FRESNO, Calif, Oct. 18, 2023 (GLOBE NEWSWIRE) -- FFB Bancorp (the “Company”) (OTCQX: FFBB), formerly Communities First Financial Corporation, the parent company of FFB Bank (the “Bank”), today reported net income increased 28% to $8.87 million, or $2.79 per diluted share, for the third quarter of 2023, compared to $6.91 million, or $2.20 per diluted share, for the third quarter of 2022, and declined 6% from $9.42 million, or $2.97 per diluted share for the second quarter of 2023. Third quarter 2023 results were highlighted by continued net interest margin expansion, which improved 84 basis points to 5.21% at September 30, 2023, from the third quarter of 2022.
For the first nine months of 2023, net income increased 38% to $25.99 million, or $8.18 per diluted share, compared to $18.90 million, or $6.02 per diluted share, for the first nine months of 2022. All results are unaudited.
Third Quarter 2023 Highlights: As of, or for the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022:
- Pre-tax, pre-provision income increased 31% to $12.32 million.
- Net income grew 28% to $8.87 million, or $2.79 per diluted share.
- Return on average equity (“ROAE”) was 31.56%.
- Return on average assets (“ROAA”) was 2.72%.
- Net interest margin expanded 84 basis points to 5.21% from 4.37% a year earlier.
- Gross revenue (net interest income, before the provision for credit losses, plus non-interest income) increased 31% to $22.43 million.
- Total assets grew 10% to $1.31 billion.
- Total portfolio of loans grew 16% to $897.75 million.
- Total deposits increased 8% to $1.13 billion.
- Shareholder equity grew 39% to $112.89 million.
- Book value per common share was $35.48.
- The Company’s tangible common equity ratio was 8.63%, while the Bank’s regulatory leverage capital ratio was 13.49% and total risk-based capital ratio was 19.39%, at September 30, 2023.
“We delivered stellar earnings for the third quarter 2023, achieving record earnings for the first nine months of 2023,” said Bhavneet Gill, CFO and Acting President & CEO. “Driving third quarter earnings was solid core deposit growth, which supported robust year-over-year organic loan growth of 16%, 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 65% of total deposits at quarter end. Our deposit balances increased quarter-over-quarter, while we reduced borrowings. Also boosting earnings was the continued improvement in our net interest margin, expanding 84 basis points from a year earlier and improving by 12 basis points from the linked quarter, together with excellent year-over-year top line revenue growth and controlled expenses.”
“Credit quality remains strong, with nonperforming assets to total assets at 0.46%, slightly lower than the preceding quarter end,” said Gill. “We continue to strengthen our balance sheet and added $152,000 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 $71,000.
“On behalf of Steve Miller, and our board of directors, I would like to thank our team of professional bankers for their continued dedication in servicing our customers, communities and shareholders,” commented Gill. Miller recently announced his temporary leave of absence to be with his family beginning September 25, 2023. He will end his leave of absence and resume his regular duties as President & CEO of FFB Bancorp on November 6, 2023. Bhavneet Gill stepped in as Acting CEO during Miller’s absence and formed a senior management committee to engage with the Board as needed.
“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 the balance of the year and into 2024,” said Gill.
Results of Operations
Operating revenue, consisting of net interest income before the provision for credit losses and non-interest income, increased 31% to $22.43 million for the third quarter of 2023, compared to $17.06 million for the third quarter a year ago, and decreased 8% from $24.51 million from the second quarter of 2023. For the first nine months of 2023, operating revenue increased 45% to $66.27 million, compared to $45.81 million for the first nine months of 2022.
Net interest income, before the provision for credit losses, increased 27% to $15.98 million for the third quarter of 2023, compared to $12.53 million for the third quarter a year ago, and declined 3% from $16.39 million for the second quarter of 2023. “The increase in net interest income in the third quarter was mainly due to higher yields from our investment and loan portfolios, partially offset by an increase in funding costs,” said Gill. For the first nine months of 2023, net interest income before the provision for credit losses increased 40% to $47.15 million, compared to $33.78 million for the first nine months of 2022.
The Company’s net interest margin (“NIM”) improved by 84 basis points to 5.21% for the third quarter of 2023, compared to 4.37% for the third quarter of 2022, and expanded 12 basis points from 5.09% for the preceding quarter. “Our earning assets continue to reprice higher in the current interest rate environment and new loan production is at higher rates. Our interest-bearing deposit balances increased quarter over quarter and the cost of interest-bearing deposits increased 42 basis points in the third quarter,” said Gill.
The yield on earning assets was 6.01% for the third quarter of 2023, compared to 4.67% for the third quarter a year ago, and 5.75% on a linked quarter basis. The cost of funds increased to 0.80% for the third quarter of 2023, as customers continue to seek a higher deposit rate in the current higher rate environment. The cost of funds was 0.24% for the third quarter a year earlier, and 0.62% for the second quarter of 2023. For the first nine months of 2023, the yield on earning assets was 5.76% compared to 4.47% for the first nine months of 2022, while the cost to fund earning assets was 0.67% for the first nine months of 2023, compared to 0.25% for the first nine months of 2022.
Total non-interest income was $6.45 million for the third quarter of 2023, compared to $4.53 million for the third quarter of 2022, and $8.12 million for the preceding quarter. For the first nine months of 2023, non-interest income increased 59% to $19.12 million compared to $12.03 million for the first nine months of 2022. The year-over-year growth in non-interest income during the third quarter of 2023, and in the first nine months of 2023, was largely due to the increase in merchant services revenue and to a lesser extent deposit fee income. The decline in non-interest income from the second quarter was a result of lower merchant services revenue, primarily due to the seasonality in volumes for various merchant categories. Gross expenses related to organic FFB Payments lines of business are recognized in non-interest expense. Partially offsetting the growth in non-interest income from the third quarter a year ago was the strategic decrease in gain on sale of loans and losses recognized on sale of investments.
Merchant services revenue increased 62% to $4.85 million for the third quarter of 2023, compared to $3.00 million from the third quarter a year earlier, and declined 36% from $7.56 million for the second quarter of 2023. The decrease in merchant service income from the preceding quarter was primarily due to the reduction in volume related to a direct merchant within FFB Payments. For the first nine months of 2023, merchant services income grew 112% to $16.11 million, compared to $7.60 million for the first nine months of 2022.
“We continue to see significant progress across our ISO partner sponsorships and from our own organic ISO, FFB Payments,” said Gill. “Our strategic initiatives for 2023 and beyond are focused on ensuring that the bank and our partners capitalize on current and future payment rails, and; the team continues to build a solid pipeline of payment related partners on both the sponsorship side and FFB Payments to support further revenue expansion.”
Merchant ISO Processing Volumes ($ in thousands) SourceQ1 2022Q2 2022
Q3 2022Q4 2022Q1 2023Q2 2023Q2 2023ISO Partner Sponsorship$1,306,116 1,794,688 $2,439,610 $2,909,360 $3,486,203 $3,891,828 $3,491,321 FFB Payments- Sub-ISO Merchants - - 964 3,701 19,683 13,665 12,382 FFB Payments - Direct Merchants 346 24,657 39,363 43,013 42,725 119,948 61,987 $1,306,462 $1,819,345 $2,479,937 $2,956,074 $3,548,611 $4,025,441 $3,565,690
Q2 2022
Q3 2022Q4 2022Q1 2023Q2 2023Q3 2023Net Revenue*: ISO Partner Sponsorship$1,561 1,692 $1,628 $1,864 $1,961 $2,303 $2,305 Gross Revenue: FFB Payments- Sub-ISO Merchants - - 43 144 223 496 466 FFB Payments - Direct Merchants 118 1,231 1,331 1,431 1,513 4,761 2,078 118 1,231 1,374 1,575 1,736 5,257 2,544 Gross Expense: FFB Payments- Sub-ISO Merchants - - 22 80 149 321 361 FFB Payments - Direct Merchants - 754 814 938 1,095 2,655 1,444 - 754 836 1,018 1,244 2,976 1,805 Net Revenue: FFB Payments- Sub-ISO Merchants - - 21 64 74 175 105 FFB Payments - Direct Merchants 118 477 517 493 418 2,106 634 FFB Payments Net Revenue 118 477 538 557 492 2,281 739 Net Merchant Services Income:$1,679 $2,169 $2,166 $2,421 $2,453 $4,584 $3,044 * 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 26% to $757,000 for the third quarter of 2023, compared to $601,000 for the third quarter of 2022, and grew 3% from $738,000 for the second quarter of 2023. Year-to-date, total deposit fee income increased 33% to $2.15 million, compared to $1.62 million for the first nine months of 2022.
There was a $406,000 gain on sale of loans during the third quarter of 2023, compared to a gain on sale of loans of $621,000 during the third quarter 2022, and a gain on sale of loans of $133,000 in the linked quarter. “We monitor the sale of loans and investment securities and manage concentrations accordingly. This strategy has served us well in positioning our balance sheet for improved long-term earnings,” added Gill.
Non-interest expense increased 32% to $10.11 million for the third quarter of 2023, compared to $7.65 million for the third quarter of 2022, and decreased 6% from $10.70 million for the second quarter of 2023. For the first nine months of 2023, operating expenses increased by 49% to $29.56 million from $19.82 million for the first nine months of 2022. “The higher operating expenses incurred from a year ago and for the first nine months of 2023 were primarily related to the increase in merchant operating expense, as a result of higher merchant operating revenue, while the decline in operating expenses on a linked quarter basis was due to lower merchant operating revenue. Excluding the impact of merchant operating expense, operating expenses are up 28% year over year,” said Gill. “Operating expenses were impacted by higher salaries and employee benefits as we continue to invest in key talent and technology.”
“We will continue to invest in key business strategies and focus on sales, payments, technology, and hire critical talent to support our Northern and Southern California growth initiatives. At the same time, we are seeing clear wage inflation across all job categories as well as an increase in basic staff benefits like medical insurance,” said Gill. Full-time employees increased to 127 at September 30, 2023, compared to 99 full-time employees a year earlier, and 119 full-time employees from the linked quarter. As a result of the increased headcount from a year ago, salaries and employee benefits increased 24% to $5.02 million at September 30, 2023, compared to $4.07 million at September 30, 2022, and increased 4% from $4.83 million at June 30, 2023.
Occupancy and equipment expenses increased 63% from a year ago, representing 5% of non-interest expense, and increased 14% 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 9% to $2.69 million from a year earlier and increased 8% from the preceding quarter. Increases in data processing expense, software licenses and subscriptions, consulting fees, and regulatory assessments were all primary drivers of the year-over-year increase. Merchant operating expense totaled $1.93 million for the third quarter of 2023, compared to $836,000 for the third quarter of 2022 and $2.98 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 45.07% for the third quarter of 2023, compared to 44.83% for the third quarter a year ago, and 42.45% for the second quarter of 2023. For the first nine months of 2023, the efficiency ratio was 43.28%, compared to 43.26% for the first nine months of 2022. 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 net against merchant services revenue in noninterest income. The adjusted efficiency ratio was 39.91% for the third quarter of 2023, compared to 34.75% for the third quarter a year ago, and 41.99% for the second quarter of 2023.
Balance Sheet Review
Total assets increased 10% to $1.31 billion at September 30, 2023, compared to $1.19 billion at September 30, 2022, and remained relatively flat from $1.30 billion at June 30, 2023.
The total portfolio of loans increased 16%, or $121.56 million, to $897.75 million, compared to $776.19 million at September 30, 2022, and grew 3%, or $22.57 million, from $875.18 million on a linked quarter basis. The remaining SBA-PPP loans decreased to $168,000 at September 30, 2023, representing a fraction of the total loan portfolio. “We recorded a $356,000 gain on sale of $5.62 million in SBA loans during the current quarter; no multi-family loans or securities were sold during the quarter,” said Gill.
Commercial real estate loans increased 18% year-over-year to $534.82 million, representing 60% of total loans at September 30, 2023. The CRE portfolio includes approximately $236.77 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 $89.82 million in short-term bridge loans for modest transitional projects of multi-family properties. The short-term bridge loans are conservatively underwritten with minimum DSCR and liquidity requirements. Approximately 20.2% of the bridge loan portfolio will come due during the fourth quarter of 2023 to roll off or get refinanced and sold. The remaining bridge loans will come due in 2024. Real estate construction and land development loans increased 44% from a year ago to $78.41 million, representing 9% of total loans, while residential RE 1-4 family loans totaled $16.76 million, or 2% of loans, at September 30, 2023.
The commercial and industrial (C&I) portfolio increased 9% to $209.21 million, at September 30, 2023, compared to $192.68 million a year earlier, and decreased slightly from $212.00 million at June 30, 2023. C&I loans represented 23% of total loans at September 30, 2023. Agriculture loans represented 7% of the loan portfolio at September 30, 2023. At September 30, 2023, the SBA, USDA, and other government agencies guaranteed loans totaled $55.32 million, or 6.2% of the loan portfolio.
The investment portfolio decreased 15% to $290.01 million at September 30, 2023, from $339.52 million at September 30, 2022, and declined 5% compared to $304.04 million at June 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 reduction in the investment portfolio balance is attributed to net sales of $26.23 million in securities during the first two quarters of 2023 and monthly paydowns. At September 30, 2023, the Company had a net unrealized loss position on its investment securities portfolio of $41.93 million, compared to a net unrealized loss of $33.45 million at June 30, 2023. The Company’s investment securities portfolio had an effective duration of 5.31 years at September 30, 2023, compared to 5.12 years at June 30, 2023.
Total deposits increased 8%, or $87.31 million, to $1.13 billion at September 30, 2023, compared to $1.04 billion from a year earlier, and increased 5% from $1.08 billion at June 30, 2023. Noninterest-bearing demand deposits increased 2% to $737.37 million at September 30, 2023, compared to $724.43 million at September 30, 2022, and increased 2% from $723.01 million at June 30, 2023. Noninterest-bearing demand deposits represented 65% of total deposits at September 30, 2023. Included in noninterest-bearing deposits are $195.8 million from ISO partners for merchant reserves and $21.1million in ISO partner operating accounts.
There were no short-term borrowings at September 30, 2023, compared to $55 million at June 30, 2023.
The following table summarizes the Company's primary and secondary sources of liquidity which were available at September 30, 2023:
Liquidity Source ($ in thousands)September 30, 2023Cash and cash equivalents$70,741Unpledged investment securities, fair value 90,474FHLB advance capacity 233,569Federal Reserve discount window capacity 197,299Correspondent bank unsecured lines of credit 91,500 $683,583The total primary and secondary liquidity of $683.6 million at September 30, 2023 represents an increase of $15.1 million in primary and secondary liquidity quarter over quarter.
Shareholders’ equity increased 39% to $112.89 million at September 30, 2023, compared to $81.42 million from a year ago, and grew 3% from $109.56 million at June 30, 2023. Book value per common share increased to $35.48, at September 30, 2023, compared to $26.02 at September 30, 2022, and increased 3% from $34.43 at June 30, 2023.
“The tangible common equity ratio was 8.63% at September 30, 2023, compared to 6.85% a year earlier, and 8.40% at June 30, 2023,” stated Gill. “Although our tangible common equity and book value have been adversely impacted by the increase in interest rates and the related impact on our securities portfolio through marks on accumulated other comprehensive income (‘AOCI’), our strong earnings have resulted in book value and tangible common equity growth.”
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 $177.92 million at quarter end excluding the unrealized loss. The regulatory leverage capital ratio was 13.49% for the current quarter, while the total risk-based capital ratio was 19.39%, exceeding regulatory minimums to be considered well-capitalized.
Asset Quality
Nonperforming assets declined to $6.03 million, or 0.46% of total assets, at September 30, 2023, compared to $6.11 million, or 0.47% of total assets, from the preceding quarter. Included in nonperforming assets were $720,000 in restructured and performing loans under the terms of their agreements at September 30, 2023, compared to $725,000 in performing restructured loans at June 30, 2023, and $767,000 in performing restructured loans at September 30, 2022. Of the $6.03 million nonperforming loans, $3.98 million are covered by SBA guarantees. Total delinquent loans declined substantially to $1.70 million at September 30, 2023, compared to $6.51 million at June 30, 2023, and were primarily related to government guaranteed loans purchased by the Bank.
Past due loans 30-60 days were $321,000 at September 30, 2023, compared to $2.85 million at June 30, 2023, and $350,000 at September 30, 2022. There were zero past due loans from 60-90 days at September 30, 2023, compared to $2.29 million at June 30, 2023 and no past due loans from 60-90 days a year earlier. Past due loans 90+ days at quarter end totaled $1.38 million at September 30, 2023, compared to $11.67 million, at September 30, 2022. Of the remaining $1.70 million in past due loans, $1.60 million were purchased government guaranteed loans with an unconditional guarantee.
The Bank continues to hold approximately $21 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 $3.36 million at June 30, 2023 to $1.60 million at September 30, 2023 as the Bank continues to receive payments.
“As detailed in the chart below, most of the delinquencies are purchased government guaranteed loans, which are guaranteed by the SBA for the full payment of the principal plus interest,” commented Gill. “The SBA continues to deal with backlogs and consequently we continue to incur delays in payments; the backlogs, however, are improving and full payment is expected.” The chart below breaks out the government guaranteed portion compared to organic delinquencies.
Delinquent Loan SummaryOrganicPurchased Govt. GuaranteedTotal($ in thousands) Delinquent accruing loans 30-59 days$100$221$321Delinquent accruing loans 60-90 days 0.0 0.0 0.0Delinquent accruing loans 90+ days 0.0$1,379$1,379Total delinquent accruing loans$100$1,600$1,700 Non Accrual Loan SummaryOrganicPurchased Govt. GuaranteedTotal($ in thousands) Loans on non accrual$6,027 0.0$6,027Non accrual loans with SBA guarantees 3,982 0 3,982Net Bank exposure to non accrual loans$2,045 0.0$2,045There was a $152,000 provision for credit losses in the third quarter of 2023, compared to zero provision for loan losses in the third quarter a year ago, and a $612,000 provision for credit losses booked in the second quarter of 2023.
“We incurred net charge offs of $71,000 during the current quarter, compared to $47,000 net charge offs in the third quarter a year ago, and $129,000 in net charge offs in the preceding quarter,” said Gill. “Our loan portfolio increased 16% from a year ago with commercial real estate (“CRE”) loans representing 60% of the total loan portfolio. Within the CRE portfolio, there are $39.16 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.”
CRE Office Exposure as of 9/30/2023RegionOwner-OccupiedNon-Owner OccupiedTotalCentral Valley$17,214 16,124$33,338Southern California 373 361 734Other California 1,902 4,215 6,117Total California 19,489 20,700 40,189Out of California - 547 547Total CRE Office$19,489$21,247$40,736The ratio of allowance for credit losses to total loans was 1.10% at September 30, 2023, compared to 1.25% a year earlier and 1.12% at June 30, 2023.
“The SBA portfolio is a segment we watch very closely as rates continue to rise,” added Gill. “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 1.17%, as of September 30, 2023, and our total unguaranteed exposure on these SBA loans is $30.04 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. FFB Bank’s primary focus is on serving the needs of businesses, professionals, and successful individuals. As a leading SBA Lender in California’s Central Valley and one of the few direct acquiring banks in the United States, FFB 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 both 2019 and 2023 and as one of the top performing OTCQX companies in the country for 2018. 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, negative operational and financial impacts on the Company and its subsidiary from our CEO’s leave of absence, 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.
Member FDIC
Contact: Bhavneet Gill – EVP & CFO/ Acting President & CEO(559) 439-0200
