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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.

 
SELECT FINANCIAL INFORMATION AND
RATIOS (unaudited)
For the Quarter Ended:   Percentage Change From:   Year to Date as of:
June 30,
2017
Mar. 31,
2017
June 30,
2016
  Mar. 31,
2017
June 30,
2016
  June 30,
2017
June 30,
2016
Percent
Change
BALANCE SHEET DATA - PERIOD END BALANCES:                                      
  Total assets $ 352,023   $ 352,027   $ 292,318     0 % 20 %                  
  Total Loans   247,637     245,131     207,785     1 % 19 %                  
  Investment securities   67,320     67,503     66,369     0 % 1 %                  
  Total deposits   318,325     319,225     257,425     0 % 24 %                  
  Shareholders equity, net $ 32,836   $ 31,508   $ 28,835     4 % 14 %                  
                                                 
SELECT INCOME STATEMENT DATA:                    
  Gross revenue $ 4,210   $ 3,767   $ 3,462     12 % 22 %   $ 7,976   $ 6,713   19 %
  Operating expense   2,312     2,312     1,946     0 % 19 %     4,624     3,846   20 %
  Pre-tax, pre-provision income   2,293     1,535     1,831     49 % 25 %     3,827     3,392   13 %
  Net income after tax $ 915   $ 837   $ 737     9 % 24 %   $ 1,752   $ 1,438   22 %
                       
SHARE DATA:                  
  Fully diluted earnings per share $ 0.32   $ 0.29   $ 0.27     10 % 19 %   $ 0.61   $ 0.52   17 %
  Book value per common share $ 11.65   $ 11.18   $ 10.56     4 % 10 %        
  Common shares outstanding   2,818,066     2,818,066     2,730,898     0 % 3 %        
  Fully diluted shares   2,910,808     2,891,581     2,749,969     1 % 6 %        
  CFST - Stock price $ 15.00   $ 13.75   $ 9.86     9 % 52 %        
                       
RATIOS:                    
  Return on average assets   1.05 % .97%   1.01 %   9 % 4 %     1.01 %   .97 % 4 %
  Return on average equity   11.51 %   11.12 %   10.65 %   4 % 8 %     11.32 %   10.36 % 9 %
  Efficiency ratio   54.91 %   61.53 %   56.24 %   -11 % -2 %     58.03 %   57.29 % 1 %
  Yield on earning assets   4.39 %   4.20 %   4.40 %   5 % 0 %     4.29 %   4.27 % 0 %
  Cost to fund earning assets   0.13 %   0.13 %   0.15 %   -6 % -18 %     0.13 %   0.15 % -13 %
  Net Interest Margin   4.27 %   4.06 %   4.25 %   5 % 0 %     4.16 %   4.12 % 1 %
  Equity to assets   9.33 %   8.95 %   9.86 %   4 % -5 %        
  Loan to deposits ratio   77.79 %   76.79 %   80.72 %   1 % -4 %        
  Full time equivalent employees   41     42     37     -2 % 11 %        
                       
BALANCE SHEET DATA - AVERAGES:                
  Total assets $ 349,221     351,658   $ 292,852     -1 % 19 %   $ 350,424   $ 295,394   19 %
  Total loans   248,380     239,583     199,996     4 % 24 %     244,005     195,315   25 %
  Investment securities   67,103     68,522     66,164     -2 % 1 %     67,809     67,378   1 %
  Deposits   316,255     319,725     263,790     -1 % 20 %     318,084     266,937   19 %
  Shareholders equity, net $ 32,293   $ 30,725   $ 28,320     5 % 14 %   $ 31,301   $ 27,756   13 %
                       
ASSET QUALITY:                    
  Total delinquent accruing loans $ 250   $ 3,638   $ 118     -93 % 112 %        
  Nonperforming assets $ 2,931   $ 0   $ 2,360     Inf   24 %        
  Non Accrual / Total Loans   1.18 %   .00 %   1.14 %   Inf   4 %        
  Nonperforming assets to total assets   .83 %   .00 %   .81 %   Inf   3 %        
  LLR / Total loans   1.22 %   1.21 %   1.96 %   1 % -38 %        
                       

 

STATEMENT OF INCOME ($ in thousands) For the Quarter Ended:   Percentage Change From:   For the Year Ended
(unaudited) June 30,
2017
Mar. 31,
2017
June 30,
2016
  Mar. 31,
2017
June 30,
2016
  June 30,
2017
June 30,
2016
Percent
Change
Interest Income                  
  Loan interest income $ 3,286 $ 3,093 $ 2,710   6 % 21 %   $ 6,379 $ 5,275 21 %
  Investment income   350   342   319   2 % 10 %     692   617 12 %
  Int. on fed funds & CDs in other banks   79   96   57   -18 % 39 %     175   136 29 %
  Dividends from non-marketable equity   33   38   36   -13 % -8 %     71   66 8 %
  Interest income   3,748   3,569   3,122   5 % 20 %     7,317   6,094 20 %
  Total interest expense   108   115   109   -6 % -1 %     223   219 2 %
  Net interest income   3,640   3,454   3,013   5 % 21 %     7,094   5,875 21 %
  Provision for loan losses   395   80   315   394 % 25 %     475   525 -10 %
  Net interest income after provision   3,245   3,374   2,698   -4 % 20 %     6,619   5,350 24 %
                       
Non-Interest Income:                    
  Total deposit fee income   82   83   66   -1 % 24 %     165   133 24 %
  Debit / credit card interchange inc.   31   29   25   7 % 24 %     60   58 3 %
  Merchant services income   130   111   110   17 % 18 %     240   214 12 %
  Gain on sale of loans   264   17   191   1453 % 38 %     281   326 -14 %
  Other operating income   63   73   57   -14 % 11 %     136   107 27 %
  Non-interest income   570   313   449   82 % 27 %     882   838 5 %
                     
Non-Interest Expense:                  
  Salaries & employee benefits   1,341   1,387   1,157   -3 % 16 %     2,728   2,236 22 %
  Occupancy expense   183   133   123   38 % 49 %     316   258 22 %
  Other operating expense   788   792   666   -1 % 18 %     1,580   1,352 17 %
  Non-interest expense   2,312   2,312   1,946   0 % 19 %     4,624   3,846 20 %
                     
  Net income before tax   1,503   1,375   1,201   9 % 25 %     2,877   2,342 23 %
  Tax provision   588   538   464   9 % 27 %     1,125   904 24 %
  Net income after tax $ 915 $ 837 $ 737   9 % 24 %   $ 1,752 $ 1,438 22 %
                       

 

BALANCE SHEET  ($ in thousands )    End of Period:   Percentage Change From:  
(unaudited) June 30,
2017
Mar. 31,
2017
June 30,
2016
  Mar. 31,
2017
June 30,
2016
 
ASSETS              
  Cash and due from banks $ 7,627   $ 5,160   $ 7,716     48 % -1 %  
  Fed funds sold and deposits in banks   21,103     26,346     4,516     -20 % 367 %  
  CDs in other banks   5,199     5,199     5,695     0 % -9 %  
  Investment securities   67,320     67,503     66,369     0 % 1 %  
  Total loans outstanding:            
  RE constr & land development   16,875     15,633     15,693     8 % 8 %  
  Residential RE 1-4 Family   13,515     12,844     13,701     5 % -1 %  
  Commercial Real Estate   78,702     74,737     68,424     5 % 15 %  
  Agriculture   24,838     23,035     23,026     8 % 8 %  
  Commercial and Industrial   113,677     118,377     86,813     -4 % 31 %  
  Consumer and Other   30     505     128     -94 % -77 %  
  Total Loans   247,637     245,131     207,785     1 % 19 %  
  Deferred fees & discounts   292     330     (319 )   -12 % -192 %  
  Allowance for loan losses   (3,028 )   (2,959 )   (4,081 )   2 % -26 %  
  Loans, net   244,901     242,502     203,385     1 % 20 %  
  Non-marketable equity investments   1,990     1,918     1,808     4 % 10 %  
  Accrued interest and other assets   3,883     3,399     2,829     14 % 37 %  
  Total assets $ 352,023   $ 352,027   $ 292,318     0 % 20 %  
               
LIABILITIES AND EQUITY              
  Non-interest bearing deposits $ 173,188   $ 177,052   $ 117,984     -2 % 47 %  
  Interest checking   11,783     11,108     7,828     6 % 51 %  
  Savings   35,954     38,114     34,780     -6 % 3 %  
  Money Market   58,937     56,925     55,436     4 % 6 %  
  Certificates of Deposit   38,463     36,026     41,397     7 % -7 %  
  Total deposits   318,325     319,225     257,425     0 % 24 %  
  Borrowings   -     -     5,538     0 % 0 %  
  Other liabilities   862     1,294     520     -33 % 66 %  
  Total liabilities   319,187     320,519     263,483     0 % 21 %  
               
  Common, preferred & paid in capital   27,757     27,642     26,980     0 % 3 %  
  Retained earnings (deficit)   4,528     3,612     1,138     25 % 298 %  
  Total equity   32,285     31,254     28,118     3 % 15 %  
  Accumulated other comprehensive income   551     254     717     117 % -23 %  
  Shareholders equity, net   32,836     31,508     28,835     4 % 14 %  
  Total Liabilities and shareholders' equity $ 352,023   $ 352,027   $ 292,318     0 % 20 %  
                 

 

ASSET QUALITY ($ in thousands) Period Ended:
(unaudited) June 30,
2017
Mar. 31,
2017
June 30,
2016
  Delinquent accruing loans 30-60 days $ 250   $ 3,323   $ 0  
  Delinquent accruing loans 60-90 days $ 0   $ 315   $ 118  
  Delinquent accruing loans 90+ days $ 0   $ 0   $ 0  
  Total delinquent accruing loans $ 250   $ 3,638   $ 118  
         
  Loans on non accrual $ 2,931   $ 0   $ 2,360  
  Other real estate owned $ 0   $ 0   $ 0  
  Nonperforming assets $ 2,931   $ 0   $ 2,360  
         
  Performing restructured loans $ 31   $ 31   $ 31  
         
         
  Delq 30-60 / Total Loans   .10 %   1.36 %   .00 %
  Delq 60-90 / Total Loans   .00 %   .13 %   .06 %
  Delq 90+ / Total Loans   .00 %   .00 %   .00 %
  Delinquent Lns / Total Lns   .10 %   1.48 %   .06 %
  Non Accrual / Total Loans   1.18 %   .00 %   1.14 %
  Nonperforming assets to total assets   .83 %   .00 %   .81 %
         
         
  Year-to-date charge-off activity      
  Charge-offs $ 327   $ 1   $ 0  
  Recoveries $ 0   $ 0   $ 0  
  Net charge-offs $ 327   $ 1   $ 0  
  Annualized net loan losses (recoveries) to average loans   .27 %   .00 %   .00 %
         
  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 %
         

 

Contact: 
Steve Miller – President & CEO
Steve Canfield – Executive Vice President & CFO
(559) 439-0200

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