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