OREANDA-NEWS. July 20, 2016. Communities First Financial Corporation (the “Company”) (OTCQX:CFST), Fresno, CA, the parent company of Fresno First Bank (the “Bank”), today reported record profits for the second quarter and first half of 2016.  Net income increased 5.3% to \\$738,000, or \\$0.27 per diluted share, for the second quarter of 2016, compared to \\$701,000, or \\$0.26 per diluted share, on a linked quarter basis and grew 8.9% from \\$677,000, or \\$0.25 per diluted share, for the second quarter of 2015.  For the first six months ended June 30, 2016, net income increased 8.7% to \\$1.4 million, or \\$0.52 per diluted share, from \\$1.3 million, or \\$0.49 per diluted share, for the first six months ended June 30, 2015.  

“We achieved record profits for the second quarter and first half of 2016, reflecting the overall strength and diversity of our business in Central California.  Highlighting our strong operating performance were solid gross revenue growth, strong year-over-year deposit and loan growth and an expanding net interest margin,” said Steve Miller, President and Chief Executive Officer.  “Our strategy to grow our customer base is gaining momentum with our new customer acquisition rate running approximately 25% ahead of 2015.

“Overall loan growth continued to be brisk at 16% year-over-year and 8% on a linked quarter basis.  Growth in most of our loan categories demonstrates our ability to deepen and grow customer relationships, as well as gain new customers and market share,” added Miller.  “We, again, achieved above average performance with a return on average assets at 1.01%, return on average equity at 10.65%, and an efficiency ratio of 57.35% for Q2 2016.” The 627 banks in the SNL MicroCap Index, which includes CFST, averaged an ROAA of 0.73%, an ROAE of 7.12%, and an efficiency ratio of 71.36%, at March 31, 2016.

Second quarter 2016 Highlights (as of, or for the period ended June 30, 2016, except where noted)

  • Revenue (net interest income before provision for loan losses, plus non-interest income) grew 12.4% to \\$6.7 million, year-over-year.
  • Primarily as a results of strong loan growth funded by noninterest-bearing checking accounts, net interest income increased 13.2% to \\$5.88 million for the first half of 2016, compared to \\$5.19 million for the first half of 2015.  For the second quarter of 2016, net interest income increased 5.3% to \\$3.01 million from \\$2.86 million for the preceding quarter and grew 15.1% compared to \\$2.62 million for the second quarter a year ago.   
  • Non-interest income increased 7.3% to \\$838,000 for the first six months of 2016, compared to \\$781,000 for the like period a year ago.  For the second quarter of 2016, non-interest income grew 15% to \\$448,000 from \\$390,00 for the preceding quarter, and increased 12.5% from \\$398,000 year-over-year.
  • Net interest margin (“NIM”) was 4.25% in the second quarter, compared to 3.99% in the preceding quarter and 4.27% in the second quarter a year earlier.  For the first half of 2016, NIM was 4.12% compared to 4.26% for the first half of 2015.
  • Efficiency ratio continued to improve, dropping to 57.35% in 2Q16 from 58.54% in 1Q16 and 59.99% in 2Q15.  YTD, the efficiency ratio was 57.94% compared to 60.34% for the first six months of 2015.
  • Total deposits grew 12% to \\$257.4 million at June 30, 2016, from \\$230.1 million a year ago.
  • Total loans increased 16% to \\$207.8 million compared to \\$179.5 million a year earlier. 
  • The allowance for loan and lease losses (“ALLL”) was 1.96% of total loans at June 30, 2016 and March 31, 2016, compared to 1.97% at June 30, 2015.
  • Capital ratios remain strong with a tangible shareholders’ equity as a percentage of total assets ratio of 9.86% at June 30, 2016.

FRESNO, CA Update:

As reported by the Economic Expansion Act earlier this year, initiatives are moving forward to build infrastructure to support the Fresno economy.  The report cited three major projects underway locally: \\$600 million worth of water infrastructure projects, 700 acres of ‘shovel-ready’ industrial land in the City of Fresno, and a discounted power rate approved by the Public Utilities Commission for companies who want to locate or expand in the San Joaquin Valley.

These investments provide a significant boost to the local economy. Fresno’s unemployment rate has been cut nearly in half over the last 5 years, and a 4.5% growth rate in 2014 made Fresno one of the best job creating metro economies in the U.S.  Fresno has enjoyed a 20% increase in tech jobs since 2011, according to the Progressive Policy Institute’s July 2015 research.

http://www.fresno.gov/News/PressReleases/2016/eea.htm

Results of Operations

Net interest income increased 5% to \\$3.0 million for the second quarter of 2016, compared to \\$2.9 million on a linked quarter basis, and grew 15% from \\$2.6 million for the second quarter a year ago, primarily as a result of strong year-over-year loan growth.  For the first six months of 2016, net interest income grew 13% to \\$5.9 million, from \\$5.2 million for the first six months of 2015.

The provision for loan losses totaled \\$315,000 for the second quarter of 2016, compared to a \\$210,000 provision for the first quarter of 2016, and a \\$125,000 provision in the second quarter of 2015.  “We continue to build reserves based on strong loan growth.  In addition, we believe that we have elevated risk in our non-accrual portfolio, because all of our \\$2.4 million in nonperforming loans are concentrated with a single borrower,” said Steve Canfield, Chief Financial Officer.  

Non-interest income increased 15% to \\$448,000 for the second quarter of 2016, compared to \\$390,000 for the first quarter of 2016 and grew 13% from \\$398,000 for the second quarter of 2015, reflecting an increase in sales of SBA loans, a larger portfolio of loans being serviced, and increased Merchant Services income volumes.  Offsetting the increase in non-interest income was a decline in miscellaneous dividend and fee income year-over-year, primarily due to the sale of investment securities in 2015.

Net interest margin expanded 26 basis points to 4.25% for the second quarter of 2016, compared to 3.99% for the first quarter of 2016, and contracted 2 basis points from 4.27% a year ago. The improvement in the net interest margin from the first quarter of 2016 was mainly due to higher volumes of loans and investments which replaced lower yielding overnight funds. “Our net interest margin remains well above the average of 3.53% generated by the 627 banks in the SNL MicroCap Index at March 31, 2016,” said Canfield.

Total operating expenses increased 2.4% to \\$1.9 million for the second quarter of 2016 on a linked quarter basis, and grew 8.8% from \\$1.8 million for the second quarter of 2015.  Noninterest expense for the six months ended June 30, 2016, increased 8.4% to \\$3.8 million, compared to \\$3.5 million for the six months ended June 30, 2015.  The increase in operating expenses was primarily due to higher compensation costs that resulted from hiring additional staff.  Lower occupancy cost and regulatory assessments partially offset these expenses. 

The efficiency ratio for the second quarter of 2016 improved to 57.35%, compared to 58.54% for the first quarter of 2016 and 59.99% for the second quarter of 2015.  Year-to-date, the efficiency ratio improved to 57.94% compared to 60.34% for the first six months of 2015.

Balance Sheet Review

Total assets were \\$292.3 million at June 30, 2016, compared to \\$297.2 million at March 31, 2016 and \\$256.6 million a year earlier.  The total loan portfolio, excluding loans held for sale, increased 8% to \\$207.8 million at June 30, 2016, compared to \\$192.2 million three months earlier, and increased 16% compared to \\$179.5 million year-over-year.

The commercial and industrial (C&I) portfolio, an area of specialty for Fresno First Bank, totaled \\$86.8 million and represented 42% of the total loans at June 30, 2016. Commercial real estate (CRE) loans totaled \\$68.4 million and comprise 33% of loans. Agriculture and land loans totaled \\$23.0 million represented 11% of loans, residential home loans were \\$13.7 million, or 7% of loans and, real estate construction and land development loans were \\$15.7 million, or 7% of loans.

Total deposits increased 12% reaching \\$257.4 million at June 30, 2016, compared to \\$230.1 million from a year earlier.  “In addition to normal seasonality in our deposit flow, we lost one large deposit during the second quarter, which was expected, causing a 4% decline on a linked quarter basis,” added Canfield.  Non-interest bearing demand deposits increased 17% to \\$118.0 million, representing 46% of total deposits, compared to \\$100.5 million, or 44% of deposits a year ago.

The ratio of loans to deposits was 80.72% at June 30, 2016, compared to 71.48% in the preceding quarter and 78.03% one year earlier.

Total stockholder equity was \\$28.8 million at June 30, 2016, compared to \\$25.8 million a year ago. Book value per share was \\$10.57 at June 30, 2016, compared to \\$9.78 a year ago.

Asset Quality

“We are seeing very stable pricing in our local real estate market, for both residential and commercial properties.  Demand remains strong while supply is growing, but not at an accelerated pace,” said Miller. Non-performing assets consisted of one commercial and industrial loan relationship totaling \\$2.4 million at June 30, 2016, unchanged from both March 31, 2016, and June 30, 2015.  Total delinquent loans (30 to 90 days past due and still accruing) were \\$118,000 at the end of the quarter compared to \\$2,000 on a linked quarter basis. There were no delinquent loans a year ago.  Loan loss reserves were 1.96% of total loans and 1.40% of total assets at June 30, 2016, compared to 1.96% of loans and 1.27% of assets at March 31, 2016 and 1.97% of loans and 1.38% of assets at June 30, 2015. 

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 Bank Lender in California’s Central Valley. The Bank was named by Forbes as one of the Best 25 Small Businesses in America for 2016, and received the All-Star Performance Award from the Great Game of Business in 2015. 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 management’s 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.

 
Quarterly Select Financial Information
  Three Months Ended
 (\\$ in thousands, except per share data)June 30,
2016		Mar 31, 2016Three Month
Change		June 30,
2015		One Year %
Change
STATEMENT OF INCOME     
Interest Income     
 Loan interest income\\$2,710 \\$2,565  5.7%\\$2,342  15.7%
 Investment income 319  298  7.1% 279  14.4%
 Interest on overnight funds and deps. in other banks 57  79  -27.0% 31  88.4%
 Dividends from non-marketable equity 36  30  19.8% 67  -46.2%
 Interest income 3,123  2,971  5.1% 2,718  14.9%
 Total Interest expense 109  110  -0.9% 99  10.1%
 Net Interest Income 3,014  2,861  5.3% 2,619  15.1%
 Provision for loan losses (315) (210)  (125) 152.0%
 Net interest income after provision 2,699  2,651  1.8% 2,494  8.2%
       
 Non-interest income 448  390  14.9% 398  -100.0%
       
Non-Interest Expense:     
 Salaries & employee benefits 1,157  1,080  7.1% 957  20.8%
 Occupancy expense 123  135  -8.9% 140  -12.1%
 Other operating expense 666  685  -2.8% 692  -3.7%
 Non-interest expense 1,946  1,900  2.4% 1,789  8.8%
       
 Net income before tax 1,201  1,141  5.3% 1,103  8.9%
 Tax provision (benefit) 464  440  5.5% 426  8.9%
 Net income after tax\\$738 \\$701  5.1%\\$677  8.9%
       
SHARE DATA:     
 Earnings per share:     
 Fully diluted earnings per share\\$0.27 \\$0.26  5.0%\\$0.25  8.0%
 Book Value per Common Share (Assumes Conversion of Mandatorily Convertible Preferred)\\$10.41 \\$10.09  3.2%\\$9.40  10.8%
 Common shares outstanding 2,727,019  2,725,917   1,973,653  
 Fully diluted shares 2,746,090  2,746,555   2,706,064  
 CFST - Stock Price\\$9.86 \\$9.95  \\$10.20  
       
SELECTED RATIOS:     
 Return on average assets 1.01%.96%  1.08% 
 Return on average equity 10.65% 10.58%  10.75% 
 Equity to assets 9.86% 9.41%  9.86% 
 Net interest margin 4.25% 3.99%  4.27% 
 Efficiency ratio 57.35% 58.54%  59.99% 
             
Year to Year Financial Data
  Six Months Ended
  June 30, 2016June 30, 2015% Change
STATEMENT OF INCOME   
Interest Income   
 Loan interest income\\$5,275 \\$4,631  13.9%
 Investment income 617  611  1.0%
 Interest on overnight funds and deps. in other banks 136  59  132.1%
 Dividends from non-marketable equity 66  96  -31.7%
 Interest income 6,094  5,397  12.9%
 Total Interest expense 219  206  6.1%
 Net Interest Income 5,875  5,191  13.2%
 Provision for loan losses (525) (270) 94.4%
 Net interest income after provision 5,350  4,921  8.7%
     
 Non-interest income 838  781  7.3%
     
Non-Interest Expense:   
 Salaries & employee benefits 2,236  1,999  11.9%
 Occupancy expense 258  283  -8.8%
 Other operating expense 1,352  1,265  6.9%
 Non-interest expense 3,846  3,547  8.4%
     
 Net income before tax 2,342  2,155  8.7%
 Tax provision (benefit) 904  832  8.7%
 Net income after tax\\$1,438 \\$1,323  8.7%
     
SHARE DATA:   
 Earnings per share:   
 Fully diluted earnings per share\\$0.52 \\$0.49  8.0%
     
     
     
     
SELECTED RATIOS:   
 Return on average assets 0.98% 1.06% 
 Return on average equity 10.62% 10.70% 
     
 Net interest margin 4.12% 4.26% 
 Efficiency ratio 57.94% 60.34% 
         
BALANCE SHEET DATA:  (\\$ in thousands ) 
  June 30,
2016		Mar 31, 2016Three Month
Change		June 30,
2015		One Year %
Change
ASSETS - PERIOD END BALANCES:     
 Cash and due from banks\\$7,716 \\$9,272  -16.8%\\$7,621  1.2%
 Fed funds sold and deps in banks 4,516  22,738  -80.1% 5,505  -18.0%
 CDs in Other Banks 5,695  5,699  -0.1% 5,450  4.5%
 Investment securities 66,369  67,071  -1.0% 5,733  1057.7%
Total loans outstanding:     
 RE Constr & Land Development 15,693  12,885  21.8% 9,729  61.3%
 Residential RE 1-4 Family 13,701  15,388  -11.0% 15,625  -12.3%
 Commercial Real Estate 68,424  64,553  6.0% 58,835  16.3%
 Agriculture 23,026  19,790  16.3% 19,049  20.9%
 Commercial and Industrial 86,813  79,484  9.2% 76,224  13.9%
 Consumer and Other 128  85  49.7% 73  75.0%
 Total Loans 207,785  192,186  8.1% 179,535  15.7%
 Deferred fees & discounts (319) (341)  (216) 47.5%
 Allowance for loan losses (4,081) (3,766) 8.4% (3,540) 15.3%
 Loans, net 203,384  188,078  8.1% 175,779  15.7%
 Non marketable equity investments 1,808  1,653  9.4% 1,649  9.6%
 Accrued interest and other assets 2,667  2,585  3.2% 2,585  3.2%
 Total assets\\$292,317 \\$297,238  -1.7%\\$256,555  13.9%
       
LIABILITIES AND EQUITY     
 Deposits:     
 Non-interest bearing deposits\\$117,984 \\$111,694  5.6%\\$100,512  17.4%
       
 Interest Checking 7,828  7,439  5.2% 6,023  30.0%
 Savings 34,780  46,196  -24.7% 39,096  -11.0%
 Money Market 55,436  66,664  -16.8% 50,743  9.2%
 Certificates of Deposit 41,397  36,889  12.2% 33,721  22.8%
 Total Deposits 257,425  268,881  -4.3% 230,095  11.9%
 Borrowings 5,538  -   -  
 Other liabilities 520  385  35.1% 625  -16.7%
 Total liabilities 263,483  269,267  -2.1% 230,719  14.2%
       
 Common, preferred & paid in capital 26,980  26,943  0.1% 26,875  0.4%
 Retained earnings (deficit) 1,138  400  184.5% (1,365) -183.4%
 Total equity 28,118  27,343  2.8% 25,510  10.2%
 Accumulated other comprehensive income (loss) 717  628  14.2% 325  120.6%
 Shareholders equity, net 28,835  27,971  3.1% 25,835  11.6%
 Total Liabilities and shareholders' equity\\$292,318 \\$297,238  -1.7%\\$256,554  13.9%
       
BALANCE SHEET DATA - AVERAGES:     
 Total assets\\$292,852 \\$297,991  -1.7%\\$253,291  15.6%
 Total loans 199,996  190,531  5.0% 173,062  15.6%
 Investment securities 66,164  68,620  -3.6% 57,612  14.8%
 Deposits 263,555  269,902  -2.4% 226,772  16.2%
 Shareholders equity, net\\$28,373 \\$27,626  2.7%\\$25,766  10.1%
       
 Loans to deposits 75.88% 70.59%  76.32% 
             
ASSET QUALITY (\\$ in thousands)June 30, 2016Mar 31, 2016June 30, 2015
    
Loans on Non Accrual\\$2,360 \\$2,360 \\$2,442 
Other real estate owned\\$0 \\$0 \\$0 
Nonperforming Assets\\$2,360 \\$2,360 \\$2,442 
    
Non Accrual / Total Loans 1.14% 1.23% 1.36%
Nonperforming assets to total assets .81% .79% .95%
    
Charge-Offs\\$0 \\$0 \\$66 
Recoveries\\$0 \\$0 \\$275 
Net Charge-Offs/Recoveries\\$0 \\$0 \\$209 
Net loan losses (recoveries) to average loans 0.00% 0.00% 0.00%
    
Allowance for Loan and Lease Losses   
ALLL / Total Loans 1.96% 1.96% 1.97%
ALLL / Total Assets 1.40% 1.27% 1.38%
    
Delinquent loans 30-90 days\\$118 \\$2 \\$0