Communities First Financial Corporation Announces Record Profit; Earnings Increase 20% in 2017; Pre-Tax Reform Earnings Up 30%

FRESNO, Calif., Jan. 18, 2018 (GLOBE NEWSWIRE) --

Communities First Financial Corporation (the “Company”) (OTCQX:CFST), the parent company of Fresno First Bank (the “Bank”), today announced solid profitability for the fourth quarter and the full year of 2017. Fourth quarter net income was $877,000, or $0.30 per diluted share, which includes a $325,000, or $0.11 per share, one-time tax expense related to recently enacted tax reforms. In the fourth quarter of 2016, net income was $932,000, or $0.34 diluted share. For the full year 2017, net income increased 20% to $3.7 million, or $1.28 per share, compared to $3.1 million, or $1.12 per share for 2016.

With the signing into law of the Tax Cuts and Jobs Act of 2017, generally accepted accounting principles required deferred tax assets (DTAs) on corporate balance sheets be revalued to reflect the net present value of the future tax benefits based on the new 21% top rate, which replaces the 35% top rate. As a result of this accounting change, the Company made a one-time adjustment to the value of its DTAs causing a tax expense of $325,000. The following table presents a year-to-year comparison of key financial results before the one-time adjustment.

Comparison of 2017 vs. 2016 without the effect of the accounting adjustment to deferred tax assets
SELECT FINANCIAL INFORMATION AND RATIOS
(unaudited)
Year to Date as of:
Dec. 31, 2017Dec. 31, 2016Percent Change
Income before DTA adjustment $ 4,008 $ 3,074 30%
Basic earnings per share before DTA $ 1.42 $ 1.13 26%
Fully diluted earnings per share before DTA $ 1.39 $ 1.12 25%
Return on average assets before DTA 1.09%.98%11%
Return on average equity before DTA 12.23% 10.90% 12%

“While the benefits of lower tax rates in 2018 and beyond will be substantial for our Company and for most U.S. corporations, balance sheet adjustments for DTAs are generating considerable inconsistencies in fourth quarter earnings for many companies, and we are no different,” said Steve Miller, President and Chief Executive Officer. “Excluding the DTA adjustment, net income increased 30% for the year, 14% from the preceding quarter and 29% for the fourth quarter compared to a year ago. Revenues were solid; deposits were up 12% for the year and 9% on a linked quarter basis, reflecting the strength of our franchise and growth in new customer relationships,” added Miller.

“We continue to expand our Small Business Administration (“SBA”) lending initiatives, and have again been declared the top Community Bank SBA Lender for the 15 county Fresno District for the fifth consecutive year,” commented Miller. “Overall, the team added quality customer relationships to our portfolio through organic expansion in our core markets. Our customer acquisition success was a direct result of enhanced marketing techniques in both the digital and traditional channels, better leveraging our referral partners and maximizing existing relationships that are a part of a larger “ecosystem” of potential clients. Our participation in programs like Hybrid Crowd Funding provides us access to the local start-up community in the central valley, which enables us to further expand and diversify our customer base.

Fourth quarter 2017 Highlights (as of, or for the quarter ended December 31, 2017):

  • Pre-tax net income was $2.0 million, up 24% from $1.6 million for the fourth quarter of 2016 and up 16% on a linked quarter basis.
  • After adjusting for the DTA expense of $0.11 per share, diluted earnings per share (EPS) was $0.30 for the quarter ended December 31, 2017.
  • Net interest income, after provision for loan losses, increased 21% to $3.8 million for the fourth quarter of 2017, compared to $3.2 million for the fourth quarter a year ago and grew 11% from $3.4 million for the preceding quarter. No provision for loan losses was taken in the fourth quarter of 2017, compared to a provision for loan losses of $176,000 booked in the fourth quarter a year ago and $350,000 for the third quarter 2017.
  • Return on average assets (“ROAA”) was 0.87% at the end of 2017. Before the DTA write-down, ROAA was 1.20%.
  • Return on average equity (“ROAE”) was 10.16%. Before the DTA write-down, ROAE was 13.93%.
  • Net interest margin (“NIM”) was 3.97%, compared to 3.89% for the fourth quarter a year ago.
  • Total deposits grew 12% to $371.4 million from $332.3 million a year earlier.
  • Total loans increased 16% to $263.9 million compared to $227.7 million a year ago.
  • The efficiency ratio was 52.23% for the fourth quarter of 2017, compared to 52.48% for the fourth quarter a year earlier.
  • Nonperforming loans, as a percentage of total loans, were 1.11%. Asset quality remained sound with total nonperforming assets representing only 0.72% of total assets.
  • The allowance for loan and lease losses (“ALLL”) as a percentage of total loans was 1.27% at December 31, 2017, net of all government guarantees, the ALLL as a percentage of total loans was 1.90%.
  • Capital ratios remain strong with a ratio of tangible shareholders’ equity to total assets of 8.49% at December 31, 2017, compared to 8.23% at December 31, 2016.

Results of Operations

Net interest income, after provision for loan losses, increased 21% to $3.8 million from $3.2 million in the fourth quarter a year ago. No provision for loan losses was booked in the current quarter. A loan loss provision of $176,000 was recorded in the fourth quarter of 2016. On a linked quarter basis, net interest income after provision increased 11% from $3.4 million following a provision for loan losses of $350,000. For 2017, net interest income after provision grew 24% to $13.9 million, compared to $11.2 million for 2016. The provision for loan losses was $825,000 for 2017, compared to $1.3 million for 2016.

Non-interest income was $410,000 for the fourth quarter of 2017, compared to $454,000 for the fourth quarter of 2016, and $634,000 for the third quarter of 2017. “Quarterly non-interest income can be somewhat volatile depending on whether we sell SBA loans,” said Steve Canfield, Executive Vice President and Chief Financial Officer. “Non-interest income in the fourth quarter of 2017 was down slightly, primarily because we did not sell any SBA loans compared to sales and resultant gains of $177,000 in the fourth quarter of 2016 and $161,000 in the linked quarter. In addition, during the third quarter of this year, we repositioned a portion of our securities portfolio resulting in a gain of $110,000, which is not a normal event.” Debit/credit card interchange income was up 31% and merchant services income also increased 24% year-over-year on higher volumes. For the full year of 2017, non-interest income was up 11% from 2016.

The net interest margin was 3.97% for the fourth quarter of 2017, compared to 3.89% a year earlier, and 4.16% for the third quarter of 2017. The net interest margin continues to remain well above the average of 3.71% generated by the SNL MicroCap U.S. Bank Index at September 30, 2017. For the full year of 2017, the net interest margin was 4.11%, compared to 4.08% for 2016.

Operating expenses totaled $2.2 million for the fourth quarter of 2017, compared to $2.0 million for the fourth quarter of 2016 and $2.3 million on a linked quarter basis. The increase in noninterest expense, from a year ago and for the full year, primarily relates to increased occupancy expense from the lease of office space adjacent to the Bank’s current headquarters and increased salaries and employee benefits as staffing has increased.

The efficiency ratio was 52.23% for the fourth quarter of 2017, compared to 52.48% a year ago, and 54.15% for the quarter ended September 30, 2017.

Balance Sheet Review

Total assets increased 12% to $407.4 million at December 31, 2017, compared to $363.5 million at December 31, 2016, and grew 8% from $377.0 on a linked quarter basis.

Total loans grew 16% to $263.9 million at December 31, 2017, from $227.7 million a year ago, and increased 8% from $244.9 million at September 30, 2017.

The commercial and industrial (C&I) portfolio totaled $133.9 million, representing 51% of total loans at December 31, 2017. Commercial real estate (CRE) loans totaled $76.3 million, or 29% of total loans. Agriculture and land loans totaled $21.3 million, denoting 8% of loans; residential home loans were $14.2 million, or 5% of loans, and real estate construction and land development loans were $18.1 million, or 7% of loans.

Total deposits increased 12% to $371.4 million at December 31, 2017, compared to $332.3 million from a year earlier and grew 9% from $342.1 million at September 30, 2017. “Our core deposit portfolio is the strength of our franchise and our team shares a common goal of driving new DDA account acquisition,” said Miller.

Noninterest-bearing demand deposits increased 17% to $199.0 million at December 31, 2017, representing 54% of total deposits, compared to $169.5 million, or 51% of total deposits a year ago. The ratio of loans to deposits was 71.05% at December 31, 2017, compared to 64.84% one year earlier and 71.58% at September 30, 2017.

Net shareholder’s equity increased to $34.6 million at December 31, 2017, compared to $30.0 million a year ago. Book value per common share increased 11% to $12.18 at December 31, 2017, compared to $10.96 a year ago.

Asset Quality

Nonperforming assets (“NPAs”) totaled $2.9 million at both December 31, 2017, and September 30, 2017, compared to $295,000 one year earlier. “The NPAs have not changed and continue to represent a series of loans isolated to one borrower,” said Miller. “The loans are well-secured with good collateral, and we are keeping communications open with the borrower.”

With ample reserves, there was no provision for loan losses booked for the fourth quarter of 2017, compared to $176,000 for the fourth quarter a year ago and $350,000 for the preceding quarter. The provision for loan losses was $825,000 for the full year of 2017 compared to $1.3 million for 2016.

Net charge-offs were $342,000 for 2017, which included recoveries of $26,000, compared to charge-offs of $1.9 million and $21,000 of recoveries a year ago. The allowance for loan losses to total loans ratio was 1.27% at December 31, 2017, no change from 1.27% a year earlier and 1.37% at September 30, 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 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.

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

SELECT FINANCIAL INFORMATION AND RATIOS (unaudited)For the Quarter Ended: Percentage Change From: Year to Date as of:
Dec. 31, 2017Sept. 30, 2017Dec. 31, 2016 Sept. 30, 2017Dec. 31, 2016 Dec. 31, 2017Dec. 31, 2016Percent Change
BALANCE SHEET DATA - PERIOD END BALANCES:
Total assets $ 407,418 $ 377,043 $ 363,533 8%12%
Total Loans 263,869 244,890 227,662 8%16%
Investment securities 72,664 62,323 66,292 17%10%
Total deposits 371,401 342,126 332,331 9%12%
Shareholders equity, net $ 34,572 $ 33,804 $ 29,930 2%16%
SELECT INCOME STATEMENT DATA:
Gross revenue$ 4,236 $ 4,426 $ 3,803 -4%11% $ 16,638 $ 14,210 17%
Operating expense 2,212 2,337 1,996 -5%11% 9,173 7,823 17%
Pre-tax, pre-provision income 2,024 2,439 1,983 -17%2% 8,290 7,653 8%
Net income after tax $ 877 $ 1,055 $ 932 -17%-6% $ 3,683 $ 3,074 20%
SHARE DATA:
Basic earnings per share$ 0.31 $ 0.37 $ 0.34 -17%-9% $ 1.31 $ 1.13 16%
Fully diluted earnings per share $ 0.30 $ 0.37 $ 0.34 -17%-10% $ 1.28 $ 1.12 15%
Book value per common share $ 12.18 $ 12.00 $ 10.96 2%11%
Common shares outstanding 2,837,313 2,818,066 2,732,043 1%4%
Fully diluted shares 2,894,967 2,885,103 2,772,618 0%4%
CFST - Stock price $ 19.55 $ 17.60 $ 11.50 11%70%
RATIOS:
Return on average assets .87% 1.12% 1.06% -22%-17% 1.00%.98%2%
Return on average equity 10.16% 12.66% 12.58% -20%-19% 11.36% 10.90%4%
Efficiency ratio 52.23% 54.15% 52.48% -4%0% 55.53% 55.08%1%
Yield on earning assets 4.11% 4.29% 4.03% -4%2% 4.24% 4.23%0%
Cost to fund earning assets 0.14% 0.13% 0.14% 7%-2% 0.13% 0.15%-13%
Net Interest Margin 3.97% 4.16% 3.89% -5%2% 4.11% 4.08%1%
Equity to assets 8.49% 8.97% 8.23% -5%3%
Loan to deposits ratio 71.05% 71.58% 64.84% -1%10%
Full time equivalent employees 40 41 37 -2%8%
BALANCE SHEET DATA - AVERAGES:
Total assets $ 398,289 $ 372,648 $ 350,342 7%14% $ 368,102 $ 314,684 17%
Total loans 255,363 249,047 222,958 3%15% 248,139 206,235 20%
Investment securities 66,204 67,137 66,212 -1%0% 67,235 66,804 1%
Deposits 362,407 338,002 319,821 7%13% 334,176 285,099 17%
Shareholders equity, net $ 34,503 $ 33,532 $ 30,018 3%15% $ 32,776 $ 28,855 14%
ASSET QUALITY:
Total delinquent accruing loans $ 0 $ 0 $ 0 Inf Inf
Nonperforming assets $ 2,930 $ 2,930 $ 295 0%893%
Non Accrual / Total Loans 1.11% 1.20%.13% -7%757%
Nonperforming assets to total assets .72%.78%.08% -7%786%
LLR / Total loans 1.27% 1.37% 1.27% -7%1%


STATEMENT OF INCOME ($ in thousands)For the Quarter Ended: Percentage Change From: For the Year Ended
(unaudited)Dec. 31, 2017Sept. 30, 2017Dec. 31, 2016 Sept. 30, 2017Dec. 31, 2016 Dec. 31, 2017Dec. 31, 2016Percent Change
Interest Income
Loan interest income $ 3,350 $ 3,381 $ 2,981 -1%12% $ 13,110 $ 11,220 17%
Investment income 388 367 319 6%22% 1,447 1,246 16%
Int. on fed funds & CDs in other banks 193 142 100 36%93% 510 305 67%
Dividends from non-marketable equity 30 21 72 43%-58% 121 163 -26%
Interest income 3,961 3,911 3,472 1%14% 15,188 12,934 17%
Total interest expense 135 119 123 13%10% 477 458 4%
Net interest income 3,826 3,792 3,349 1%14% 14,711 12,476 18%
Provision for loan losses - 350 176 -100%-100% 825 1,266 -35%
Net interest income after provision 3,826 3,442 3,173 11%21% 13,886 11,210 24%
Non-Interest Income:
Total deposit fee income 76 79 75 -4%1% 320 284 13%
Debit / credit card interchange inc. 38 36 29 6%31% 134 114 18%
Merchant services income 140 142 113 -1%24% 522 448 17%
Gain on sale of loans 22 161 177 -86%-88% 465 669 -30%
Other operating income 134 216 60 -38%123% 486 219 122%
Non-interest income 410 634 454 -35%-10% 1,927 1,734 11%
Non-Interest Expense:
Salaries & employee benefits 1,260 1,397 1,195 -10%5% 5,385 4,607 17%
Occupancy expense 163 185 126 -12%29% 664 516 29%
Other operating expense 789 755 675 5%17% 3,124 2,700 16%
Non-interest expense 2,212 2,337 1,996 -5%11% 9,173 7,823 17%
Net income before tax 2,024 1,739 1,631 16%24% 6,640 5,121 30%
Tax provision 1,147 684 699 68%64% 2,957 2,047 44%
Net income after tax $ 877 $ 1,055 $ 932 -17%-6% $ 3,683 $ 3,074 20%


BALANCE SHEET ($ in thousands ) End of Period: Percentage Change From:
(unaudited)Dec. 31, 2017Sept. 30, 2017Dec. 31, 2016 Sept. 30, 2017Dec. 31, 2016
ASSETS
Cash and due from banks $ 3,570 $ 8,466 $ 5,933 -58%-40%
Fed funds sold and deposits in banks 51,166 45,267 56,459 13%-9%
CDs in other banks 5,199 5,199 5,199 0%0%
Investment securities 72,664 62,323 66,292 17%10%
Total loans outstanding:
RE constr & land development 18,115 17,525 14,087 3%29%
Residential RE 1-4 Family 14,225 12,747 13,643 12%4%
Commercial Real Estate 76,306 76,848 76,561 -1%0%
Agriculture 21,285 23,029 22,870 -8%-7%
Commercial and Industrial 133,921 114,638 100,279 17%34%
Consumer and Other 17 103 222 -83%-92%
Total Loans 263,869 244,890 227,662 8%16%
Deferred fees & discounts 104 174 (427) -40%-124%
Allowance for loan losses (3,363) (3,347) (2,880) 0%17%
Loans, net 260,610 241,717 224,355 8%16%
Non-marketable equity investments 2,244 2,207 1,918 2%17%
Cash value of life insurance 8,072 8,015 - 100%100%
Accrued interest and other assets 3,893 3,849 3,377 1%15%
Total assets $ 407,418 $ 377,043 $ 363,533 8%12%
LIABILITIES AND EQUITY
Non-interest bearing deposits $ 198,918 $ 184,556 $ 169,539 8%17%
Interest checking 12,162 10,264 11,022 18%10%
Savings 34,603 37,029 36,780 -7%-6%
Money Market 80,620 71,444 72,153 13%12%
Certificates of Deposit 45,098 38,833 42,837 16%5%
Total deposits 371,401 342,126 332,331 9%12%
Borrowings - - - 0%0%
Other liabilities 1,445 1,113 1,272 30%14%
Total liabilities 372,846 343,239 333,603 9%12%
Common, preferred & paid in capital 28,035 27,861 27,054 1%4%
Retained earnings (deficit) 6,458 5,582 2,775 16%133%
Total equity 34,493 33,443 29,829 3%16%
Accumulated other comprehensive income 79 361 101 -78%-22%
Shareholders equity, net 34,572 33,804 29,930 2%16%
Total Liabilities and shareholders' equity$ 407,418 $ 377,043 $ 363,533 8%12%


ASSET QUALITY ($ in thousands)Period Ended:
(unaudited)Dec. 31, 2017Sept. 30, 2017Dec. 31, 2016
Delinquent accruing loans 30-60 days $ 0 $ 0 $ 0
Delinquent accruing loans 60-90 days $ 0 $ 0 $ 0
Delinquent accruing loans 90+ days $ 0 $ 0 $ 0
Total delinquent accruing loans $ 0 $ 0 $ 0
Loans on non accrual $ 2,930 $ 2,930 $ 295
Other real estate owned $ 0 $ 0 $ 0
Nonperforming assets $ 2,930 $ 2,930 $ 295
Performing restructured loans $ 0 $ 0 $ 31
Delq 30-60 / Total Loans .00%.00%.00%
Delq 60-90 / Total Loans .00%.00%.00%
Delq 90+ / Total Loans .00%.00%.00%
Delinquent Lns / Total Lns .00%.00%.00%
Non Accrual / Total Loans 1.11% 1.20%.13%
Nonperforming assets to total assets .72%.78%.08%
Year-to-date charge-off activity
Charge-offs $ 368 $ 358 $ 1,963
Recoveries $ 26 $ 0 $ 21
Net charge-offs $ 342 $ 358 $ 1,942
Annualized net loan losses (recoveries) to average loans .14%.19%.94%
LOAN LOSS RESERVE RATIOS:
Reserve for loan losses $ 3,363 $ 3,347 $ 2,880
Total loans $ 263,870 $ 244,890 $ 227,662
Purchased govt. guaranteed loans $ 60,970 $ 48,692 $ 37,113
Originated govt. guaranteed loans $ 25,944 $ 23,427 $ 27,209
LLR / Total loans 1.27% 1.37% 1.27%
LLR / Loans less purchased govt. guaranteed loans 1.66% 1.71% 1.51%
LLR / Loans less all govt. guaranteed loans 1.90% 1.94% 1.76%
LLR / Total assets .83%.89%.79%


Source:Communities First Financial Corporation