First Choice Bank Announces $6.6 Million Net Income Through the Third Quarter of 2017

Financial Highlights

  • Net income for the first nine months of 2017 was $6.6 million, up 8.0% from net income of $6.1 million for the first nine months of 2016.
  • Net income for the third quarter of 2017 was $2.2 million, flat from the $2.2 million reported for the second quarter of 2017, and down 10.7% from $2.4 million from the third quarter of 2016.
  • Total assets were $924.3 million at September 30, 2017, up 1.2% from $913.3 million at June 30, 2017, and up 11% from $833.1 million at September 30, 2016.
  • Net Loans were $757.3 million at September 30, 2017, up 4.0% from $727.9 million at June 30, 2017, and up by 14.8% from $659.4 million at September 30, 2016.
  • Total deposits were $793.5 million at September 30, 2017, up 4.9% from $756.7 million at June 30, 2017, and up 10.0% from $721.2 million at September 30, 2016.
  • Total common equity increased to $105.0 million at September 30, 2017, up 1.0% from $104.0 million at June 30, 2017, and up 5.4% from $99.6 at September 30, 2016.
  • Tier 1 Leverage Ratio, Common Equity Tier 1(“CET1”), Tier 1 Risk-Based Capital and total Risk-Based Ratios were 11.6%, 12.8%, 12.8% and 14.0%, respectively, comparing very favorably to the well-capitalized requirements of 5.0%, 6.5%, 8% and 10%, respectively.

CERRITOS, Calif.--()--First Choice Bank, the “Bank” (OTCQX: FCBK), announced earnings of $2.2 million and $6.6 million for the three and nine months ended September 30, 2017, respectively.

Net income for the 2017 third quarter was stable at $2.2 million, the sixteenth quarter in a row where the Bank earned over $1 million since the fourth quarter of 2013, and the sixth quarter in a row where the Bank earned more than $2 million. Net income was up 8.0% at $6.6 million for the first nine months of 2017, compared to $6.1 million for the same period in 2016.

On October 18, 2017, the Bank’s Board of Directors declared a cash dividend of $0.20 per common share to shareholders of record as of November 6, 2017, payable on November 20, 2017.

During the quarter, the Board of Directors authorized the filing of regulatory applications to reorganize into the bank holding company form of ownership, subject to shareholder and regulatory approvals. No assurance can be given as to if and when such approvals will be obtained. Management expects to hold a special meeting of Bank shareholders to approve this reorganization during the fourth quarter of 2017.

“Growth really picked up in the third quarter,” said Peter Hui, Founder & Chairman of First Choice Bank, “and we see a continued firming in the local economy. We are really pleased to now have a full-service branch in San Diego County, in the city of Carlsbad. We had been serving San Diego County through a loan production office, and we hope that this new branch will allow us to expand all of our services, especially new deposit accounts, into that vital marketplace.”

Total assets were $924.3 million, up $11 million or 1.2% from June 30, 2017. Year-over-year total assets increased 11.0%, compared to the balance at September 30, 2016.

The gross loans balance grew $30.5 million, or 4.1%, during the third quarter of 2017 to $769.8 million, compared with $739.3 million at June 30, 2017. The increase in loans was primarily due to organic growth, spread across most loan types, especially in the Bank’s construction, SBA, and commercial real estate (“CRE”) loan portfolios. In addition to the organic growth in loans, the Bank had an opportunity to purchase a $6.5 million loan portfolio at a discount of $1.6 million during the current quarter. The discount will be accredited to income over the average life of the loans. Year-over-year gross loans increased by $98.8 million, or 14.7% from $671.0 million at September 30, 2016. This loan growth occurred even though the Bank has been selling and participating some of its construction and CRE loans, in order to manage its concentration of CRE loans.

Asset quality measures remained strong at September 30, 2017. The Allowance for Loan and Lease Losses (the “ALLL”) stood at $10.8 million, or 1.4% of total gross loans, including Loans Held for Sale, and 682.8% of all non-performing assets as of September 30, 2017. Nonperforming assets decreased to $1.6 million or 0.17% of total assets as of September 30, 2017, compared to $2.3 million or 0.26% of total assets as of June 30, 2017. The decrease in nonperforming assets was due in part to the charge-off of $1.5 million in non-accruing loans in the current-year third quarter. Past due loans remained at zero for the third quarter of 2017. The Bank recorded a $1.0 million provision for loan losses during the third quarter of 2017, the first provision the Bank has recorded in 2017, compared to a $0.3 million provision during the corresponding period of 2016. The provision expense recorded during the third quarter of 2017 primarily took into account two loans which were charged off in the quarter, combined with the Bank’s ongoing loan growth, especially the loan growth during the third quarter.

At quarter-end, the loan portfolio included six non-accrual loans in the amount of $1.6 million, all six of which are current under their existing contractual terms. Included in the non-accrual loans were four loans classified as Troubled Debt Restructured (“TDR”), which amounted to $1.2 million. There was no Other Real Estate Owned.

SBA Loan production remained strong in the third quarter of 2017. Gain on sale of loans amounted to $1.1 million and $3.2 million for the three and nine months of 2017, respectively, primarily related to the sale of the guaranteed portions of SBA 7a loans. This represented an increase of 19.7% over the gain on sale of loans realized in the quarter ended June 30, 2017, and an increase of 14.1% over the gain on sale of loans realized in the quarter ended September 30, 2016 and an increase of 35.4% for the nine months ended September 30, 2017, compared to the same period in 2016.

Robert M. Franko, President and CEO of the Bank, further commented, “We have been busy in this quarter with the issues associated with forming a holding company, and the preparations for the regulatory changes that will be required as the Bank crosses the $1 billion threshold for total assets. Our employees are excited to be a part of a larger bank. We expect to exceed $1 billion in total assets sometime in the next few quarters.”

The Bank’s total investment portfolio at quarter-end stood at $40.3 million, including $5.3 million in the Bank’s held-to-maturity portfolio that was pledged as collateral for the Federal Reserve Bank discount window. Cash and due from banks was $106.8 million.

As of September 30, 2017, total deposits were $793.5 million, of which $238.2 million, 30.0% of total deposits, was in non-interest bearing checking accounts. Total deposits were up $36.8 million or 4.9% from the previous quarter. The largest increase was in the non-interest bearing demand deposits from the Bank’s Section 1031 exchange business. Year-over-year the increase in total deposits was 10.0% compared to the balance at September 30, 2016. The Bank’s net loan to deposit ratio was 95.4% at September 30, 2017. Federal Home Loan Bank of San Francisco advances totaled $20 million as of September 30, 2017.

Total common equity capital at the quarter-end was $105.0 million, a year-over-year increase of 5.4% compared to September 30, 2016. The Bank’s book value (BV) and tangible book value (TBV) per common share of stock were $14.57 and $14.57, respectively, at quarter-end, following the Bank’s third quarterly cash dividend of $0.20 paid in August 2017. This compared with $14.44 (BV) and $14.44 (TBV) at June 30, 2017, and $13.99 (BV) and $13.99 (TBV) at September 30, 2016. Increases in common book value per share at September 30, 2017, as compared to June 30, 2017, and September 30, 2016 were attributable to net income and shares granted for bonuses and options that were exercised during the periods, partially offset by the cash dividends.

Capital ratios remained strong at the third quarter-end, with Tier 1 risk-based capital and total risk-based ratios at 12.8% and 14.0%, respectively, comparing favorably to the well-capitalized requirements of 8% and 10%, respectively.

Net interest income and net interest margin for the current quarter were $9.2 million and 4.04% respectively. The increase of $1.0 million and 18 basis points from the previous quarter was due primarily to one additional day in the third quarter, and growth in average earning assets. The average loan portfolio balance was $767.8 million for the third quarter of 2017, a 6.97% increase from $717.8 million for the second quarter of 2017. The cost of deposits was 0.79% for the third quarter of 2017, a decrease of 2 basis points compared to the second quarter of 2017.

Net interest income and net interest margin for the first nine months were $25.0 million and 3.84%, an increase of $1.0 million, but an 11 basis point decrease in net interest margin from the same period of last year. The decrease in net interest margin for the year-to-date in 2017 was, in part, a function of some early payoffs in the purchased residential mortgage loan portfolio. These early payoffs resulted in the immediate amortization of purchase premium, which was charged against interest income. The cost of deposits was 0.77% for the first nine months of 2017, a decrease of 5 basis points compared to the same period of 2016.

Non-interest income totaled $1.4 million and $4.1 million for the three and nine months of 2017, respectively, an increase of 17.4% and 23.6% from the second quarter of 2017 and the nine months of 2016, respectively. The increase was primarily due to the gain on sale of certain loans, accounting for $1.1 million and $3.2 million of the non-interest income.

Non-interest expense was $5.8 million and $17.0 million for the three and nine months of 2017, respectively, an increase of 3.4% and 11.6% from the second quarter of 2017 and the nine months of 2016, respectively. The increase was driven in part by higher legal and professional expenses related to the formation of the bank holding company, new equipment purchases and related expenditures for the Bank’s new data center in Irvine, and the advertising and marketing costs associated with opening our new full service Carlsbad branch in San Diego County. As a result of the increase in revenue from the growth of earning assets and gain on the sale of loans in the current quarter, the Bank’s efficiency ratio improved to 55.23% in the third quarter from 60.04% in the previous quarter.

Selected Financial Highlights for the quarter ended September 30, 2017:

Net after Tax Income of $2.2 million.
Pre-Tax, Pre-Provision for Loan Losses Income of $4.7 million.
Return on average assets annualized at 1.0%.
Return on average tangible common equity annualized at 8.3%.
Allowance for Loan and Lease Losses at 1.4% of total loans, and 682.8% of all non-performing assets.
Earnings Per Share for the quarter at $0.31 (basic) and $0.30 (diluted).
Earnings Per Share Trailing 12 Months at $1.23 (basic) and $1.22 (diluted).
Book Value and Tangible Book Value Per Share at $14.57 (BV) and $14.57 (TBV) respectively.
Tier 1 Leverage Ratio, CET1, Tier 1 Risk-Based Capital and total Risk-Based Ratios at 11.6%, 12.8%, 12.8% and 14.0%, compares very favorably to 5%, 6.5%, 8% and 10%, which are the respective minimum required ratios for a bank to be deemed “Well-Capitalized” by the FDIC.
Basel III Capital conservation buffer was 6.0%, well above the dividend payout restriction of 1.25% and 2.5% requirements in the 2017 transition period and the 2019 fully effective limit.

ABOUT FIRST CHOICE BANK

First Choice Bank, headquartered in Cerritos, California, is a community focused financial institution, serving diverse consumers and commercial clients 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 finance for the hospitality industry. The 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 Bank stock is traded on the Over the Counter (OTCQX); our Ticker Symbol is FCBK.

The Bank’s web site is www.FirstChoiceBankCA.com.

Forward Looking Statements

Except for the historical information in this news release, the matters described herein contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and charge-offs, results of examinations by our banking regulators, our ability to maintain adequate levels of capital and liquidity, our ability to manage loan delinquency rates, our ability to price deposits to retain existing customers and achieve low-cost deposit growth, manage expenses and lower the efficiency ratio, expand or maintain the net interest margin, mitigate interest rate risk for changes in the interest rate environment, competitive pressures in the banking industry, access to available sources of credit to manage liquidity, the local and national economic environment, and other risks and uncertainties. Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this release. First Choice Bank undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this release or to reflect the occurrence of unanticipated events. Investors are encouraged to read the First Choice Bank annual reports which are available on our website.

           
FIRST CHOICE BANK
THIRD QUARTER REPORT / SEPTEMBER 30, 2017
                       
BALANCE SHEET
(all amounts in thousand dollars except share and per share information)
September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
      (unaudited)   (unaudited)   (unaudited)   (audited)   (unaudited)
ASSETS
 
Cash and due from banks $ 106,766 $ 122,266 $ 119,762 $ 110,032 $ 121,009
Investment securities 40,289 41,666 45,316 41,465 34,391
Stock Investments, restricted 3,933 3,933 3,765 3,765 3,764
 
Loans (gross) 769,768 739,300 743,311 704,369 670,989
Less : unaccreted disc. acquired loans (1,686 ) (23 ) (24 ) (24 ) (24 )
Less allowance for loan losses   (10,803 )     (11,333 )     (11,523 )   (11,599 )   (11,599 )
Loans, net 757,279 727,944 731,764 692,746 659,366
 
Premises and equipment, net 1,034 906 975 1,036 1,171
Other assets   15,006       16,613       13,259     14,411     13,353  
TOTAL ASSETS $ 924,307     $ 913,328     $ 914,841   $ 863,455   $ 833,054  
                       
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Noninterest bearing deposits $ 238,188 $ 160,081 $ 197,672 $ 150,764 $ 107,030
Interest checking accounts 241,742 268,522 260,748 265,381 279,138
Money market accounts 77,603 76,990 78,659 92,309 122,580
Savings accounts 78,729 84,315 92,209 89,139 88,439
Certificates of deposits   157,269       166,781       138,148     158,968     123,992  
Total Deposits 793,531 756,689 767,436 756,561 721,179
Federal Home Loan Bank borrowings 20,000 45,000 40,000 0 6,000
Other liabilities   5,749       7,644       4,714     5,447     6,251  
Total liabilities 819,280 809,333 812,150 762,008 733,430
 
Total shareholders' equity   105,027       103,995       102,691     101,447     99,624  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 924,307     $ 913,328     $ 914,841   $ 863,455   $ 833,054  
                       
STATEMENT OF INCOME
For the three months ended

For the nine months ended

September 30, 2017 June 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
 
Interest income $ 10,755 $ 9,633 $ 9,922 $ 29,452 $ 28,365
Interest expense   1,604       1,441       1,507     4,481     4,401  
Net interest income 9,151 8,192 8,415 24,971 23,964
Provision for loan losses   1,000       0       260     1,000     1,740  
Net interest income after provision for loan losses 8,151 8,192 8,155 23,971 22,224
Noninterest income 1,435 1,222 1,107 4,128 3,341
Noninterest expense   5,847       5,652       5,095     16,991     15,228  
Income before income taxes 3,739 3,762 4,167 11,108 10,337
Provision for income taxes   1,553       1,528       1,719     4,553     4,265  
NET INCOME $ 2,186     $ 2,234     $ 2,448   $ 6,555   $ 6,072  
 
Cash dividends declared per common share $ 0.20 $ 0.20 na $ 0.60 na
Stock dividends declared per common share na na na na 4.00 %
Net income per share-basic $ 0.31 $ 0.32 $ 0.35 $ 0.92 $ 0.87
Net income per share-diluted ¹ $ 0.30 $ 0.31 $ 0.35 $ 0.91 $ 0.86
Weighted average shares - basic 7,111,279 7,086,022 6,991,522 7,098,393 6,999,373
Weighted average shares - diluted ¹ 7,210,032 7,171,690 7,081,226 7,204,026 7,091,718
Return on assets (annualized) 1.00 % 1.04 % 1.19 % 1.00 % 0.99 %
Return on equity (annualized) 8.30 % 8.60 % 9.93 % 8.41 % 8.42 %
Net interest margin 4.04 % 3.86 % 4.10 % 3.84 % 3.95 %
Efficiency ratio 55.23 % 60.04 % 53.51 % 58.39 % 55.77 %
                       
SELECTED RATIOS
September 30, 2017 June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016
Book value $ 14.57 $ 14.44 $ 14.28 $ 14.26 $ 13.99

Tangible book value ²

$ 14.57 $ 14.44 $ 14.28 $ 14.26 $ 13.99
Allowance for loan losses as a percent of total gross loans 1.40 % 1.53 % 1.55 % 1.65 % 1.73 %

Nonperforming assets as a percent of total assets 3

0.17 % 0.26 % 0.28 % 0.39 % 0.27 %
Allowance for loan losses as a percent of nonperforming assets 682.78 % 485.48 % 446.35 % 346.32 % 506.35 %
Net Loan to deposit ratio 95.43 % 96.20 % 95.35 % 91.57 % 91.43 %
Tier one leverage capital 11.57 % 12.13 % 11.88 % 12.42 % 12.09 %
Total risk based capital 14.03 % 14.27 % 14.54 % 15.33 % 15.59 %
                       
(1) Diluted shares are calculated using the treasury method since Q1 2015.
(2) Tangible book value per share excludes goodwill and intangible assets
(3) Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned.
 

Contacts

First Choice Bank
Robert M. Franko, 562.345.9241
President & Chief Executive Officer
or
Yvonne L. Chen, 562.345.9244
Chief Financial Officer

Contacts

First Choice Bank
Robert M. Franko, 562.345.9241
President & Chief Executive Officer
or
Yvonne L. Chen, 562.345.9244
Chief Financial Officer