Communities First Financial Corporation Earns a Record $5.79 Million, or $1.84 per Diluted Share, for the First Quarter of 2022

FRESNO, Calif., April 19, 2022 (GLOBE NEWSWIRE) — Communities First Financial Corporation (the “Company”) (OTCQX: CFST), the parent company of Fresno First Bank (the “Bank”), today announced first quarter 2022 (1Q-2022) net income increased 38% to $5.79 million, or $1.84 per diluted share, compared to $4.20 million, or $1.35 per diluted share for the first quarter of 2021 (1Q-2021), and increased 7% from $5.41 million, or $1.74 per diluted share for the fourth quarter of 2021 (4Q-2021). All results are unaudited.  

“The team came out of the gates strong by generating outstanding financial results for the first quarter of 2022, supported by record revenues with higher year-over-year growth in net interest income and non-interest income,” said Steve Miller, President and Chief Executive Officer. “Our non-interest income grew by 83% year-over-year, and 43% on a linked quarter basis, primarily due to the substantial increase in the gain on sale of loans together with meaningful increases in both merchant services and deposit fee income.”

“In addition to strong revenue growth, total deposits grew 15% year-over-year with non-interest bearing deposits increasing 20% from a year ago and representing 64% of total deposits, while certificates of deposits significantly declined year-over-year and on a linked quarter basis,” said Miller.   “Our SBA PPP loans are rolling off at a fast rate and our exceptional loan team is steadily replacing them with solid organic loan originations. Average total loans increased 11% at March 31, 2022, compared to the first quarter a year earlier; PPP loan balances declined by 88% year-over-year.” Return on average common equity (“ROAE”) improved to 26.49%, and return on average assets (“ROAA”) was 2.14% for the first quarter of 2022. The efficiency ratio remained stable at 42.60% and the net interest margin (“NIM”) was 4.26%, at quarter end.

“The Company’s total assets increased 15% from a year ago. Together with a solid earnings performance, a large core deposit base, and excellent credit quality, we believe we have a solid foundation on which to continue to grow our franchise,” continued Miller.

First Quarter 2022 Highlights: As of, or for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021:

• Pre-tax, pre-provision income increased 21% to $7.92 million.
• Net income grew 38% to $5.79 million, or $1.84 per diluted share.
• Return on average equity of 26.49%.
• Return on average assets of 2.14%.
• Gross revenue (net interest income, before the provision for loan losses, plus non-interest income) increased by 25% to $13.80 million.
• Total assets grew 15% to $1.103 billion.
• Average gross loans increased 11% to $725.14 million.
• Average total deposits increased 21% to $953.55 million.
• Average shareholder equity increased 27% to $88.63 million.
• Book value increased 19% to $27.53 per share.

Results of Operations

Operating revenue, consisting of net interest income and non-interest income, increased 25% to $13.80 million for the first quarter of 2022, compared to $11.02 million for the first quarter a year ago, and grew 9% from $12.70 million for the fourth quarter of 2021.

Net interest income, before the provision for loan losses, increased 14% to $10.54 million for the first quarter of 2022, compared to $9.24 million for the first quarter a year ago, and increased 1% from $10.42 million for the fourth quarter of 2021.   “The increase in net interest income for the first quarter of 2022 was primarily related to higher average loan and securities balances outstanding,” said Steve Canfield, EVP and Chief Financial Officer.

The Company’s net interest margin (“NIM”), which excludes interest expense on holding company sub-debt, was 4.26% for the first quarter of 2022, compared to 4.49% for the first quarter of 2021, and expanded 10 basis points from 4.16% for the preceding quarter. “The year-over-year contraction in the NIM in the first quarter of 2022 was primarily due to a one time recovery of non-accrued interest we were able to resolve in Q1-2021. Without this one-time event, the adjusted NIM for Q1-2021 would have been 4.19%,” commented Canfield. The NIM expansion from the linked quarter was mainly due to the low cost to fund earnings assets and a shift in in the mix of earnings assets as the Company invested its excess liquidity into higher yielding loans and investment securities.

The yield on earning assets was 4.34% for the first quarter of 2022, compared to 4.60% for the first quarter a year ago, and 4.25% on a linked quarter basis. The cost to fund earning assets remained low at 0.08% for the first quarter of 2022 and the fourth quarter of 2021, compared to 0.10% for the first quarter a year ago.

Total non-interest income was $3.26 million for the first quarter of 2022, compared to $1.78 million for the first quarter of 2021, and $2.28 million for the preceding quarter. The increase in non-interest income on a linked quarter basis and from a year ago, was primarily due to growth in our merchant services business and increased sales of SBA and multi-family loans, which resulted in substantially higher gain on sale of loans.

“Merchant services income increased significantly in the first quarter of 2022 as we saw meaningful processing volume improvements across our ISO partners that came on board through 2021. Our pipeline of future partners remains strong as we look to build our payments ecosystem around technology focused groups with expertise in both B2C and B2B payment verticals. The annuity fee income generated from our partners’ growth will benefit the Company greatly, but the more important long-term opportunity is leveraging their technology and customer portfolios to grow our core bank franchise moving forward,” said Steve Miller.

“We sold $28.02 million of loans during the first quarter of 2022, realizing $803,000 in gain on sale of loans,” said Canfield. “We continue to manage liquidity and augment our earnings by using the option of holding loans from time to time. Deposit fee income and merchant services income was also substantially higher from a year ago adding to our non-interest income.”

Total deposit fee income increased 76%, or $205,000, to $475,000 for the first quarter of 2022, compared to $270,000 for the first quarter of 2021, and grew 3%, or $13,000, from $462,000 on a linked quarter basis.   Debit/credit card interchange income grew 26% from the first quarter a year ago and declined 7% from the preceding quarter. In the first quarter of 2022, gain on sale of loans increased substantially to $803,000 from $17,000 a year ago and grew by 94% from the fourth quarter of 2021.

Non-interest expense for the first quarter of 2022 was $5.88 million, an increase of 32% compared to $4.45 million for the first quarter of 2021, and increased 13% from $5.22 million for the fourth quarter of 2021.   Compensation and benefits expense is the largest non-interest expense component representing 65% of non-interest expense. Full-time employees increased to 86 at March 31, 2022, compared to 62 full-time employees from a year ago, and 78 full-time employees from the linked quarter. As a result of the increased headcount, salaries and employee benefits increased 48% to $3.85 million at March 31, 2022, compared to $2.61 million from a year ago and grew 18% from $3.27 million from the preceding quarter.

“We continue to add key talent to the team to support our current growth strategy, but we also seek to invest in key business strategies which require more upfront human capital costs. The key focus areas are sales, payments and technology,” said Steve Miller.

Occupancy and equipment expense increased 12% from a year ago and represented 4% of non-interest expense. Other operating expense represented the remaining 31% of non-interest expense and increased 10% to $1.80 million from a year ago and 3% from the preceding quarter. Increases in data processing expense, software licenses and subscriptions, and loan origination expenses were the primary drivers of the increase.

The efficiency ratio was 42.60% for the first quarter of 2022, compared to 41.52% for the first quarter a year ago, and 41.09%% for the fourth quarter of 2021.  

Balance Sheet Review

Total assets increased 15% to $1.10 billion at March 31, 2022, from $957.48 million at March 31, 2021, and grew 2% from $1.08 billion million at December 31, 2021. The total portfolio of loans increased by $1.35 million to $693.31 million, compared to $691.70 million at March 31, 2021, and declined 5% from $726.25 million on a linked quarter basis.   Total loans at March 31, 2022, included $22.38 million of SBA-PPP loans, a decrease of 88% from the first quarter a year ago and down 57% from the preceding quarter. “Over the last year we have sold $70.88 million in SBA and multi-family loans, and PPP loans forgiven or paid off totaled $167.12 million,” said Canfield. “Our lending team has done a remarkable job replacing $238.00 million in loans that have been sold or rolled off over a 12 month period.”

The commercial and industrial (C&I) portfolio increased 5% to $185.42 million, at March 31, 2022, from $185.16 million recorded a year earlier.   C&I loans represented 27% of total loans at March 31, 2022.   Commercial real estate loans increased 49% year-over-year to $374.00 million at March 31, 2021, representing 54% of total loans, and declined 2% on a linked quarter basis. The CRE portfolio includes approximately $117.43 million in multi-family loans originated by our So Cal team.

Agriculture loans, representing 8% of the loan portfolio, at March 31, 2022, increased 55% to $58.02 million from a year ago and grew 1% from December 31, 2021. Real estate construction and land development loans totaled $37.63 million, or 5% of total loans, while residential RE 1-4 family loans totaled $15.73 million, or 2% of loans, at March 31, 2022.   SBA-PPP loans represented 3% of the portfolio and there were $330,000 in unamortized PPP fees capitalized on the balance sheet at quarter end. At March 31, 2022, the SBA, USDA, or other government agencies, guaranteed loans totaled $103.25 million, or 15% of the loan portfolio.

The investment portfolio increased 25%, or $58.54 million, to $291.98 million at March 31, 2022, from $233.43 million at March 31, 2021, and remained flat from $291.97 at December 31, 2021. “The investment portfolio consists of mortgage-backed and municipal securities, both tax exempt and taxable, treasury securities as well as other domestic debt,” stated Canfield. “We will continue to use the investment portfolio for liquidity purposes, to balance our overall asset/liability position, as well as for earnings.”

Total deposits increased 15% to $961.51 million at March 31, 2022, compared to $836.31 million from a year earlier, and grew 3% from $936.55 million at December 31, 2021. Noninterest-bearing demand deposits increased 20% to $611.89 million at March 31, 2022, compared to $511.50 million at March 31, 2021, and increased 3% from $594.04 million at December 31, 2021. Noninterest-bearing demand deposits represented 64% of total deposits at March 31, 2022. Short-term borrowed funds, excluding sub-debt, were zero at March 31, 2022, and December 31, 2021, compared to $5.00 million from a year earlier.

Shareholders’ equity increased 21% to $85.58 million at March 31, 2022, compared to $70.92 million from a year ago, and decreased 4% from $89.29 million at December 31, 2021. Book value per common share increased 19% to $27.53 at March 31, 2022, compared to $23.12 at March 31, 2021, and decreased by 5% from $29.08 at December 31, 2021.

“As a result of the sharp rise in interest rates over the past quarter our securities portfolio has swung to an unrealized loss position at March 31, 2022, from an unrealized gain at December 31, 2021. Because these changes flow through accumulated other comprehensive income in shareholders equity we saw a decline in shareholders equity on a consolidated basis of $3.71 million. The tangible common equity ratio was 7.76% at March 31, 2022, compared to 8.27% at December 31, 2022, and 7.41% one year ago,” stated Canfield. ”With rates expected to rise further in coming months we will likely see additional volatility in the market pricing of the portfolio which will flow through to total equity.”

“At the Bank level, unrealized losses and gains, are not calculated in for regulatory capital purposes. Tier-1 capital at the Bank was $129.69 million at quarter end excluding the unrealized loss. The regulatory leverage capital ratio was 11.82% for Q1-2022, while the total risk based capital ratio was 18.12%,” stated Canfield.  

Asset Quality

Nonperforming assets were $2.90 million, or 0.26% of total assets, at March 31, 2022, compared to $1.49 million, or 0.16% of total assets at March 31, 2021, and $2.93 million, or 0.27% of total assets at December 31, 2021.   Included in nonperforming assets were $800,000 of restructured loans that were performing under the terms of their agreement(s) at March 31, 2022, compared to $828,000 performing restructured loans at December 31, 2021. There were no performing restructured loans a year earlier.

Past due loans 30-60 days totaled $8.27 million at March 31,2022, compared to $5.82 million at March 31, 2021, and $3.83 million at December 31, 2021. Past due loans from 60-90 days were $173,000 at March 31, 2022, compared to $1.67 million a year earlier and $254,000 in the preceding quarter. Past due loans 90+ days at quarter end totaled $16.05 million, compared to no past due loans 90+ days from a year ago and $10,000 at December 31, 2021. The increases in past due loans 30-60 days and 90+ days largely relate to government guaranteed loans purchased by the Bank.

The Bank holds approximately $38 million of the government guaranteed portion of Small Business Administration (“SBA”) and USDA loans originated by other banks. When purchased, many of these loans were placed into a Direct Registration (“DR”) form by the SBA’s former fiscal 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. In 2020 Colson lost the contract as the SBA’s fiscal transfer agent and began transitioning servicing over to a new company called Guidehouse. In late 2021, Guidehouse, under their contract with the SBA, declined to continue the DR program. Shortly thereafter all payments under the DR, and several similar programs, began to be held by Guidehouse until the DR program could be unwound and the DR holdings converted into normal SBA pass through certificates. To complicate matters, Colson has requested investors who have received payments in advance of the borrower actually remitting payment return advanced funds before they will process the conversion of certificates; however, they have provided no accounting for their claims. The Bank has requested Colson provide support and a historical accounting of the amounts claimed, and to date, have not received the information. The SBA has informed the Bank that Guidehouse is now receiving all borrower payments and is holding all funds until the process with Colson can be completed. The Bank is fully guaranteed to be paid all principal and interest, however, until the unwind process is completed, it is carrying these loans as past due.

“Although our past due loans reflect a higher delinquency compared to a year ago, and from the linked quarter, the majority of these delinquencies are purchased government guaranteed loans, and, as such, the Bank is guaranteed full payment of the principal and interest,” commented Miller. “We expect these unforeseen delays in payments will be resolved in the second quarter of 2022.” The chart below breaks out the government guaranteed portion compared to the organic delinquencies.

There was no provision for loan losses for the first quarter of 2022, compared to $850,000 recorded in the first quarter a year ago and zero provisioning in the linked quarter. “Although we expect to continue benefitting from an improving economy, and from the anticipated rising interest rates in 2022, we continue to closely monitor credit quality,” said Miller.   There were no net charge-offs in the current quarter, the preceding quarter, or in the first year ago quarter.

The ratio of allowance for loan losses to total loans was 1.41% at March 31, 2022, compared to 1.26% a year earlier and 1.35% at December 31, 2021.   “A substantial 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 1.66%, as of March 31, 2022,” 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. Communities First Financial Corp. ranked third in the nation against its peers in the Best Community Banks Category (below $5 billion in assets) and third in the Best Growth Strategy selected from the top 50 banks in the study, reported by Bank Director. A big jump from a year ago when 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.

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