First Choice Bancorp Reports Second Quarter 2018 Financial Results and Declares Quarterly Dividend


Highlights

  • Net income of $3.4 million, or $0.47 per diluted share
  • Annualized return on average assets and average equity was 1.48% and 12.51%, respectively
  • Total gross loans of $787.2 million at June 30, 2018, a decline of 0.81% from prior quarter
  • Average net loans of $801.3 million, an increase of 3.49% from prior quarter
  • Total deposits of $785.0 million at June 30, 2018, an increase of 3.45% from prior quarter
  • The Company was added to the Russell 3000® Index and the Russell 2000® Index when Russell investments reconstituted its comprehensive set of U.S. and global equity indexes after the market close on June 22, 2018
  • Quarterly cash dividend of $0.20 declared
  • Acquisition of Pacific Commerce Bancorp completed on July 31, 2018

Cerritos, CA, Aug. 01, 2018 (GLOBE NEWSWIRE) -- First Choice Bancorp, (“First Choice” or the “Company”) (NASDAQ: FCBP), the holding company of First Choice Bank (the “Bank”), today reported financial results for the second quarter ended June 30, 2018.

For the second quarter of 2018, net income was $3.4 million, or $0.47 per diluted share, compared to net income of $2.4 million, or $0.33 per diluted share, for the first quarter of 2018, and net income of $2.3 million, or $0.32 per diluted share, for the second quarter of 2017.

On July 26, 2018, the Company also declared a cash dividend of $0.20 per share. The dividend is payable on September 10, 2018 to shareholders of record on August 27, 2018.

“We delivered strong year-over-year growth in earnings, driven by higher net interest income, improved efficiencies and stable asset quality,” said Robert M. Franko, President and CEO of First Choice Bancorp. “Our end-of-period loan growth in the second quarter was impacted by fluctuations in commercial line utilization from one large commercial customer. Our average net loans increased 3.49% compared to the first quarter of 2018, which is more reflective of the growth trends we are experiencing. Our loan pipeline remains healthy and we expect to see a consistent level of organic loan growth over the second half of the year."

“As announced today, we completed our acquisition of Pacific Commerce Bancorp and we are very excited to welcome our new customers and colleagues to the First Choice family. The combination of our two banks creates the 16th largest publicly traded bank in Southern California and significantly improves our competitive positioning. Our top priority for the remainder of 2018 is managing the integration of Pacific Commerce and realizing all of the synergies we project for this transaction. We continue to expect the acquisition to be approximately 15% accretive to earnings per share in 2019, significantly improving our earnings power and the level of returns that we generate for our shareholders,” said Mr. Franko.

Operating Results for the Second Quarter 2018

Net Interest Income

Net interest income for the second quarter of 2018 was $10.8 million, an increase of 13.26% from $9.6 million for the first quarter of 2018. The increase in net interest income from the first quarter was primarily attributable to higher average loan balances and early payoffs in the purchased SBA loan portfolio, which resulted in the accelerated recognition of income from the unamortized loan discounts.

Net Interest Margin

Net interest margin for the second quarter of 2018 was 4.73%, an increase from 4.38% for the first quarter of 2018. The net interest margin was positively impacted by an increase in accretion income on acquired loans due to an increase in payoffs.

Excluding the impact of accretion income on acquired loans, the net interest margin decreased 5 basis points compared to the first quarter of 2018. The decrease was attributable to a 2 basis points decrease in dividend income from FHLB and other bank stocks, and an 18 basis points increase in the average cost of funds, attributed in large part to a deposit promotion program in the second quarter which ended on June 30, 2018, and partially offset by a 15 basis points increase in the average loan yield.

Non-interest Income

Non-interest income for the second quarter of 2018 was $0.8 million, an increase of 38.37% from $0.6 million for the first quarter of 2018. The increase was primarily the result of an increase in the gain on sale of SBA loans. During the second quarter of 2018, the Company sold $5.8 million in SBA loans, resulting in a gain on sale of $0.4 million. During the first quarter of 2018, the Company sold $2.7 million in SBA loans, resulting in a gain on sale of $0.2 million.

Non-interest Expense

Non-interest expense for the second quarter of 2018 was $6.3 million, a decrease of 5.39% from $6.7 million for the first quarter of 2018. The decrease was primarily attributable to a decrease in the salary and benefits and customer service costs. Non-interest expense for the second quarter of 2018 included approximately $0.4 million in merger-related and public company registration expense related to the Company’s Nasdaq listing and the pending acquisition of Pacific Commerce Bancorp.

The Company’s operating efficiency ratio was 54.47% in the second quarter of 2018, compared with 66.01% in the first quarter of 2018.

Excluding the impact of accretion income on acquired loans and the merger-related and public company registration expense, the Company's operating efficiency ratio was 55.75% in the second quarter of 2018, compared with 62.31% in the first quarter of 2018. The improvement in operating efficiency was due to an increase in operating income, and decrease in non-interest expense in the second quarter of 2018.

Income Taxes

The Company recorded income tax expense of $1.5 million for the second quarter of 2018, representing an effective tax rate of 30.76%, compared to 26.53% reported for the first quarter of 2018. The increase in the effective tax rate reflects a lower tax benefit from stock-based compensation in the second quarter of 2018.

Loan Portfolio

Total gross loans, excluding loans held for sale, were $787.2 million at June 30, 2018, a decrease of 0.81% from $793.6 million at March 31, 2018. The decrease was primarily attributable to the paydown of one large commercial line of credit.

During the second quarter of 2018, the Company originated $88.1 million in new loan commitments, the majority of the growth during the quarter occurred in construction and commercial real estate loans, $52.7 million, or 59.84% of total new loan commitments, and in commercial and industrial loans, $25.3 million, or 28.69% of total new loan commitments.

Deposits

Total deposits were $785.0 million at June 30, 2018, an increase of 3.45% from $758.8 million at March 31, 2018. The increase in noninterest bearing demand, money market, time deposits and brokered deposits was $14.1 million, $52.5 million, $21.0 million and $4.0 million, respectively, as depositors are shifting balances to higher yielding accounts.  Offsetting these increases were reductions in interest checking and savings accounts of $47.3 million and $18.2 million, respectively.

Credit Quality

Non-performing assets totaled $1.6 million, or 0.16% of total assets, at June 30, 2018, compared with $1.1 million, or 0.11% of total assets, at March 31, 2018. The increase in non-performing assets was primarily attributable to two SBA loans placed on non-accrual status.

The Company recorded net recoveries of $46 thousand in the second quarter.

The Company recorded a provision for loan losses of $0.3 million for the second quarter of 2018, which was primarily attributable to the increase in non-performing assets.

The Company’s allowance for loan losses was 1.32% of total gross loans and 657.54% of non-performing assets at June 30, 2018, compared with 1.26% and 943.45%, respectively, at March 31, 2018.

Capital Ratios

At June 30, 2018, the Bank exceeded all regulatory capital requirements under Basel III and was considered to be a ‘‘well-capitalized’’ financial institution.

Bank OnlyJune 30, 2018March 31, 2018December 31, 2017
Total Capital (to Risk-Weighted Assets)14.73%14.26%14.72%
Tier 1 Capital (to Risk-Weighted Assets)13.48%13.01%13.46%
CET1 Capital (to Risk-Weighted Assets)13.48%13.01%13.46%
Tier 1 Capital (to Average Assets)12.16%12.19%11.75%

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 July 31, 2018, the First Choice had total assets of approximately $1.5 billion. 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 financing for the hospitality industry. First Choice 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 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 tangible common equity and tangible assets and adjusted earnings. 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 DBO; 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 that document. 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.

Income statement highlights and selected ratios (unaudited):
(dollars in thousands, except per share amounts)

  For the three months ended For the six months ended
  June 30, 2018 March 31, 2018 June 30, 2017 (restated)  June 30, 2018 June 30, 2017 (restated)
           
Total interest income $12,915 $11,189 $9,634 $24,104 $18,698
Total interest expense 2,096 1,637 1,441 3,733 2,877
Net interest income 10,819 9,552 8,193 20,371 15,821
Provision for loan losses 320 200  520 
Net interest income after provision for loan losses 10,499 9,352 8,193 19,851 15,821
Total noninterest income 779 563 1,222 1,342 2,693
Total noninterest expense 6,317 6,677 5,573 12,994 11,080
Income before taxes 4,961 3,238 3,842 8,199 7,434
Income taxes 1,526 859 1,560 2,385 3,026
NET INCOME $3,435 $2,379 $2,282 $5,814 $4,408
           
Selected financial and ratios:          
Dividends declared per common share $0.20 $0.20 $0.20 $0.40 $0.40
Net income per share-basic 0.47 0.33 0.32 0.80 0.61
Net income per share-diluted 1 0.47 0.33 0.32 0.80 0.61
Weighted average shares - basic 7,172,020 7,160,938 7,102,653 7,166,509 7,092,068
Weighted average shares - diluted 1 7,214,473 7,200,057 7,137,163 7,207,295 7,127,549
Return on assets (annualized) 1.48% 1.06% 1.06% 1.28% 1.02%
Return on equity (annualized) 12.51% 8.86% 8.69% 10.71% 8.45%
Net interest margin 4.73% 4.38% 3.86% 4.56% 3.74%
Cost of Deposits 0.98% 0.79% 0.77% 0.89% 0.77%
Cost of Funds 1.03% 0.85% 0.77% 0.94% 0.77%
Efficiency ratio 54.47% 66.01% 59.19% 59.84% 59.85%

(1) Diluted shares are calculated using the two class method.

First Choice Bancorp and Subsidiaries
Condensed Consolidated Balance Sheet (unaudited)
(dollars in thousands, except share and per share amounts)

  June 30, 2018 March 31, 2018 December 31, 2017
       
ASSETS      
Cash and due from banks $5,837  $6,840  $5,405 
Interest-bearing deposits at other banks 115,317  93,225  97,727 
Securities purchased under agreements to resell      
Total cash and cash equivalents 121,154  100,065  103,132 
Investment securities, available-for-sale 29,732  31,045  35,002 
Investment securities, held-to-maturity 5,344  5,292  5,300 
Loans held for sale 11,466  11,525  10,599 
Gross loans 787,175  793,582  745,887 
Unearned fees and costs (3,688) (4,152) (4,174)
Allowance for loan losses (10,376) (10,010) (10,497)
Loans receivable, net 773,111  779,420  731,216 
Federal Home Loan Bank, at cost 3,866  3,640  3,640 
Equity securities, at fair value 2,506  2,508   
Accrued interest receivable 3,274  3,358  3,108 
Premises and equipment 1,242  1,055  1,035 
Servicing assets 2,448  2,508  2,618 
Other assets 8,543  7,260  8,145 
TOTAL ASSETS $962,686  $947,676  $903,795 
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Deposits:      
Noninterest-bearing demand $211,611  $197,503  $235,584 
Money market, interest checking and savings 339,639  352,958  372,699 
Time deposits 233,707  208,340  164,396 
Total deposits 784,957  758,801  772,679 
Federal Home Loan Bank borrowings 60,000  57,000  20,000 
Federal funds purchased   18,000   
Senior Secured Debt 4,150  2,550  350 
Accrued interest payable 200  165  114 
Other liabilities 4,560  4,679  4,958 
Total liabilities 853,867  841,195  798,101 
Total shareholders’ equity 108,819  106,481  105,694 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $962,686  $947,676  $903,795 
       
Book value and tangible book value per share $15.00  $14.68  $14.56 

First Choice Bancorp and Subsidiaries
Condensed Consolidated Statement of Income (unaudited)
(dollars in thousands)

 For the Three Months Ended For the Six Months Ended June 30,
 June 30, 2018 March 31, 2018 June 30, 2017 (restated(1)) 2018 2017 (restated(1))
  
INTEREST INCOME         
Interest and fees on loans$12,320  $10,621  $9,122  $22,941  $17,596 
Interest on investment securities233  239  245  472  500 
Dividends on FHLB and other stock68  69  59  137  148 
Other interest income294  260  208  554  454 
Total interest income12,915  11,189  9,634  24,104  18,698 
INTEREST EXPENSE         
Interest on savings, interest checking and money market accounts969  819  1,002  1,788  2,028 
Interest on time deposits919  616  389  1,535  797 
Interest on borrowings208  202  50  410  52 
Total interest expense2,096  1,637  1,441  3,733  2,877 
Net interest income10,819  9,552  8,193  20,371  15,821 
Provision for loan losses320  200    520   
Net interest income after provision for loan losses10,499  9,352  8,193  19,851  15,821 
NONINTEREST INCOME         
Gain on sale of loans448  247  898  695  2,087 
Service charges and fees on deposit accounts208  215  64  423  130 
Net servicing fees126  153  189  279  360 
Other (loss) income(3) (52) 71  (55) 116 
Total noninterest income779  563  1,222  1,342  2,693 
NONINTEREST EXPENSE         
Salaries and employee benefits3,578  4,116  3,698  7,694  7,343 
Occupancy expenses361  348  316  709  617 
Professional fees378  304  119  682  198 
Data processing448  421  357  869  687 
Equipment expenses206  172  173  378  353 
Office expenses193  192  160  385  321 
Deposit insurance and regulatory assessments86  111  112  197  219 
Loan related expenses101  84  19  185  158 
Customer service expenses101  140  119  241  263 
Merger-related and public company registration expenses356  374    730   
Provision for credit losses - off-balance sheet  53  142  53  214 
Other expenses509  362  358  871  707 
Total noninterest expense6,317  6,677  5,573  12,994  11,080 
Income before taxes4,961  3,238  3,842  8,199  7,434 
Income taxes1,526  859  1,560  2,385  3,026 
Net income$3,435  $2,379  $2,282  $5,814  $4,408 

 (1) Certain amounts have been restated to reflect adjustments related to the correction of an error.

Average Balance Sheets

 Three Months Ended
 June 30, 2018 March 31, 2018 June 30, 2017
 Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost
Interest-earning assets:(in thousands)
Due from banks$74,325  $294  1.59% $67,059  $260  1.57% $82,830  $200  0.96%
Federal funds sold/resale agreements    N/A     N/A 1,834  8  1.75%
Investment securities38,153  233  2.45% 39,505  239  2.46% 44,806  245  2.20%
Loans (1)801,342  12,320  6.17% 774,292  10,621  5.56% 717,784  9,122  5.10%
FHLB and other bank stock4,071  68  6.70% 3,933  69  7.10% 3,890  59  6.19%
Total interest-earning assets917,891  12,915  5.64% 884,789  11,189  5.13% 851,144  9,634  4.54%
                  
Noninterest-earning assets:                 
Cash and cash equivalents7,014      6,538      4,403     
Allowance for loan losses(10,037)     (10,395)     (11,502)    
Other assets14,119      13,525      14,412     
Total assets$928,987      $894,457      $858,457     
                  
Interest-bearing liabilities:                 
Interest checking$141,598  $407  1.15% $191,281  $504  1.07% $252,025  $681  1.08%
Money market accounts151,248  455  1.21% 91,144  164  0.73% 70,825  113  0.64%
Savings accounts50,978  107  0.84% 69,611  151  0.88% 88,443  208  0.94%
Time deposits170,148  738  1.74% 123,182  448  1.48% 98,654  275  1.12%
Brokered time deposits52,801  181  1.37% 52,406  168  1.30% 38,129  114  1.2%
Total interest-bearing deposits566,773  1,888  1.34% 527,624  1,435  1.10% 548,076  1,391  1.02%
FHLB borrowings35,429  166  1.88% 47,378  186  1.58% 20,440  49  0.96%
Federal funds purchased264  1  1.52% 400  2  2.37%     —%
Senior secured notes3,218  41  5.11% 1,122  13  4.77%     —%
Other borrowings31    —% 36  1  7.80% 52  1  7.71%
Total interest-bearing liabilities605,715  2,096  1.39% 576,560  1,637  1.15% 568,568  1,441  1.02%
                  
Noninterest-bearing liabilities:                 
Demand deposits209,009      206,752      180,454     
Other liabilities4,450      3,756      4,422     
Shareholders’ equity109,813      107,389      105,013     
                  
Total liabilities and shareholders' equity$928,987      $894,457      $858,457     
                  
Net interest spread  $10,819  4.26%   $9,552  3.98%   $8,193  3.52%
Net interest margin    4.73%     4.38%     3.86%

 (1) Average loans include net discounts and deferred costs. Interest income on loans includes $142 thousand and $170 thousand related to the accretion of net deferred loans fees and $815 thousand and $(413) thousand related to accretion (amortization) of discounts (premiums) for the three months ended June 30, 2018 and 2017, respectively.

Average Balance Sheets (continued)

 Six Months Ended June 30,
 2018 2017
 Average
Balance
 Interest
Income / Expense
 Yield / Cost Average
Balance
 Interest
Income / Expense
 Yield / Cost
Interest-earning assets:(in thousands)
Due from banks$70,712  $554  1.58% $91,995  $422  0.93%
Federal funds sold/resale agreements    N/A 4,190  32  1.54%
Investment securities38,826  472  2.45% 44,682  500  2.26%
Loans (1)787,892  22,941  5.87% 709,460  17,596  5.00%
FHLB and other bank stock4,002  137  6.90% 3,828  148  7.80%
Total interest-earning assets901,432  24,104  5.39% 854,155  18,698  4.41%
            
Noninterest-earning assets:           
Cash and cash equivalents6,777      5,242     
Allowance for loan losses(10,215)     (11,575)    
Other assets13,824      14,159     
Total assets$911,818      $861,981     
            
Interest-bearing liabilities:           
Interest checking$166,302  $912  1.11% $253,968  $1,367  1.09%
Money market accounts121,362  619  1.03% 75,001  241  0.65%
Savings accounts60,243  257  0.86% 89,846  420  0.94%
Time deposits146,795  1,186  1.63% 104,227  576  1.11%
Brokered time deposits52,604  349  1.34% 37,051  221  1.20%
Total interest-bearing deposits547,306  3,323  1.22% 560,093  2,825  1.02%
FHLB borrowings41,370  351  1.71% 10,497  50  0.96%
Federal funds purchased331  4  2.44%     —%
Senior secured notes2,176  54  5.00%     —%
Other borrowings34  1  5.93% 55  2  7.33%
Total interest-bearing liabilities591,217  3,733  1.27% 570,645  2,877  1.02%
            
Noninterest-bearing liabilities:           
Demand deposits207,887      183,293     
Other liabilities4,105      3,737     
Shareholders’ equity108,609      104,306     
            
Total liabilities and shareholders' equity$911,818      $861,981     
            
Net interest spread  $20,371  4.12%   $15,821  3.39%
Net interest margin    4.56%     3.74%

(1) Average loans include net discounts and deferred costs. Interest income on loans includes $172 thousand and $195 thousand related to the accretion of net deferred loans fees and $757 thousand and $(847) thousand related to accretion (amortization) of discounts (premiums) for the six months ended June 30, 2018 and 2017, respectively.

Rate/Volume Analysis

 Three Months Ended
 June 30, 2018 vs. March 31, 2018 June 30, 2018 vs. June 30, 2017 June 30, 2017 vs. June 30, 2016
 Change Attributable to   Change Attributable to   Change Attributable to  
 Volume Rate Total Change Volume Rate Total Change Volume Rate Total Change
Interest income:(in thousands)
Interest and fees on loans$459  $1,240  $1,699  $2,302  $896  $3,198  $2,045  $680  $2,725 
Interest on investment securities(5) (1) (6) (33) 21  (12) (38) 18  (20)
Dividends on FHLB and other stock3  (4) (1) 4  5  9  3  4  7 
Other interest income31  3  34  (27) 113  86  (26) 100  74 
Change in interest income488  1,238  1,726  2,246  1,035  3,281  1,984  802  2,786 
                  
Interest expense:                 
Savings, interest checking and money market accounts(28) 178  150  (205) 172  (33) (203) 172  (31)
Time deposits198  105  303  310  220  530  310  219  529 
Borrowings(24) 30  6  93  65  158  117  59  176 
Change in interest expense146  313  459  198  457  655  224  450  674 
                  
Change in net interest income$342  $925  $1,267  $2,048  $578  $2,626  $1,760  $352  $2,112 


 Six Months Ended June 30,
 2018 2017
 Change Attributable to   Change Attributable to  
 Volume Rate Total Change Volume Rate Total Change
Interest income:(in thousands)
Interest and fees on loans$3,260  $2,085  $5,345  $2,880  $1,997  $4,877 
Interest on investment securities11  (39) (28) (4) (30) (34)
Dividends on FHLB and other stock(22) 11  (11) (23) 11  (12)
Other interest income308  (208) 100  301  (215) 86 
Change in interest income3,557  1,849  5,406  3,154  1,763  4,917 
            
Interest expense:           
Savings, interest checking and money market accounts(281) 41  (240) (283) 41  (242)
Time deposits387  351  738  387  349  736 
Borrowings295  63  358  319  59  378 
Change in interest expense401  455  856  423  449  872 
            
Change in net interest income$3,156  $1,394  $4,550  $2,731  $1,314  $4,045 

Loans Composition

  June 30, 2018 March 31, 2018 December 31, 2017
  (in thousands)
Construction and land development $133,050 $113,481 $115,427
Real estate:      
 Residential 51,331 57,234 62,719
 Commercial real estate - owner occupied 59,696 63,832 53,106
 Commercial real estate - non-owner occupied 259,086 265,961 252,114
Commercial and industrial 191,969 200,339 169,184
SBA loans 92,043 91,887 92,509
Consumer  848 828
Gross loans $787,175 $793,582 $745,887
Deferred loan fees, net of costs (424 (469 (400
Net discounts (3,264 (3,683 (3,774
Allowance for loan losses (10,376 (10,010 (10,497
Loans receivable, net $773,111 $779,420 $731,216
       
Allowance for loan losses as a percentage of total gross loans 1.32% 1.26% 1.41%
       

Allowance for Loan losses

  For the three months ended For the six months ended
  June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
  (in thousands)
Balance, beginning of period $10,010  $10,497  $11,523  $10,497  $11,599 
Provision for loan losses 320  200    520   
Charge-offs (21) (754) (190) (775) (266)
Recoveries 67  67    134   
Net recoveries(charge-offs) 46  (687) (190) (641) (266)
Balance, end of period $10,376  $10,010  $11,333  $10,376  $11,333 
           

Nonperforming loans

  June 30, 2018 March 31, 2018 December 31, 2017
  (in thousands)
Construction and land development $  $  $ 
Real estate:      
 Residential      
 Commercial real estate - owner occupied      
 Commercial real estate - non-owner occupied      
Commercial and industrial 108  111  634 
SBA loans 1,470  950  1,200 
Consumer      
Total nonperforming loans $1,578  $1,061  $1,834 
       

Nonperforming assets 1

  June 30, 2018 March 31, 2018 December 31, 2017
  (in thousands)
Accruing loans past due 90 days or more $ $ $
Non-accrual 910  
Troubled debt restructurings on non-accrual 668 1,061 1,834
Total nonperforming loans 1,578 1,061 1,834
Foreclosed assets   
Total nonperforming assets $1,578 $1,061 $1,834
Troubled debt restructurings - on accrual $363 $ $
       
Nonperforming loans as a percentage of gross loans 0.20% 0.13% 0.25%
Nonperforming assets as a percentage of total assets 0.16% 0.11% 0.20%
Allowance for loan losses as a percentage of nonperforming assets 657.54% 943.45% 572.36%

(1)Nonperforming assets include nonaccrual loans, loans past due 90 days or more and still accruing, and other real estate owned


            

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