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Communities First Financial Corporation 1Q17 Profits Increase 19% YOY; Net Interest Margin Expands to 4.06%

FRESNO, Calif., April 17, 2017 (GLOBE NEWSWIRE) -- Communities First Financial Corporation (the “Company”) (OTCQX:CFST), Fresno, CA, the parent company of Fresno First Bank (the “Bank”), today announced solid financial results for the first quarter ended March 31, 2017. Net income was $837,000, or $0.29 per diluted share, an increase of 19% over net income of $701,000, or $0.26 per diluted share, for the first quarter of 2016. For the fourth quarter of 2016, net income was $932,000, or $0.34 per diluted share.

“After delivering solid profitability in 2016, we continued the momentum with our first quarter earnings generating solid year-over-year growth. Profits in the last two quarters were amongst the highest we have produced in our history,” said Steve Miller, President and Chief Executive Officer. “With solid year-over-year loan and deposit growth, our net interest income increased over 21% from a year ago, and our net interest margin continued to improve to 4.06%.

“We also invested in our franchise by expanding our business development activities and hired key talent to keep pace with our continued growth and the changing banking landscape. As a result, our compensation costs were higher during the quarter, impacting first quarter results. However, our new customer acquisition in Q1 was up 43% over the prior year and we believe our long-term strategy of investing in new transaction based relationships will pay off by providing us a more robust base of customers to farm in future years,” continued Miller.

“During the first quarter of 2017, we also augmented our capital through our employee stock ownership plan (ESOP), and raised $521,000 in new capital. “By issuing new shares to our ESOP, we will be in a stronger position to continue to implement our strategic growth initiatives and, at the same time, reward our employees for their efforts to provide excellent service and generate solid growth,” said Miller.

“Total assets increased 18%, year-over-year, but declined on a linked quarter basis. The slight shrinking of assets from the fourth quarter was primarily due to the fluctuation of our agricultural business which is typical for the time of year. As we focus on the year ahead, we are looking to grow our assets by 15% to 20%,” said Miller. Full time equivalent employees were 42 at March 31, 2016, compared to 34 a year ago, and 37 at the end of 2016. The company’s total assets grew 23% to $363.5 million at December 31, 2016, compared to $295.7 million a year earlier.

First Quarter 2017 Highlights (as of, or for the quarter ended March 31, 2017, except where noted)

  • Posted solid earnings fueled by strong year-over-year loan and deposit growth, with a strong net interest margin.
  • Total deposits grew 18% to $319.6 million from $270.2 million a year earlier.
  • Total loans increased 26% to $239.6 million compared to $190.5 million a year ago.
  • Net interest income, after the provision for loan losses, increased 27% to $3.4 million for the first quarter of 2017, compared to $2.7 million for the first quarter of 2016. Net interest income was $3.2 million for the fourth quarter of 2016.
  • Noninterest income was $313,000 for the first quarter of 2017, compare to $389,000 for the first quarter of 2016.
  • Net interest margin (“NIM”) improved to 4.06%, compared to 3.89% on a linked quarter basis, and 4.00% for the first quarter of 2016.
  • The efficiency ratio, measuring overhead to revenue, was 61.63% for the first quarter of 2017, compared to 58.54% for the first quarter a year earlier, reflecting the investment in new talent over the past year.
  • Return on average assets (“ROAA”) was 0.97% and return on average equity (“ROAE”) was 11.12% for the first quarter of 2017. ROAA and ROAE were well above the average of 0.80% and 8.19%, respectively, generated by the 556 banks in the SNL MicroCap U.S. Bank Index, for the fourth quarter of 2016.
  • The allowance for loan and lease losses (“ALLL”) was $3.0 million at March 31, 2017, down 27% compared to $3.8 million a year earlier, reflecting the significant improvement in asset quality. The ALLL as a percentage of total loans was 1.21% at March 31, 2017, net of all government guarantees, the ALLL as a percentage of total loans was 1.73%.
  • Capital ratios remain strong with a ratio of tangible shareholders’ equity to total assets of 8.95 at March 31, 2017 up from 8.23% at December 31, 2016.

“The strategic investments we made in 2016, both BodeTree, a cloud-based business management program, and Breakaway Funding, a next generation crowd-funding company, continue to place CFST on the forefront of financial service providers in California,” Miller added.

Results of Operations

Net interest income increased 21% to $3.6 million for the first quarter of 2017, compared to $3.0 million for the first quarter of 2016, primarily reflecting strong year-over-year loan growth.

The provision for loan losses was $80,000 for the first quarter of 2017, compared to $210,000 for the first quarter of 2016 and $176,000 in the preceding quarter. “We add to reserves to provide for the continued robust loan growth we are achieving. At the same time, our asset quality remains sound and $9.4 million of our Q1 loan growth came from 100% government guaranteed loans requiring no reserve,” said Steve Canfield, Chief Financial Officer.

Non-interest income was $313,000 for the first quarter of 2017, compared to $389,000 for the first quarter of 2016. The decline in non-interest income, both year-over-year and on a linked quarter basis, was primarily due to lower gains on the sale of SBA loans. “The Bank chose not to sell any loans in Q1-2017 and as a result gain on sale income was down $118,000 year-over-year and down $160,000 from Q4-2016,” stated Canfield.

“Choosing to hold loans vs. selling tends to create some volatility in our non-interest income, the decision was made as part of our longer-term balance sheet management strategy. In a rising interest rate environment, the ability to source and hold higher margin floating rate loans with a government guarantee is an advantage.” The decrease in non-interest income was partially offset by increased income from merchant service activities and income generated from servicing loans.

The net interest margin expanded 6 basis points to 4.06% for the first quarter of 2017, compared to 4.00% a year earlier, and improved by 17 basis points from 3.89% for the fourth quarter of 2016. The improvement in the net interest margin was primarily due to higher volumes of loans and investments which replaced lower yielding overnight funds. “Our net interest margin continues to remain above the average of 3.60% generated by the SNL MicroCap U.S. Bank Index at December 31, 2016, and we are well positioned to take advantage of additional Federal Reserve rate hikes when and if they come,” commented Canfield.

Operating expenses totaled $2.3 million for the first quarter of 2017, compared to $1.9 million for the like quarter a year ago and $2.0 million for the fourth quarter of 2016. “The higher noninterest expense in the first quarter 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 was slightly impacted by our growth initiatives, but remained low at 61.53% for the first quarter of 2017. We expect it to fall back to 2016 levels as revenues are generated from the new investments later in the year,” Canfield added.

Balance Sheet Review

Total assets increased 18% to $352.0 million at March 31, 2017, compared to $297.2 million at March 31, 2016, and declined 3% from $363.5 million at December 31, 2016. Total loans grew 28% to $245.1 million at March 31, 2017, from $192.2 million a year ago, and increased 8% from $227.7 million three months earlier.

The commercial and industrial (C&I) portfolio totaled $118.4 million, representing 48% of total loans at March 31, 2017. Commercial real estate (CRE) loans totaled $74.7 million, or 31% of total loans. Agriculture and land loans totaled $23.0 million, denoting 10% of loans; residential home loans were $12.8 million, or 5% of loans, and real estate construction and land development loans were $15.6 million, or 6% of loans.

“We have been the largest Community Bank SBA lender by volume in California’s Central Valley for the last four consecutive years and we remain very active in the program,” 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 RatiosPeriod Ended:
$ in thousands (unaudited)Mar. 31, 2017Dec. 31, 2016Mar. 31, 2016
Reserve for loan losses $ 2,959 $ 2,880 $ 3,766
Total loans $ 245,130 $ 227,662 $ 192,186
Purchased govt. guaranteed loans $ 46,468 $ 37,113 $ 21,752
Originated govt. guaranteed loans $ 28,076 $ 27,209 $ 22,918
LLR / Total loans 1.21% 1.27% 1.96%
LLR / Loans less purchased govt. guaranteed loans 1.49% 1.51% 2.21%
LLR / Loans less all govt. guaranteed loans 1.73% 1.76% 2.55%
LLR / Total assets .84%.79% 1.27%

Total deposits increased 19% reaching $319.2 million at March 31, 2017, compared to $268.9 million from a year earlier and fell 4% from $332.3 million, at December 31, 2016. “Although deposits were down on a linked quarter basis, the number of new accounts actually increased from the fourth quarter and non-interest bearing deposits were up 4%. We believe the deposit stream will normalize and we will continue to field opportunities,” said Canfield.

Non-interest bearing demand deposits increased 59% to $177.1 million at March 31, 2017, representing 55% of total deposits, compared to $111.7 million, or 42% of non-interest bearing deposits a year ago. The ratio of loans to deposits was 76.8% at March 31, 2017, compared to 71.5% one year earlier and 68.5% at December 31, 2016.

Total stockholder equity was $31.5 million at March 31, 2017, compared to $28.0 million a year ago. Book value per common share increased 9% to $11.20 at March 31, 2017, compared to $10.26 a year ago.

Asset Quality

There were no nonperforming assets at the end of the first quarter of 2017, compared to 0.79% at March 31, 2016. Loans delinquent for 30 to 90 days increased to $3.6 million. This represents a series of loans to one Borrower totaling $3.3MM that are in the process of being renewed, and an overdraft of $300M that was a result of a fraudulent check scheme. Management anticipates the loan renewals will be completed in the second quarter with no further credit deterioration. Collection efforts are underway for the overdraft.

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:
Mar. 31, 2017Dec. 31, 2016Mar. 31, 2016 Dec. 31, 2016Mar. 31, 2016
BALANCE SHEET DATA - PERIOD END BALANCES:
Total assets $ 352,027 $ 363,533 $ 297,239 -3%18%
Total Loans 245,131 227,662 192,185 8%28%
Investment securities 67,503 66,292 67,071 2%1%
Total deposits 319,225 332,331 268,882 -4%19%
Shareholders equity, net $ 31,508 $ 29,930 $ 27,971 5%13%
SELECT INCOME STATEMENT DATA:
Gross revenue$ 3,767 $ 3,803 $ 3,251 -1%16%
Operating expense 2,312 1,996 1,900 16%22%
Pre-tax, pre-provision income 1,535 1,983 1,561 -23%-2%
Net income after tax $ 837 $ 932 $ 701 -10%19%
SHARE DATA:
Fully diluted earnings per share $ 0.29 $ 0.34 $ 0.26 -13%13%
Book value per common share $ 11.20 $ 10.97 $ 10.26 2%9%
Common shares outstanding 2,814,187 2,728,164 2,725,917 3%3%
Fully diluted shares 2,861,680 2,768,739 2,746,555 3%4%
CFST - Stock price $ 13.75 $ 11.50 $ 9.95 20%38%
RATIOS:
Return on average assets .97% 1.06%.96% -9%1%
Return on average equity 11.12% 12.58% 10.58% -12%5%
Efficiency ratio 61.53% 52.48% 58.54% 17%5%
Yield on earning assets 4.20% 4.03% 4.15% 4%1%
Cost to fund earning assets 0.13% 0.14% 0.15% -5%-11%
Net Interest Margin 4.06% 3.89% 4.00% 4%2%
Equity to assets 8.95% 8.23% 9.41% 9%-5%
Loan to deposits ratio 76.79% 68.50% 71.48% 12%7%
Full time equivalent employees 42 37 34 14%24%
BALANCE SHEET DATA - AVERAGES:
Total assets $ 351,640 $ 350,342 $ 297,991 0%18%
Total loans 239,583 222,958 190,531 7%26%
Investment securities 68,522 66,212 68,620 3%0%
Deposits 319,934 319,609 270,155 0%18%
Shareholders equity, net $ 30,725 $ 30,018 $ 27,405 2%12%
ASSET QUALITY:
Total delinquent accruing loans $ 3,638 $ 0 $ 2 100%100%
Nonperforming assets $ 0 $ 295 $ 2,360 -100%-100%
Non Accrual / Total Loans .00%.13% 1.23% -100%-100%
Nonperforming assets to total assets .00%.08%.79% -100%-100%
LLR / Total loans 1.21% 1.27% 1.96% -5%-38%


STATEMENT OF INCOME ($ in thousands)For the Quarter Ended: Percentage Change From:
(unaudited)Mar. 31, 2017Dec. 31, 2016Mar. 31, 2016 Dec. 31, 2016Mar. 31, 2016
Interest Income
Loan interest income $ 3,093$ 2,981$ 2,565 4%21%
Investment income 342 319 298 7%15%
Int. on fed funds & CDs in other banks 96 100 79 -4%22%
Dividends from non-marketable equity 38 72 30 -47%27%
Interest income 3,569 3,472 2,972 3%20%
Total interest expense 115 123 110 -7%5%
Net interest income 3,454 3,349 2,862 3%21%
Provision for loan losses 80 176 210 -55%-62%
Net interest income after provision 3,374 3,173 2,652 6%27%
Non-Interest Income:
Total deposit fee income 83 75 67 11%24%
Debit / credit card interchange inc. 29 29 33 0%-12%
Merchant services income 111 113 104 -2%7%
Gain on sale of loans 17 177 135 -90%-87%
Other operating income 73 60 50 22%46%
Non-interest income 313 454 389 -31%-20%
Non-Interest Expense:
Salaries & employee benefits 1,387 1,195 1,080 16%28%
Occupancy expense 133 126 135 6%-1%
Other operating expense 792 675 685 17%16%
Non-interest expense 2,312 1,996 1,900 16%22%
Net income before tax 1,375 1,631 1,141 -16%21%
Tax provision 538 699 440 -23%22%
Net income after tax $ 837$ 932$ 701 -10%19%


BALANCE SHEET ($ in thousands) End of Period: Percentage Change From:
(unaudited)Mar. 31, 2017Dec. 31, 2016Mar. 31, 2016 Dec. 31, 2016Mar. 31, 2016
ASSETS
Cash and due from banks $ 5,160 $ 5,933 $ 9,272 -13%-44%
Fed funds sold and deposits in banks 26,346 56,459 22,738 -53%16%
CDs in other banks 5,199 5,199 5,699 0%-9%
Investment securities 67,503 66,292 67,071 2%1%
Total loans outstanding:
RE constr & land development 15,633 14,087 12,885 11%21%
Residential RE 1-4 Family 12,844 13,643 15,388 -6%-17%
Commercial Real Estate 74,737 76,561 64,553 -2%16%
Agriculture 23,035 22,870 19,790 1%16%
Commercial and Industrial 118,377 100,279 79,484 18%49%
Consumer and Other 505 222 85 127%494%
Total Loans 245,131 227,662 192,185 8%28%
Deferred fees & discounts 330 (427) (341) -177%-197%
Allowance for loan losses (2,959) (2,880) (3,766) 3%-21%
Loans, net 242,502 224,355 188,078 8%29%
Non-marketable equity investments 1,918 1,918 1,653 0%16%
Accrued interest and other assets 3,399 3,377 2,728 1%25%
Total assets 352,027 363,533 297,239 -3%18%
LIABILITIES AND EQUITY
Non-interest bearing deposits 177,052 169,539 111,694 4%59%
Interest checking 11,108 11,022 7,439 1%49%
Savings 38,114 36,780 46,196 4%-17%
Money Market 56,925 72,153 66,664 -21%-15%
Certificates of Deposit 36,026 42,837 36,889 -16%-2%
Total deposits 319,225 332,331 268,882 -4%19%
Borrowings - - - 0%0%
Other liabilities 1,294 1,272 386 2%235%
Total liabilities 320,519 333,603 269,268 -4%19%
Common, preferred & paid in capital 27,642 27,054 26,943 2%3%
Retained earnings (deficit) 3,612 2,775 400 30%803%
Total equity 31,254 29,829 27,343 5%14%
Accumulated other comprehensive income 254 101 628 151%-60%
Shareholders equity, net 31,508 29,930 27,971 5%13%
Total Liabilities and shareholders' equity 352,027 363,533 297,239 -3%18%


ASSET QUALITY ($ in thousands)Period Ended:
(unaudited)Mar. 31, 2017Dec. 31, 2016Mar. 31, 2016
Delinquent accruing loans 30-60 days $ 3,323 $ 0 $ 2
Delinquent accruing loans 60-90 days $ 315 $ 0 $ 0
Delinquent accruing loans 90+ days $ 0 $ 0 $ 0
Total delinquent accruing loans $ 3,638 $ 0 $ 2
Loans on non accrual $ 0 $ 295 $ 2,360
Other real estate owned $ 0 $ 0 $ 0
Nonperforming assets $ 0 $ 295 $ 2,360
Performing restructured loans $ 31 $ 31 $ 31
Delq 30-60 / Total Loans 1.36%.00%.00%
Delq 60-90 / Total Loans .13%.00%.00%
Delq 90+ / Total Loans .00%.00%.00%
Delinquent Lns / Total Lns 1.48%.00%.00%
Non Accrual / Total Loans .00%.13% 1.23%
Nonperforming assets to total assets .00%.08%.79%
Year-to-date charge-off activity
Charge-offs $ 1 $ 1,963 $ 0
Recoveries $ 0 $ 21 $ 0
Net charge-offs $ 1 $ 1,942 $ 0
Annualized net loan losses (recoveries) to average loans .00%.94%.00%
LOAN LOSS RESERVE RATIOS:
Reserve for loan losses $ 2,959 $ 2,880 $ 3,766
Total loans $ 245,130 $ 227,662 $ 192,186
Purchased govt. guaranteed loans $ 46,468 $ 37,113 $ 21,752
Originated govt. guaranteed loans $ 28,076 $ 27,209 $ 22,918
LLR / Total loans 1.21% 1.27% 1.96%
LLR / Loans less purchased govt. guaranteed loans 1.49% 1.51% 2.21%
LLR / Loans less all govt. guaranteed loans 1.73% 1.76% 2.55%
LLR / Total assets .84%.79% 1.27%

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

Source:Communities First Financial Corporation