FRESNO, Calif., Oct. 16, 2024 (GLOBE NEWSWIRE) -- FFB Bancorp (the "Company”) (OTCQX: FFBB) the parent company of FFB Bank (the "Bank”) today reported net income of $8.56 million, or $2.69 per diluted share, for the third quarter of 2024, an increase of 6% from the $8.08 million, or $2.54 per diluted share, reported for the second quarter of 2024. The Bank reported $8.87 million, or $2.79 per diluted share, for the third quarter of 2023. For the nine months ended September 30, 2024, net income was $24.43 million, or $7.69 per diluted share, compared to $25.99 million, or $8.18 per diluted share, for the same period in 2023. All results are unaudited.
Third Quarter 2024 Highlights: As of, or for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023:
- Pre-tax, pre-provision income increased 3% to $12.67 million.
- Net income decreased 3% to $8.56 million.
- Return on average equity ("ROAE”) was 21.11%.
- Return on average assets ("ROAA”) was 2.31%.
- Net interest margin contracted 9 basis points to 5.11% from 5.20% a year earlier.
- Gross revenue (net interest income, before the provision for credit losses, plus non-interest income) increased 14% to $25.40 million.
- Total assets increased 16% to $1.51 billion.
- Total portfolio of loans increased 11% to $998.22 million.
- Total deposits increased 14% to $1.29 billion.
- Shareholder equity increased 45% to $163.64 million.
- Book value per common share increased 45% to $51.51.
- The Company's tangible common equity ratio was 10.82%, while the Bank's regulatory leverage capital ratio was 14.35%, and the total risk-based capital ratio was 21.09% at September 30, 2024.
"During the third quarter we went live with the first of several phases of a new CFT/AML/Fraud monitoring system. Phase 1 of the new system covers both the core bank and merchant processing related payment flows. Future phases will monitor front-end card transactions for all of our ISO partners and eventually will work in conjunction with our core banking system to give us a real-time look at transaction monitoring. This is a scalable solution that will grow with the bank.”
Results of Operations
Quarter ended September 30, 2024:
Operating revenue, consisting of net interest income before the provision for credit losses and non-interest income, increased 14% to $25.40 million for the third quarter of 2024, compared to $22.29 million for the third quarter a year ago, and increased 3% from $24.73 million from the second quarter of 2024.
Net interest income, before the provision for credit losses, increased 11% to $17.79 million for the third quarter of 2024, compared to $15.98 million for the same quarter a year ago, and increased 3% from $17.31 million from last quarter. "The increase in net interest income during the third quarter was driven by loan growth, partially offset by continued pressure on deposit rates and higher costs related to interest bearing deposit accounts,” said Bhavneet Gill, Chief Financial Officer.
The Company's net interest margin ("NIM”) decreased by 9 basis points to 5.11% for the third quarter of 2024, compared to 5.20% for the third quarter of 2023, and decreased 20 basis points from 5.31% for the preceding quarter. "Our yield on earning assets decreased 25 basis points in the third quarter primarily from the impact of the increase in average assets which grew $70 million in the quarter and a slight reduction in yields on the loan and investment portfolios. However, that decrease was partially offset by a 6 basis point decrease in the cost to fund earning assets. Additionally, average non-interest bearing deposits increased $63.22 million quarter over quarter,” noted Gill.
The yield on earning assets was 6.15% for the third quarter of 2024, compared to 5.99% for the third quarter a year ago, and 6.40% for the previous quarter. The cost to fund earning assets decreased to 1.04% for the third quarter of 2024 compared to 1.10% for the preceding quarter, increased from 0.80% for the same quarter a year earlier.
Total non-interest income was $7.62 million for the third quarter of 2024, compared to $6.32 million for the third quarter of 2023, and $7.42 million for the preceding quarter. The increase in non-interest income, from the third quarter of 2023, was driven by an increase in merchant services revenue and additional gain on the sale of loans and investments.
Merchant services revenue increased 18% to $5.57 million for the third quarter of 2024, compared to $4.71 million from the third quarter of 2023. The increase was primarily due to higher seasonal volume. Merchant services revenue decreased from $6.07 million when compared to the second quarter of 2024.
| Merchant ISO Processing Volumes (in thousands) | ||||||||||
| Source | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | |||||
| ISO Partner Sponsorship | $ | 3,491,321 | $ | 3,812,386 | $ | 3,763,289 | $ | 4,391,365 | $ | 4,556,868 |
| FFB Payments- Sub-ISO Merchants | 12,382 | 20,992 | 19,370 | 24,414 | 24,661 | |||||
| FFB Payments - Direct Merchants | 61,987 | 93,443 | 77,349 | 76,059 | 64,512 | |||||
| Total volume | $ | 3,565,690 | $ | 3,926,821 | $ | 3,860,008 | $ | 4,491,838 | $ | 4,646,041 |
| Merchant ISO Processing Revenues (in thousands) | ||||||||||
| Source of Revenue | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | |||||
| Net Revenue*: | ||||||||||
| ISO Partner Sponsorship | $ | 2,169 | $ | 1,916 | $ | 2,183 | $ | 2,156 | $ | 2,284 |
| Gross Revenue: | ||||||||||
| FFB Payments- Sub-ISO Merchants | 466 | 539 | 672 | 795 | 810 | |||||
| FFB Payments - Direct Merchants | 2,078 | 2,693 | 3,213 | 3,117 | 2,476 | |||||
| 2,544 | 3,232 | 3,885 | 3,912 | 3,286 | ||||||
| Gross Expense: | ||||||||||
| FFB Payments- Sub-ISO Merchants | 361 | 455 | 518 | 675 | 723 | |||||
| FFB Payments - Direct Merchants | 1,428 | 1,720 | 1,842 | 1,989 | 1,766 | |||||
| 1,789 | 2,175 | 2,360 | 2,664 | 2,489 | ||||||
| Net Revenue: | ||||||||||
| FFB Payments- Sub-ISO Merchants | 105 | 84 | 154 | 120 | 87 | |||||
| FFB Payments - Direct Merchants | 650 | 973 | 1,371 | 1,128 | 710 | |||||
| FFB Payments Net Revenue | 755 | 1,057 | 1,525 | 1,248 | 797 | |||||
| Net Merchant Services Income: | $ | 2,924 | $ | 2,973 | $ | 3,708 | $ | 3,404 | $ | 3,081 |
Total deposit fee income increased 11% to $837,000 for the third quarter of 2024, compared to $757,000 for the third quarter of 2023, and decreased 1% from $847,000 for the preceding quarter.
There was a $636,000 gain on sale of loans during the third quarter of 2024, compared to a gain on sale of loans of $406,000 during the third quarter 2023, and a gain on sale of loans of $509,000 in the previous quarter. There was a gain on sale of investments of $16,000 during the third quarter of 2024, compared to no activity during the third quarter 2023, and a $459,000 loss in the previous quarter. "We monitor the sale of loans and investment securities and manage concentrations accordingly. During the third quarter, we took advantage of an opportunity to buy back and redeem $1.75 million in FFB Bancorp subordinated debt securities at a 15% discount, recognizing a gain of $256,000. Additionally, we sold $11.01 million in SBA loans during the quarter,” added Gill.
Non-interest expense increased 28% to $12.74 million for the third quarter of 2024, compared to $9.97 million for the third quarter 2023, and decreased 4% from $13.29 million from the previous quarter.
"During 2024 we have made intentional investments in people and technology to ensure that the bank can efficiently scale moving forward, and specifically to support our payment ecosystem, product development, and regional expansion initiatives. During the third quarter, we hired a General Counsel and Chief Compliance Officer with an extensive background in both bank operations and bank regulatory framework. This key role further strengthens our leadership team and reinforces our focus on maintaining a robust legal and regulatory framework. In addition, we recently initiated an in-depth review of our merchant services business to assess its alignment with our overall risk appetite, given the significant growth in this area, ” said Miller.
Full-time employees increased to 163 at September 30, 2024, compared to 127 full-time employees a year earlier, and 157 full-time employees from the previous quarter. As a result of the increased headcount, salaries and employee benefits increased 29% to $6.47 million for the third quarter of 2024, compared to $5.02 million for the third quarter of 2023. Total salaries and employee benefits decreased 4% from $6.72 million in the previous quarter.
Occupancy and equipment expenses decreased 20% from a year ago, representing 3% of non-interest expense, and decreased 14% from the preceding quarter. Other operating expense increased 26% to $3.40 million from a year earlier and decreased 2% from the linked 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 $2.49 million for the third quarter of 2024, compared to $1.79 million for the third quarter of 2023 and $2.66 million for the preceding quarter. The change in merchant operating expense is attributed to fluctuations 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 50.16% for the third quarter of 2024, compared to 44.73% for the same quarter a year ago, and 52.74% 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 non-interest expense, is netted against merchant services revenue in non-interest income. The adjusted efficiency ratio was 44.75% for the third quarter of 2024, compared to 39.91% for the same quarter a year ago, and 47.15% for the linked quarter.
Nine months ended September 30, 2024:
For the nine months ended September 30, 2024, operating revenue increased 11% to $73.74 million, compared to $66.27 million for the same period in 2023. For the nine months ended September 30, 2024, net interest income before the provision for credit losses increased 9% to $51.23 million, compared to $47.15 million for the same period in 2023. The increase in revenue is attributed to growth in the loan portfolio and higher asset yields, partially offset by an increase in interest bearing liabilities and cost of funds. For the nine months ended September 30, 2024, the yield on earning assets was 6.06% compared to 5.78% for the same period in 2023, while the cost to fund earning assets was 1.02% for the nine months ended September 30, 2024, compared to 0.67% for the same period in 2023.
For the nine months ended September 30, 2024, non-interest income increased 18% to $22.51 million compared to $19.12 million for the same period in 2023. Deposit fee income increased 15% to $2.48 million resulting from growth in business demand deposit accounts. The year-over-year growth in non-interest income was also largely attributable to the decrease in loss on sale of investments and an increase in merchant services revenue.
For the nine months ended September 30, 2024, operating expenses increased by 31% to $38.72 million from $29.56 million for the same period in 2023. Salaries and employee benefits expense increased 36% to $19.78 million as a result of the increase in FTE. Other operating expenses increased 35% to $10.24 million due to higher education, travel, marketing, professional fees, and technology related expenses.
For the nine months ended September 30, 2024, the efficiency ratio was 51.93%, compared to 43.28% for the same period ended September 30, 2023. The adjusted efficiency ratio was 46.55%, compared to 37.67% for the same period ended September 30, 2023.
Balance Sheet Review
Total assets increased 16% to $1.51 billion at September 30, 2024, compared to $1.31 billion at September 30, 2023, and increased 5% from $1.44 billion at June 30, 2024.
The total portfolio of loans increased 11%, or $100.48 million, to $998.22 million, compared to $897.75 million at September 30, 2023, and increased $28.46 million, from $969.76 million at June 30, 2024.
Commercial real estate loans increased 15% year-over-year to $613.74 million, representing 61% of total loans at September 30, 2024. The CRE portfolio includes approximately $235.17 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 $43.15 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 35.8% of the current bridge loan portfolio will mature during the fourth quarter of 2024 to roll off or get refinanced and sold. The bank continues to market our bridge loan product in a more measured approach, keeping to our conservative underwriting standards. The real estate construction and land development loan portfolio decreased 57% from a year ago to $34.09 million, representing 3% of total loans, while residential RE 1-4 family loans totaled $18.04 million, or 2% of loans, at September 30, 2024.
The commercial and industrial (C&I) portfolio increased 14% to $238.63 million, at September 30, 2024, compared to $209.38 million a year earlier, and increased 3% from $232.79 million at June 30, 2024. C&I loans represented 24% of total loans at September 30, 2024. Agriculture loans represented 9% of the loan portfolio at September 30, 2024. At September 30, 2024, the SBA, USDA, and other government agencies guaranteed loans totaled $58.99 million, or 5.9% of the loan portfolio.
Investment securities totaled $345.43 million at September 30, 2024, compared to $290.01 million a year earlier, and remained relatively flat compared to $345.49 million at June 30, 2024. The investment portfolio consists of mortgage-backed and municipal securities, both tax exempt and taxable, treasury securities as well as other domestic debt. At September 30, 2024, the Company had a net unrealized loss position on its investment securities portfolio of $18.11 million, compared to a net unrealized loss of $26.58 million at June 30, 2024. The Company's investment securities portfolio had an effective duration of 5.19 years at September 30, 2024, compared to 5.39 years at June 30, 2024.
Total deposits increased 14%, or $154.90 million, to $1.29 billion at September 30, 2024, compared to $1.13 billion from a year earlier, and increased 10% from $1.17 billion at June 30, 2024. The quarter over quarter increase in deposit balances is primarily attributed to an increase in non-interest bearing deposits. Non-interest bearing demand deposits increased 12% to $826.71 million at September 30, 2024, compared to $737.37 million at September 30, 2023, and increased 13% from $731.03 million at June 30, 2024. Non-interest bearing demand deposits represented 64% of total deposits at September 30, 2024. Included in non-interest bearing deposits are $90.5 million from ISO partners for merchant reserves, $156.4 million from ISO partners for settlement, and $9.1 million in ISO partner operating accounts. These deposits represent 31.0% of non-interest bearing deposits and 19.9% of total deposits.
There were no short-term borrowings at September 30, 2024, compared to $68.00 million in borrowings at June 30, 2024, and no borrowings at September 30, 2023. The Company primarily utilizes FHLB advances and the Federal Reserve discount window for short-term borrowings. The following table summarizes the Company's primary and secondary sources of liquidity which were available at September 30, 2024:
| Liquidity Source (in thousands) | September 30, 2024 | June 30, 2024 | ||
| Cash and cash equivalents | $ | 116,875 | $ | 73,319 |
| Unpledged investment securities, fair value | 116,784 | 114,090 | ||
| FHLB advance capacity | 288,943 | 235,906 | ||
| Federal Reserve discount window capacity | 166,482 | 171,065 | ||
| Correspondent bank unsecured lines of credit | 91,500 | 91,500 | ||
| $ | 780,584 | $ | 685,880 | |
Shareholders' equity increased 45% to $163.64 million at September 30, 2024, compared to $112.89 million from a year ago, and grew 10% from $148.64 million at June 30, 2024. Book value per common share increased 45% to $51.51, at September 30, 2024, compared to $35.50 at September 30, 2023, and increased 10% from $46.79 at June 30, 2024. The Company has a program to repurchase up to $7.5 million of its outstanding common stock. The timing of purchases will depend on certain factors including, but not limited to, performance of the Company's stock price, general market and economic conditions, applicable legal and regulatory requirements, availability of funds, and other relevant factors. The stock repurchase program may be carried out through open-market purchases or privately negotiated transactions. For the quarter ended September 30, 2024, no shares were repurchased.
"The tangible common equity ratio was 10.82% at September 30, 2024, compared to 8.63% a year earlier, and 10.30% at June 30, 2024,” stated Gill. "Our tangible common equity and book value increased during the quarter as a result of quarterly net income and a decrease in accumulated other comprehensive loss ("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-1 capital at the Bank for regulatory purposes was $210.40 million at quarter end excluding the unrealized loss. The regulatory leverage capital ratio was 14.35% for the current quarter, while the total risk-based capital ratio was 21.09%, exceeding regulatory minimums to be considered well-capitalized.
Asset Quality
Nonperforming assets increased to $12.82 million, or 0.85% of total assets, at September 30, 2024, compared to $11.25 million, or 0.78% of total assets, from the preceding quarter. Of the $12.82 million nonperforming loans, $9.82 million are covered by SBA guarantees. Total delinquent loans increased to $3.37 million at September 30, 2024, compared to $2.27 million at June 30, 2024. The increase in nonperforming assets was primarily attributed to the SBA loans originated by the Bank.
Past due loans 30-60 days were $1.65 million at September 30, 2024, compared to $1.05 million at June 30, 2024, and $321,000 at September 30, 2023. There were $1.39 million past due loans from 60-90 days at September 30, 2024, compared to $175,000 at June 30, 2024 and no past due loans from 60-90 days a year earlier. Past due loans 90+ days at quarter end totaled $322,000 at September 30, 2024, compared to $1.38 million, at September 30, 2023. Of the $3.37 million in past due loans at September 30, 2024, $3.05 million were purchased government guaranteed loans, which are guaranteed by the SBA for the full payment of the principal plus interest.
| Delinquent Loan Summary | Organic | Purchased Govt. Guaranteed | Total | |||
| (in thousands) | ||||||
| Delinquent accruing loans 30-59 days | $ | 313 | $ | 1,341 | $ | 1,654 |
| Delinquent accruing loans 60-89 days | 1 | 1,389 | 1,390 | |||
| Delinquent accruing loans 90+ days | - | 322 | 322 | |||
| Total delinquent accruing loans | $ | 314 | $ | 3,052 | $ | 3,366 |
| Non-Accrual Loan Summary | Organic | Purchased Govt. Guaranteed | Total | |||
| (in thousands) | ||||||
| Loans on non-accrual | $ | 12,821 | $ | - | $ | 12,821 |
| Non-accrual loans with SBA guarantees | 9,818 | - | 9,818 | |||
| Net Bank exposure to non-accrual loans | $ | 3,003 | $ | - | $ | 3,003 |
|
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