FCBP - First Choice Bancorp Announces Third Quarter 2019 Financial Results

Current Quarter Highlights

Cerritos, CA, Oct. 22, 2019 (GLOBE NEWSWIRE) -- First Choice Bancorp (NASDAQ: FCBP) (the “Company”), the holding company of First Choice Bank (the “Bank”), today reported net income of $8.1 million for the third quarter of 2019, or $0.68 per diluted share, compared to net income of $6.8 million, or $0.58 per diluted share, for the second quarter of 2019.

“In addition to delivering another strong quarter for our shareholders, we are very pleased to be recently recognized as one of the Best Banks to Work For in 2019 by the American Banker,” said Peter Hui, Chairman of the Board. “This is the second consecutive year that First Choice Bank has been the only Southern California bank to be named to this prestigious list. This underscores our commitment to creating a rewarding workplace environment that attracts talented bankers and keeps turnover low, which has strengthened our franchise and has enabled us to generate strong performance for our shareholders.”

“Our third quarter results reflect the attractive deposit franchise that we continue to build,” said Robert M. Franko, President and CEO of the Company. “Our investment in experienced bankers, focusing on deposit-rich industries and treasury management solutions has enabled us to successfully attract clients who appreciate our expertise and the quality of our technology. We have steadily expanded those relationships over time, and we are committed to building upon this success. Growing our low-cost deposit base provides an excellent foundation for continuing to generate strong returns for our shareholders and to further enhance the value of our franchise.”

STATEMENT OF INCOME

Net Interest Income

Net interest income for the third quarter of 2019 totaled $21.0 million, an increase of $2.2 million from $18.8 million for the second quarter of 2019 due to higher interest income of $2.1 million, coupled with lower interest expense of $66 thousand. The increase in interest income was due mostly to $1.9 million in higher accelerated discount accretion from loan payoffs and one additional day in the third quarter compared to the second quarter of 2019. The third quarter of 2019 included $1.6 million of accelerated discount accretion related to the early repayment of one purchased credit impaired loan. The decrease in interest expense for the third quarter of 2019 is due primarily to lower average borrowings and the cost of such funds, offset by higher deposit costs in the third quarter. Interest expense on borrowings decreased $237 thousand which was partially offset by higher deposit interest expense of $171 thousand.

Net Interest Margin

Net interest margin for the third quarter of 2019 increased 38 basis points to 5.52% from 5.14% for the second quarter of 2019. The increase in the net interest margin is due primarily to a 51 basis point increase from higher loan yields, including fees and discounts, and a 5 basis points decrease from lower funding costs, offset by a 14 basis point decrease from lower yields on other earning assets, and a 4 basis point decrease from the change in the earning assets mix. The increase in the loan yield is due primarily to higher income from accelerated discount accretion of 57 basis points. The cost of funds decreased to 0.98% for the third quarter of 2019, compared to 1.03% for the second quarter of 2019 due primarily to the change in the funding mix with a lower percentage of borrowings and higher percentage of noninterest-bearing demand deposits. Average borrowings decreased $29.2 million to $48.3 million and the cost of such funds decreased 43 basis points to 2.08%. Average noninterest-bearing demand deposits increased $56.0 million to $590.2 million and represented 45.8% of total average deposits for the third quarter of 2019, compared to $534.2 million, or 43.6% of total average deposits, for the second quarter of 2019. The total cost of deposits remained flat at 0.89%.

The core net interest margin (non-GAAP) decreased 11 basis points to 4.85% for the third quarter of 2019 compared to 4.96% for the second quarter of 2019. The core average loan yield decreased 6 basis points to 6.17% for the third quarter of 2019 compared to 6.23% for the second quarter of 2019. The decrease in the core net interest margin was due in part to the Federal Reserve reducing the target federal funds rate by 50 basis points during the third quarter and the mix of average earnings assets. The following tables show how the net interest margin and average loan yield were 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 third quarter of 2019 was $1.7 million, a decrease of $649 thousand from $2.3 million for the second quarter of 2019 due mostly to lower gains on sale of SBA loans of $743 thousand, partially offset by higher other income of $228 thousand. SBA loans sold totaled $9.7 million resulting in a gain on sale of $528 thousand in the third quarter of 2019 compared to $16.4 million in SBA loans sold and a gain on sale of $1.3 million in the second quarter of 2019. Other income for the third 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 for providing affordable housing development and small business loans within distressed communities; there was no similar income in the second quarter of 2019.

Noninterest Expense

Noninterest expense increased $46 thousand to $10.7 million for the third quarter of 2019 from $10.6 million for the second quarter of 2019. This increase was due primarily to higher occupancy and equipment, data processing, loan related, and customer service related expenses, offset partially by lower salaries and employee benefits expenses and deposit insurance and regulatory assessments.

The $110 thousand increase in occupancy and equipment expense was due mostly to a $42 thousand refund in common area charges received in the prior quarter; there was no such credit in the current quarter. The $79 thousand increase in data processing was partially due to higher software amortization of new and upgraded technology. The $173 thousand increase in loan related expenses was due to a $59 thousand protective advance for one defaulted loan in the third quarter and higher reimbursements for loan related expenses in the second quarter due to the timing and recovery of these costs. The $164 thousand increase in customer service related expenses was due to higher average demand deposits during the third quarter.
The $385 thousand decrease in salaries and employee benefits was due to lower commissions and incentives and seasonally lower payroll taxes in the third quarter, in addition to higher severance costs in the prior quarter. The $90 thousand decrease in deposit insurance and regulatory assessments was due primarily to the Small Bank Assessment Credits received from the FDIC in the third quarter.

The operating efficiency ratio was 46.9% in the third quarter of 2019, compared to 50.1% in the second quarter of 2019. The lower efficiency ratio was favorably impacted by higher accelerated accretion from loan payoffs in the third quarter versus the second quarter.

Income Taxes

Income tax expense was $3.3 million for the third quarter of 2019, compared to $3.2 million for the second quarter of 2019. The effective tax rate was at 28.9% for the third quarter of 2019 and 31.9% for the second 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 decreased $19.4 million, or 1.45%, to $1.32 billion at September 30, 2019. The net decrease was attributed to lower net utilization of existing lines of credit and a lower amount of advances related to the new loan commitments made in the third quarter.

New loan commitments totaled $144.2 million for the third quarter, which compared to $139.9 million for the second quarter. The third quarter commitments included $79.2 million in construction and commercial real estate loans, $49.2 million in commercial and industrial loans, $8.4 million in SBA loans held for investment and $7.4 million of SBA loans held for sale. Total unfunded commitments increased $50.4 million to $395.2 million from $344.8 million at June 30, 2019 due to the lower utilization of existing lines of credit combined with a lower amount of advances related to the current quarter’s new loan commitments.

Deposits

Total deposits increased $83.7 million from the prior quarter to $1.34 billion at September 30, 2019 due to higher noninterest-bearing demand deposits of $118.8 million and higher interest-bearing non maturity deposits of $3.6 million, offset by lower time deposits of $38.8 million. The increase in demand deposits related to both new business development and business activity for our current customers. Brokered time deposits decreased $24.0 million to $128.3 million, of which $118.3 million are callable or mature within six months. Noninterest-bearing deposits totaled $666.3 million and represented 49.7% of total deposits at September 30, 2019 compared to $547.4 million and 43.6% of total deposits at June 30, 2019.

Credit Quality

Non-performing loans totaled $7.4 million at September 30, 2019 and $2.7 million at June 30, 2019, and represented 0.45% and 0.15% of total assets, respectively. The increase in non-performing loans included seven SBA loans totaling $4.3 million and a commercial and industrial loan of $497 thousand all of which were placed on non-accrual status. Net charge-offs for the third quarter of 2019 were $413 thousand, or 0.12% of average loans on an annualized basis, compared to net recoveries of $77 thousand for the second quarter of 2019.

Loan delinquencies (30-89 days past due) totaled $4 thousand at September 30, 2019, compared to $909 thousand at June 30, 2019.

The Company recorded a provision for loan losses of $700 thousand for the third quarter of 2019. The provision for loan losses related primarily to the charge-off and specific reserves for one lending relationship, offset in part by the recapture of general reserves from risk rating changes and lower net loan portfolio growth. The allowance for loan losses represented 0.94% of total loans held for investment and 167% of nonperforming loans at September 30, 2019, compared with 0.90% and 450% at June 30, 2019, respectively. At September 30, 2019, the net carrying value of acquired loans totaled $279.2 million and included a remaining net discount of $7.6 million. The discount is available to absorb losses on the acquired loans and represented 0.57% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

At September 30, 2019, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be ‘‘well-capitalized’’.

(1) Preliminary.

Stock Repurchase Program

During the third quarter of 2019, the Company repurchased 87,500 shares of its common stock at an average price of $21.84 and a total cost of $1.9 million under the stock repurchase program announced in December 2018. For the nine months ended September 30, 2019, the Company repurchased 416,270 shares at an average price of $21.60 and a total cost of $9.0 million. The remaining number of shares authorized to be repurchased under this program was 747,447 shares at September 30, 2019.

About First Choice Bancorp

First Choice Bancorp, headquartered in Cerritos, California, is the sole shareholder of, and the registered bank holding company for, First Choice Bank. As of September 30, 2019, First Choice Bancorp had total consolidated assets of $1.66 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):

Condensed Consolidated Balance Sheets (unaudited)

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

Condensed Consolidated Statements of Income (unaudited)

Average Balance Sheets and Yield Analysis

(1) Average loans include net discounts and deferred costs. Interest income on loans includes $254 thousand, $236 thousand and $143 thousand related to the accretion of net deferred loan fees, $834 thousand, $760 thousand and $1.2 million related to accretion of discounts for the quarters ended September 30, 2019, June 30, 2019 and September 30, 2018. In addition, interest income includes $1.7 million, $83 thousand and $43 thousand of accretion related to purchased impaired loans for the quarters ended September 30, 2019, June 30, 2019 and September 30, 2018.