Communities First Financial Corporation Earns $1.63 Million in 3Q18, or $0.56 per Diluted Share, Up 54% from 3Q17; Net Interest Margin Expands to 4.55%

FRESNO, Calif., Oct. 12, 2018 — Communities First Financial Corporation (the “Company”) (OTCQX: CFST), the parent company of Fresno First Bank (the “Bank”), today reported record profits for the third quarter of 2018 and for the first nine months of 2018. 

Net income increased 54% to $1.63 million, or $0.56 per diluted share for the third quarter of 2018, compared to $1.06 million, or $0.37 per diluted share for the third quarter of 2017.  On a linked quarter basis, net income grew 6% from $1.54 million, or $0.53 per diluted share.  For the first nine months ended September 30, 2018, net income increased 65% to $4.63 million, or $1.59 per diluted share, compared to $2.81 million, or $0.98 per diluted share for the first nine months of 2017.

“We continue to build our momentum delivering strong financial results for the quarter, supported by record revenue, net income, earnings per share and a solid net interest margin.  Our strong reputation established by our team is driving an amazing referral pipeline and we are attracting a steady new client base, demonstrated by the growth in deposits.  Noninterest-bearing deposits are up 32% on a year-over-year basis and represent over 60% of our deposit base,” said Steve Miller, President and Chief Executive Officer.

“Our recent expansion into the Southern California market is a logical progressive step for us,” continued Miller.  “With our team of highly experienced lenders, we look forward to developing a solid customer base initially focusing on commercial lending.  In addition, we will expand our payments business in Southern California to help enhance our fee-based revenue streams.”

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

  • Generated record earnings of $1.63 million and record diluted EPS of $0.56 per share.
  • Return on average assets (“ROAA”) was 1.48%; return on average equity (“ROAE”) was 16.90%, and the efficiency ratio improved to 51.06%.  Industry peer* ROAA was 1.00%, ROAE was 10.03%, and the efficiency ratio was 67.75%, at June 30, 2018.
  • Net interest margin (“NIM”) expanded 29 basis points to 4.55% for the third quarter of 2018, compared to 4.16% from the third quarter a year ago.  At June 30, 2018, industry peer* NIM was 3.74%.
  • Net interest income, after provision for loan losses, increased 30% year-over-year to $4.48 million and grew 4% from the preceding quarter.  Before the provision for loan losses, net interest income improved by 26% to $4.78 million year-over-year and grew 10% on a linked quarter basis.
  • Total deposits increased 18% to $402.93 million from $342.13 million a year earlier.
  • Total loans increased 16% to $282.87 million compared to $244.89 million a year ago.
  • Asset quality remained solid with nonperforming assets representing 0.71% of total assets.  Loans on nonaccrual totaled $3.16 million, compared to $2.93 million a year earlier.  Nonaccrual loans represented 1.12% of total loans.
  • The allowance for loan and lease losses (“ALLL”) was 1.30% as a percentage of total loans, at September 30, 2018, compared to 1.37% a year earlier.  The ALLL as a percentage of total assets was 0.83%.
  • Capital ratios remain strong with a ratio of tangible shareholders’ equity to total assets of 8.71% at September 30, 2018, compared to 8.97% at September 30, 2017.

*Industry peers are the 474 banks that comprised the SNL Microcap U.S. Bank Index, as at June 30, 2018.

Results of Operations

Net interest income, after the provision for loan losses, increased 30% to $4.48 million from $3.44 million in the third quarter a year ago, indicating strong year-over-year loan growth and higher yields on investment securities and overnight funds.  A provision for loan losses of $300,000 was booked in the reporting quarter compared to a provision of $350,000 taken in the third quarter of 2017.  No provision for loan losses was recorded in the preceding quarter.  Year-to-date, after the provision for loan losses, net interest income was up 28% to $12.91 million, compared to $10.06 million for the first nine months of 2017.

Non-interest income was $456,000 for the third quarter of 2018, compared to $634,000 for the third quarter of 2017, and $421,000 for the second quarter of 2018.  The year-over-year decline in non-interest income was primarily due to the lower gain on sale of SBA loans.  Gains on SBA loan sales totaled $88,000 for the first nine months of 2018, compared to $443,000 for the like period of 2017.  Adding to non-interest income was merchant services income, which was up 8% from the third quarter a year ago, and 14% for the first nine months of 2018.  Debit/credit card interchange income increased 22% compared to the third quarter of 2017 and grew 27% in the first nine months of 2018.

The net interest margin improved by 39 basis points to 4.55% for the third quarter of 2018, compared to 4.16% for the third quarter of 2017, and expanded three basis point from 4.52% for the second quarter of 2018.  Year-to-date, the net interest margin expanded 29 basis points to 4.45% compared to 4.16% for the first nine months of 2017.  “Our strong net interest margin continued to benefit from a higher fed funds and prime interest rate advancing the yield on our earning assets to 4.70% for the third quarter of 2018, whereas our cost of funds remained low at 0.15%,” said Steve Canfield, Executive Vice President and Chief Financial Officer.  The net interest margin is well above the average of 3.71% generated by industry peers.

Operating expenses totaled $2.68 million for the third quarter of 2018, compared to $2.34 million for the third quarter of 2017 and $2.61 million on a linked quarter basis.  “The increase in noninterest expense both from a year ago and from the second quarter this year was primarily due to compensation and operating costs associated with establishing our loan production office in Los Angeles,” added Canfield.

The efficiency ratio improved to 51.06% for the third quarter of 2018, compared to 54.15% for the third quarter a year ago, and 54.91% for the second quarter of 2018.  For the first nine months of 2018, the efficiency ratio was 53.90%, compared to 56.67% for the first nine months of 2017.

Balance Sheet Review

Total assets grew 18% to $443.45 million at September 30, 2018, compared to $377.04 million at September 30, 2017, and increased 7% from $413.57 million at June 30, 2018.

Total loans increased 16% to $282.87 million at September 30, 2018, from $244.89 million a year ago, and increased 1% from $279.69 million on a linked quarter basis.  The commercial and industrial (C&I) portfolio represented just over 50% of total loans at September 30, 2018.  Commercial real estate (CRE) loans totaled $87.4 million, or 31% of total loans.  Agriculture loans grew 13% from the preceding quarter to $28.1 million and represented 10% of total loans; real estate construction and land development totaled $14.6 million, or 5% of loans, while residential home loans were $11.2 million, or 4% of loans.  At September 30, 2018, $90.28 million or 31.9% of the loan portfolio was guaranteed by the SBA, USDA or other government agencies.

Total deposits increased 18% to $402.93 million at September 30, 2018, compared to $342.13 million from a year earlier and grew 7% from $375.08 million at June 30, 2018.  Noninterest-bearing demand deposits increased by 32% to $243.58 million at September 30, 2018, representing 61% of total deposits, compared to $184.56 million, or 54% of total deposits a year ago.  The ratio of loans to deposits was 70.20% at September 30, 2018, compared to 71.58% one year earlier and 74.57% at June 30, 2018.

Net shareholder’s equity increased 14% to $38.61 million at September 30, 2018, compared to $33.80 million a year ago.  Book value per common share increased 13% to $13.53 at September 30, 2018, compared to $12.00 a year ago.

Asset Quality

Nonperforming assets (“NPAs”) increased 8% from the preceding quarter, primarily due to the addition of two small government guaranteed business loans placed on non-accrual during the quarter.  “We continue to closely monitor the $2.9 million NPA which consists of a series of loans isolated to one borrower; they are well-secured with strong underlying collateral,” added Miller. At September 30, 2018, NPAs totaled $3.16 million compared to $2.93 million a year earlier.

“Primarily due to the growth in our loan portfolio, we prudently added to our reserves,” commented Canfield. A provision for loan losses of $300,000 was booked in the current quarter compared to $350,000 in the third quarter a year ago.  No provision was taken in the second quarter of 2018.  The allowance for loan losses to total loans ratio was 1.30% at September 30, 2018, compared to 1.37% a year earlier and 1.20% at June 30, 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.

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