Market Overview

Communities First Financial Corporation Earns $1.54 Million, or $0.53 per Diluted Share in 2Q18, Up 68% from 2Q17; Net Interest Margin Expands to 4.52%

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FRESNO, Calif., July 16, 2018 (GLOBE NEWSWIRE) -- Communities First Financial Corporation (the "Company") (OTCQX:CFST), the parent company of Fresno First Bank (the "Bank"), today announced record profits for the second quarter and first half of 2018.  Net income increased 68% to $1.54 million, or $0.53 per diluted share, for the second quarter of 2018, from $915,000, or $0.32 per diluted share, for the second quarter of 2017, and increased 5% from $1.46 million, or $0.50 per diluted share, for the first quarter of 2018. For the first six months ended June 30, 2018, net income increased 72% to $3.01 million, or $1.03 per diluted share, compared to $1.75 million, or $0.61 per diluted share, for the first six months of 2017.

"Our long-term goal is to deliver consistent earnings performance for our stakeholders. We extended our momentum from the first quarter, producing solid performance metrics including return on average assets ("ROAA") of 1.54%, return on average common equity ("ROAE") of 16.96%, and an efficiency ratio of 54.88% for the second quarter of 2018," said Steve Miller, President and Chief Executive Officer. 

"The strength of our franchise lies in our non-interest bearing deposit book, which grew 29% from a year ago. On top of this growth, we are also benefitting from a lower corporate tax rate, a higher fed funds rates and rising short term interest rates.  We are well positioned to maintain our growth strategies as we continue to expand our presence in Central California.  At the same time, we are in an excellent position to fund internal growth or capitalize on opportunities that might arise outside of our immediate market," added Miller. 

Second Quarter 2018 Highlights (as of, or for the period ended June 30, 2018, except where noted):

  • Diluted earnings per share totaled $0.53 for the second quarter of 2018, compared to $0.32 for the second quarter of 2017, and $0.50 per diluted share for the first quarter of 2018.  For the first six months of 2018, diluted EPS totaled $1.03, compared to $0.61 for the first six months of 2017.
  • ROAA was 1.54%, compared to 1.05% for the second quarter a year ago.  Year-to-date, ROAA was 1.50%, compared to 1.01% for the first six months of 2017.  Industry peer ROAA was 0.78% at March 31, 2018.
  • ROAE was 16.96%, compared to 11.36% for the second quarter of 2017.  ROAE was 16.92% for the first half of 2018, compared to 11.22% for the first half of 2017.  Industry peer ROAE was 8.97% at March 31, 2018.
  • Net interest margin ("NIM") was strong expanding 26 basis points to 4.52%, compared to 4.26% for the second quarter a year ago, and improved by 26 basis points from 4.26% for the first quarter of 2018. For the first six months of 2018, NIM expanded 23 basis points to 4.39% from 4.16% for the first half of 2017.  Industry peer NIMTE at March 31, 2018, was 3.67%.
  • Net interest income, after provision for loan losses, increased 33% to $4.3 million for the second quarter of 2018, compared to $3.2 million for the second quarter of 2017, and increased 6% from $4.1 million for the first quarter of 2018.  For the first six months of 2018, net interest income increased 27% to $8.4 million, compared to $6.6 million for the first six months of 2017.
  • Pretax, pre-provision income increased 9% in the quarter and 13% year-over-year, to $2.1 million in the second quarter of 2018.  For the first six months of 2018, pre-tax, pre-provision income improved 23% to $4.1 million compared to $3.4 million.
  • Total deposits increased 18% to $375.1 million from $318.3 million a year earlier.
  • Total loans increased 13% to $279.7 million compared to $247.6 million a year ago.
  • The efficiency ratio was 54.88% for the second quarter of 2018, compared to 54.91% for the second quarter a year earlier.  Year-to-date, the efficiency ratio improved to 55.51%, compared to 58.03% for the first six months of 2017.  Industry peer efficiency ratio was 75.12% at March 31, 2018. 
  • Asset quality remained solid with nonperforming assets representing 0.71% of total assets.  Nonperforming loans, as a percentage of total loans, declined to 1.05% from 1.18% a year earlier.
  • The allowance for loan and lease losses ("ALLL") was 1.20% as a percentage of total loans, at June 30, 2018, compared to 1.22% a year earlier.  The ALLL as a percentage of total nonperforming loans was 114.99%.
  • Capital ratios remain strong with a ratio of tangible shareholders' equity to total assets of 8.97% at June 30, 2018, compared to 9.33% at June 30, 2017.

Results of Operations

Net interest income, after the provision for loan losses, increased 33% to $4.3 million from $3.2 million in the second quarter a year ago, reflecting strong year-over-year loan growth and higher yields on investment securities and overnight funds.  No provision for loan losses was booked in the current or preceding quarter, and a provision of $395,000 was recorded in the second quarter of 2017.  Net interest income increased 6% from $4.1 million in the preceding quarter.  For the first half of 2018, net interest income increased 27% to $8.4 million, compared to $6.6 million for the first six months of 2017.

Non-interest income was $421,000 for the second quarter of 2018, compared to $570,000 for the second quarter of 2017, and $406,000 for the first quarter of 2018.  The decline in non-interest income in 2018 was primarily due to the lower gain on sale of SBA loans.  Gains on SBA loan sales totaled $44,000 in the first half of 2018, compared to $281,000 in the first half of 2017.  Merchant services income was up 17% from the second quarter a year ago, and 18% for the first six months of 2018, which added to non-interest income. Debit/credit card interchange income increased 35% compared to the second quarter of 2017, and grew 30% year-to-date. 

The net interest margin improved to 4.52% for the second quarter of 2018, compared to 4.26% a year earlier, and 4.26% for the first quarter of 2018.  For the first half of 2018, net interest margin expanded 23 basis points to 4.39% from 4.16% for the first six months of 2017.  "Our strong net interest margin for the quarter benefitted from a higher fed funds and prime interest rate which pushed the yield on earning assets up to 4.66% for the second quarter of 2018 while our cost of funds remained at 0.14%," said Steve Canfield, Executive Vice President and Chief Financial Officer.  The net interest margin continues to remain well above the average of 3.67% generated by the SNL U.S. Bank Index for banks with assets between $250 million and $500 million, at March 31, 2018. 

Operating expenses totaled $2.6 million for the second quarter of 2018, compared to $2.3 million for the second quarter of 2017 and $2.5 million on a linked quarter basis.  The increase in noninterest expense, from a year ago, primarily relates to increased compensation expenses for investment in human capital, increased marketing expense, and increased data processing expenses related to growth and investments in new technology.

The efficiency ratio was 54.88% for the second quarter of 2018, compared to 54.91% a year ago, and 56.17% for the first quarter of 2018.  For the first six months of 2018, the efficiency ratio was 55.51%, compared to 58.03% for the first six months of 2017.

Balance Sheet Review

Total assets grew 17% to $413.6 million at June 30, 2018, compared to $352.0 million at June 30, 2017, and increased 1% from $409.8 million at March 31, 2018.

Total loans increased 13% to $279.7 million at June 30, 2018, from $247.6 million a year ago, and increased 4% from $269.8 million on a linked quarter basis.  The commercial and industrial (C&I) portfolio represented 52% of total loans at June 30, 2018.  Commercial real estate (CRE) loans totaled $80.3 million, or 29% of total loans.  Agriculture loans grew 14% from the preceding quarter to $24.8 million and represented 9% of total loans; real estate construction and land development totaled $17.5 million, or 6% of loans, while residential home loans were $10.7 million, or 4% of loans.  At June 30, 2018, $91.0 million or 32.5% of the loan portfolio was guaranteed by the SBA, USDA or other government agencies.

Total deposits increased 18% to $375.1 million at June 30, 2018, compared to $318.3 million from a year earlier and grew 1% from $372.6 million at March 31, 2018.  Noninterest-bearing demand deposits grew by 29% to $224.1 million at June 30, 2018, representing 60% of total deposits, compared to $173.2 million, or 54% of total deposits a year ago.  The ratio of loans to deposits was 74.57% at June 30, 2018, compared to 77.79% one year earlier and 72.41% at March 31, 2018.

Net shareholder's equity increased 13% to $37.1 million at June 30, 2018, compared to $32.8 million a year ago.  Book value per common share increased to $13.00 at June 30, 2018, compared to $11.65 a year ago.

Asset Quality

Nonperforming assets ("NPAs") have remained consistent each quarter at $2.9 million, since September 30, 2017.  The NPAs remain unchanged and are related to a series of loans isolated to one borrower.  The situation is being closely monitored and the loans are well-secured with strong underlying collateral.

"The two loans totaling $1.3 million that were delinquent in the first quarter of 2018 have been brought current in the current quarter, as well as any outstanding interest," said Miller.

No provision for loan losses were booked for the current quarter or the first quarter of 2018, compared to a provision of $395,000 taken in the second quarter of 2017. The allowance for loan losses to total loans ratio was 1.20% at June 30, 2018, compared to 1.22% a year earlier and 1.25% at March 31, 2018.

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 Lender in California's Central Valley. The Bank was named to the Inc. 5000 Fastest Growing Companies list in 2017 and to Forbes Best 25 Small Businesses in America for 2016. 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 managements' 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,
2018
Mar. 31,
2018
June 30,
2017
  Mar. 31,
2018
June 30,
2017
  June 30,
2018
June 30,
2017
Percent
Change
 
BALANCE SHEET DATA - PERIOD END BALANCES:                   
  Total assets    $   413,565   $   409,837   $   352,023     1 % 17 %          
  Total Loans        279,688       269,802       247,637     4 % 13 %          
  Investment securities        78,443       76,403       67,320     3 % 17 %          
  Total deposits        375,083       372,628       318,325     1 % 18 %          
  Shareholders equity, net        37,111       35,706       32,836     4 % 13 %          
                         
SELECT INCOME STATEMENT DATA:                      
  Gross revenue $   4,750   $   4,505   $   4,210     5 % 13 %   $   9,255   $   7,976   16 %  
  Operating expense     2,607       2,532       2,312     3 % 13 %       5,139       4,624   11 %  
  Pre-tax, pre-provision income     2,143       1,973       1,898     9 % 13 %       4,116       3,352   23 %  
  Net income after tax    $   1,541   $   1,464   $   915     5 % 68 %   $   3,005   $   1,752   72 %  
                         
SHARE DATA:                     
  Basic earnings per share $   0.54   $   0.51   $   0.32     6 % 69 %   $   1.05   $   0.62   69 %  
  Fully diluted earnings per share    $   0.53   $   0.50   $   0.32     6 % 66 %   $   1.03   $   0.61   69 %  
  Book value per common share    $   13.00   $   12.50   $   11.65     4 % 12 %          
  Common shares outstanding        2,853,672       2,857,139       2,818,066     0 % 1 %          
  Fully diluted shares        2,919,432       2,918,037       2,872,678     0 % 2 %          
  CFST - Stock price    $   23.05   $   20.95   $   15.00     10 % 54 %          
                         
RATIOS:                      
  Return on average assets      1.54 %   1.46 %   1.05 %   6 % 46 %     1.50 %   1.01 % 49 %  
  Return on average equity      16.96 %   16.86 %   11.36 %   1 % 49 %     16.92 %   11.22 % 51 %  
  Efficiency ratio      54.88 %   56.17 %   54.91 %   -2 % 0 %     55.51 %   58.03 % -4 %  
  Yield on earning assets      4.66 %   4.40 %   4.39 %   6 % 6 %     4.53 %   4.29 % 6 %  
  Cost to fund earning assets      0.14 %   0.14 %   0.13 %   0 % 8 %     0.14 %   0.13 % 8 %  
  Net Interest Margin      4.52 %   4.26 %   4.26 %   6 % 6 %     4.39 %   4.16 % 6 %  
  Equity to assets      8.97 %   8.71 %   9.33 %   3 % -4 %          
  Loan to deposits ratio   74.57 %   72.41 %   77.79 %   3 % -4 %          
  Full time equivalent employees        42       41       41     2 % 2 %          
                         
BALANCE SHEET DATA - AVERAGES:                   
  Total assets    $   401,254   $   407,713   $   349,251     -2 % 15 %   $   404,465   $   350,448   15 %  
  Total loans        270,235       264,687       248,380     2 % 9 %       267,477       244,005   10 %  
  Investment securities        78,994       74,104       67,103     7 % 18 %       76,563       67,809   13 %  
  Deposits        363,044       371,050       316,059     -2 % 15 %       367,025       317,882   15 %  
  Shareholders equity, net    $   36,436   $   35,218   $   32,293     3 % 13 %   $   35,830   $   31,513   14 %  
                         
ASSET QUALITY:                      
  Total delinquent accruing loans    $   0   $   1,277   $   250     -100 % -100 %          
  Nonperforming assets    $   2,927   $   2,930   $   2,931     0 % 0 %          
  Non Accrual / Total Loans      1.05 %   1.09 %   1.18 %   -4 % -12 %          
  Nonperforming assets to total assets    .71% .71% .83%   -1 % -15 %          
  LLR / Total loans      1.20 %   1.25 %   1.22 %   -3 % -2 %          
                         

 

STATEMENT OF INCOME ($ in thousands) For the Quarter Ended:   Percentage Change From:   Year to Date as of
(unaudited) June 30,
2018
Mar. 31,
2018
June 30,
2017
  Mar. 31,
2018
June 30,
2017
  June 30,
2018
June 30,
2017
Percent
Change
Interest Income                   
  Loan interest income    $   3,817 $   3,587 $   3,286   6 % 16 %   $   7,404 $   6,379 16 %
  Investment income        468     424     350   10 % 34 %       892     692 29 %
  Int. on fed funds & CDs in other banks        153     200     79   -24 % 94 %       353     175 102 %
  Dividends from non-marketable equity        28     27     33   4 % -15 %       55     71 -23 %
  Interest income        4,466     4,238     3,748   5 % 19 %       8,704     7,317 19 %
  Total interest expense        137     139     108   -1 % 27 %       276     223 24 %
  Net interest income        4,329     4,099     3,640   6 % 19 %       8,428     7,094 19 %
  Provision for loan losses        0     0     395   0 % -100 %       0     475 -100 %
  Net interest income after provision        4,329     4,099     3,245   6 % 33 %       8,428     6,619 27 %
                       
Non-Interest Income:                    
  Total deposit fee income        84     80     82   5 % 2 %       164     165 -1 %
  Debit / credit card interchange inc.        42     36     31   17 % 35 %       78     60 30 %
  Merchant services income        152     132     130   15 % 17 %       284     240 18 %
  Gain on sale of loans        22     22     264   0 % -92 %       44     281 -84 %
  Other operating income        121     136     63   -11 % 92 %       257     136 89 %
  Non-interest income        421     406     570   4 % -26 %       827     882 -6 %
                     
Non-Interest Expense:                   
  Salaries & employee benefits        1,524     1,599     1,341   -5 % 14 %       3,123     2,728 14 %
  Occupancy expense        167     161     183   4 % -9 %       328     316 4 %
  Other operating expense        916     772     788   19 % 16 %       1,688     1,580 7 %
  Non-interest expense        2,607     2,532     2,312   3 % 13 %       5,139     4,624 11 %
                     
  Net income before tax        2,143     1,973     1,503   9 % 43 %       4,116     2,877 43 %
  Tax provision        602     509     588   18 % 2 %       1,111     1,125 -1 %
  Net income after tax    $   1,541 $   1,464 $   915   5 % 68 %   $   3,005 $   1,752 72 %
                       

 

BALANCE SHEET  ($ in thousands )    End of Period:   Percentage Change From:  
(unaudited) June 30,
2018
Mar. 31,
2018
June 30,
2017
  Mar. 31,
2018
June 30,
2017
 
ASSETS               
  Cash and due from banks    $   8,944   $   9,368   $   7,353     -5 % 22 %  
  Fed funds sold and deposits in banks        28,573       36,859       21,377     -22 % 34 %  
  CDs in other banks        6,682       5,942       5,199     12 % 29 %  
  Investment securities        78,443       76,403       67,320     3 % 17 %  
  Total loans outstanding:             
  RE constr & land development        17,544       18,481       16,875     -5 % 4 %  
  Residential RE 1-4 Family        10,658       11,115       13,515     -4 % -21 %  
  Commercial Real Estate        80,295       78,091       78,702     3 % 2 %  
  Agriculture        24,758       21,714       24,838     14 % 0 %  
  Commercial and Industrial        146,396       140,373       113,677     4 % 29 %  
  Consumer and Other        37       28       30     32 % 23 %  
  Total Loans        279,688       269,802       247,637     4 % 13 %  
  Deferred fees & discounts        252       348       292     -28 % -14 %  
  Allowance for loan losses       (  3,366 )    (  3,364 )    (  3,028 )   0 % 11 %  
  Loans, net        276,574       266,786       244,901     4 % 13 %  
  Non-marketable equity investments        2,476       2,244       1,990     10 % 24 %  
  Cash value of life insurance     8,185       8,128       0     1 % 0 %  
  Accrued interest and other assets        3,688       4,107       3,883     -10 % -5 %  
  Total assets    $   413,565   $   409,837   $   352,023     1 % 17 %  
               
LIABILITIES AND EQUITY               
  Non-interest bearing deposits    $   224,068   $   216,329   $   173,188     4 % 29 %  
  Interest checking        10,907       12,583       11,783     -13 % -7 %  
  Savings        31,424       35,390       35,954     -11 % -13 %  
  Money market        70,525       70,812       58,937     0 % 20 %  
  Certificates of deposits        38,159       37,514       38,463     2 % -1 %  
  Total deposits        375,083       372,628       318,325     1 % 18 %  
  Borrowings        0       0       0     0 % 0 %  
  Other liabilities        1,371       1,503       862     -9 % 59 %  
  Total liabilities        376,454       374,131       319,187     1 % 18 %  
               
  Common stock & paid in capital        28,240       28,136       27,757     0 % 2 %  
  Retained earnings      9,464       7,924       4,528     19 % 109 %  
  Total equity        37,704       36,060       32,285     5 % 17 %  
  Accumulated other comprehensive income       (  593 )    (  354 )     551     68 % -208 %  
  Shareholders equity, net        37,111       35,706       32,836     4 % 13 %  
  Total Liabilities and shareholders' equity $   413,565   $   409,837   $   352,023     1 % 17 %  
                 

 

ASSET QUALITY ($ in thousands) Period Ended:  
(unaudited) June 30,
2018
Mar. 31,
2018
June 30,
2017
 
Delinquent accruing loans 30-60 days    $   0   $   1,277   $   250    
Delinquent accruing loans 60-90 days    $   0   $   0   $   0    
Delinquent accruing loans 90+ days    $   0   $   0   $   0    
Total delinquent accruing loans  $   0   $   1,277   $   250    
         
Loans on non accrual  $   2,927   $   2,930   $   2,931    
Other real estate owned  $   0   $   0   $   0    
Nonperforming assets  $   2,927   $   2,930   $   2,931    
         
Performing restructured loans  $   0   $   0   $   31    
         
         
Delq 30-60 / Total Loans    .00 %   .47 %   .10 %  
Delq 60-90 / Total Loans    .00 %   .00 %   .00 %  
Delq 90+ / Total Loans    .00 %   .00 %   .00 %  
Delinquent Lns / Total Lns    .00 %   .47 %   .10 %  
Non Accrual / Total Loans    1.05 %   1.09 %   1.18 %  
Nonperforming assets to total assets    .71 %   .71 %   .83 %  
         
         
Year-to-date charge-off activity         
Charge-offs  $   0   $   0   $   327    
Recoveries  $   3   $   1   $   0    
Net charge-offs  $   (3 ) $   (1 ) $   327    
Annualized net loan losses (recoveries) to average loans    -.00 %   -.00 %   .27 %  
         
LOAN LOSS RESERVE RATIOS:       
Reserve for loan losses  $   3,366   $   3,364   $   3,028    
         
Total loans  $   279,688   $   269,801   $   247,637    
Purchased govt. guaranteed loans    $   63,071   $   61,415   $   47,108    
Originated govt. guaranteed loans    $   27,941   $   26,554   $   26,885    
         
LLR / Total loans    1.20 %   1.25 %   1.22 %  
LLR / Loans less purchased govt. guaranteed loans      1.55 %   1.61 %   1.51 %  
LLR / Loans less all govt. guaranteed loans      1.78 %   1.85 %   1.74 %  
LLR / Total assets    .81 %   .82 %   .86 %  
         


Contact:

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

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