FCBP First Choice Bancorp

First Choice Bancorp (NASDAQ: FCBP) (“us,” “we,” “our,” or the “Company”), the holding company of First Choice Bank (the “Bank”), today reported net income of $5.7 million for the second quarter of 2020, or $0.49 per diluted share, compared to net income of $4.5 million, or $0.39 per diluted share, for the first quarter of 2020. Pre-tax pre-provision income was $10.3 million for the second quarter of 2020, an increase of $1.2 million, compared to the pre-tax pre-provision income of $9.1 million for the first quarter of 2020. Financial results for the second quarter of 2020 include a provision for loan losses and unfunded loan commitments of $2.4 million, or $0.15 per diluted share, compared to $2.7 million, or $0.16 per diluted share in the first quarter of 2020.

“During the COVID-19 crisis, our Board and team members have worked tirelessly to be a source of strength to our customers,” said Peter Hui, Chairman of the Board. “We are fortunate to have a strong base of clients with the capital and liquidity to be able to support their businesses as they weather this crisis. Through the efforts of our team, we have provided our clients with additional liquidity through the Paycheck Protection Program and we are now an approved lenders in the Main Street Lending Program. The Company has maintained strong earnings for our shareholders, which has allowed us to continue our quarterly dividend of $0.25 per share.”

“We had a highly productive quarter that resulted in strong balance sheet growth and the successful resolution of some lingering problem credits that reduced our non-performing assets,” said Robert M. Franko, President and CEO. “In terms of asset quality, we are encouraged by the trends we are seeing. Our Small Business Administration (SBA) borrowers are receiving tremendous relief thanks to the SBA’s 6-month deferred payment program. In addition, we provided COVID-19-related deferments for about a third of the loans in our portfolio, and a number of those clients have returned to regular payment programs. Through our PPP efforts, we added a significant number of new client relationships that contributed to the strong inflows we saw in core deposits during the quarter. We have a healthy pipeline of new business development opportunities that we will continue to service through the PPP program and our traditional lending activities. We are optimistic about being an approved lender in the Main Street Lending Program and hope to provide much needed liquidity to those that need it. While the ongoing pandemic continues to create uncertainty, we believe we are well positioned to continue delivering solid financial results in the second half of the year. On a final note, I am particularly proud of all of our team members, many working from home, who have continued to carry out our commitment to being First in Speed, Service and Solutions.”

STATEMENT OF INCOME

Net Interest Income

Net interest income for the second quarter of 2020 totaled $20.3 million, an increase of $1.1 million from the first quarter of 2020 due to slightly higher interest income of $100 thousand, coupled with lower interest expense of $1.0 million. The increase in net interest income was due primarily to interest income and fees recognized for PPP loans and reductions in the costs of interest-bearing deposits and borrowings. The decrease in loan yields and cost of funds for the second quarter of 2020 reflected the full quarter impact of the 150 basis point reduction in the target Federal Funds rate at the end of March 2020. Average loans increased by $333.5 million, of which $287.3 million was from PPP loans, net of earned fees, funded in the second quarter of 2020. PPP loans carry a fixed rate of 1.0% with a two-year contractual maturity, and the weighted average rate for the processing fee is 3.16%. These loans contributed $1.9 million to interest income for the second quarter of 2020. The decrease in interest expense for the second quarter of 2020 was due primarily to lower market interest rates and the Company’s proactive strategy to lower the cost of interest-bearing customer deposits, replace high rate brokered deposits and take advantage of the lower cost of borrowings and wholesale funding facilities. Interest expense on interest-bearing deposits decreased $930 thousand, coupled with a decrease of $101 thousand on total borrowings. Interest expense on the PPP Liquidity Facility (“PPPLF”) was $112 thousand for the second quarter of 2020.

Net Interest Margin

Net interest margin for the second quarter of 2020 decreased 66 basis points to 4.12% from 4.78% for the first quarter of 2020. The decrease in the net interest margin was due primarily to a 101 basis point decrease in loan yields (including fees and discounts), partially offset by a change in the interest-earning asset mix, and a 38 basis point decrease in funding costs. The decrease in the interest-earning assets yield and loan yield were driven by the lower market interest rates and the lower-yielding PPP loans. The yield on loans decreased to 4.94% for the second quarter of 2020, compared to 5.95% for the first quarter of 2020. The weighted average loan yield for PPP loans was 2.64%, which lowered the total loan yield by 46 basis points for the second quarter of 2020.

The cost of funds decreased to 0.34% for the second quarter of 2020, compared to 0.72% for the first quarter of 2020, due primarily to lower market interest rates and a change in the funding mix with a higher percentage of average noninterest-bearing demand deposits, and a higher percentage of average total borrowings. Average borrowings increased $53.3 million to $145.4 million, coupled with an increase of $128.0 million from the PPPLF with an average rate of 0.35% to support the PPP loans funded. The average cost of borrowings decreased 110 basis points to 0.54% for the second quarter of 2020, compared to 1.64% for the first quarter of 2020. Average senior secured notes decreased $1.3 million to $6.8 million and the average cost of such borrowings decreased 117 basis points to 3.39%. Average noninterest-bearing demand deposits increased $151.4 million to $783.3 million and represented 50.7% of total average deposits for the second quarter of 2020, compared to $631.8 million, or 47.0% of total average deposits, for the first quarter of 2020. The increase in average noninterest-bearing demand deposits was primarily due to new accounts opened for PPP loans with an average balance of $116 million for the second quarter of 2020. The total cost of deposits decreased 32 basis points to 0.31% for the second quarter of 2020, compared to 0.63% for the first quarter of 2020. The discount accretion from loans acquired in a business combination of $421 thousand contributed 9 basis points to the net interest margin in the second quarter of 2020 compared to $624 thousand and 16 basis points in the first quarter of 2020.

Provision for Loan Losses

The provision for loan losses for the second quarter of 2020 decreased $600 thousand to $2.1 million, compared to $2.7 million for the first quarter of 2020. Approximately $1.4 million of the second quarter provision was driven by an increase in qualitative factors relating to the COVID-19 pandemic and macro-economic conditions including a reserve of $138 thousand for accrued interest receivable related to loans on deferment. While the economy gradually reopened during the second quarter of 2020, the Governor of California has since implemented further restrictions and the timing of an economic recovery remains uncertain. The assumptions underlying the COVID-19 related qualitative factors included (a) uncertain and volatile macro-economic conditions caused by the pandemic; (b) the high unemployment rate; and (c) the loan deferment program. No provision for loan losses on PPP loans was recognized in the second quarter of 2020 as the SBA guarantees 100% of loans funded under the program.

Noninterest Income

Noninterest income for the second quarter of 2020 was $1.1 million, a decrease of $360 thousand from $1.4 million for the first quarter of 2020 due primarily to lower gains on loan sales of $377 thousand and lower net servicing fees of $233 thousand, partially offset by higher other income of $358 thousand. There were no loans sold during the second quarter of 2020, compared to $3.4 million in loans sold and a gain on sale of $377 thousand in the first quarter of 2020. The $233 thousand decrease in net servicing fees was due primarily to higher amortization from early loan pay-offs which totaled $277 thousand for the second quarter of 2020 compared to $69 thousand for the first quarter of 2020. Gains, included in other income, on transfer of loan collateral to foreclosed assets of $153 thousand were recognized for the second quarter of 2020. There was no similar income in the first quarter of 2020. Other income for the second quarter of 2020 also 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 small business loans or commercial real estate development loans to businesses located in distressed communities. There was no similar income in the first quarter of 2020.

Noninterest Expense

Noninterest expense decreased $419 thousand to $11.1 million for the second quarter of 2020 from $11.5 million for the first quarter of 2020. This decrease was due primarily to lower salaries and employee benefit expenses, lower loan related expenses and lower customer service related expenses, offset partially by higher data processing, FDIC assessment fees and other expenses.

The $844 thousand decrease in salaries and employee benefits was due to lower incentive accruals resulting from a decrease in organic loan production in the second quarter of 2020 and lower payroll taxes and employee benefits resulting from a seasonally higher first quarter. The $49 thousand decrease in loan related expenses was due primarily to a recovery of expenses in the second quarter of 2020. The $44 thousand decrease in customer service related expenses was due primarily to lower average demand deposits for certain deposit accounts during the second quarter of 2020.

The $137 thousand increase in FDIC assessment fees was due to Small Bank Assessment Credits received in the first quarter of 2020 for which there are no further credits. The increase in other expenses related primarily to a $300 thousand increase in the provision for unfunded loan commitments resulting from an increase in unfunded loan commitments and historical loss rates.

The efficiency ratio remained favorable at 52.0% in the second quarter of 2020, compared to 56.0% in the first quarter of 2020. The lower efficiency ratio in the second quarter of 2020 was driven by higher revenue including the benefits of the PPP loan volume.

Income Taxes

Income tax expense was $2.4 million for the second quarter of 2020 compared to $1.8 million for the first quarter of 2020. The effective tax rate was 29.8% for the second quarter of 2020 and 28.6% for the first quarter of 2020. The effective tax rate for the full year of 2020 is expected to be in the range of 29% to 30%.

STATEMENT OF FINANCIAL CONDITION

Loan Portfolio

Total loans held for investment increased $393.6 million in the second quarter of 2020, or 27.4%, to $1.83 billion at June 30, 2020 primarily due to the Company’s participation in the PPP loan program and an increase in commercial real estate loans, partially offset by a decrease in commercial and industrial loans, residential loans and construction and land loans.

PPP loans, net of unearned fees of $11.5 million, totaled $389.2 million at June 30, 2020. The unearned fees are being accreted based on the two-year contractual maturity. The Company anticipates that the SBA may forgive a significant number of PPP loans in the third and fourth quarters of 2020, at which point the recognition of fee income will be accelerated. New loan commitments from organic growth, excluding PPP loans, totaled $94.3 million for the second quarter of 2020, compared to $188.5 million for the first quarter of 2020. The second quarter new loan commitments included $50.8 million in construction and commercial real estate loans, $23.5 million in commercial and industrial loans, $12.1 million in SBA loans held for investment and $7.9 million of SBA loans held for sale. Total unfunded loan commitments increased $11.1 million to $393.4 million at June 30, 2020 from $382.3 million at March 31, 2020 due to lower utilization and higher repayment on existing lines of credit. During the second quarter of 2020, borrower repayments on existing lines of credit totaled $44.8 million, partially offset by drawdowns and new commitments.

Loan Deferment

At June 30, 2020, the Company had 520 loans totaling $626 million with a 90-day principal and/or interest deferral for COVID-related reasons. No deferred payment loans which met the requirement under Section 4013 of the CARES Act were reported as past due loans or troubled debt restructurings (“TDRs”). The Company currently expects that the majority of these loans will resume payments in the third quarter of 2020. Total accrued interest receivable related to these loans on deferment was $10 million with an aforementioned reserve of $138 thousand at June 30, 2020. Borrowers are contractually required to resume making full payments after the deferral period ends. As of July 16, 2020, 232 loans with a net carrying value of $397 million at June 30, 2020, or 63% of total loan balance, resumed making payments or paid off, and only four loans totaling $11 million were granted an additional 90-day deferment. The remainder is expected to resume payments as scheduled.

Deposits

Total deposits increased $254.0 million from the prior quarter to $1.60 billion at June 30, 2020 due to new noninterest-bearing deposit accounts opened for PPP loans, and strong core deposit growth.

Noninterest-bearing deposits totaled $789.8 million, an increase of $162.0 million in the second quarter of 2020. Approximately $83 million of the increase was due to new deposit accounts for PPP loans at June 30, 2020. The remaining increase was due to core deposit growth. Interest-bearing nonmaturity deposits increased $95.3 million primarily due to an increase in core deposits from the FDIC Insurance Program through Demand Deposit Marketplace (“DDM”) and other financial institutions. Time deposits had a slight decrease of $3.4 million due primarily to a decrease in customer time deposits, offset by higher brokered time deposits. At June 30, 2020, brokered time deposits totaled $115.5 million, of which $78.6 million are callable in six months. Noninterest-bearing deposits were $789.8 million and represented 49.2% of total deposits at June 30, 2020, compared to $627.8 million and 46.5% of total deposits at March 31, 2020.

Borrowing

Being an SBA-qualified PPP lender, the Company participated in the PPPLF established by the Federal Reserve. At June 30, 2020, the Company borrowed $179.1 million under the PPPLF with a fixed-rate of 0.35% and pledged PPP loans as collateral to secure the borrowings. The Company also participated in the FHLB San Francisco’s new Recovery Advance loan program for $10 million at zero percent interest at June 30, 2020 with maturity dates in November 2020 and May 2021.

Credit Quality

Nonperforming loans decreased to $8.4 million at June 30, 2020, compared to $9.1 million at March 31, 2020, and represented 0.46% and 0.64% of total loans held for investment, respectively. The decrease in nonperforming loans was due to three SBA loans that were charged-off or paid off, partially offset by an increase of one loan past due 90 days or more that was still accruing interest at June 30, 2020. There were no loans over 90 days past due that were still accruing interest at March 31, 2020. Net charge-offs for the second quarter of 2020 were $496 thousand, or 0.11% of average loans on an annualized basis, compared to $4 thousand or 0.001% of average loans on an annualized basis for the first quarter of 2020. Foreclosed assets increased to $602 thousand at June 30, 2020. There were no foreclosed assets in the first quarter of 2020. Nonperforming assets totaled $9.0 million at June 30, 2020, compared to $9.1 million at March 31, 2020, and represented 0.41% and 0.51% of total assets, respectively.

Loan delinquencies (30-89 days past due) totaled $353 thousand at June 30, 2020, compared to $2.3 million at March 31, 2020. Deferred payment loans which met the requirement under Section 4013 of the CARES Act are not considered past due or TDRs.

The allowance for loan losses, including $138 thousand for accrued interest receivable related to loans on deferment, increased 9.9% to $17.8 million and represented 0.97% of total loans held for investment and 211.8% of nonperforming loans at June 30, 2020, compared with 1.13% and 177.5% at March 31, 2020, respectively. The allowance for loan losses as a percentage of total loan held for investments without PPP loans was 1.24% at June 30, 2020. At June 30, 2020, the net carrying value of acquired loans totaled $187.3 million and included a remaining net discount of $4.8 million. The discount is available to absorb losses on the acquired loans and represented 2.6% of the net carrying value of acquired loans and 0.26% of total gross loans held for investment.

CAPITAL POSITION

Capital Ratios

The Bank opted into the Community Bank Leverage Ratio (“CBLR”) framework, beginning with the Call Report filed for the first quarter of 2020. The CBLR replaces the risk-based and leverage capital requirements in the generally applicable capital rules. The minimum CBLR was originally 9%, however, on April 23, 2020, the federal banking regulators, implementing the applicable provisions of the CARES Act, issued interim rules which modified the CBLR framework so that: (i) beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the CBLR framework; and (ii) community banking organizations will have until January 1, 2022, before the CBLR requirement is re-established at greater than 9%. Under the interim rules, the minimum CBLR will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The interim rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable community bank leverage ratio. In addition, assets originated under the PPP and covered loans pledged under the PPPLF are deducted from the average total consolidated assets for purposes of the leverage ratio calculation. However, such assets are included in total consolidated assets for purposes of determining the eligibility to elect the CBLR framework.

At June 30, 2020, the Bank’s preliminary CBLR ratio was 10.31% which exceeded all regulatory capital requirements under the CBLR framework and the Bank was considered to be ‘‘well-capitalized’’.

Stock Repurchase Program

The Company suspended the stock repurchase program on March 17, 2020. During the second quarter of 2020, there were no repurchases of common stock, compared to 38,411 shares of common stock repurchased at an average price of $22.34 and a total cost of $858 thousand in the first quarter of 2020. The remaining number of shares authorized to be repurchased under this program was 695,489 shares at June 30, 2020. Suspending the stock repurchase program allows the Company to preserve capital and provide liquidity during the COVID-19 pandemic to meet the credit needs of the Company’s customers, as well as support small businesses and the local economies served by the Company through the Bank’s lending and other important services.

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, 2020, First Choice Bancorp had total consolidated assets of $2.22 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 nine full-service branches and two loan production 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 Bank is a strong believer in social justice and equality and is proud of its cultural- and gender-diverse workforce. As of June 30, 2020, more than 70% of the Company’s total workforce identified as ethnic minorities and more than 65% of its workforce and more than 50% of its senior management identified as female. 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 results of operations and financial condition and to enhance investors’ overall understanding of such results of operations and financial condition, 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 financial measures is included in the accompanying financial tables.

Forward-Looking Statements

In addition to historical information, certain matters set forth herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to management’s beliefs, projections and assumptions concerning future results and events. Forward-looking statements include descriptions of management’s plans or objectives for future operations, products or services, and forecasts of the Company’s revenues, earnings or other measures of economic performance. As well, forward-looking statements may relate to future outlook and anticipated events, such as the Company’s plans and protocols with regard to managing potential impacts related to the COVID-19 virus, the Company’s strategy to help keep its workforce and local communities safe, the Company’s business continuity protocols and the potential impact on operations related to COVID-19, and the Company’s ability to successfully advance its development and expansion projects and achieve its growth objectives. These forward-looking statements involve risks and uncertainties, based on the beliefs and assumptions of management and on the information available to management at the time that this presentation was prepared and can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words or phrases such as “aim,” “can,” “may,” “could,” “predict,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “hope,” “intend,” “plan,” “potential,” ‘project,” “will likely result,” “continue,” “seek,” “shall,” “possible,” “projection,” “optimistic,” and “outlook,” and variations of these words and similar expressions or the negative version of those words or phrases.

Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. Many factors could cause actual results to differ materially from those contemplated by these forward-looking statements. 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. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the SEC, including under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as may be supplemental and/or amended by our Quarterly Reports on Form 10-Q as filed subsequent thereto.

ContactsFirst Choice BancorpRobert M. Franko, 562.345.9241President & Chief Executive Officer

First Choice BancorpKhoi D. Dang, Esq., 562.263.8336Executive Vice President and General Counsel

First Choice Bancorp and Subsidiary

Financial Highlights and Selected Ratios (unaudited):

		At or for the Three Months Ended												At or for the Six Months Ended
		June 30, 2020				March 31, 2020				June 30, 2019				June 30, 2020				June 30, 2019
		(dollars in thousands, except per share amounts)
Total interest and dividend income		$	21,844			$	21,744			$	22,219			$	43,588			$	44,058
Total interest expense			1,540				2,571				3,383				4,111				6,030
Net interest income			20,304				19,173				18,836				39,477				38,028
Total noninterest income			1,055				1,415				2,322				2,470				4,444
Total net interest income and noninterest income			21,359				20,588				21,158				41,947				42,472
Total noninterest expense			11,100				11,519				10,605				22,619				21,305
Pre-tax pre-provision income (1)			10,259				9,069				10,553				19,328				21,167
Provision for loan losses (2)			2,100				2,700				550				4,800				900
Income before taxes			8,159				6,369				10,003				14,528				20,267
Income taxes			2,429				1,823				3,192				4,252				6,448
NET INCOME		$	5,730			$	4,546			$	6,811			$	10,276			$	13,819
Total assets		$	2,223,603			$	1,775,662			$	1,730,433			$	2,223,603			$	1,730,433
Total loans held for investment			1,831,619				1,438,055				1,336,015				1,831,619				1,336,015
Noninterest-bearing deposits			789,770				627,793				547,434				789,770				547,434
Total deposits			1,604,997				1,351,040				1,255,878				1,604,997				1,255,878
Dividends declared per common share		$	0.25			$	0.25			$	0.20			$	0.50			$	0.40
Net income per share-diluted		$	0.49			$	0.39			$	0.58			$	0.88			$	1.17
Return on average assets			1.09	%			1.06	%			1.73	%			1.08	%			1.80	%
Return on average equity			8.59	%			6.90	%			10.86	%			7.75	%			11.15	%
Return on average tangible common equity (1)			12.18	%			9.84	%			15.89	%			11.02	%			16.38	%
Net interest margin			4.12	%			4.78	%			5.14	%			4.42	%			5.32	%
Average loan yield			4.94	%			5.95	%			6.42	%			5.39	%			6.52	%
Cost of deposits			0.31	%			0.63	%			0.89	%			0.46	%			0.82	%
Cost of funds			0.34	%			0.72	%			1.03	%			0.51	%			0.94	%
Efficiency ratio (1)			52.0	%			56.0	%			50.1	%			53.9	%			50.2	%
Noninterest-bearing deposits to total deposits			49.2	%			46.5	%			43.6	%			49.2	%			43.6	%
Equity to assets ratio			12.01	%			14.83	%			14.69	%			12.01	%			14.69	%
Tangible common equity to tangible asset ratio (1)			8.77	%			10.87	%			10.57	%			8.77	%			10.57	%
Book value per share		$	22.82			$	22.58			$	21.65			$	22.82			$	21.65
Tangible book value per share (1)		$	16.09			$	15.81			$	14.87			$	16.09			$	14.87

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

(2)	Includes $138 thousand of reserves for accrued interest receivable related to loans on deferment for the three months and six months ended June 30, 2020.

First Choice Bancorp and Subsidiary

Condensed Consolidated Balance Sheets (unaudited)

		June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands, except per share amounts)
ASSETS
Cash and due from banks		$	20,954			$	12,915			$	27,359
Interest-bearing deposits at other banks			196,875				160,662				134,442
Total cash and cash equivalents			217,829				173,577				161,801
Investment securities, available-for-sale			36,783				38,924				26,653
Investment securities, held-to-maturity			1,691				1,702				5,056
Equity securities, at fair value			2,782				2,753				2,694
Restricted stock investments, at cost			12,999				12,999				12,986
Loans held for sale			20,326				13,594				7,659
Total loans held for investment			1,831,619				1,438,055				1,374,675
Allowance for loan losses (1)			(17,822	)			(16,218	)			(13,522	)
Total loans held for investment, net			1,813,797				1,421,837				1,361,153
Accrued interest receivable			13,809				5,670				5,451
Premises and equipment			2,551				2,109				1,542
Servicing asset			2,516				2,988				3,202
Deferred taxes			5,829				5,469				6,163
Goodwill			73,425				73,425				73,425
Core deposit intangible			5,342				5,535				5,728
Foreclosed assets, net			602				—				—
Other assets			13,322				15,080				16,811
TOTAL ASSETS		$	2,223,603			$	1,775,662			$	1,690,324
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand		$	789,770			$	627,793			$	626,569
Money market, interest checking and savings			620,719				525,371				514,366
Time deposits			194,508				197,876				172,758
Total deposits			1,604,997				1,351,040				1,313,693
Borrowings			150,000				140,000				90,000
Paycheck Protection Program Liquidity Facility			179,125				—				—
Senior secured debt			6,500				8,600				9,600
Accrued interest payable and other liabilities			16,032				12,715				15,226
Total liabilities			1,956,654				1,512,355				1,428,519
Total shareholders’ equity			266,949				263,307				261,805
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,223,603			$	1,775,662			$	1,690,324
Shares outstanding			11,697,766				11,662,603				11,635,531
Book value per share		$	22.82			$	22.58			$	22.50
Tangible book value per share (2)		$	16.09			$	15.81			$	15.70

(1	)	Includes $138 thousand of reserves for accrued interest receivable related to loans on deferment at June 30, 2020.
(2	)	Non-GAAP measure. See GAAP to non-GAAP Reconciliation.

First Choice Bancorp and Subsidiary

Condensed Consolidated Statements of Income (unaudited)

		Three Months Ended												Six Months Ended June 30,
		June 30, 2020				March 31, 2020				June 30, 2019				2020				2019
		(dollars in thousands, except per share amounts)
INTEREST and DIVIDEND INCOME
Interest and fees on loans		$	21,348			$	20,780			$	21,344			$	42,128			$	42,260
Interest on investment securities			225				218				215				443				451
Interest on deposits at other financial institutions			92				501				454				593				899
Dividends on FHLB and other stock			179				245				206				424				448
Total interest and dividend income			21,844				21,744				22,219				43,588				44,058
INTEREST EXPENSE
Interest on savings, interest checking and money market accounts			318				1,109				1,254				1,427				2,493
Interest on time deposits			856				995				1,463				1,851				2,468
Interest on borrowings			197				376				484				573				714
Interest on PPP Liquidity Facility			112				—				—				112				—
Interest on senior secured notes			57				91				182				148				355
Total interest expense			1,540				2,571				3,383				4,111				6,030
Net interest income			20,304				19,173				18,836				39,477				38,028
Provision for loan losses (1)			2,100				2,700				550				4,800				900
Net interest income after provision for loan losses			18,204				16,473				18,286				34,677				37,128
NONINTEREST INCOME
Gain on sale of loans			—				377				1,271				377				2,199
Service charges and fees on deposit accounts			447				555				564				1,002				1,104
Net servicing fees			(9	)			224				287				215				521
Other income			617				259				200				876				620
Total noninterest income			1,055				1,415				2,322				2,470				4,444
NONINTEREST EXPENSE
Salaries and employee benefits			6,386				7,230				6,857				13,616				13,080
Occupancy and equipment			1,108				1,063				987				2,171				2,416
Professional fees			450				471				426				921				845
Data processing			874				807				639				1,681				1,243
Office, postage and telecommunications			289				258				255				547				527
Deposit insurance and regulatory assessments			198				61				120				259				315
Loan related			226				275				71				501				285
Customer service related			328				372				273				700				750
Amortization of core deposit intangible			193				193				197				386				393
Other expenses			1,048				789				780				1,837				1,451
Total noninterest expense			11,100				11,519				10,605				22,619				21,305
Income before taxes			8,159				6,369				10,003				14,528				20,267
Income taxes			2,429				1,823				3,192				4,252				6,448
Net income		$	5,730			$	4,546			$	6,811			$	10,276			$	13,819
Net income per share-diluted		$	0.49			$	0.39			$	0.58			$	0.88			$	1.17
Weighted average shares - diluted			11,606,280				11,632,050				11,675,057				11,619,149				11,741,910

(1

)

Includes $138 thousand of reserves for accrued interest receivable related to loans on deferment for the three months and six months ended June 30, 2020.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis

		Three Months Ended
		June 30, 2020												March 31, 2020												June 30, 2019
		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)		$	1,738,172			$	21,348				4.94	%		$	1,404,652			$	20,780				5.95	%		$	1,334,188			$	21,344				6.42	%
Investment securities			42,553				225				2.13	%			36,200				218				2.42	%			36,337				215				2.37	%
Deposits at other financial institutions			186,741				92				0.20	%			157,743				501				1.28	%			83,183				442				2.13	%
Federal funds sold/resale agreements			—				—				—				—				—				—				2,018				12				2.39	%
Restricted stock investments and other bank stocks			14,534				179				4.95	%			14,524				245				6.78	%			13,932				206				5.93	%
Total interest-earning assets			1,982,000				21,844				4.43	%			1,613,119				21,744				5.42	%			1,469,658				22,219				6.06	%
Noninterest-earning assets			127,208												114,282												110,082
Total assets		$	2,109,208											$	1,727,401											$	1,579,740
Interest-bearing liabilities:
Interest checking		$	251,398			$	101				0.16	%		$	156,407			$	262				0.67	%		$	111,116			$	298				1.08	%
Money market accounts			298,040				207				0.28	%			318,465				798				1.01	%			271,067				900				1.33	%
Savings accounts			30,104				10				0.13	%			28,264				49				0.70	%			28,825				56				0.78	%
Time deposits			91,051				292				1.29	%			117,567				490				1.68	%			150,601				674				1.80	%
Brokered time deposits			90,349				564				2.51	%			92,844				505				2.19	%			128,555				789				2.46	%
Total interest-bearing deposits			760,942				1,174				0.62	%			713,547				2,104				1.19	%			690,164				2,717				1.58	%
Borrowings			145,440				197				0.54	%			92,143				376				1.64	%			77,442				484				2.51	%
Paycheck Protection Program Liquidity Facility			127,962				112				0.35	%			—				—				—	%			—				—				—	%
Senior secured notes			6,754				57				3.39	%			8,022				91				4.56	%			12,398				182				5.89	%
Total interest-bearing liabilities			1,041,098				1,540				0.59	%			813,712				2,571				1.27	%			780,004				3,383				1.74	%
Noninterest-bearing liabilities:
Demand deposits			783,258												631,809												534,192
Other liabilities			16,684												17,011												13,882
Shareholders’ equity			268,168												264,869												251,662
Total liabilities and shareholders’ equity		$	2,109,208											$	1,727,401											$	1,579,740
Net interest spread						$	20,304				3.84	%						$	19,173				4.15	%						$	18,836				4.32	%
Net interest margin											4.12	%											4.78	%											5.14	%
Total deposits		$	1,544,200			$	1,174				0.31	%		$	1,345,356			$	2,104				0.63	%		$	1,224,356			$	2,717				0.89	%
Total funding sources		$	1,824,356			$	1,540				0.34	%		$	1,445,521			$	2,571				0.72	%		$	1,314,196			$	3,383				1.03	%

(1

)

Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes $1.3 million, $292 thousand and $236 thousand related to the accretion of net deferred loan fees for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019. In addition, interest income includes $421 thousand, $624 thousand and $642 thousand of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019.

First Choice Bancorp and Subsidiary

Average Balance Sheets and Yield Analysis (continued)

		Six Months Ended June 30,
		2020												2019
		Average Balance				Interest Income / Expense				Yield / Cost				Average Balance				Interest Income / Expense				Yield / Cost
		(dollars in thousands)
Interest-earning assets:
Loans (1)		$	1,571,412			$	42,128				5.39	%		$	1,307,613			$	42,260				6.52	%
Investment securities			39,377				443				2.26	%			36,714				451				2.48	%
Deposits at other financial institutions			172,242				593				0.69	%			81,998				869				2.14	%
Federal funds sold/resale agreements			—				—				—	%			2,506				30				2.41	%
FHLB and other bank stock			14,529				424				5.87	%			13,912				448				6.49	%
Total interest-earning assets			1,797,560				43,588				4.88	%			1,442,743				44,058				6.16	%
Noninterest-earning assets			120,745												108,915
		$	1,918,305											$	1,551,658
Interest-bearing liabilities:
Interest checking		$	203,903			$	363				0.36	%		$	114,978			$	607				1.06	%
Money market accounts			308,253				1,005				0.66	%			271,521				1,768				1.31	%
Savings accounts			29,184				59				0.41	%			31,575				118				0.75	%
Time deposits			104,309				782				1.51	%			160,429				1,404				1.76	%
Brokered time deposits			91,596				1,069				2.35	%			94,814				1,064				2.26	%
Total interest-bearing deposits			737,245				3,278				0.89	%			673,317				4,961				1.49	%
Borrowings			118,956				573				0.97	%			56,897				714				2.53	%
Paycheck Protection Program Liquidity Facility			63,816				112				0.35	%			—				—				—	%
Senior secured notes			7,388				148				4.03	%			12,151				355				5.89	%
Total interest-bearing liabilities			927,405				4,111				0.89	%			742,365				6,030				1.64	%
Noninterest-bearing liabilities:
Demand deposits			707,534												547,954
Other liabilities			16,848												11,415
Shareholders’ equity			266,518												249,924
Total liabilities and shareholders’ equity		$	1,918,305											$	1,551,658
Net interest spread						$	39,477				3.99	%						$	38,028				4.52	%
Net interest margin											4.42	%											5.32	%
Total deposits		$	1,444,779			$	3,278				0.46	%		$	1,221,271			$	4,961				0.82	%
Total funding sources		$	1,634,939			$	4,111				0.51	%		$	1,290,319			$	6,030				0.94	%

(1

)

Average loans include net discounts and net deferred loan fees and costs. Interest income on loans includes $1.6 million and $467 thousand related to the accretion of net deferred loan fees for the six months ended June 30, 2020 and June 30, 2019. In addition, interest income includes $1.0 million and $1.6 million of discount accretion on loans acquired in a business combination, including the interest recognized on the payoff of PCI loans, for the six months ended June 30, 2020 and June 30, 2019.

First Choice Bancorp and Subsidiary

Loan Composition

		June 30, 2020								March 31, 2020								December 31, 2019
		Amount				Percentage of Total				Amount				Percentage of Total				Amount				Percentage of Total
		(dollars in thousands)
Construction and land development		$	218,226				11.8	%		$	233,607				16.2	%		$	249,504				18.1	%
Real estate:
Residential			39,145				2.1	%			42,904				3.0	%			43,736				3.2	%
Commercial real estate - owner occupied			162,508				8.8	%			148,517				10.3	%			171,595				12.5	%
Commercial real estate - non-owner occupied			502,693				27.3	%			476,472				33.2	%			423,823				30.8	%
Commercial and industrial			335,411				18.2	%			350,090				24.3	%			309,011				22.5	%
SBA loans (1)			586,820				31.8	%			187,407				13.0	%			177,633				12.9	%
Consumer			34				—	%			450				—	%			430				—	%
Total loans held for investment, net of discounts		$	1,844,837				100.0	%		$	1,439,447				100.0	%		$	1,375,732				100.0	%
Net deferred loan fees (1)			(13,218	)							(1,392	)							(1,057	)
Total loans held for investment		$	1,831,619							$	1,438,055							$	1,374,675
Allowance for loan losses (2)			(17,822	)							(16,218	)							(13,522	)
Total loans held for investment, net		$	1,813,797							$	1,421,837							$	1,361,153

(1	)	Includes PPP loans with total outstanding principal of $400.7 million and net unearned fees of $11.5 million at June 30, 2020.
(2	)	Includes $138 thousand of reserves for accrued interest receivable related to loans on deferment at June 30, 2020.

Total loans held for investment

		June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands)
Gross loans held for investment (1)		$	1,852,768			$	1,448,082			$	1,385,142
Unamortized net discounts (2)			(7,931	)			(8,635	)			(9,410	)
Net unamortized deferred origination fees (1)			(13,218	)			(1,392	)			(1,057	)
Total loans held for investment		$	1,831,619			$	1,438,055			$	1,374,675

(1	)	Includes PPP loans with total outstanding principal of $400.7 million and net unearned fees of $11.5 million at June 30, 2020.
(2	)	Unamortized net discounts include discounts related to the retained portion of SBA loans and net discounts on Non-PCI acquired loans. At June 30, 2020, net discounts related to loans acquired in the PCB acquisition totaled $4.8 million that is expected to be accreted into interest income over a weighted average remaining life of 4.3 years. At March 31, 2020 and December 31, 2019, net discounts related to loans acquired in the PCB acquisition totaled $5.4 million and $6.0 million.

Allowance for Loan losses

		For the Three Months Ended												Six Months Ended June 30,
		June 30, 2020				March 31, 2020				June 30, 2019				2020				2019
		(dollars in thousands)
Balance, beginning of period		$	16,218			$	13,522			$	11,426			$	13,522			$	11,056
Provision for loan losses			2,100				2,700				550				4,800				900
Charge-offs			(550	)			(28	)			(122	)			(578	)			(124	)
Recoveries			54				24				199				78				221
Net (charge-offs) recoveries			(496	)			(4	)			77				(500	)			97
Balance, end of period		$	17,822			$	16,218			$	12,053			$	17,822			$	12,053
Annualized net (charge-offs) recoveries to average loans			(0.11	)%			—	%			0.02	%			(0.06	)%			0.01	%

Credit Quality (1)

		June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands)
Accruing loans past due 90 days or more		$	267			$	—			$	—
Non-accrual loans			7,999				8,984				11,107
Troubled debt restructurings on non-accrual			150				151				158
Total nonperforming loans			8,416				9,135				11,265
Foreclosed assets			602				—				—
Total nonperforming assets		$	9,018			$	9,135			$	11,265
Troubled debt restructurings - on accrual		$	319			$	319			$	321
Nonperforming loans as a percentage of total loans held for investment			0.46	%			0.64	%			0.82	%
Nonperforming assets as a percentage of total assets			0.41	%			0.51	%			0.67	%
Allowance for loan losses as a percentage of total loans held for investment			0.97	%			1.13	%			0.98	%
Allowance for loan losses as a percentage of total loans held for investment without PPP loans			1.24	%			1.13	%			0.98	%
Allowance for loan losses as a percentage of nonperforming loans			211.76	%			177.54	%			120.04	%
Allowance for loan losses as a percentage of nonperforming assets			197.63	%			177.54	%			120.04	%
Accruing loans held for investment past due 30 - 89 days		$	353			$	2,306			$	1,767

(1

)

Excludes purchased credit impaired loans with a carrying value of $1.0 million, $1.1 million and $1.1 million at June 30, 2020, March 31, 2020 and December 31, 2019.

GAAP to Non-GAAP Reconciliation

The following tables present a reconciliation of non-GAAP financial measures to GAAP measures for: (1) efficiency ratio, (2) pre-tax pre-provision income, (3) average tangible common equity, (4) return on average tangible common equity, (5) tangible common equity, (6) tangible assets, (7) tangible common equity to tangible asset ratio, and (8) tangible book value per share. We believe the presentation of certain non-GAAP financial measures provides useful information to assess our consolidated financial condition and consolidated results of operations and to assist investors in evaluating our financial results relative to our peers. These non-GAAP financial measures complement our GAAP reporting and are presented below to provide investors and others with information that we use to manage the business each period. Because not all companies use identical calculations, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures used by other companies. These non-GAAP measures should be taken together with the corresponding GAAP measures and should not be considered a substitute of the GAAP measures.

		For the Three Months Ended												Six Months Ended June 30,
		June 30, 2020				March 31, 2020				June 30, 2019				2020				2019
		(dollars in thousands)
Efficiency Ratio
Noninterest expense (numerator)		$	11,100			$	11,519			$	10,605			$	22,619			$	21,305
Net interest income		$	20,304			$	19,173			$	18,836			$	39,477			$	38,028
Plus: Noninterest income			1,055				1,415				2,322				2,470				4,444
Total net interest income and noninterest income (denominator)		$	21,359			$	20,588			$	21,158			$	41,947			$	42,472
Efficiency ratio			52.0	%			56.0	%			50.1	%			53.9	%			50.2	%
Pre-tax pre-provision income
Net interest income		$	20,304			$	19,173			$	18,836			$	39,477			$	38,028
Noninterest income			1,055				1,415				2,322				2,470				4,444
Total net interest income and noninterest income			21,359				20,588				21,158				41,947				42,472
Less: Noninterest expense			11,100				11,519				10,605				22,619				21,305
Pre-tax pre-provision income		$	10,259			$	9,069			$	10,553			$	19,328			$	21,167
Return on Average Assets, Equity, Tangible Equity
Net income		$	5,730			$	4,546			$	6,811			$	10,276			$	13,819
Average assets		$	2,109,208			$	1,727,401			$	1,579,740			$	1,918,305			$	1,551,658
Average shareholders’ equity			268,168				264,869				251,662				266,518				249,924
Less: Average intangible assets			78,901				79,083				79,731				78,985				79,829
Average tangible common equity		$	189,267			$	185,786			$	171,931			$	187,533			$	170,095
Return on average assets			1.09	%			1.06	%			1.73	%			1.08	%			1.80	%
Return on average equity			8.59	%			6.90	%			10.86	%			7.75	%			11.15	%
Return on average tangible common equity			12.18	%			9.84	%			15.89	%			11.02	%			16.38	%

		Quarter ended
		June 30, 2020				March 31, 2020				December 31, 2019
		(dollars in thousands, except per share amounts)
Tangible Common Equity Ratio/Tangible Book Value Per Share
Shareholders’ equity		$	266,949			$	263,307			$	261,805
Less: Intangible assets			78,767				78,960				79,153
Tangible common equity		$	188,182			$	184,347			$	182,652
Total assets		$	2,223,603			$	1,775,662			$	1,690,324
Less: Intangible assets			78,767				78,960				79,153
Tangible assets		$	2,144,836			$	1,696,702			$	1,611,171
Equity to assets ratio			12.01	%			14.83	%			15.49	%
Tangible common equity to tangible asset ratio			8.77	%			10.87	%			11.34	%
Shares outstanding			11,697,766				11,662,603				11,635,531
Book value per share		$	22.82			$	22.58			$	22.50
Tangible book value per share		$	16.09			$	15.81			$	15.70