FFB Bancorp Earns $7.57 million, or $2.38 per Diluted Share, for Fourth Quarter 2023; Earns $33.56 million, or $10.56 per Diluted Share, for Full Year 2023

FRESNO, Calif., Jan. 24, 2024 (GLOBE NEWSWIRE) — FFB Bancorp (the “Company”) (OTCQX: FFBB), the parent company of FFB Bank (the “Bank”), today reported net income of $7.57 million, or $2.38 per diluted share, for the fourth quarter of 2023, compared to $7.62 million, or $2.42 per diluted share, for the fourth quarter of 2022, and decreased 15% from $8.87 million, or $2.79 per diluted share for the third quarter of 2023.

For the year ended December 31, 2023, net income increased 27% to $33.56 million, or $10.56 per diluted share, compared to $26.52 million, or $8.44 per diluted share, for the same period in 2022. All results are unaudited.

Fourth Quarter 2023 Highlights: As of, or for the quarter ended December 31, 2023, compared to the quarter ended December 31, 2022:

• Pre-tax, pre-provision income increased 4% to $10.49 million.
• Net income decreased 1% to $7.57 million.
• Return on average equity (“ROAE”) was 25.75%.
• Return on average assets (“ROAA”) was 2.24%.
• Net interest margin expanded 40 basis points to 5.19% from 4.79% a year earlier.
• Gross revenue (net interest income, before the provision for credit losses, plus non-interest income) increased 22% to $22.31 million.
• Total assets increased 5% to $1.36 billion.
• Total portfolio of loans increased 10% to $928.34 million.
• Total deposits increased 6% to $1.15 billion.
• Shareholder equity increased 42% to $130.70 million.
• Book value per common share increased 40% to $41.21.
• The Company’s tangible common equity ratio was 9.58%, while the Bank’s regulatory leverage capital ratio was 13.58% and total risk-based capital ratio was 19.76%, at December 31, 2023.

“Fourth quarter 2023 results capped a stellar year for our Company which delivered record earnings for the full year of 2023,” said Steve Miller President & CEO. “Driving fourth quarter results was core deposit growth, which supported robust year-over-year organic loan growth of 10%, and 3% on a linked quarter basis. While customers continue to seek higher yielding accounts, our deposit mix is diverse, with non-interest-bearing deposits remaining steady and accounting for 68% of total deposits at quarter end.”

“Credit quality remains strong, with nonperforming assets to total assets at 0.44%, slightly lower than the preceding quarter end,” said Miller. “We continue to strengthen our balance sheet and added $769,000 to our allowance for credit loss during the quarter, reflecting prudent credit risk management, loan portfolio growth, and accounting for the net charge-offs we took during the quarter.” Net charge-offs for the quarter totaled $766,000.

“Together with our solid earnings capacity and strong capital and ample liquidity levels, we remain focused on positioning our franchise for further success as we head into 2024,” said Miller.

Results of Operations

Operating revenue, consisting of net interest income before the provision for credit losses and non-interest income, increased 22% to $22.31 million for the fourth quarter of 2023, compared to $18.22 million for the fourth quarter a year ago, and increased from $22.29 million from the third quarter of 2023. For the year ended December 31, 2023, operating revenue increased 38% to $88.58 million, compared to $64.03 million for the same period in 2022.

Net interest income, before the provision for credit losses, increased 14% to $16.38 million for the fourth quarter of 2023, compared to $14.31 million for the same quarter a year ago, and increased 3% from $15.98 million for the preceding quarter. “The increase in net interest income in the fourth quarter was mainly due to growth in average loan portfolio balances, partially offset by an increase in funding costs,” said Bhavneet Gill, Chief Financial Officer. For the year ended December 31, 2023, net interest income before the provision for credit losses increased 32% to $63.53 million, compared to $48.09 million for the same period in 2022.

The Company’s net interest margin (“NIM”) improved by 40 basis points to 5.19% for the fourth quarter of 2023, compared to 4.79% for the fourth quarter of 2022, and decreased 2 basis points from 5.21% for the preceding quarter. “Our yield on earning assets expanded 11 basis points in the fourth quarter with new loan production and investment purchases at higher rates, however, that was more than offset by the 13 basis point increase in the cost of funds. Our interest-bearing deposit balances increased 8% quarter over quarter and the cost of interest-bearing deposits increased 24 basis points in the fourth quarter due to continued pressure on deposit rates,” said Gill.

The yield on earning assets was 6.13% for the fourth quarter of 2023, compared to 5.14% for the fourth quarter a year ago, and 6.01% for the linked quarter. The cost of funds increased to 0.93% for the fourth quarter of 2023, as customers continue to seek higher deposit rates in the current higher rate environment. The cost of funds was 0.35% for the same quarter a year earlier, and 0.80% for the preceding quarter. For the year ended December 31, 2023, the yield on earning assets was 5.86% compared to 4.61% for the same period in 2022, while the cost to fund earning assets was 0.74% year ended December 31, 2023, compared to 0.28% for the same period in 2022.

Total non-interest income was $5.92 million for the fourth quarter of 2023, compared to $3.92 million for the fourth quarter of 2022, and $6.32 million for the preceding quarter. For the year ended December 31, 2023, non-interest income increased 57% to $25.05 million compared to $15.95 million for the same period in 2022. The year-over-year growth in non-interest income during the fourth quarter of 2023, and in the year ended December 31, 2023, was largely due to the increase in merchant services revenue and to a lesser extent deposit fee income. The increases in merchant services revenue and deposit fee income are partially offset by losses on sale of investment securities recognized during 2023. The decrease in non-interest income from the preceding quarter was a result of $1.11 million loss on sale of investment securities recognized in the fourth quarter of 2023. Proceeds from the investment sales were reinvested in new purchases at higher yields to improve 2024 earnings.

Merchant services revenue increased 40% to $4.83 million for the fourth quarter of 2023, compared to $3.44 million from the fourth quarter a year earlier, and increased 2% from $4.71 million for the preceding quarter. The increase in merchant service income from the preceding quarter was primarily due to an increase in volume related to FFB Payments, our own organic ISO. For the year ended December 31, 2023, merchant services income grew 90% to $20.93 million, compared to $11.04 million for the same period in 2022. Gross expenses related to organic FFB Payments lines of business are recognized in non-interest expense.

“We continue to see growth across our ISO partner sponsorships and from our own organic ISO, FFB Payments,” said Miller. “We added two new ISO partners during the fourth quarter and our team continues to build a solid pipeline of payment related partners to support further revenue expansion. Our strategic initiatives for 2024 and beyond are focused on ensuring that the bank and our partners capitalize on current and future payment rails. Payments for FFB is no longer just debit and credit, but instead we must remain agnostic to the payment rails our customers want to utilize and focus on providing a simple connection to the rail that best fits their needs.”

*ISO Partnership Sponsorship is recognized net of expense in Merchant Services Income. FFB Payments revenues are recognized gross in Merchant Services Income and Merchant Services expenses are recognized in Non-Interest Expense. Reclassifications have been made between Non-interest income and Non-interest expense in prior periods for the change.

Total deposit fee income increased 31% to $783,000 for the fourth quarter of 2023, compared to $600,000 for the fourth quarter of 2022, and increased 3% from $757,000 for the preceding quarter. Year-to-date, total deposit fee income increased 32% to $2.93 million, compared to $2.22 million for the same period in 2022. The year over year and quarterly increase in deposit fee income is attributed to higher service charge income on demand deposit accounts.

There was a $464,000 gain on sale of loans during the fourth quarter of 2023, compared to a loss on sale of loans of $309,000 during the fourth quarter 2022, and a gain on sale of loans of $406,000 in the linked quarter. There was a loss on sale of investments of $1.11 million during the fourth quarter of 2023, compared to a loss of $305,000 during the fourth quarter 2022, and no loss in the linked quarter. “We monitor the sale of loans and investment securities and manage concentrations accordingly. During the fourth quarter, we sold $20.17 million in non-agency securities and reinvested the proceeds into higher-yielding agency-backed securities. This strategy has served us well in positioning our balance sheet for improved long-term earnings and reducing credit exposure in the investment portfolio,” added Gill.

Non-interest expense increased 41% to $11.05 million for the fourth quarter of 2023, compared to $7.85 million for the fourth quarter 2022, and increased 11% from $9.97 million for the linked quarter. For the year ended December 31, 2023, operating expenses increased by 47% to $40.61 million from $27.67 million for the same period in 2022. “The higher operating expenses incurred from a year ago and for the year ended December 31, 2023 were partially related to the increase in merchant operating expense, as a result of higher merchant operating revenue. Excluding the impact of merchant operating expense, operating expenses are up 30% year over year,” said Miller. “In addition to an increase in merchant operating expense, operating expenses were significantly impacted by higher salaries and employee benefits as we continued to invest in key talent and technology.”

“With the continued bank consolidation impacting our markets, we see great opportunity to secure talent, but this will carry a revenue lag throughout 2024 as we focus on supporting our expansion through the state. The opportunities in what we refer to as the ‘payment ecosystem’ are vast as well but this will require specific tech related talent to execute on our plan,” said Miller. Full-time employees increased to 139 at December 31, 2023, compared to 103 full-time employees a year earlier, and 127 full-time employees from the linked quarter. As a result of the increased headcount, salaries and employee benefits increased 38% to $5.60 million for the fourth quarter of 2023, compared to $4.07 million for the fourth quarter of 2022, and increased 11% from $5.02 million in the linked quarter.

Occupancy and equipment expenses increased 3% from a year ago, representing 5% of non-interest expense, and decreased 33% from the preceding quarter. The year-over-year increase in occupancy and equipment expense is driven by higher rent expense due to additional leased space and higher depreciation expense. Other operating expense increased 34% to $3.28 million from a year earlier and increased 22% from the preceding quarter. Increases in data processing expense, software licenses and subscriptions, professional fees, and marketing expense were all primary drivers of the year-over-year increase. Merchant operating expense totaled $1.85 million for the fourth quarter of 2023, compared to $1.02 million for the fourth quarter of 2022 and $1.79 million for the preceding quarter. The year-over-year increase in merchant operating expense is attributed to an increase in volume and revenue for the FFB Payments lines of business. Merchant operating expenses include interchange fees, chargebacks, partnership fees, and other card brand fees.

The efficiency ratio was 47.17% for the fourth quarter of 2023, compared to 42.34% for the same quarter a year ago, and 44.73% for the preceding quarter. The efficiency ratio can fluctuate period over period based on changes in merchant services gross revenues and associated expenses. The Company also calculates an adjusted efficiency ratio where the merchant services gross expense, which is included in noninterest expense, is netted against merchant services revenue in noninterest income. The adjusted efficiency ratio was 42.63% for the fourth quarter of 2023, compared to 38.99% for the same quarter a year ago, and 39.91% for the linked quarter. For the year ended December 31, 2023, the efficiency ratio was 44.27%, compared to 43.00% for the same period ended December 31, 2022. The adjusted efficiency ratio was 38.95%, compared to 40.59% for the same period ended December 31, 2022.

Balance Sheet Review

Total assets increased 5% to $1.36 billion at December 31, 2023, compared to $1.29 billion at December 31, 2022, and increased 4% from $1.31 billion at September 30, 2023.

The total portfolio of loans increased 10%, or $82.88 million, to $928.34 million, compared to $845.46 million at December 31, 2022, and grew 3%, or $30.60 million, from $897.75 million on a linked quarter basis. The remaining SBA-PPP loans decreased to $151,000 at December 31, 2023, representing a fraction of the total loan portfolio. “We recorded a $464,000 gain on sale of $7.73 million in SBA loans and $8.02 million in multi-family loans during the fourth quarter,” said Gill.

Commercial real estate loans increased 13% year-over-year to $556.24 million, representing 60% of total loans at December 31, 2023. The CRE portfolio includes approximately $247.83 million in multi-family loans originated by the Southern California team that the Company may consider selling at some point in the future for liquidity and concentration management. The multi-family portfolio includes $78.83 million in short-term bridge loans for transitional projects of multi-family properties. The short-term bridge loans are conservatively underwritten with minimum DSCR and liquidity requirements. Approximately 62.7% of the bridge loan portfolio will come due during the first half of 2024 to roll off or get refinanced and sold. The remaining bridge loans will come due in the third or fourth quarter of 2024. Real estate construction and land development loans increased 20% from a year ago to $75.77 million, representing 8% of total loans, while residential RE 1-4 family loans totaled $17.36 million, or 2% of loans, at December 31, 2023.

The commercial and industrial (C&I) portfolio increased 3% to $218.75 million, at December 31, 2023, compared to $211.92 million a year earlier, and increased 5% from $209.21 million at September 30, 2023. C&I loans represented 24% of total loans at December 31, 2023. Agriculture loans represented 6% of the loan portfolio at December 31, 2023. At December 31, 2023, the SBA, USDA, and other government agencies guaranteed loans totaled $56.65 million, or 6.1% of the loan portfolio.

The investment portfolio decreased 5% to $326.01 million at December 31, 2023, from $343.84 million a year earlier, and increased 12% compared to $290.01 million at September 30, 2023. The investment portfolio consists of mortgage-backed and municipal securities, both tax exempt and taxable, treasury securities as well as other domestic debt. The quarterly increase in the investment portfolio balance is attributed to new investment purchases of $56.6 million and a reduction in unrealized loss on fair value, partially offset by investment sales of $20.17 million and regular paydowns. At December 31, 2023, the Company had a net unrealized loss position on its investment securities portfolio of $27.75 million, compared to a net unrealized loss of $41.93 million at September 30, 2023. The Company’s investment securities portfolio had an effective duration of 5.41 years at December 31, 2023, compared to 5.31 years at September 30, 2023.

Total deposits increased 6%, or $63.94 million, to $1.15 billion at December 31, 2023, compared to $1.08 billion from a year earlier, and increased 1% from $1.13 billion at September 30, 2023. Non-interest bearing demand deposits increased 5% to $775.51 million at December 31, 2023, compared to $737.08 million at December 31, 2022, and increased 5% from $737.37 million at September 30, 2023. Non-interest bearing demand deposits represented 68% of total deposits at December 31, 2023. Included in non-interest bearing deposits are $77.7 million from ISO partners for merchant reserves, $152.0 million from ISO partners for settlement, and $23.9 million in ISO partner operating accounts.

There were $34.00 million in short-term borrowings at December 31, 2023, compared to none at September 30, 2023, and $65.00 million at December 31, 2022.

The following table summarizes the Company’s primary and secondary sources of liquidity which were available at December 31, 2023:

The total primary and secondary liquidity of $694.12 million at December 31, 2023 represents an increase of $10.5 million in primary and secondary liquidity quarter over quarter.

Shareholders’ equity increased 42% to $130.70 million at December 31, 2023, compared to $92.36 million from a year ago, and grew 16% from $112.89 million at September 30, 2023. Book value per common share increased 40% to $41.21, at December 31, 2023, compared to $29.41 at December 31, 2022, and increased 16% from $35.59 at September 30, 2023.

“The tangible common equity ratio was 9.58% at December 31, 2023, compared to 7.13% a year earlier, and 8.63% at September 30, 2023,” stated Gill. “Our tangible common equity and book value increased during the fourth quarter as a result of quarterly net income and the reduction in accumulated other comprehensive income (‘AOCI’) related to the investment portfolio.”

At the Bank level, unrealized losses and gains reflected in AOCI are not included in regulatory capital. As a result, Tier-1capital at the Bank for regulatory purposes was $186.14 million at quarter end excluding the unrealized loss. The regulatory leverage capital ratio was 13.58% for the current quarter, while the total risk-based capital ratio was 19.76% exceeding regulatory minimums to be considered well-capitalized.

Asset Quality

Nonperforming assets declined to $6.01 million, or 0.44% of total assets, at December 31, 2023, compared to $6.03 million, or 0.46% of total assets, from the preceding quarter. Of the $6.01 million nonperforming loans, $4.34 million are covered by SBA guarantees. Total delinquent loans totaled $2.62 million at December 31, 2023, compared to $1.70 million at September 30, 2023, and were primarily related to government guaranteed loans purchased by the Bank.

Past due loans 30-60 days were $1.08 million at December 31, 2023, compared to $321,000 at September 30, 2023, and $364,000 at December 31, 2022. There were $199,000 past due loans from 60-90 days at December 31, 2023, compared to zero at September 30, 2023 and $397,000 past due loans from 60-90 days a year earlier. Past due loans 90+ days at quarter end totaled $1.3 million at December 31, 2023, compared to $11.99 million, at December 31, 2022. Of the $2.62 million in past due loans, $1.60 million were purchased government guaranteed loans with an unconditional guarantee.

The Bank holds $20.3 million of the government guaranteed portion of Small Business Administration (“SBA”) and USDA loans originated by other banks. Many of these purchased loans were placed into a Direct Registration (“DR”) form by the SBA’s transfer agent, Colson Inc. Under the DR program, Colson was required to remit monthly payments to the investor holding the guaranteed balance, whether or not a payment had actually been received from the borrower. When Colson lost the contract in 2020 as the SBA’s fiscal transfer agent, they began transitioning servicing over to the new company called Guidehouse. By late 2021, Guidehouse, under their contract with the SBA, declined to continue the DR program. As a result, all payments under the DR, and several similar programs, were being held by Guidehouse until the DR program could be unwound and the DR holdings converted into normal SBA pass through certificates. In addition, Colson started requesting investors, who had received payments in advance of the borrower, to return advanced funds before they would process the conversion of certificates, which caused further delays. A reconciliation between Guidehouse, Colson and the Bank has taken place, and all are in agreement. The Bank has submitted all paperwork and original certificates to Colson | Guidehouse for processing and is awaiting reissue of the certificates and payment. The Bank is fully guaranteed; however, until the unwind process is completed it will continue to carry these loans as past due. The balance of these past due loans decreased from $12.19 million at December 31, 2022 to $1.60 million at December 31, 2023 as the Bank continues to receive payments.

“As detailed in the chart below, a majority of the delinquencies are purchased government guaranteed loans, which are guaranteed by the SBA for the full payment of the principal plus interest,” commented Gill. “The SBA continues to deal with backlogs and consequently we continue to incur delays in payments; the backlogs, however, are improving and full payment is expected.” The chart below breaks out the government guaranteed portion compared to organic delinquencies.

There was a $769,000 provision for credit losses in the fourth quarter of 2023, compared to $300,000 provision for loan losses in the fourth quarter a year ago, and a $152,000 provision for credit losses booked in the third quarter of 2023.

“We incurred net charge offs of $766,000 during the current quarter, compared to $124,000 net charge offs in the third quarter a year ago, and $71,000 in net charge offs in the preceding quarter,” said Miller. “Our loan portfolio increased 10% from a year ago with commercial real estate (“CRE”) loans representing 60% of the total loan portfolio. Within the CRE portfolio, there are $43.22 million in loans for CRE office as shown in the table below. Since the majority of our CRE office exposure is concentrated in the Central Valley, we feel the volatility that the city center markets are experiencing is not as prominent in the Central Valley. Our credit metrics remain strong as we continue to maintain conservative underwriting standards.”

The ratio of allowance for credit losses to total loans was 1.08% at December 31, 2023, compared to 1.17% a year earlier and 1.10% at September 30, 2023.

“The SBA portfolio is a segment we are watching very closely since rates have increased so rapidly over the last 12-18 months,” added Miller. “A portion of the portfolio consists of loans guaranteed by the U.S. Government. This group of loans consists of fully guaranteed loans the Company has purchased, 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 credit losses to the total, non-guaranteed, loan portfolio was 1.14%, as of December 31, 2023, and our total unguaranteed exposure on these SBA loans is $31.99 million spread over 190 loans.”

About FFB Bancorp
FFB Bancorp, formerly Communities First Financial Corporation, a bank holding company established in 2014, is the parent company of FFB Bank, founded in 2005 in Fresno, California. As a leading SBA Lender in California’s Central Valley and one of the few direct acquiring banks in the United States, FFB Bank offers clients a range of personal and business checking accounts, payment processes, and loan programs. Among the Bank’s awards and accomplishments, it was ranked #4 on American Banker’s list of the Top 200 Publicly Traded Banks under $2 Billion in Assets for 2022. For 2022, the Bank was also ranked by S&P Global as the #18 best performing community bank under $3 billion in assets. The Company has also received recognition as part of the OTCQX Best 50 Companies for 2019, 2023, and 2024. For additional information, you can visit the Company’s website at www.ffb.bank or by contacting a representative at 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, the Company’s ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; and, in particular, actions taken by the Federal Reserve to try and control inflation; 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
Bhavneet Gill – EVP & CFO
(559) 439-0200

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