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Among other things the Order requires the Bank to:

1. Develop a written action plan, acceptable to the FDIC and CDFPI, to address and correct deficiencies in its AML/CFT program and satisfy the requirements of the Order.

2. Increase Board oversight of compliance with its AML/CFT program, particularly as it relates to the Bank’s Merchant Services Program and ISO/sub-ISO business.

3. Correct all BSA violations of law outlined in the most recent report of examination and ensure future compliance.

4. Develop and implement an enhanced AML/CFT program and thereafter maintain compliance with it; particularly focused on the Merchant Services Program and Bank’s ISOs and Sub-ISOs.

5. Establish internal controls to ensure compliance with the BSA particularly focused on the Merchant Services Program, including an enhanced customer due diligence program and a risk assessment of ISOs and merchants serviced by the Bank and its ISOs.

6. Provide independent testing of compliance with the AML/CFT program, BSA and the reporting of suspicious transactions.

7. Ensure that the AML/CFT program is managed by a qualified officer with requisite authority, responsibility, training, resources and management reporting. The Bank shall hire an outside consultant to assess and evaluate this. The Bank may not change its AML/CFT Officer without regulatory approval.

8. Provide training of all Bank personnel in all aspects of regulatory compliance with the AML/CFT program and BSA with specific concentration on Bank’s Merchant Services Program.

9. Conduct a lookback review of all high-risk accounts and transactions from January 1, 2024, and as needed make any required regulatory filings based on the results of the review.

10. Enhance the Bank’s oversight of its ISOs and Sub-ISOs, including a review of all existing ISOs and Sub-ISOs to ensure their respective AML/CFT policies and procedures allow the Bank to comply with its enhanced AML/CFT program.

11. Enhance certain contractual provisions with its ISOs and Sub-ISOs to strengthen, among other things, requirements for ISOs and Sub-ISOs to have independent audits of their respective AML/CFT policies and procedures.

12. Not add or onboard any new ISOs until the Bank has fully implemented its review plan, addressed all deficiencies and is in material compliance with BSA, as determined by FDIC and CDFPI.

13. The Bank must file quarterly reports with the regulators to show compliance with the terms of the Order. The Order will remain in place until modified or terminated by the regulators.
    

While revisiting its practices, policies, and procedures to comply with the Order, the Bank intends to enhance its consumer compliance management system to improve, among other things, consumer complaint monitoring related to merchants and ISOs responsible for managing such merchants, in its Merchant Processing Program. The thrust of these efforts will be to assist the Bank in reporting and eliminating higher risk merchants with significant customer complaints.

The Bank’s efforts to comply with the Order are underway, and it believes it will be able to obtain full compliance with the Order. However, compliance with the Order will be determined solely by the FDIC and the CDFPI, based upon subsequent visitations and examinations.

Anticipated Impact to 2025:

As a result of the actions required for Order remediation, enhancement of the Bank's consumer compliance management system, and additional oversight over third party relationships, the Company is forecasting the following impacts to 2025 results:

• Due to the enhanced AML/CFT requirements for ISOs and Sub-ISOs, the Company anticipates exiting a number of ISO and Sub-ISO relationships during Q2 2025. Non-interest bearing deposits related to those relationships totaled $156 million at December 31, 2024. Net revenue related to those relationships for 2024 was $3.6 million.

• The loss of a significant level of non-interest bearing deposits due to certain ISO partner exits will change the Company's deposit mix and result in higher funding costs to support forecasted loan portfolio growth. The Bank plans to replace these non-interest bearing deposits with growth from new Bank customers in its markets and from the existing ISO partners it will continue to support. In the short-term, the new deposit growth will likely be made up of a higher percentage of interest bearing deposits.

• Salaries & employee benefits expense will increase from hiring additional Compliance and Risk personnel in 2025 and include the full year impact of individuals hired in the second half of 2024.

• Legal, consulting, audit, and compliance costs will increase to implement and maintain an enhanced AML/CFT and consumer compliance management program, engage independent audits of ISOs and Sub-ISOs, and other expenses related to Order remediation.

• Software license expenses will increase with the implementation of CFT/AML/Fraud real-time monitoring systems.
  

As a result of the impacts detailed above, along with forecasted core balance sheet growth, the Company projects a reduction in net income for 2025, compared to 2024.

"The Board of Directors has full confidence in our team's ability to efficiently address the actions outlined by this order,” said Mark Saleh, Chairman of the Board of Directors. "Their expertise and commitment will ensure these matters are resolved promptly, positioning the Company to continue its position as a top-performer."

"Resolving the order is our top priority and our team is committed to addressing the concerns outlined as quickly as possible. As part of this effort, we are focused on building a best-in-class AML/CFT and compliance program that not only meets regulatory expectations but is capable of supporting our continued growth. We remain committed to the payments space and our long-term strategy of maximizing technology to support our high touch customer experience," said Steve Miller, President and Chief Executive Officer.

FFB Bancorp Announces Stock Repurchase Program:

The Company has authorized a plan to utilize up to $15.0 million of capital to repurchase shares of the Company’s common stock, which represents approximately 8.9% of total shareholders’ equity at December 31, 2024, which will commence on or about January 27, 2025, provided that the Company is not then in possession of material non-public information.

Under the terms of the repurchase plan, the Company may repurchase shares of the Company's common stock from time to time, through December 31, 2025, in open market purchases or privately negotiated transactions. Repurchases under the plan may also be made pursuant to a trading plan under Securities and Exchange Commission Rule 10b5-1 under the Securities Exchange Act of 1934, which would permit shares to be repurchased by the Company when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions. The timing, manner, price and exact amount of any repurchases by the Company will be determined at the Company’s discretion and depend on various factors including, the 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 Company’s management believes the repurchase plan, depending upon market and business conditions, may, among other things, provide capital management opportunities for the Company. The Company is not obligated to repurchase any such shares under the repurchase plan. Through December 31, 2025, the repurchase plan may be discontinued, suspended or restarted at any time.

Results of Operations

Quarter ended December 31, 2024:

Operating revenue, consisting of net interest income before the provision for credit losses and non-interest income, increased 27% to $28.25 million for the fourth quarter of 2024, compared to $22.31 million for the fourth quarter a year ago, and increased 11% from $25.40 million from the third quarter of 2024.

Net interest income, before the provision for credit losses, increased 15% to $18.81 million for the fourth quarter of 2024, compared to $16.38 million for the same quarter a year ago, and increased 6% from $17.79 million from last quarter. “The increase in net interest income during the fourth quarter was driven by loan portfolio growth,” said Bhavneet Gill, Chief Financial Officer. "We also saw some relief in funding costs as a result of decreases in the overnight rate during the last four months of 2024."

The Company’s net interest margin (“NIM”) increased by 5 basis points to 5.24% for the fourth quarter of 2024, compared to 5.19% for the fourth quarter of 2023, and increased 13 basis points from 5.11% for the preceding quarter. “Our yield on earning assets increased 9 basis points in the fourth quarter primarily from loan portfolio growth. Additionally, the expansion of NIM was buoyed by a 4 basis point decrease in the cost to fund earning assets. In addition, average non-interest bearing deposits increased $16.55 million quarter over quarter,” noted Gill.

The yield on earning assets was 6.24% for the fourth quarter of 2024, compared to 6.13% for the fourth quarter a year ago, and 6.15% for the previous quarter. The cost to fund earning assets decreased to 1.00% for the fourth quarter of 2024 compared to 1.04% for the preceding quarter, and increased from 0.93% for the same quarter a year earlier.

Total non-interest income was $9.44 million for the fourth quarter of 2024, compared to $5.92 million for the fourth quarter of 2023, and $7.62 million for the preceding quarter. The increase in non-interest income, from the fourth quarter of 2023, was driven by an increase in merchant services revenue, higher gain on the sale of loan revenue, and a reduction in loss on sale of investments.

Merchant services revenue increased 57% to $7.56 million for the fourth quarter of 2024, compared to $4.83 million from the fourth quarter of 2023. The increase was primarily due to higher volume across all merchant business lines and higher gross revenue related to FFB Payments. Merchant services revenue increased from $5.57 million when compared to the third quarter of 2024 as a result of an increase in processing volume during the fourth quarter. Processing volume is seasonal in nature.

*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.

Total deposit fee income increased 9% to $856,000 for the fourth quarter of 2024, compared to $783,000 for the fourth quarter of 2023, and increased 2% from $837,000 for the preceding quarter.

There was a $929,000 gain on sale of loans during the fourth quarter of 2024, compared to a gain on sale of loans of $464,000 during the fourth quarter 2023, and a gain on sale of loans of $636,000 in the previous quarter. There was a loss on sale of investments of $482,000 during the fourth quarter of 2024, compared to a $1.11 million loss during the fourth quarter 2023, and a $16,000 gain in the previous quarter. “We monitor the sale of loans and investment securities and manage concentrations accordingly. During the fourth quarter, we sold $7.67 million in SBA loans for a $475,000 gain on sale and $16.12 million in multi-family loans for a $363,000 gain on sale. Fourth quarter 2024 results include a loss on sale of investments from the sale of $12.91 million in lower yielding investment securities. Sale proceeds were reinvested in higher yielding securities with an anticipated earnback of approximately one year,” added Gill.

Non-interest expense increased 20% to $13.27 million for the fourth quarter of 2024, compared to $11.05 million for the fourth quarter 2023, and increased 4% from $12.74 million from the previous quarter.

“During 2024 we 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, regional expansion, and risk management 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. During the fourth quarter, we made key hires in our compliance, risk, and merchant teams mostly related to addressing the Order,” said Miller.

Full-time employees increased to 168 at December 31, 2024, compared to 139 full-time employees a year earlier, and 163 full-time employees from the previous quarter.

Salaries and employee benefits decreased 8% to $5.18 million for the fourth quarter of 2024, compared to $5.60 million for the fourth quarter 2023. Total salaries and employee benefits decreased 20% from $6.47 million in the previous quarter. These decreases were primarily the result of non-recurring reductions of $1.47 million and $832,000 in performance bonus and ESOP accruals, respectively.

Occupancy and equipment expenses increased 31% from a year ago, representing 3% of non-interest expense, and increased 9% from the preceding quarter. Other operating expense increased 38% to $4.53 million from a year earlier and increased 33% from the previous 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. Professional fees, which include legal, audit, and consulting fees, increased $520,000 or 79% from the prior quarter primarily due to actions taken to enhance the Company's AML/CFT, compliance, and merchant services programs. Merchant operating expense totaled $3.15 million for the fourth quarter of 2024, compared to $1.85 million for the fourth quarter of 2023 and $2.49 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 46.19% for the fourth quarter of 2024, compared to 47.17% for the same quarter a year ago, and 50.16% 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 39.57% for the fourth quarter of 2024, compared to 42.63% for the same quarter a year ago, and 44.75% for the previous quarter.

Year ended December 31, 2024:

For the year ended December 31, 2024, operating revenue increased 15% to $101.99 million, compared to $88.58 million for the same period in 2023. For the year ended December 31, 2024, net interest income before the provision for credit losses increased 10% to $70.04 million, compared to $63.53 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 year ended December 31, 2024, the yield on earning assets was 6.26% compared to 5.86% for the same period in 2023, while the cost to fund earning assets was 1.04% for the year ended December 31, 2024, compared to 0.74% for the same period in 2023.

For the year ended December 31, 2024, non-interest income increased 28% to $31.95 million compared to $25.05 million for the same period in 2023. Deposit fee income increased 14% to $3.34 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 year ended December 31, 2024, operating expenses increased by 28% to $51.99 million from $40.61 million for the same period in 2023. Salaries and employee benefits expense increased 24% to $24.95 million as a result of the increase in FTE, partially offset by the non-recurring reductions in bonus and ESOP expense recognized during the fourth quarter 2024. Other operating expenses increased 36% to $14.77 million due to higher marketing, professional fees, and technology related expenses. There was a 33% increase in merchant services operating expenses, to $10.66 million, which represents 21% of total operating expenses for year ended December 31, 2024.

For the year ended December 31, 2024, the efficiency ratio was 50.34%, compared to 44.27% for the same period ended December 31, 2023. The adjusted efficiency ratio was 44.62%, compared to 38.95% for the same period ended December 31, 2023.

Balance Sheet Review

Total assets increased 10% to $1.51 billion at December 31, 2024, compared to $1.36 billion at December 31, 2023, and remained the same compared to September 30, 2024.

The total portfolio of loans increased 15%, or $142.74 million, to $1.07 billion, compared to $928.34 million at December 31, 2023, and increased $72.86 million, from $998.22 million at September 30, 2024.

Commercial real estate loans increased 20% year-over-year to $669.29 million, representing 62% of total loans at December 31, 2024. The CRE portfolio includes approximately $277.99 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 $94.55 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 24.7% of the current bridge loan portfolio will mature during the first quarter of 2025 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 65% from a year ago to $26.52 million, representing 2% of total loans, while residential RE 1-4 family loans totaled $16.85 million, or 2% of loans, at December 31, 2024.

The commercial and industrial (C&I) portfolio increased 22% to $267.95 million, at December 31, 2024, compared to $218.75 million a year earlier, and increased 12% from $238.63 million at September 30, 2024. C&I loans represented 25% of total loans at December 31, 2024. Agriculture loans represented 8% of the loan portfolio at December 31, 2024. At December 31, 2024, the SBA, USDA, and other government agencies guaranteed loans totaled $59.06 million, or 5.5% of the loan portfolio.

Investment securities totaled $322.19 million at December 31, 2024, compared to $326.01 million a year earlier, and decreased $23.24 million from $345.43 million at September 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 December 31, 2024, the Company had a net unrealized loss position on its investment securities portfolio of $25.89 million, compared to a net unrealized loss of $18.11 million at September 30, 2024. The Company’s investment securities portfolio had an effective duration of 5.32 years at December 31, 2024, compared to 5.19 years at September 30, 2024.

Total deposits increased 12%, or $139.21 million, to $1.284 billion at December 31, 2024, compared to $1.15 billion from a year earlier, and decreased $2.57 million from $1.287 billion at September 30, 2024. The quarter over quarter decrease in deposit balances is primarily attributed to a decrease in interest bearing checking accounts. Non-interest bearing demand deposits increased 7% to $828.51 million at December 31, 2024, compared to $775.51 million at December 31, 2023, and increased $1.80 million from $826.71 million at September 30, 2024. Non-interest bearing demand deposits represented 65% of total deposits at December 31, 2024. Included in non-interest bearing deposits are $85.7 million from ISO partners for merchant reserves, $134.4 million from ISO partners for settlement, and $8.3 million in ISO partner operating accounts. These deposits represent 27.2% of non-interest bearing deposits and 17.5% of total deposits.

There were no short-term borrowings at December 31, 2024 or September 30, 2024, compared to $34.00 million in borrowings at December 31, 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 December 31, 2024:

The total primary and secondary liquidity of $744.42 million at December 31, 2024 represents a decrease of $36.2 million in primary and secondary liquidity quarter over quarter. On-balance sheet cash and cash equivalents decreased as cash was utilized to fund loan growth during the quarter.

Shareholders’ equity increased 29% to $168.39 million at December 31, 2024, compared to $130.70 million from a year ago, and grew 3% from $163.64 million at September 30, 2024. Book value per common share increased 29% to $53.02, at December 31, 2024, compared to $41.21 at December 31, 2023, and increased 3% from $51.52 at September 30, 2024.

The tangible common equity ratio was 11.18% at December 31, 2024, compared to 9.58% a year earlier, and 10.82% at September 30, 2024. Tangible common equity and book value increased during the quarter as a result of quarterly net income partially offset by an increase 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 $220.99 million at quarter end excluding the unrealized loss. The regulatory leverage capital ratio was 14.33% for the current quarter, while the total risk-based capital ratio was 20.84%, exceeding regulatory minimums to be considered well-capitalized.

Asset Quality

Nonperforming assets decreased to $9.89 million, or 0.66% of total assets, at December 31, 2024, compared to $12.82 million, or 0.85% of total assets, from the preceding quarter. Of the $9.89 million nonperforming loans, $8.04 million are covered by SBA guarantees. Total delinquent loans increased to $8.32 million at December 31, 2024, compared to $3.37 million at September 30, 2024.

Past due loans 30-60 days were $4.89 million at December 31, 2024, compared to $1.65 million at September 30, 2024, and $1.08 million at December 31, 2023. There were $2.45 million past due loans from 60-90 days at December 31, 2024, compared to $1.39 million at September 30, 2024 and $199,000 in past due loans from 60-90 days a year earlier. Past due loans 90+ days at quarter end totaled $987,000 at December 31, 2024, compared to $1.35 million, at December 31, 2023. Of the $8.32 million in past due loans at December 31, 2024, $2.79 million were purchased government guaranteed loans, which are guaranteed by the SBA for the full payment of the principal plus interest.

There was a $1,671,000 provision for credit losses in the fourth quarter of 2024, compared to $769,000 provision for credit losses in the fourth quarter a year ago, and a $762,000 provision for credit losses booked in the third quarter of 2024. The provision recorded during the fourth quarter of 2024 is the result of loan portfolio growth and charge-off activity.

"We watch the SBA portfolio very closely since rates have increased so rapidly over the last two years, putting pressure on borrowers. A majority of the loans within the portfolio are floating rate loans tied to WSJ Prime and reset quarterly. Borrowers saw a 50bps reduction in their rates on January 1, 2025 resulting from the 50bps reduction in WSJ Prime during the fourth quarter,” added Miller. “A portion of the portfolio 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 December 31, 2024, and our total non-guaranteed exposure on these SBA loans is $41.19 million spread over 220 loans.”

“We incurred net charge offs of $1,287,000 during the current quarter, compared to $766,000 in net charge offs in the fourth quarter a year ago, and $4,000 in net recoveries in the preceding quarter,” said Miller. “Our loan portfolio increased 15% from a year ago with commercial real estate (“CRE”) loans representing 62% of the total loan portfolio. Within the CRE portfolio, there are $52.18 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 are experiencing less volatility than city center CRE markets. Our credit metrics remain strong as we continue to maintain conservative underwriting standards.”

As of this release, the Company is not aware of any material impact on its loan portfolio or collateral due to the Southern California wildfires occurring in January 2025. The situation is still evolving, and the Company will continue to monitor for potential exposure and impact.

The ratio of allowance for credit losses to total loans was 1.10% at December 31, 2024, compared to 1.08% a year earlier and 1.15% at September 30, 2024.

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 #1 on American Banker’s list of the Top 20 Publicly Traded Banks under $2 Billion in Assets for 2024. 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; the impact of the Order on our financial condition and results of operations; 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:
Steve Miller - President & CEO
Bhavneet Gill – EVP & CFO
(559) 439-0200