Communities First Financial Corporation Surpasses $1 Billion in Total Assets; Profits Rise 73% to $5.22 Million for 3Q-2021 from $3.02 Million for 3Q-2020; Embarks on New API Technology in 3Q-2021

FRESNO, Calif., Oct. 19, 2021 (GLOBE NEWSWIRE) — Communities First Financial Corporation (the “Company”) (OTCQX: CFST), the parent company of Fresno First Bank (the “Bank”), today reported net income increased 73% to $5.22 million, or $1.68 per diluted share for the third quarter of 2021 (3Q-2021), compared to $3.02 million, or $1.00 per diluted share for the third quarter of 2020 (3Q-2020), and declined 9% from $5.71 million, or $1.84 per diluted share for the second quarter of 2021 (2Q-2021). For the first nine months of 2021, net income increased 83% to $15.12 million, or $4.88 per diluted share, compared to $8.26 million, or $2.72 per diluted share, for the first nine months of 2020. All results are unaudited.

“Our third quarter results reflect the continued successful implementation of our strategic growth plan,” said Steve Miller, President and Chief Executive Officer. “Net income increased 73% from a year ago, and we delivered a return on average common equity of 25.52%, a return on average common assets of 2.04%, and a best in class efficiency ratio of 36.87%. Our total assets crossed the $1.0 billion mark, supported by robust loan and deposit growth, both of which increased 19% from the year ago quarter. We also benefited from an acceleration of the Paycheck Protection Program (‘PPP’) loan fee income totaling $1.23 million. Our capital and liquidity positions remain strong, and we are well positioned to benefit from an improving local economy.”

“Credit metrics remained solid with no loans on deferral at quarter end, as all our clients returned to their regular payment schedule,” said Miller. “Although nonperforming assets increased in the third quarter, we proactively placed the delinquent loans on nonaccrual and established a good workout plan with the largest borrower. With the exception of one $58,000 loan 30 days past due, all of the delinquencies are purchased Small Business Administration (‘SBA’) loans, which are 100% guaranteed for principal and interest. However, because the SBA changed its fiscal transfer agent from Colson to Guidehouse in the third quarter, there has been a delay in payments. Out of an abundance of caution, we reserved $400,000 for the provision for loan losses while our allowance for loan losses remained strong at 1.40% to total loans, and 1.83% of total loans less government guaranteed balances, at September 30, 2021.”

“We embarked on a technology project during the third quarter, which focuses on building our own Application Programming Interface (‘API’) bridge to make it quick, convenient and cost-effective for our Bank and third parties to connect,” said Miller. “This API bridge will enable us to gain some independence from our core system and provide us more flexibility when partnering with best in class tech solutions. In addition, the Bank will go live with a new loan origination system in the fourth quarter with an aim to enhance work flows and board loans more quickly. We believe this system will enable us to scale our lending business without saddling the critical loan operations area with excess headcount. The market reality is that we must always be looking for ways to enhance our customer experience and also seek more efficient ways to operate internally by leveraging technology solutions. These incremental gains will help maximize our headcount and keep our efficiency ratio low.”

Third quarter 2021 Highlights: As of, or for the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020:

• Pre-tax, pre-provision income increased 56% to $7.21 million.
• Net income climbed 73% to $5.22 million or $1.68 per diluted share.
• Return on average equity of 25.52%.
• Return on average assets of 2.04%.
• Operating revenue (net interest income, before the provision for loan losses, plus non-interest income) increased by 37% to $12.06 million.
• Total assets grew 23% to $1.02 billion.
• Total loans (ex. HFS) increased 19% to $700.32 million.
• Total deposits increased 19% to $893.25 million.
• Shareholder equity increased 30% to $84.24 million.
• Book value increased 28% to $27.42 per share.

Covid-19 Update:

• Communities First participated in the SBA PPP loan programs since the onset of the pandemic, originating a total of $261 million in PPP loans and generating PPP loan fees receivable of approximately $8.50 million.
• At September 30, 2021, the Bank had received forgiveness from the SBA for $176.72 million in PPP loans, with $84.28 million left on the books at quarter end.
• Approximately $1.23 million, or 10.23%, of the gross revenue recognized during the third quarter of 2021 was related to recognizing origination fees from PPP loans, compared to $1.33 million, or 10.19%, of revenue recognized during the second quarter of 2021.
• PPP loans generated total interest and fee income of $1.77 million during the third quarter of 2021, compared to $1.92 million during the second quarter of 2021.
• At September 30, 2021, there was $1.86 million in deferred PPP fees capitalized on the balance sheet.
• The majority of the remaining PPP loan balances is expected to be forgiven or paid off and the related fees accreted into income within the next few quarters.
• A small percentage of clients requested and were granted deferrals but as of June 30, and September 30, 2021, we had no loans on deferral.

Fresno Economic Update:

According to GV Wire, “Fresno scored high on a list of cities in the United States making a strong economic recovery from the COVID-19 pandemic. According to a report by SmartAsset, published on August 2, 2021, Fresno ranked No. 2 among 49 of the largest U.S. cities with the strongest recoveries from the COVID-19 recession by providing gainful opportunities for employment. That catapulted Fresno to the top of the list, with an overall score of 93.33 out of 100 based on components like, changes in consumer spending, small business openings, job postings and unemployment rates.”

“One of the main reasons for Fresno’s rank can be attributed to the rise in the city’s job openings which went up 37.2% from pre-pandemic levels but also ranked sixth for its small business revenue and saw a drastically higher consumer spending increase of 18.2%. Although, small business revenue is down in almost all cities across the country, Fresno’s 20.2% decline is around the same or less than most.”
https://gvwire.com/2021/08/02/fresno-economic-rebound-among-best-in-us/

Results of Operations

Operating revenue, consisting of net interest income and non-interest income, increased 37% to $12.06 million for the third quarter of 2021, compared to $8.83 million for the third quarter a year ago, and was lower by 8% from $13.04 million for the second quarter of 2021. For the first nine months of 2021, operating revenue increased 48% to $36.11 million, compared to $24.45 million for the first nine months of 2020.

Net interest income, before the provision for loan losses, increased 38% to $9.76 million for the third quarter of 2021, compared to $7.09 million for the third quarter a year ago, and increased 4% from $9.42 million for the second quarter of 2021. For the first nine months of 2021, net interest income increased 46% to $28.42 million from $19.48 million for the first half of 2020. Quarterly 2021 net interest income was impacted by interest expense of $464,000 on sub-debt issued in November 2020. Interest expense related to sub-debt was $1.39 million for the first three quarters of 2021 compared to no interest expense on sub-debt in 2020. “The solid growth in net interest income in both the third quarter of 2021, and for the first nine months of 2021, was a result of a growing loan portfolio and garnering higher yields from our investment portfolio,” said Steve Canfield, Chief Financial Officer.

The Bank’s net interest margin (“NIM”), which excludes interest expense on holding company sub-debt, expanded 40 basis points to 4.14% for the third quarter of 2021, from 3.74% for the third quarter of 2020. The NIM contracted six basis points for the third quarter of 2021 from 4.20% for the second quarter of 2021. For the first nine months of 2021, the NIM expanded 24 basis points to 4.27% compared to 4.03% for the first nine months of 2020. The expansion in the NIM year-over-year and year-to-date was primarily due to the low cost to fund earnings assets and changes in the mix of earning assets, as well as additional interest and fee income from PPP loans. The small contraction in NIM on a linked quarter basis was mainly due to additional liquidity on the balance sheet in the form of overnight deposits at the Federal Reserve.

“With fees earned on PPP loans, and its temporary impact on NIM, it is important to understand what a normalized NIM run rate looks like,” said Canfield. “When we exclude the impact of PPP loans on our books, and the one-time recovery of non-accrued interest we had in Q1-2021, our normalized NIM was 3.95% in third quarter of 2021 compared to 4.12% in Q3-2020. Year-to-date, the NIM excluding the impact of PPP income was 4.10% down 21 basis points from 4.31% for the first three quarters of 2020.”

The yield on earning assets was 4.23% for the third quarter of 2021, compared to 3.86% for the third quarter a year ago, and 4.29% on a linked quarter basis. The cost to fund earning assets remained low at 0.08% for the third quarter of 2021, compared to 0.12% for the third quarter of 2020, and 0.09% for the preceding quarter. For the first nine months of 2021, the yield on earning assets was 4.37% compared to 4.19% for the first three quarters of 2020. The cost to fund earning assets dropped 38% to 0.10% for the first three quarters of 2021, compared to 0.16% for the first three quarters of 2020.

Total non-interest income was $2.29 million for the third quarter of 2021, compared to $1.73 million for the third quarter of 2020, and $3.62 million for the preceding quarter. For the first nine months of 2021, non-interest income increased 55% to $7.69 million compared to $4.97 million for the first nine months of 2020. The decline in non-interest income on a linked quarter basis was primarily due to fewer loan sales which resulted in lower gain on sale of loans, and to a lesser extent, lower merchant services revenue. The growth in non-interest income year-over year, and in the first nine months of 2021, was primarily due to increased sales of SBA and multi-family loans resulting in greater gain on sale of loans, and secondarily in increasing deposit fee income.

“The resources and investments we have made in our merchant services platform have proven successful and have propelled our payments business forward in recent years,” said Miller. “However, the decrease in merchant services revenue year-over-year and on a linked quarter basis was driven by several competitive deals that we decided to renegotiate to secure an extension in our contract with the merchants. This required a retroactive adjustment in the revenue. The core ISO sponsorship revenue is growing as planned as our newest ISO partners ramp up their volume. Most of our new partners were generating revenue below their monthly minimum charges in the third quarter, and we expect to see higher sponsorship income in the fourth quarter based on current volume run rates (revenue trails volume by 1 month).”

“We sold $8.89 million of loans during the third quarter realizing $670,000 in gain on sale of loans, which favorably impacted non-interest income. The loan premiums for SBA and our MFR loans are currently very strong. Going forward, we will continue to use the option of holding loans from time to time, as we manage liquidity and augment our earnings,” said Canfield. “Deposit fee income was also substantially higher from a year ago, which added to our non-interest income.”

Total deposit fee income increased 143%, or $251,000, to $427,000 for the third quarter of 2021, compared to $176,000 for the third quarter of 2020, and grew 3%, or $13,000, from $414,000 on a linked quarter basis. For the first nine months of 2021, total deposit fee income increased 166% to $1.11 million, compared to $418,000 for the first nine months of 2020. Debit/credit card interchange income grew 75% year-over-year and increased 5% from the second quarter of 2021. In the third quarter of 2021, gain on sale of loans increased 159% from the third quarter a year earlier, and declined 64% on a linked quarter basis. For the first nine months of 2021, non-interest income increased 55% to $7.69 million compared to $4.97 million for the first nine months of 2020.

Non-interest expense for the third quarter of 2021 was $4.45 million, an increase of 12% compared to $3.96 million for the third quarter of 2020 and decreased 1% from $4.48 million for the second quarter of 2021. For the first nine months of 2021, non-interest expense increased 19% to $13.38 million compared to $11.21 million for the first nine months of 2020.  

The efficiency ratio was 36.87% for the third quarter of 2021, compared to 44.90% for the third quarter a year ago, and 34.34% for the second quarter of 2021. “We have been gradually lowering our efficiency ratio over the years and believe operating efficiency is one of the key components to being a high performing franchise,” stated Canfield.  

Balance Sheet Review

Total assets increased 23% to $1.02 billion at September 30, 2021, from $831.00 million at September 30, 2020, and grew 4% from $988.48 million at June 30, 2021.

Total loans increased $111.23 million, or 19%, to $700.32 million at September 30, 2021 from $589.09 million at September 30, 2020, and remained relatively flat from $703.48 million on a linked quarter basis. Total loans at September 30, 2021 included $84.28 million of PPP loans, a decrease of 54% from a year ago. Loans held for sale consist of multi-family loans originated by the SoCal team and totaled $3.84 million at quarter end, down 86% from the third quarter a year ago. “We are continuing to expand our SBA presence and broaden our geographic reach through our digital marketing tools, which allow our customers to bank virtually throughout the nation,” said Miller. “We sold approximately $3.97 million in SBA loans during the third quarter, and forgiven PPP loans paying off during the quarter totaled $56.04 million.”

The commercial and industrial (C&I) portfolio increased 16% to $189.86 million from $163.44 million recorded a year earlier and grew 6% when compared to the linked quarter. C&I loans represented 27% of total loans at September 30, 2021. Commercial real estate loans increased 81% to $333.60 million from the third quarter of 2021, and increased 15% on a linked quarter basis, representing 48% of total loans at September 30, 2021. “The CRE portfolio includes approximately $109.07 million in multi-family loans originated by our So Cal team that we may consider selling at some point in the future,” commented Canfield. Agriculture loans, representing 7% of the loan portfolio, at September 30, 2021, increased 45% to $46.49 million from the third quarter a year ago and declined 7% from the second quarter of 2021. Real estate construction and land development loans totaled $28.22 million, or 4% of loans, while residential RE 1-4 family loans totaled $17.83 million, or 3% of loans. SBA PPP loans represented 12% of the portfolio and there were $1.86 million in unamortized PPP fees capitalized on the balance sheet at quarter end. At September 30, 2021, the SBA, USDA, or other government agencies, guaranteed loans totaled $165.52 million, or 24% of the loan portfolio.

The investment portfolio increased 48%, or $87.07 million, to $269.24 million at September 30, 2021, from $182.17 million at September 30, 2020, and increased 7%, or $17.62 million, from $251.62 million at June 30, 2021. “With the rapid growth in deposits over the past 18 months, the cash received from the $40 million sub-debt raise last fall, and now the roll off of PPP loans, we have had significant liquidity to put to work,” stated Canfield. “We use the investment portfolio for liquidity purposes, to balance our overall asset/liability position, as well as for earnings. The growth has been primarily spread over a mix of mortgage backed and municipal securities, both tax exempt and taxable, treasury securities and some other domestic debt.”   

Total deposits increased 19% to $893.25 million at September 30, 2021, compared to $753.15 million from a year earlier, and grew 3% from $864.55 million at June 30, 2021. Noninterest-bearing demand deposits increased 24% to $554.58 million at September 30, 2021, compared to $445.95 million at September 30, 2020, and increased 5% from $527.26 million at June 30, 2021. Noninterest-bearing demand deposits represented over 62% of total deposits at September 30, 2021.

Net shareholders’ equity increased 30% to $84.24 million at September 30, 2021, compared to $64.58 million a year ago, and grew 7% from $78.76 million at June 30, 2021. Book value per common share increased 28% to $27.42 at September 30, 2021, compared to $21.49 at September 30, 2020, and grew by 7% compared to $25.63 at June 30, 2021.

“With the holding company sub-debt raise last year, we have a strong capital base to support our growth and allow us to further expand or pursue further opportunities as they might arise,” added Canfield. Tier-1 capital at the Bank was $120.43 million at quarter end, or 11.49% of assets, while total risk based capital was 18.45%.

Asset Quality

Nonperforming assets increased by $2.00 million to $3.07 million, or 0.30% of total assets, at September 30, 2021, compared to $1.07 million, or 0.13% of total assets at September 30, 2020 and $1.02 million, or 0.10% of total assets at June 30, 2021. There were no performing restructured loans at September 30, 2021, nor on a linked quarter basis. “The nonperforming loans consisted of loans that were proactively placed on nonaccrual during the third quarter and are not COVID related. The largest loan we expect to have on a realistic workout plan in the fourth quarter” stated Miller.

Past due loans 30-60 days totaled $934,000 at September 30, 2021, compared to $829,000 at September 30, 2020, and $4.67 million at June 30, 2021. There were no past due loans from 60-90 days at September 30, 2021, or from a year ago, compared to $1.94 million on a linked quarter basis. Past due loans 90+ days at quarter end totaled $1.56 million, compared to no past due loans 90+ days from a year ago or from the preceding quarter. With the exception of one organic loan of $58,000 in the 30-60 day past due category, the remaining past due loans are purchased SBA loans awaiting payment from the SBA’s fiscal transfer agent. The Bank has requested payment from the SBA and was awaiting receipt at September 30, 2021.

The provision for loan losses was $400,000 for the third quarter of 2021, compared to $750,000 recorded in the third quarter of 2020. Year-to-date, the provision for loan losses was $2.0 million and the total reserve for loan losses was $9.79 million September 30, 2021. “Primarily as a result of the growth in our loan portfolio, we continue to add to reserves for loan losses,” said Miller. “Although economic conditions appear to be improving, we continue to closely monitor credit quality and take a cautious approach to the macroeconomic environment.” Net charge-offs for the nine months ended September 30, 2021 totaled $64,000.

The ratio of allowance for loan losses to total loans was 1.40% September 30, 2021, compared to 1.11% a year earlier and 1.33% at June 30, 2021. “A large portion of our portfolio consists of loans guaranteed by the U.S. Government. This group of loans consists of fully guaranteed loans the Company has purchased, the PPP loans, as well as organic SBA and USDA loans the Bank has originated. When the effect of these guarantees is considered relative to the loan portfolio, the ratio of allowance for loan losses to the total, non-guaranteed, loan portfolio was 1.83%, as of September 30, 2021,” added Miller.

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. In March 2021, S&P Global ranked the Bank the #20 best performing community bank under $3 billion in assets for 2020, and #1 in California. 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 Statements

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, our borrowers’ actual payment performance as loan deferrals related to the COVID-19 pandemic expire, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance, 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.