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Communities First Financial Corporation 2Q17 Profits Increase 24% from 2Q16; Net Interest Margin Expands to 4.27%

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FRESNO, Calif., July 19, 2017 (GLOBE NEWSWIRE) -- Communities First Financial Corporation (the "Company") (OTCQX:CFST) the parent company of Fresno First Bank (the "Bank"), today announced solid profits for the second quarter and first half of 2017.  Net income was $915,000, or $0.32 per diluted share, an increase of 24% over net income of $737,000, or $0.27 per diluted share, for the second quarter of 2016, and grew 9% from $837,000, or $0.29 per diluted share, for the first quarter of 2017.  For the first six months ended June 30, 2017, net income increased 22% to $1.8 million, or $0.61 per diluted share, compared to $1.4 million, or $0.52 per diluted share, for the first six months ended June 30, 2016.

"With increasing profitability, our second quarter results demonstrate our success in building a sustainable franchise in California's Central Valley," said Steve Miller, President and Chief Executive Officer.  "Our net interest income increased 21% from a year ago.  We are growing our loan portfolio, increasing core deposits and generating strong margins." 

"Asset quality remains sound, despite an increase in nonaccrual loans in the quarter," added Miller.  "Nonperforming assets consist of a series of loans isolated to one borrower totaling $2.9 million, which migrated from 30 days past due status to nonaccrual this quarter.  We are working diligently with this borrower to return these loans to performing status.  In the meantime, the loans are well-collateralized with high-value agricultural acreage and quality commercial buildings at a very conservative loan to value ratio."  Nonperforming assets to total assets were 0.83% and reserves to total loans were 1.22% at June 30, 2017.

Second Quarter 2017 Highlights (as of, or for the quarter ended June 30, 2017, except where noted):

  • Diluted earnings per share (EPS) were $0.32, compared to $0.27, for the second quarter a year ago, and 0.29 per diluted share for the first quarter of 2017.  Year-to-date, diluted EPS were $0.61, compared to $0.52 for the first six months of 2016.
  • Return on average assets ("ROAA") was 1.05% and return on average equity ("ROAE") was 11.51% for the second quarter of 2017.  ROAA and ROAE were well above the average of 0.78% and 7.95%, respectively, generated by the 544 banks in the SNL MicroCap U.S. Bank Index, for the first quarter of 2017.
  • Net interest income, after the provision for loan losses, increased 20% to $3.2 million for the second quarter of 2017, compared to $2.7 million for the second quarter of 2016.  Net interest income was $3.4 million for the first quarter of 2017.  Year-to-date, net interest income grew 24% from the first six months of 2016.
  • Noninterest income grew 27% to $570,000 for the second quarter of 2017, compared to $449,000 for the second quarter of 2016.  Noninterest income was up 82% from $313,000 on a linked quarter basis.  For the first six months of 2017, noninterest income was $882,000, up 5% from $838,000 for the first six months of 2016.  Gains on sale of loans generated the majority of the increase during the quarter compared to both the linked and year-ago quarter. 
  • Net interest margin ("NIM") was 4.27%, compared to 4.25% for the second quarter a year ago, and improved 21 basis point from 4.06% for the first quarter of 2017.
  • Total deposits grew 24% to $318.3 million from $257.4 million a year earlier.
  • Total loans increased 19% to $247.6 million compared to $207.8 million a year ago.
  • The efficiency ratio, measuring overhead to revenue, improved to 54.91% for the second quarter of 2017, compared to 56.24% for the second quarter a year earlier, and 61.52% for the preceding quarter, reflecting improving top line growth and improving operating efficiencies, even after investing in new talent last year.
  • Nonperforming loans, as a percentage of total loans, were 1.18%.  In spite of the increase in nonperforming loans at quarter end, asset quality remained sound with total nonperforming assets representing only 0.83% of total assets.
  • The allowance for loan and lease losses ("ALLL") as a percentage of total loans was 1.22% at June 30, 2017, net of all government guarantees, the ALLL as a percentage of total loans was 1.74%.
  • Capital ratios remain strong with a ratio of tangible shareholders' equity to total assets of 9.33% at June 30, 2017, compared to 8.95 % at March 31, 2017.

Results of Operations

Net interest income increased 21% to $3.6 million for the second quarter of 2017, compared to $3.0 million for the second quarter of 2016, primarily reflecting strong year-over-year loan growth.  On a linked quarter basis, net interest income grew 5% from $3.5 million.  For the first six months of 2017, net interest income increased 21% to $7.1 million, compared to $5.9 million for the first six months of 2016.

Non-interest income was $570,000 for the second quarter of 2017, compared to $449,000 for the second quarter of 2016, and $313,000 for the first quarter of 2017.  The increase in non-interest income, both year-over-year and on a linked quarter basis, was primarily due to the gain on sale of SBA loans. Merchant services income was also up 18% from the second quarter a year ago, and 12% for the first six months of 2017, which added to non-interest income. "We periodically decide to sell a portion of our SBA loans, as we did in this quarter, in our efforts to maintain a diverse mix of loans in our portfolio," said Steve Canfield, Chief Financial Officer.

The net interest margin was 4.27% for the second quarter of 2017, compared to 4.25% a year earlier, and 4.06% for the first quarter of 2017.  "Our robust net interest margin was primarily due to our strong loan balances and investments which replaced lower yielding overnight funds," commented Canfield.  The net interest margin continues to remain well above the average of 3.57% generated by the SNL MicroCap U.S. Bank Index at March 31, 2017.  For the first six months of 2017, the net interest margin was 4.16%, compared to 4.12% for the like period a year ago.

On a linked quarter basis, operating expenses remained the same at $2.3 million for the second quarter of 2017.  Operating expenses totaled $1.9 million for the second quarter a year ago.  "The year-over-year higher noninterest expense was primarily due to the hiring of key additional business development officers and associated compensation as we continue to implement our strategic plan for growth," said Canfield.

The efficiency ratio improved to 54.91% for the second quarter of 2017, compared to 56.24% a year ago, and 61.53% for the quarter ended March 31, 2017.  "The improvement in our efficiency ratio was primarily due to the investments we made last year which are generating strong loan and revenue growth," added Canfield.

Balance Sheet Review

Total assets increased 20% to $352.0 million at June 30, 2017, compared to $292.3 million at June 30, 2016, and remained unchanged from the preceding quarter.  

Total loans grew 19% to $247.6 million at June 30, 2017, from $207.8 million a year ago, and grew 1% from $245.1 million at March 31, 2017.

The commercial and industrial (C&I) portfolio totaled $113.7 million, representing 46% of total loans at June 30, 2017.  Commercial real estate (CRE) loans totaled $78.7 million, or 32% of total loans.  Agriculture and land loans totaled $24.8 million, denoting 10% of loans; residential home loans were $13.5 million, or 5% of loans, and real estate construction and land development loans were $16.9 million, or 7% of loans.

"We are very active in the Small Business Administration (SBA) loan program, and have been the largest Community Bank SBA lender by volume in California's Central Valley for the last four consecutive years," added Miller.  "Approximately $74.5 million or 30% of our loans have a guarantee from the U.S. Government either through the SBA, USDA or FSA.  These guarantees substantially reduce the credit risk on a significant portion of our loan portfolio and are a factor when determining our overall reserve and capital levels." See chart below:

                               
Loan Loss Reserve (unaudited)       June 30,
2017
        Mar. 31,
2017
        June 30,
2016
 
                               
LOAN LOSS RESERVE RATIOS:                              
Reserve for loan losses     $ 3,028       $ 2,959       $ 4,081  
                               
Total loans     $ 247,637       $ 245,130       $ 207,785  
Purchased govt. guaranteed loans     $ 47,108       $ 46,468       $ 24,049  
Originated govt. guaranteed loans     $ 26,885       $ 28,076       $ 25,019  
                               
LLR / Total loans       1.22 %       1.21 %       1.96 %
LLR / Loans less purchased govt. guaranteed loans       1.51 %       1.49 %       2.22 %
LLR / Loans less all govt. guaranteed loans       1.74 %       1.73 %       2.57 %
LLR / Total assets       .86 %       .84 %       1.40 %
                               

Total deposits increased 24% to $318.3 million at June 30, 2017, compared to $257.4 million from a year earlier and were relatively unchanged from $319.2 million at March 31, 2017, primarily due to the seasonality of certain client segments.  "We expect deposit and asset growth will increase in the second half of the year due to the normal seasonality of our portfolio and due to the fact that our year-to-date acquisition rate for new customers is running 22% ahead of the first half of 2016," stated Miller.

Non-interest bearing demand deposits increased 47% to $173.2 million at June 30, 2017, representing 54% of total deposits, compared to $118.0 million, or 46% of total deposits a year ago.  The ratio of loans to deposits was 77.79% at June 30, 2017, compared to 80.72% one year earlier and 76.79% at March 31, 2017.

Total stockholder equity was $32.8 million at June 30, 2017, compared to $28.8 million a year ago.  Book value per common share increased 10% to $11.65 at June 30, 2017, compared to $10.56 a year ago.

Asset Quality

Nonperforming assets ("NPAs") totaled $2.9 million at June 30, 2017, compared to $2.4 million one year earlier.  There were no nonperforming assets at March 31,2017.  Loans delinquent 30-60 days declined to $250,000.  "As previously discussed, the increase in NPAs represents a series of loans isolated to one borrower," said Miller.  "We are well secured from the business cash flow and assets of this borrower."

The provision for loan losses was $395,000 for the second quarter of 2017, compared to $315,000 for the second quarter of 2016 and $80,000 for the preceding quarter.  "Because of our strong loan growth and the increase in NPAs, we prudently added to reserves," said Canfield.  The provision for loan losses was $475,000 for the first six months of 2017, compared to a provision of $525,000 for the first six months of 2016.

Net charge-offs were $327,000, or 0.27% of total average loans for the second quarter of 2017, compared to no charge-offs for the second quarter a year ago.  Net charge-offs of $1,000 were booked in the first quarter of 2017.

The allowance for loan losses to total loans ratio was 1.22% at June 30, 2017, compared to 1.96% a year earlier and 1.21% at March 31, 2017. 

About Communities First Financial Corporation

Communities First Financial Corporation, a bank holding company established in 2014, is the parent company of Fresno First Bank, founded in 2005 in Fresno, California.  Fresno First Bank is a leading SBA Bank Lender in California's Central Valley. The Bank was named by Forbes as one of the Best 25 Small Businesses in America for 2016, and received the All-Star Performance Award from the Great Game of Business in 2015. Additional information is available from the Company's website at www.fresnofirstbank.com or call 559-439-0200.

Forward Looking Statement Disclaimer

This earnings release may contain forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date. The forward-looking statements are based on management's expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Company's ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcy, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Company's business; international developments; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies. The Company undertakes no obligation to release publicly the results of any revisions to the forward-looking statements included herein to reflect events or circumstances after today, or to reflect the occurrence of unanticipated events.  The Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 
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