Markets Wired

FRESNO, Calif., Oct. 16, 2019 (GLOBE NEWSWIRE) — Communities First Financial Corporation (the “Company”) (OTCQX: CFST), the parent company of Fresno First Bank (the “Bank”), today reported net income increased 38% to $2.24 million, or $0.75 per diluted share for the third quarter of 2019, compared to $1.63 million, or $0.56 per diluted share for the third quarter of 2018.  Net income for the second quarter of 2019 was $2.27 million, or $0.76 per diluted share. 

For the nine months ended September 30, 2019, net income increased 43% to a record $6.64 million, or $2.23 per diluted share, compared to $4.63 million, or $1.59 per diluted share, for the nine months ended September 30, 2018.  All results are unaudited.

“Once again we delivered strong financial results, and generated record earnings for the first nine months of 2019, highlighted by robust growth in non-interest income, which grew more than two-fold from a year ago, solid credit quality and a continued disciplined approach to cost controls,” said Steve Miller, President and Chief Executive Officer.  “We produced strong performance metrics with a net interest margin of 4.73%, a return on average equity (“ROAE”) of 18.41%, a return on average assets (“ROAA”) of 1.78%, and an efficiency ratio of 52.05%, for the third quarter of 2019.

“We continue to invest in the future and are encouraged with the progress we have made to date,” added Miller.  “As a team, we are excited to achieve $538 million in total assets.  We also achieved significant growth in core deposits, which is a result of our strategy to focus on fostering long-term customer relationships centered on the operating accounts of our customers. 

“With the launch of a new payment partner in August, together with several other payment-related initiatives gaining traction, we saw significant non-interest income growth in the quarter.  We expect to build upon these initiatives for the remainder of the year,” said Miller.  “This is a noninterest income stream that should position us for 2020 and should help buffer any NIM compression we may see due to the current declining rate environment.”

Third Quarter 2019 Highlights (as of, or for the quarter ended September 30, 2019, except where noted):

• Diluted earnings per share (“EPS”) were $0.75, compared to $0.56 per share for the third quarter of 2018.
• ROA was 1.78%, compared to 1.48% for the third quarter a year ago.  ROAE was 18.41%, compared to 16.89% for the third quarter of 2018.
• Net interest income, before provision for loan losses, increased 19% to $5.69 million from $4.78 million for the third quarter a year ago.  A provision for loan losses of $235,000 was booked in the third quarter of 2019, compared to a provision of $300,000 reserved in the third quarter of 2018. 
• Non-interest income for the third quarter 2019 grew 107% from one year earlier and increased 8% from the preceding quarter.
• The increase in non-interest income for the quarter was a result of gains across several channels including gain on sale of loans, a robust growth in merchant services revenue, which was up over 227% year-over-year, as well as general deposit service charges.
• Net interest margin (“NIM”) expanded 15 basis points to 4.73% for the third quarter of 2019, compared to 4.58% from the third quarter a year ago.  For the first nine months of 2019, NIM improved by 36 basis points to 4.83%, compared to 4.47% for the first nine months of 2018.
• Total assets reached an all-time high of $538.73 million, up 21% from $443.45 million a year earlier.
• Total deposits increased by $83.25 million, or 21%, to $486.18 million from $402.93 million at September 30, 2018.  Non-interest-bearing deposits grew by $58.86 million, or 24%, to $302.44 million from $243.58 million at September 30, 2018 and represent 62% of total deposits.
• Total loans grew by $65.69 million, or 23%, to $348.56 million compared to $282.87 million a year earlier.
• Asset quality improved with nonperforming assets declining to 0.14% of total assets from 0.71% a year ago.
• The allowance for loan and lease losses (“ALLL”) was 1.18% as a percentage of total loans, at September 30, 2019, compared to 1.30% a year earlier.
• Capital ratios remain strong with a ratio of tangible shareholders’ equity to total assets of 9.21% at September 30, 2019, compared to 8.71% at September 30, 2018 and 10.24% at June 30, 2019.  The decline in the capital ratio in Q3 2019 was the result of the significant asset growth for the quarter.

Results of Operations

Net interest income, before the provision for loan losses, increased 19% to $5.69 million for the third quarter of 2019, compared to $4.78 million for the third quarter a year ago, reflecting solid year-over-year loan growth and higher yields on investment securities.  Net interest income increased 7% from $5.32 million in the preceding quarter.  For the first nine months of 2019, net interest income, before the provision for loan losses, increased 23% to $16.22 million compared to $13.21 million for the first nine months of 2018.

Total non-interest income increased 107% to $946,000 for the third quarter of 2019, compared to $456,000 for the third quarter of 2018, and grew 8% from $872,000 for the second quarter of 2019.  For the first nine months of 2019, non-interest income was $2.49 million, an increase of 94% over $1.28 million for the first nine months of 2018.  “Our merchant services revenue was up 168% compared to the second quarter of 2019 and has doubled year-over-year,” said Steve Canfield, Chief Financial Officer.  “Our Southern California team is doing a great job and income from gain on sale of loans also increased substantially year-over-year.  Although we sold fewer loans than in the preceding quarter, we are holding $14.51 million in loans for sale at quarter end and expect to generate additional sales during the fourth quarter.”

The net interest margin improved by 15 basis points to 4.73% for the third quarter of 2019, compared to 4.58% for the third quarter of 2018, and contracted 21 basis points from 4.94% for the preceding quarter.  For the first nine months of 2019, the net interest margin expanded 36 basis points to 4.83% compared to 4.47% for the first nine months of 2018. 

“With 62% of our deposit base in zero interest operating accounts, our net interest margin continues to be strong.  With that funding mix, we expect our margin to continue to exceed industry averages, but we are slightly asset sensitive and the net interest margin will compress slightly with the cut in prime interest rates,” added Canfield.  “The yield on earning assets was 4.97% on a linked quarter basis, and 5.05% year-over-year, while our cost to fund earning assets remained low at 0.24%, at quarter end.”

Non-interest expense for the third quarter of 2019 was $3.33 million, compared to $2.68 million for the third quarter of 2018, and $3.02 million for the second quarter of 2019.  For the first nine months of 2019, non-interest expense totaled $9.27 million compared to $7.82 million for the first nine months of 2018. 

“The increase in operating expenses year-over-year and for the first nine months of 2019 reflect our continued execution of our growth strategy, including support of our franchise expansion into Southern California, through our recruitment of excellent Southern California bankers,” Canfield added.  “In late September we opened a small commercial SBA loan production office in San Diego to further support our operations.”

The efficiency ratio was 52.05% for the third quarter of 2019, compared to 51.06% for the third quarter a year ago, and 48.74% for the second quarter of 2019.  Year-to-date, the efficiency ratio was 50.20% compared to 53.91% for the first nine months of 2018.

Balance Sheet Review

Total assets reached $538.73 million at September 30, 2019, up 21% from $443.45 million at September 30, 2018, and increased 17% from $460.03 million at June 30, 2019.  Total portfolio loans increased by 23% to $348.56 million at September 30, 2019, from $282.87 million a year ago, and grew 13% from $307.20 million at June 30, 2019.  

The commercial and industrial (C&I) portfolio increased 15% from a year earlier to $162.99 million and represented 47% of total loans at September 30, 2019.  Commercial real estate (CRE) loans grew 48% to $129.09 million, or 37% of total loans.  Agriculture loans grew 11% from a year ago to $31.11 million and represented 9% of total loans; real estate construction and land development totaled $15.34 million, or 4% of loans, while residential home loans were $10.00 million, or 3% of loans.  At September 30, 2019, $93.08 million, or 27% of the loan portfolio was guaranteed by the SBA, USDA or other government agencies.

Total deposits increased 21% to $486.18 million at September 30, 2019, from $402.93 million from a year earlier, and grew 19% from $409.98 at June 30, 2019.  Noninterest-bearing demand deposits grew 24% to $302.44 million at September 30, 2019, representing 62% of total deposits.

“Although seasonal outflows together with a large escrow account that closed suppressed growth in the first two quarters, we have consistently added new customers throughout the year.  The growth during the third quarter reflects those efforts,” said Canfield.  “We currently have a $20.0 million deposit account we are escrowing for a school district as part of a loan syndication.  These funds will be disbursed in October; however, even with this outflow we expect positive deposit flows to continue for the remainder of the year.”

Net shareholder’s equity increased 29% to $49.63 million at September 30, 2019, compared to $38.61 million a year ago.  Book value per common share grew 25% to $16.87 at September 30, 2019, compared to $13.53 at September 30, 2018.

Asset Quality

Asset quality continues to improve with nonperforming assets (“NPAs”) declining to $765,000, or 0.14% of total assets at September 30, 2019, compared to $3.16 million, or 0.71% of total assets at September 30, 2018, and $793,000, or 0.17% of total assets at June 30, 2019.  “We have made significant progress reducing our nonperforming assets and we will continue to monitor the remaining balance which is performing under a restructured arrangement,” stated Miller.  Performing restructured loans totaled $529,000 at September 30, 2019.

The provision for loan losses was $235,000 for the third quarter of 2019, compared to $300,000 for the third quarter of 2018.  There was no provision for loan losses recorded in the preceding quarter.  Year-to-date, net charge-offs totaled $154,000 at September 30, 2019, compared to recoveries of $5,000 a year earlier.  The allowance for loan losses to total loans ratio was 1.18% at September 30, 2019, compared to 1.30% a year earlier and 1.27% at June 30, 2019. 

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 and has expanded into Southern California.  The Bank is also a direct acquiring bank with VISA and MasterCard and processes payments for merchants across the country directly and through partners.  Named to the 2019 OTCQX Best 50, and ranked one of the top performing OTCQX companies in the country, based on total return and growth in average daily dollar volume for 2018. 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 by calling 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		For the Quarter Ended:										Percentage Change From:					Year to Date as of:
RATIOS (unaudited)		Sept. 30, 2019			June 30, 2019			Sept. 30, 2018				June 30, 2019		Sept. 30, 2018			Sept. 30, 2019			Sept. 30, 2018			Percent Change
BALANCE SHEET DATA – PERIOD END BALANCES:
	Total assets	$	538,725		$	460,033		$	443,449			17	%	21	%
	Total Loans		348,556			307,196			282,867			13	%	23	%
	Investment securities		99,456			94,216			82,153			6	%	21	%
	Total deposits		486,183			409,975			402,933			19	%	21	%
	Shareholders equity, net		49,628			47,130			38,610			5	%	29	%
SELECT INCOME STATEMENT DATA:
	Gross revenue	$	6,631		$	6,196		$	5,237			7	%	27	%		$	18,705		$	14,492		29	%
	Operating expense		3,330			3,020			2,678			10	%	24	%			9,272			7,817		19	%
	Pre-tax, pre-provision income		3,301			3,176			2,559			4	%	29	%			9,668			6,975		39	%
	Net income after tax	$	2,238		$	2,270		$	1,625			-1	%	38	%		$	6,637		$	4,630		43	%
SHARE DATA:
	Basic earnings per share	$	0.76		$	0.77		$	0.57			-2	%	34	%		$	2.27		$	1.62		40	%
	Fully diluted earnings per share	$	0.75		$	0.76		$	0.56			-2	%	35	%		$	2.23		$	1.59		41	%
	Book value per common share	$	16.87		$	16.09		$	13.53			5	%	25	%
	Common shares outstanding		2,940,996			2,929,757			2,853,672			0	%	3	%
	Fully diluted shares		2,989,842			2,985,259			2,923,728			0	%	2	%
	CFST – Stock price	$	24.75		$	25.15		$	25.10			-2	%	-1	%
RATIOS:
	Return on average assets		1.78%			2.01%			1.48%			-11	%	20	%			1.88	%		1.49	%	26	%
	Return on average equity		18.41%			20.00%			16.89%			-8	%	9	%			19.56	%		16.91	%	16	%
	Efficiency ratio		52.05%			48.74%			51.06%			7	%	2	%			50.20	%		53.91	%	-7	%
	Yield on earning assets		4.97%			5.17%			4.73%			-4	%	5	%			5.05	%		4.62	%	9	%
	Cost to fund earning assets		0.24%			0.23%			0.15%			1	%	61	%			0.22	%		0.15	%	53	%
	Net Interest Margin		4.73%			4.94%			4.58%			-4	%	3	%			4.83	%		4.47	%	8	%
	Equity to assets		9.21%			10.24%			8.71%			-10	%	6	%
	Loan to deposits ratio		71.69%			74.93%			70.20%			-4	%	2	%
	Full time equivalent employees		50			47			42			6	%	19	%
BALANCE SHEET DATA – AVERAGES:
	Total assets	$	498,526		$	452,763		$	434,466			10	%	15	%		$	471,133		$	414,576		14	%
	Total loans		320,729			309,393			280,510			4	%	14	%			309,342			271,869		14	%
	Investment securities		94,860			94,940			78,439			0	%	21	%			94,632			77,195		23	%
	Deposits		447,486			404,081			394,646			11	%	13	%			423,227			376,333		12	%
	Shareholders equity, net		48,246			45,516			38,159			6	%	26	%			45,386			36,615		24	%
ASSET QUALITY:
	Total delinquent accruing loans	$	433		$	147		$	158			195	%	174	%
	Nonperforming assets	$	765		$	793		$	3,155			-4	%	-76	%
	Non Accrual / Total Loans		.22%			.26%			1.12%			-15	%	-80	%
	Nonperforming assets to total assets		.14%			.17%			.71%			-18	%	-80	%
	LLR / Total loans		1.18%			1.27%			1.30%			-6	%	-9	%

STATEMENT OF INCOME ($ in thousands)		For the Quarter Ended:							Percentage Change From:					For the Year Ended
(unaudited)		Sept. 30, 2019		June 30, 2019		Sept. 30, 2018			June 30, 2019		Sept. 30, 2018			Sept. 30, 2019	Sept. 30, 2018	Percent Change
Interest Income
	Loan interest income	$	4,999	$	4,735	$	4,149		6	%	20	%		14,210	11,552	23	%
	Investment income		647		668		481		-3	%	35	%		1,966	1,373	43	%
	Int. on fed funds & CDs in other banks		295		141		272		109	%	8	%		696	625	11	%
	Dividends from non-marketable equity		27		33		32		-18	%	-16	%		92	87	6	%
	Interest income		5,968		5,577		4,934		7	%	21	%		16,964	13,637	24	%
	Total interest expense		283		253		153		12	%	85	%		745	428	74	%
	Net interest income		5,685		5,324		4,781		7	%	19	%		16,219	13,209	23	%
	Provision for loan losses		235		–		300		0	%	-22	%		235	300	-22	%
	Net interest income after provision		5,450		5,324		4,481		2	%	22	%		15,984	12,909	24	%
Non-Interest Income:
	Total deposit fee income		114		114		96		0	%	19	%		318	260	22	%
	Debit / credit card interchange income		68		60		44		13	%	55	%		179	122	47	%
	Merchant services income		501		187		153		168	%	227	%		843	437	93	%
	Gain on sale of loans		154		386		44		-60	%	250	%		781	88	788	%
	Other operating income		109		125		119		-13	%	-8	%		365	376	-3	%
	Non-interest income		946		872		456		8	%	107	%		2,486	1,283	94	%
Non-Interest Expense
	Salaries & employee benefits		1,990		1,878		1,612		6	%	23	%		5,731	4,735	21	%
	Occupancy expense		207		198		256		5	%	-19	%		600	584	3	%
	Other operating expense		1,133		944		810		20	%	40	%		2,941	2,498	18	%
	Non-interest expense		3,330		3,020		2,678		10	%	24	%		9,272	7,817	19	%
	Net income before tax		3,066		3,176		2,259		-3	%	36	%		9,198	6,375	44	%
	Tax provision		828		906		634		-9	%	31	%		2,561	1,745	47	%
	Net income after tax	$	2,238	$	2,270	$	1,625		-1	%	38	%		6,637	4,630	43	%

BALANCE SHEET  ($ in thousands )		End of Period:										Percentage Change From:
(unaudited)		Sept. 30, 2019			June 30, 2019			Sept. 30, 2018				June 30, 2019		Sept. 30, 2018
ASSETS
	Cash and due from banks	$	16,191		$	11,215		$	11,369			44	%	42	%
	Fed funds sold and deposits in banks		38,603			20,492			48,078			88	%	-20	%
	CDs in other banks		10,409			10,657			7,699			-2	%	35	%
	Investment securities		99,456			94,216			82,153			6	%	21	%
	Loans held for sale		14,511			4,542			–			219	%	0	%
	Portfolio loans outstanding:
	RE constr & land development		15,341			14,146			14,590			8	%	5	%
	Residential RE 1-4 Family		10,003			11,714			11,174			-15	%	-10	%
	Commercial Real Estate		129,089			105,819			87,368			22	%	48	%
	Agriculture		31,106			27,345			28,099			14	%	11	%
	Commercial and Industrial		162,992			148,063			141,602			10	%	15	%
	Consumer and Other		25			109			34			-77	%	-26	%
	Total Portfolio Loans		348,556			307,196			282,867			13	%	23	%
	Deferred fees & discounts		(144	)		55			191			-362	%	-175	%
	Allowance for loan losses		(4,130	)		(3,892	)		(3,668	)		6	%	13	%
	Loans, net		344,282			303,359			279,390			13	%	23	%
	Non-marketable equity investments		2,572			2,512			2,475			2	%	4	%
	Cash value of life insurance		7,938			7,885			8,240			1	%	-4	%
	Accrued interest and other assets		4,763			5,155			4,045			-8	%	18	%
	Total assets	$	538,725		$	460,033		$	443,449			17	%	21	%
LIABILITIES AND EQUITY
	Non-interest bearing deposits	$	302,435		$	245,244		$	243,580			23	%	24	%
	Interest checking		13,800			12,183			13,583			13	%	2	%
	Savings		37,098			36,024			30,887			3	%	20	%
	Money market		90,440			83,043			77,514			9	%	17	%
	Certificates of deposits		42,410			33,481			37,369			27	%	13	%
	Total deposits		486,183			409,975			402,933			19	%	21	%
	Borrowings		–			–			–			0	%	0	%
	Other liabilities		2,914			2,928			1,906			0	%	53	%
	Total liabilities		489,097			412,903			404,839			18	%	21	%
	Common stock & paid in capital		29,763			29,527			28,350			1	%	5	%
	Retained earnings		19,346			17,108			11,089			13	%	74	%
	Total equity		49,109			46,635			39,439			5	%	25	%
	Accumulated other comprehensive income		519			495			(829	)		5	%	-163	%
	Shareholders equity, net		49,628			47,130			38,610			5	%	29	%
	Total Liabilities and shareholders’ equity	$	538,725		$	460,033		$	443,449			17	%	21	%

ASSET QUALITY ($ in thousands)	Period Ended:
(unaudited)	Sept. 30, 2019			June 30, 2019			Sept. 30, 2018
Delinquent accruing loans 30-60 days	$	431		$	145		$	158
Delinquent accruing loans 60-90 days	$	0		$	0		$	0
Delinquent accruing loans 90+ days	$	2		$	2		$	0
Total delinquent accruing loans	$	433		$	147		$	158
Loans on non accrual	$	765		$	793		$	3,155
Other real estate owned	$	0		$	0		$	0
Nonperforming assets	$	765		$	793		$	3,155
Performing restructured loans	$	529		$	557		$	0
Delq 30-60 / Total Loans	.12%				.05%			.06%
Delq 60-90 / Total Loans		.00%			.00%			.00%
Delq 90+ / Total Loans		.00%			.00%			.00%
Delinquent Loans / Total Loans		.12%			.05%			.06%
Non Accrual / Total Loans		.22%			.26%			1.12%
Nonperforming assets to total assets		.14%			.17%			.71%
Year-to-date charge-off activity
Charge-offs	$	163		$	163		$	0
Recoveries	$	9		$	6		$	5
Net charge-offs	$	154		$	157		$	(5	)
Annualized net loan losses (recoveries) to average loans	.07%			.10%			-.00%
LOAN LOSS RESERVE RATIOS:
Reserve for loan losses	$	4,130		$	3,892		$	3,668
Total loans	$	348,556		$	307,196		$	282,866
Purchased govt. guaranteed loans	$	58,421		$	60,839		$	62,741
Originated govt. guaranteed loans	$	34,661		$	30,626		$	27,542
LLR / Total loans		1.18%			1.27%			1.30%
LLR / Loans less purchased govt. guaranteed loans		1.42%			1.58%			1.67%
LLR / Loans less all govt. guaranteed loans		1.62%			1.80%			1.90%
LLR / Total assets	.77%			.85%			.83%

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