely monitor the Federal Reserve's management of interest rates in order to appropriately plan and execute our strategy for the remainder of the year.”

STATEMENT OF INCOME

Net Interest Income

Net interest income for the second quarter of 2019 totaled $18.8 million, a decrease of $356 thousand from $19.2 million for the first quarter of 2019 due to higher interest expense of $736 thousand, partially offset by higher interest income of $380 thousand. The increase in interest income was due to strong loan growth and one additional day in the second quarter compared to the first quarter of 2019. Average loans increased $53.4 million to $1.33 billion for the second quarter. The increase in interest expense is attributed to higher average interest-bearing liabilities, a higher overall cost of such funds, and one additional day in the second quarter. Average interest-bearing deposits and borrowings increased $75.7 million to support loan growth. Deposit interest expense increased $473 thousand, due mostly to the cost associated with an increase in brokered time deposits, and borrowings interest expense increased $263 thousand.

Net Interest Margin

Net interest margin for the second quarter of 2019 decreased 36 basis points to 5.14% from 5.50% for the first quarter of 2019 due to lower discount accretion and prepayment penalties on loans and higher funding costs. The loan yield decreased 20 basis points to 6.42% for the second quarter of 2019 from 6.62% for the first quarter of 2019 due to lower scheduled and accelerated accretion of discounts on loans and prepayment penalties of $655 thousand as shown in the table below. The cost of funds increased 18 basis points to 1.03% for the second quarter of 2019 compared to 0.85% for the first quarter of 2019 due in part to average brokered time deposits and borrowings representing a higher percentage of total average funding sources. Average brokered time deposits and total borrowings increased $67.9 million and $41.8 million and average interest-bearing nonmaturity deposits and average noninterest-bearing demand deposits decreased $14.2 million and $27.7 million. The cost of interest-bearing deposits increased 19 basis points to 1.58% due to the mix of deposits and the higher cost of such deposits. During the second quarter of 2019, average noninterest-bearing demand deposits totaled $534.2 million, or 43.6% of total deposits, compared to $561.9 million, or 46.1% of total deposits, for the first quarter of 2019. The total cost of deposits increased 14 basis points to 0.89% from 0.75%.

The core net interest margin decreased 16 basis points to 4.96% for the second quarter compared to 5.12% for the first quarter of 2019 due to higher funding costs. The core loan yield increased 2 basis points to 6.23% for the second quarter compared to the first quarter of 2019. The following charts show how the net interest margin and loan yield are impacted by scheduled discount accretion on acquired loans and accelerated accretion and prepayment penalties from early loan payoffs for the periods indicated:

Noninterest Income

Noninterest income for the second quarter of 2019 was $2.3 million, an increase of $200 thousand from $2.1 million for the first quarter of 2019 due to higher gains on sale of SBA loans, service charges and fees on deposit accounts and net servicing fees, offset by lower other income. SBA loans sold totaled $16.4 million resulting in a gain on sale of loans of $1.3 million in the second quarter of 2019 compared to $18.6 million in SBA loans sold and a gain on sale of loans of $928 thousand in the first quarter of 2019. Other income for the first quarter of 2019 included a Bank Enterprise Award of $233 thousand from the U.S. Treasury’s Community Development Financial Institutions Fund to recognize the Bank's efforts in providing affordable housing development and small business loans within distressed communities; there was no similar income in the current quarter.

Noninterest Expense

Noninterest expense decreased $95 thousand to $10.6 million for the second quarter of 2019 from $10.7 million for the first quarter of 2019. This decrease was due to lower occupancy and equipment expense of $442 thousand and lower deposit insurance and regulatory assessments of $75 thousand, offset by higher salaries and employee benefits of $634 thousand. The decrease in occupancy expenses was due to first quarter impairment charges related to the right-of-use assets for operating leases and fixed assets for the branch consolidations of $400 thousand; there were no impairment charges in the current quarter. The decrease in deposit insurance and regulatory assessments was due primarily to a decrease in FDIC assessment rates. The increase in salaries and employee benefits was due to higher commissions and incentives related to loan and deposit growth, higher salary expense attributed to additional staff, annual pay increases being included for a full quarter, and higher restricted stock expense, offset by lower payroll tax expense.

The operating efficiency ratio was 50.1% in the second quarter of 2019, compared with 50.2% in the first quarter of 2019.

Income Taxes

Income tax expense was $3.2 million for the second quarter of 2019, compared to $3.3 million for the first quarter of 2019. The effective tax rate was at 31.9% for the second quarter of 2019 and 31.7% for the first quarter of 2019. The effective tax rate for the full year of 2019 is expected to be approximately 31.0%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment increased $62.4 million, or 4.90%, to $1.34 billion at June 30, 2019. The increase was driven by new loan commitments across most of the Company's major lending areas of $135.2 million, including $72.2 million in construction and commercial real estate loans, $41.3 million in commercial and industrial loans, and $21.7 million in SBA loans.

Deposits

Total deposits increased $40.7 million, or 3.3%, to $1.26 billion at June 30, 2019 due to higher noninterest-bearing demand deposits of $11.6 million and higher time deposits of $51.4 million, partially offset by lower interest-bearing non-maturity deposits of $22.3 million. Brokered time deposits increased $52.0 million to $152.3 million, of which $134.5 million are callable or mature within six months. Noninterest-bearing deposits totaled $547.4 million and represented 43.6% of total deposits at June 30, 2019 compared to $535.9 million and 44.1% of total deposits at March 31, 2019.

Credit Quality

Non-performing loans totaled $2.7 million at June 30, 2019 and $1.7 million at March 31, 2019, and represented 0.15% and 0.10% of total assets. Net recoveries for the second quarter of 2019 were $77 thousand, or 0.02% of average loans on an annualized basis, compared to net recoveries of $20 thousand for the first quarter of 2019.

Loan delinquencies (30-89 days) totaled $909 thousand, or 0.07% of total loans held for investment at June 30, 2019, compared to $2.6 million, or 0.20% of total loans held for investment at March 31, 2019.

The Company recorded a provision for loan losses of $550 thousand for the second quarter of 2019. The provision for loan losses related primarily to net loan portfolio growth. The allowance for loan losses represented 0.90% of total loans held for investment and 449.9% of nonperforming loans at June 30, 2019, compared with 0.90% and 684.2% at March 31, 2019. At June 30, 2019, the net carrying value of acquired loans totaled $304.0 million and included a remaining net discount of $8.1 million. Such discount is available to absorb losses on the acquired loans and represented 0.60% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

At June 30, 2019, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a “well-capitalized” financial institution.

Stock Repurchase Program

During the second quarter of 2019, the Company repurchased 12,824 shares at an average price of $21.30 and a total cost of $273 thousand under the stock repurchase program announced in December 2018. For the six months ended June 30, 2019, the Company repurchased 328,770 shares at an average price of $21.54 and a total cost of $7.1 million. The remaining number of shares authorized to be repurchased under this program was 834,947 shares at June 30, 2019.

Timing of Dividend Declarations

Beginning with the second quarter of 2019, the Company has moved up the timing of the release of its quarterly financial results. Accordingly, any announcement of quarterly dividend declarations is no longer expected to coincide with the release of quarterly financial results.

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 June 30, 2019, First Choice Bancorp had total consolidated assets of $1.73 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 with a specialization in providing financial solutions for the hospitality industry. First Choice Bank is a Preferred Small Business Administration (SBA) Lender. First Choice Bank conducts business through 9 full-service branches, and 2 lending 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 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 operational performance and to enhance investors' overall understanding of such financial performance, 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 non-GAAP financial measures to GAAP measures is included in the accompanying financial tables.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company including, without limitation, plans, strategies and goals, and statements about the Company’s expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, shareholder value creation and tax rates. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the Securities and Exchange Commission.

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):

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

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

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

Condensed Consolidated Statements of Income (unaudited)

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

(1) Average loans include net discounts and net deferred fees. Interest income on loans includes $236 thousand, $231 thousand, and $142 thousand related to the accretion of net deferred loan fees and $760 thousand, $984 thousand, and $989 thousand related to accretion of discounts for the three months ended June 30, 2019, March 31, 2019, and June 30, 2018.