7690 N. Palm Avenue, Fresno, California 93711
559.439.0200
WWW.FRESNOFIRSTBANK.COM
“We strive to be the best company our
employees ever work for, the best
bank our customers ever do business
with, and the best investment our
shareholders ever make!”
-CFST Employee/Owner
Message from the Chairman of the Board and President & CEO
To Our Shareholders:
Fresno First Bank had an outstanding year in 2015 and we will continue to build upon the
momentum in 2016. We anticipate seeing continued growth and great results in the years to
come. This past year our Bank has been recognized on many levels. We received the honor
of being named by Forbes as one of the Best 25 Small Businesses in America, we also received
the All-Star Performer Award from the Great Game of Business and we have been named the Top
Community Bank SBA Lender in the Central Valley for the third consecutive year.
Our unique style of banking has been serving the greater Fresno community for 10 years now. We
continue to look for ways to expand our services and remain on the cutting edge of banking. Our
entire team is focused on increasing our assets and loans through the high touch service we bring to
each and every client.
Relationships are a very important part of our culture. Our passion and commitment to execute is
the foundation of our business as we strive to build long lasting relationships with our clients.
We are grateful to our loyal shareholders and wish to thank you for placing your confidence in our
team. We look forward to many exciting developments in the future, with long-term shareholder
value as our number one goal.
Sincerely,
David Price
Chairman of the Board
Steve Miller
President & CEO
Mission Statement
The mission of Fresno First Bank is to become the Bank of choice for business owners,
professionals, entrepreneurs and individuals that value a high touch approach, or “relationship”
approach to their banking needs. We will accomplish this by:
• Developing an ownership culture that fosters a working environment which encourages professional
and financial growth and entrepreneurial freedom.
• Committing to exceed customer service expectations for quality, responsiveness and professional
excellence.
• Generating a superior return for our shareholders while investing in the communities we serve.
Values Statement
Fresno First Bank will be the Bank of choice for successful businesses and individuals who
value superior service and a relationship approach to their banking and financing needs.
Our group of experienced professional bankers will help clients navigate through complex
financial choices which will ultimately assist in stimulating economic growth in our community.
Our commitment to an ownership culture will foster an exceptional work environment that generates
a fair return for our shareholders.
We Value:
Core Values
• The highest standard of ethical behavior and professional integrity.
• An owner-orientated working environment dedicated to teamwork that encourages respect and
dignity, while recognizing and rewarding innovation and exceptional performance.
• Proactive, solutions-orientated recommendations that consistently exceed client expectations.
• The loyalty of our client relationships gained by knowing, understanding and placing their
needs first.
The following graphs represent the solid growth that Fresno First Bank has experienced over the
last 10 years.
Total Loans
Total Deposits
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Loans
Total Deposits
Total Assets
Shareholders Equity, Net
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Assets
Shareholders Equity, Net
200,000,000
180,000,000
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
300,000,000
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
CONTENTS
INDEPENDENT AUDITOR’S REPORT ................................................................................................
1
CONSOLIDATED FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS ..........................................................................................
CONSOLIDATED STATEMENTS OF INCOME ............................................................................
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ...........................................
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ......................
CONSOLIDATED STATEMENTS OF CASH FLOWS ...................................................................
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..........................................................
2
3
4
5
6
8
Crowe Horwath LLP
Independent Member Crowe Horwath International
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Communities First Financial Corporation
Fresno, California
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Communities First Financial
Corporation which comprise the consolidated balance sheet as of December 31, 2015, and the related
consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash
flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no
such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Communities First Financial Corporation as of December 31, 2015, and the results of
its operations and its cash flows for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Other Matter
The consolidated financial statements of Communities First Financial Corporation as of December 31,
2014, were audited by other auditors whose report dated March 20, 2015, expressed an unmodified
opinion on those statements. The report included an emphasis-of-matter paragraph regarding the bank
holding company reorganization which was effective November 7, 2014, as discussed in Note 1 to the
consolidated financial statements, whereby Communities First Financial Corporation became the parent
holding company of Fresno First Bank. Their opinion was not modified for this matter.
Sacramento, California
March 28, 2016
Crowe Horwath LLP
1.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 2015 and 2014
ASSETS
Cash and due from banks
Federal funds sold
Interest
bearing deposits in banks
2015
2014
$
11,805,379
14,099,481
6,000,000
$
6,800,028
6,525,000
5,250,000
‐
Total cash and cash equivalents
31,904,860
18,575,028
Certificates of deposit
for
Securities available
Loans, net
Correspondent bank stock, at cost
Premises and equipment
Interest receivable and other assets
sale
‐
‐
5,695,000
68,775,094
184,839,048
1,649,175
167,564
3,007,170
5,200,457
65,753,890
159,380,441
1,595,610
327,453
2,492,251
Total assets
$ 296,037,911
$ 253,325,130
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Interest payable and other liabilities
$ 268,111,310
948,761
$ 227,844,086
754,412
Total liabilities
269,060,071
228,598,498
Commitments and contingencies (Notes 4 and 11)
Shareholders’ equity:
Preferred stock – 5,000,000 shares authorized,
$100 par value Series A shares, 0 and 60,593
issued and outstanding in 2015 and 2014, respectively
Common stock – 5,000,000 shares authorized,
no par value; 2,698,417 and 1,967,502 shares issued
and outstanding in 2015 and 2014, respectively
Additional paid
Accumulated deficit
Accumulated other comprehensive income
in capital
‐
-
5,676,907
25,882,391
1,033,984
(300,493)
361,958
19,521,640
1,660,404
(2,536,308)
403,989
Total shareholders’ equity
26,977,840
24,726,632
Total liabilities and shareholders’ equity
$ 296,037,911
$ 253,325,130
See accompanying notes to the financial statements.
2.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 2015 and 2014
Interest income:
Interest and fees on loans
Interest on investment securities
Interest on federal funds sold and other
2015
2014
$
$
9,493,697
1,333,246
213,759
8,367,242
1,482,304
120,609
Total interest income
11,040,702
9,970,155
Interest expense:
Interest on savings deposits, NOW,
and money market accounts
Interest on time deposits
Interest on other borrowings
Total interest expense
Net interest income
Provision for loan losses
210,236
211,399
389
422,024
183,083
239,240
317
422,640
10,618,678
9,547,515
270,000
380,000
Net interest income after provision for loan losses
10,348,678
9,167,515
Non
interest income:
Service charges on deposits
‐
Mortgage fee income
Gain (loss) on sale of investment securities
Gain on sale of loans held
Gain on sale of other real estate owned
Other operating income
sale
for
‐
‐
706,192
-
68,285
389,293
-
162,738
607,843
64,975
(105,380)
320,839
7,407
176,846
Total non
interest income
1,326,508
1,072,530
Non
‐
interest expenses:
Salaries and employee benefits
‐
Occupancy and equipment expenses
Regulatory assessments
Data processing fees
Professional fees
Marketing and business promotion
Director fees and stock
Other expenses
Total non
‐
interest expenses
based compensation
Income before income taxes
‐
Provision for income taxes
Net income
Preferred stock dividends
Net income available to common shareholders
Net income per share – basic
Net income per share – diluted
4,182,271
595,494
182,000
532,661
428,462
386,762
247,996
984,094
3,981,870
643,803
206,000
453,232
359,960
290,298
213,422
781,046
7,539,740
6,929,631
4,135,445
3,310,414
1,596,282
1,192,000
2,539,163
302,965
2,236,948
1.01
.93
$
$
$
$
$
2,118,414
303,983
1,814,431
0.92
0.79
$
$
$
$
$
See accompanying notes to the financial statements.
3.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2015 and 2014
Net income
$
2,539,163
$
2,118,414
2015
2014
Available
for
sale securities:
Unrealized holding (losses) gains during the year
‐
Reclassification adjustment for (gains) losses realized
in net income
‐
Net unrealized (losses) gains
Income tax benefit (expense)
Other comprehensive (loss) income
(2,954)
2,303,034
(68,285)
105,380
(71,239)
2,408,414
29,208
(987,449)
(42,031)
1,420,965
Total comprehensive income
$
2,497,132
$
3,539,379
See accompanying notes to the financial statements.
4.
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.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015 and 2014
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization of premises
and equipment
Amortization and accretion of premiums and
discounts on securities available
Provision for loan losses
(Gain) loss on sale of investment securities
for
‐
sale, net
‐
sale
Gain on sale of loans held
Gain on sale of other real estate owned
for
Originations of loans held
Proceeds from sale of loans held
for
sale
‐
for
based compensation
‐
sale
‐
Stock
‐
‐
‐
‐
(Increase) decrease in deferred taxes
Increase in interest payable and
other liabilities
(Increase) decrease in interest receivable and
other assets
2015
2014
$
2,539,163
$
2,118,414
210,268
253,599
620,635
270,000
(68,285)
(389,293)
0
7,543,070
(7,153,777)
40,549
448,703
380,000
105,380
(320,839)
(7,407)
6,587,725
(5,206,999)
31,293
(38,000)
362,000
194,349
307,983
(476,919)
246,226
Net cash from operating activities
3,291,760
5,306,078
Cash flow from investing activities
Purchase of certificates of deposit
Proceeds from maturities of certificates of deposit
Purchase of available
Proceeds from maturities of available
‐
Proceeds from sale of available
Net increase in loans
Purchase of correspondent bank stock
Proceeds from sale of other real estate owned
Purchases of premises and equipment
sale securities
for
sale securities
for
for
‐
‐
‐
‐
‐
sale securities
(1,739,000)
1,244,457
(24,120,133)
18,139,949
2,364,599
(25,728,607)
(53,565)
-
(50,379)
(4,206,000)
499,543
(13,270,146)
7,727,463
7,981,648
(27,269,393)
(467,890)
2,030,900
(65,268)
Net cash from investing activities
(29,942,679)
(27,039,143)
(Continued)
6.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2015 and 2014
2015
2014
Cash flows from financing activities
Net increase in demand deposits and savings accounts
Net increase (decrease) in time deposits
Cash paid in lieu of fractional shares
Payment of dividends on Series A preferred stocks
Proceeds of issuance of common stock
$
36,336,947
3,930,277
(383)
(302,965)
16,875
$
33,734,521
(2,917,299)
(303,983)
‐
Net cash from financing activities
39,980,751
‐
30,513,239
Net increase in cash and cash equivalents
13,329,832
8,780,174
Cash and cash equivalents, beginning of year
18,575,028
9,794,854
Cash and cash equivalents, end of year
$
31,904,860
$
18,575,028
Supplemental disclosures of cash flow information:
Interest paid
Taxes paid
Non-cash financing activities:
Conversion of preferred stock
$
$
422,013
1,930,000
$
$
425,035
539,500
$
5,676,907
$
38,131
See accompanying notes to the financial statements.
7.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Communities First Financial Corporation (the Company) conform to
accounting principles generally accepted in the United States of America and general practices within the
banking industry. A summary of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements is as follows:
Nature of Operations: On November 7, 2014 (the Effective Date), a bank holding company reorganization
was completed whereby Communities First Financial Corporation became the parent holding company of
Fresno First Bank (the Bank). On the Effective Date, each of the Bank’s outstanding shares of common stock
converted into an equal number of shares of common stock of Communities First Financial Corporation, and
the Bank became its wholly-owned subsidiary. The Company’s administrative headquarters is based in
Fresno, California.
The Bank is incorporated in the state of California and organized as a single operating segment that operates
one full-service office in Fresno, California. The Bank’s primary source of revenue is providing loans to
customers, who are predominately small and middle-market businesses and individuals.
Consolidation: The consolidated financial statements include the accounts of Communities First Financial
Corporation and its wholly owned subsidiary, Fresno First Bank. Intercompany accounts and transactions
have been eliminated in consolidation.
Estimates: In preparing consolidated financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and revenues and expenses during the reported year. Actual results could differ from
those estimates.
Concentrations of Credit Risk: Assets and liabilities that subject the Company to concentrations of credit risk
consist of cash balances at other banks, loans, and deposits. Most of the Company’s customers are located
within Fresno County and the surrounding areas. The Company’s primary lending products are discussed in
Note 3 to the consolidated financial statements. The Company did not have any significant concentrations in
its business with any one customer or industry. The Company obtains what it believes to be sufficient
collateral to secure potential losses on loans. The extent and value of collateral varies based on the details
underlying each loan agreement.
As of December 31, 2015 and 2014, the Company has cash deposits at other financial institutions in excess
of FDIC insured limits. However, as the Company places these deposits with major financial institutions and
monitors the financial condition of these institutions, management believes the risk of loss to be minimal.
Banking regulations require that banks maintain a percentage of their deposits as reserves in cash or on
deposit with the Federal Reserve Bank. The Company complied with the reserve requirements as of
December 31, 2015 and 2014.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash equivalents include cash, due from
banks, interest-bearing deposits in financial institutions with maturities of 90 days or less, and federal funds
sold. Generally, federal funds are sold for one-day periods and interest-bearing deposits are for periods of 90
days or less.
(Continued)
8.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available-For-Sale: Available-for-sale securities consist of U.S. Treasury securities, U.S. agency
securities, obligations of states and political subdivisions, obligations of U.S. corporations, mortgage-backed
securities, and other securities not classified as trading securities or held-to-maturity securities. These
securities are carried at estimated fair value with unrealized holding gains and losses, net of tax, reported as
a separate component of accumulated other comprehensive income, until realized. Gains and losses on the
sale of available-for-sale securities are determined using the specific identification method. The amortization
of premiums and accretion of discounts are recognized as adjustments to interest income using the interest
method over the period to call or maturity.
Investments with fair values that are less than amortized cost are considered impaired. Impairment may result
from either a decline in the financial condition of the issuing entity or, in the case of fixed interest rate
investments, from rising interest rates. At each financial statement date, management assesses each
investment to determine if impaired investments are temporarily impaired or if the impairment is other than
temporary. This assessment includes a determination of whether the Company intends to sell the security, or
if it is more likely than not that the Company will be required to sell the security before recovery of its
amortized cost basis less any current-period credit losses. For debt securities that are considered other than
temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to
recovery of the amortized cost basis, the amount of impairment is separated into the amount that is credit
related (credit loss component) and the amount due to all other factors.
The credit loss component is recognized in earnings and is calculated as the difference between the
security’s amortized cost basis and the present value of its expected future cash flows. The remaining
difference between the security’s fair value and the present value of the future expected cash flows is
deemed to be due to factors that are not credit related and is recognized in other comprehensive income.
Loans: Loans are reported at the principal amount outstanding, net of deferred loan fees and costs and the
allowance for loan losses. Unearned discounts on installment loans are recognized as income over the terms
of the loans. Interest on other loans is calculated by using the simple interest method on the daily balance of
the principal amount outstanding.
Loan fees, net of certain direct costs of origination, are deferred and amortized over the contractual term of
the loan as an adjustment to the interest yield. During the years ended December 31, 2015 and 2014,
salaries and employee benefits expense totaling $75,215 and $99,356, respectively, were deferred as loan
origination costs.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of
interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of
interest or principal or when a loan becomes contractually past due by 90 days or more with respect to
interest or principal. When a loan is placed on non-accrual status, all interest previously accrued, but not
collected, is reversed against current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and
interest.
(Continued)
9.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for loan losses: The allowance for loan losses is established through a provision for loan losses
charged to operations. Loan losses are charged against the allowance for loan losses when management
believes that the collectability of the principal is unlikely. Subsequent recoveries of previously charged off
amounts, if any, are credited to the allowance.
Management employs a systematic methodology for determining the allowance for loan losses. On a regular
basis, management reviews the credit quality of the loan portfolio and considers problem and delinquent
loans, existing general economic conditions affecting the key lending areas of the Company, credit quality
trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific industry
conditions, recent loss experience, duration of the current business cycle, bank regulatory examination
results, and findings of the Company’s internal credit examiners. The allowance for loan losses at
December 31, 2015 and 2014 reflects management's estimate of probable incurred losses in the portfolio.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as
more information becomes available.
The allowance consists of specific, general, and unallocated components. The specific component relates to
loans that are classified as impaired. Impaired loans, as defined, are measured based on the present value of
expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if
the loan is collateral dependent. The general component relates to non-impaired loans and is based on
historical loss experience and loss history experienced by the Company’s peers when the Company did not
have losses in a particular loan class, adjusted for qualitative factors impacting the loan portfolio. An
unallocated component is maintained to cover uncertainties that could affect management’s estimate of
probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in
the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.
The Company considers a loan impaired when it is probable that all amounts of principal and interest due will
not be collected according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, borrower’s ability to repay, credit worthiness,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans
that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, current credit worthiness, and the
amount of the shortfall in relation to the principal and interest owed.
Troubled Debt Restructuring: In situations where, for economic or legal reasons related to a borrower’s
financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider,
the related loan is classified as a troubled debt restructuring. The Company measures any loss on the
troubled debt restructuring in accordance with the guidance concerning impaired loans set forth above.
Additionally, loans modified in troubled debt restructurings are generally placed on non-accrual status at the
time of restructuring. These loans are returned to accrual status after the borrower demonstrates
performance with the modified terms for a sustained period of time (generally six months) and has the
capacity to continue to perform in accordance with the modified terms of the restructured debt.
(Continued)
10.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Correspondent Bank Stock: The Company is a member of the Federal Home Loan Bank (FHLB) system.
Members are required to own a certain amount of stock based on the level of borrowings and other factors,
and may invest in additional amounts. The Bank held stock in the FHLB totaling $1,024,400 and $977,000 at
December 31, 2015 and 2014, respectively. FHLB stock is carried at cost, classified as a restricted security,
and periodically evaluated for impairment based on the ultimate recovery of par value. Both cash and stock
dividends are reported as income. FHLB stock was not considered impaired as of December 31, 2015 and
2014. The remaining balance in the correspondent bank stock account on the consolidated balance sheet
includes The Independent Bankers Bank (TIB) stock of $224,775 and $218,610 and Pacific Coast Bankers’
Bank (PCBB) stock of $400,000 and $400,000 at December 31, 2015 and 2014, respectively. TIB and PCBB
stock are carried at cost and were not considered impaired as of December 31, 2015 and 2014.
Premises and Equipment: Premises and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the estimated useful lives, which
range from three to seven years for computer equipment, equipment, furniture, and fixtures. Leasehold
improvements are amortized using the straight-line method over the estimated useful lives of the
improvements or the remaining lease term, whichever is shorter. Expenditures for betterments or major
repairs are capitalized and those for ordinary repairs and maintenance are charged to operations as incurred.
Advertising Costs: The Company expenses the costs of advertising in the year incurred. Advertising expense
was $278,562 and $192,118 for the years ended December 31, 2015 and 2014, respectively.
Other Real Estate Owned: Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at
fair value at the date of foreclosure, establishing a new cost basis by a charge to the allowance for loan
losses, if necessary. Fair value is based on current appraisals less estimated selling costs. Any subsequent
write-downs are charged against operating expenses and recognized as a valuation allowance. Operating
expenses of such properties, net of related income, and gains and losses on their disposition are included in
other operating expenses.
Loans Held For Sale: Loans held for sale include mortgage loans and are reported at the lower of cost or
market value. Cost generally approximates market value, given the short duration of these assets. Gains or
losses on the sale of loans that are held for sale are recognized at the time of the sale, subject to the
expiration of any warranty or recourse provisions, and determined by the difference between net sale
proceeds and the net book value of the loans, plus the estimated fair value of any retained mortgage
servicing rights, less the estimated discount associated with the unguaranteed portion of the sold loan that is
retained.
Income Taxes: The Company uses the asset and liability method to account for income taxes. Under such
method, deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their
respective tax basis (temporary differences). Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to
be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes in the period of enactment.
A valuation allowance against net deferred tax assets is established to the extent that it is more likely than not
that the benefits associated with the deferred tax assets will not be fully realized.
In accordance with accounting standards, the Company has assessed its tax positions and has concluded
there are no unrecognized tax benefits at December 31, 2015 and 2014.
(Continued)
11.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.
During the years ended December 31, 2015 and 2014, the Company recognized no interest and penalties.
The Company files a consolidated tax return in the U.S. federal jurisdiction and with the state of California and
has a tax sharing agreement with the Bank. The Company is subject to U.S. federal and state income tax
examinations by tax authorities for years beginning 2011.
Comprehensive Income: Changes in unrealized gains and losses on available-for-sale securities are the only
component of accumulated other comprehensive income for the Company.
Fair Value Measurement: Fair value is the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. Current accounting guidance
establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of
inputs that may be used to measure fair value:
Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets, that the entity has the
ability to access as of the measurement date.
Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3 - Significant unobservable inputs that reflect a Company’s own assumptions about the assumptions
that market participants would use in pricing an asset or a liability.
See Note 14 and Note 15 for more information and disclosures relating to the Company’s fair value
measurements.
Financial Instruments: In the ordinary course of business, the Company has entered into off-balance sheet
financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby
letters of credit as described in Note 11. Such financial instruments are recorded in the consolidated financial
statements when they are funded or related fees are incurred or received.
Earnings Per Share (EPS): Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such
as stock options, were exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. The treasury stock method is applied to determine the
dilutive effect of stock options when computing diluted earnings per share. The dilutive effect of convertible
preferred stock is calculated using the “if-converted method.” Under the if-converted method, securities are
assumed to be converted at the beginning of the period, and the resulting common shares are included in the
denominator of the diluted EPS calculation for the entire period being presented. Dividends on convertible
securities are added back to the numerator for purposes of the if-converted calculation.
Stock-Based Compensation: The Company recognizes the cost of employee services received in exchange
for awards of stock options, or other equity instruments, based on the grant-date fair value of those awards.
This cost is recognized over the period that an employee is required to provide services in exchange for the
award, generally the vesting period. See Note 12 for additional information on the Company’s stock option
plan.
(Continued)
12.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the
assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
Servicing Rights: The Company sells or transfers loans, including the guaranteed portion of various
government agencies’ loans (with servicing retained) for cash proceeds equal to the principal amount of
loans, as adjusted to yield interest to the investor based upon the current market rates. The Company records
an asset representing the right to service a loan for others when it sells a loan and retains the servicing rights.
The carrying value of the loan is allocated between the loan and the servicing rights, based on their relative
fair values. The fair value of servicing rights is estimated by discounting estimated future cash flows from
servicing using discount rates that approximate current market rates and estimated prepayment rates.
The servicing rights are initially measured at fair value and amortized in proportion to and over the period of
the estimated net servicing income assuming prepayments. Additionally, management assesses the servicing
rights for impairment as of each financial reporting date. For purposes of evaluating and measuring
impairment, servicing rights are based on a discounted cash flow methodology, current prepayment speeds,
and market discount rates. Any impairment is measured as the amount by which the carrying value of
servicing rights for a stratum exceeds its fair value. The carrying value of servicing rights at December 31,
2015 and 2014 were $209,615 and $95,472, respectively. No impairment charges were recorded for the
years ended December 31, 2015 or 2014 related to servicing assets.
Reclassifications: Certain reclassifications have been made to the 2014 consolidated financial statements to
conform to the classifications used in 2015.
(Continued)
13.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2 – INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available-for-sale are as follows:
Available
for
sale:
U.S. government and agency
‐
‐
securities
Mortgage
State and municipal agencies
backed securities
‐
Available
for
sale:
U.S. government and agency
‐
‐
securities
Mortgage
State and municipal agencies
backed securities
‐
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
2015
$
31,047,522 $
23,751,827
13,362,258
353,945 $
127,853
286,933
(70,535) $
(77,180)
(7,529)
31,330,932
23,802,500
13,641,663
$
68,161,607 $
768,731 $
(155,244) $
68,775,094
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
2014
$
28,033,151 $
22,736,848
14,299,165
458,999 $
176,953
253,746
(55,895) $
(119,008)
(30,069)
28,436,255
22,794,793
14,522,842
$
65,069,164 $
889,698 $
(204,972) $
65,753,890
The amortized cost and estimated fair value of all investment securities as of December 31, 2015 by
contractual maturities are shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized
Estimated
Fair Value
Within one year
One to five years
Five to ten years
Beyond ten years
266,801 $
$
12,399,373
18,267,859
37,227,574
266,801
12,461,726
18,328,330
37,718,237
$ 68,161,607 $ 68,775,094
(Continued)
14.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2 – INVESTMENT SECURITIES (Continued)
The gross unrealized loss and related estimated fair value of investment securities that have been in a
continuous loss position for less than twelve months and over twelve months are as follows:
2015
U.S. government and
agency securities
Mortgage
backed securities
State and municipal
‐
agencies
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$ 6,519,084 $
6,355,428
(50,457) $ 2,441,973 $
(44,812)
961,182
(20,078) $ 8,961,057 $
(32,368)
7,316,610
(70,535)
(77,180)
1,389,235
(7,529
0
0
1,389,235
(7,529)
$ 14,263,747 $
(102,798) $ 3,403,155 $
(52,446) $ 17,666,902 $
(155,244)
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
2014
U.S. government and
agency securities
Mortgage
backed securities
5,504,306
(21,221)
6,481,077
$ 2,868,285 $
(3,098) $ 6,205,346 $
(52,797) $ 9,073,631 $
(97,787)
1,985,383
(55,895)
(119,008)
State and municipal
‐
agencies
860,678
(2,044)
2,734,463
(28,025)
3,595,141
(30,069)
$ 9,233,269 $
(26,363) $ 15,420,886 $
(178,609) $ 24,654,155 $
(204,972)
Certain investment securities shown in the previous table currently have fair values less than amortized cost
and therefore contain unrealized losses. The Bank considers a number of factors including, but not limited to:
(a) the length of time and the extent to which the fair value has been less than the amortized cost, (b) the
financial condition and near-term prospects of the issuer, (c) the intent and ability of the Bank to retain its
investment for a period of time sufficient to allow for an anticipated recovery in value, (d) whether the debtor is
current on interest and principal payments, and (e) general market conditions and the industry-or sector-
specific outlook. Management has evaluated all securities at December 31, 2015 and 2014 and has
determined that no securities are other than temporarily impaired.
The Bank does not have the intent to sell the investments that are impaired, and it is more likely than not that
the Bank will not be required to sell those investments before recovery of the amortized cost basis. The Bank
has evaluated these securities and has determined that the decline in value is temporary and is related to the
change in market interest rates since purchase. The decline in value is not related to any issuer or industry-
specific event. These temporary unrealized losses relate principally to current interest rates for similar types
of securities. In analyzing an issuer’s financial condition, management considers whether the securities are
issued by the federal government or its agencies, whether downgrades by bond rating agencies have
occurred, and the results of reviews of the issuer’s financial condition. At December 31, 2015, there were 31
investment securities with unrealized losses. The Bank anticipates full recovery of amortized cost with respect
to these securities at maturity or sooner in the event of a more favorable market interest rate environment.
(Continued)
15.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2 – INVESTMENT SECURITIES (Continued)
Proceeds from the sales of investment securities totaled $2,364,599 and $7,981,648 during the years ended
December 31, 2015 and 2014, respectively. Gross realized gains totaled $78,808 and $103,562 during 2015
and 2014, respectively. Gross realized losses totaled $10,523 and $208,942 during 2015 and 2014,
respectively.
Investment securities carried at approximately $16,632,000 and $2,516,000 at December 31, 2015 and 2014,
respectively, were pledged to secure public deposits or other purposes as permitted or required by law.
NOTE 3 – LOANS
Major classifications of loans are as follows:
Commercial and industrial
Commercial real estate
Land and construction
Residential real estate
Agriculture
Consumer
Allowance for loan losses
Deferred loan fees and costs, net
2015
2014
$ 74,910,256 $ 60,931,287
56,378,310
63,534,864
7,717,903
11,823,378
14,628,999
15,069,169
22,704,848
23,232,211
44,796
37,613
188,607,489
162,406,143
(3,556,390)
(212,051)
(3,042,862)
17,160
$ 184,839,048 $ 159,380,441
The Bank’s loan portfolio consists primarily of loans to borrowers within Fresno County, California.
All of the Bank’s loans are underwritten by evaluating the borrower’s character, cash flow, collateral, and
credit worthiness and, for commercial and business loans, managerial and operational experience.
Underwriting standards are designed to promote relationship banking rather than transactional banking.
Commercial and industrial loans are primarily made to commercial and business entities for working capital,
equipment purchases, growth and expansion, and any other permissible purposes. The Bank’s management
examines current and projected cash flows to determine the ability of the borrower to repay its obligations as
agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and
secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may
not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are
secured by the assets being financed or other business assets such as equipment, accounts receivable, or
inventory and may incorporate personal guarantees or personal assets as collateral; however, some loans
may be made on an unsecured basis.
(Continued)
16.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
Commercial real estate loans are primarily made to owner-users of the property or investors with current
tenants in the property. Commercial real estate loans are subject to underwriting standards and processes
similar to commercial loans. These loans are viewed primarily as cash flow loans and secondarily as loans
secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and
the repayment of these loans is generally largely dependent on the successful operation of the property
securing the loan or the business conducted on the property securing the loan. Commercial real estate loans
may be more adversely affected by conditions in the real estate markets or in the general economy. The
properties securing the Bank’s commercial real estate portfolio are diverse in terms of type and industries
operating within the properties. This diversity helps reduce the Bank’s exposure to adverse economic events
that affect any single market or industry. Management monitors and evaluates commercial real estate loans
based on collateral type, geography, industry, and risk grade criteria.
Land and construction loans are primarily made to borrowers who are using the property for their own
purposes. Land loans are made with amortizing repayment terms to borrowers with proven, historic cash flow
sufficient to repay the loan. Collateral values are based on the current “as is” market value of the property.
Construction loans are made based on the borrower’s historic and projected cash flow. Risk arises from the
necessity to complete projects within specified cost and time limits. Trends in the construction industry may
also impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real
estate values significantly impact the credit quality of these loans, as property values determine the economic
viability of future construction projects.
Residential real estate loans are made to individuals for the purchase or refinance of residential 1-to-4 family
properties for investment purposes. Residential real estate loans are underwritten similar to commercial and
industrial and commercial real loans. Residential real estate loans may be more adversely affected by
conditions in the real estate markets or in the general economy.
Agricultural loans are primarily made to producers of agricultural products. Agricultural loans are subject to
underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash
flow loans and secondarily as loans secured by real estate and/or agricultural commodities. Agricultural real
estate lending typically involves higher loan principal amounts and the repayment of these loans is generally
largely dependent on the successful operation of the property securing the loan or the business conducted on
the property securing the loan. Agricultural crop loans may be more adversely affected by conditions in the
weather or in the general economy. The properties securing the Bank’s agricultural portfolio are diverse in
terms of type of crop. This diversity helps reduce the Bank’s exposure to adverse economic events that affect
any single commodity. Management monitors and evaluates agricultural real estate loans based on collateral,
crop type, geography, and risk grade criteria.
The Bank utilizes an independent third party loan review consultant to review and validate the credit risk
program on a periodic basis. Results of these reviews are presented to management and the Bank’s Board of
Directors. The loan review process complements and reinforces the risk identification and assessment
decisions made by lenders and credit personnel, as well as the Bank’s policies and procedures
(Continued)
17.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
Information related to impaired loans as of December 31, 2015 and for the year ended consisted of the
following:
Commercial
and
Industrial
Commercial Land and
Residential
Real Estate Construction Real Estate Agriculture Consumer
Total
Recorded investment in impaired loans:
With no specific allowance
recorded
With a specific allowance
recorded
Total recorded investment
in impaired loans
$
1,081,923 $
$
$
$
$
$
1,081,923
1,278,630
1,278,630
$
2,360,553 $
$
$
$
$
$
2,360,553
Unpaid principal balance of impaired loans:
With no specific allowance
recorded
With a specific allowance
recorded
Total unpaid principal
balance of impaired
loans
Specific allowance
Average recorded investment in
impaired loans during the year
Interest income recognized on
impaired loans during the year
$
1,081,923 $
$
$
$
$
$
1,081,923
1,278,630
1,278,630
$
$
2,360,553 $
1,278,630 $
$
$
$
1,794,910 $
392,112 $
$
$
14,626 $
$
$
$
$
$
$
$
$
$
$
2,360,553
$
1,278,630
$
$
2,187,022
1 $
$
$
14,627
Information related to impaired loans as of December 31, 2014 and for the year ended consisted of the
following:
Commercial
and
Industrial
Residential
Commercial Land and
Real Estate Construction Real Estate Agriculture Consumer
Total
Recorded investment in impaired loans:
With no specific allowance
recorded
With a specific allowance
recorded
$
Total recorded investment
in impaired loans
$
Unpaid principal balance of impaired loans:
With no specific allowance
recorded
With a specific allowance
recorded
Total unpaid principal
balance of impaired
loans
Specific allowance
Average recorded investment in
impaired loans during the year
Interest income recognized on
impaired loans during the year
$
$
$
$
$
$
‐
‐
- $
$
$
49,054 $
820,653
‐
820,653 $
‐
‐
- $
‐
49,054 $
$
‐
‐
- $
$
49,054
‐
‐
- $
820,653
869,707
$
$
$
49,054 $
$
$
49,054
820,653
‐
‐
‐
- $
820,653 $
- $
38,449 $
‐
‐
- $
- $
‐
49,054 $
- $
‐
‐
- $
- $
820,653
‐
‐
- $
869,707
- $
38,449
- $
829,861 $
- $
101,427 $
- $
- $
931,288
- $
19,027 $
- $
4,993 $
- $
- $
24,020
(Continued)
18.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
The Bank has established a loan risk rating system to measure and monitor the quality of the loan portfolio.
All loans are assigned a risk rating from the inception of the loan until the loan is paid off. The primary loan
grades are as follows:
Loans rated Pass – These are loans to borrowers with satisfactory financial support, repayment capacity, and
credit strength. Borrowers in this category demonstrate fundamentally sound financial positions, repayment
capacity, credit history, and management expertise. Loans in this category must have an identifiable and
stable source of repayment and meet the Bank’s policy regarding debt service coverage ratios. These
borrowers are capable of sustaining normal economic, market, or operational setbacks without significant
financial impacts. Financial ratios and trends are acceptable. Negative external industry factors are generally
not present. The loan may be secured, unsecured, or supported by non-real estate collateral for which the
value is more difficult to determine and/or marketability is more uncertain. These loans carry a normal degree
of risk. The borrowers have the capacity to perform according to terms; any deviation from historic
performance is limited and temporary.
Loans rated Special Mention – These are loans that have potential weaknesses that deserve management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset or in the Bank’s credit position at some future date. Special Mention assets are not
adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. These
loans exhibit a more weakened condition than Pass loans, but not to the degree where they would be
considered substandard. These loans show definite signs of deterioration or weakness, and the likelihood of
correction is somewhat questionable. Weaknesses might include significant earnings decline, collection of
accounts receivable is slowing, delayed accounts payable, greater dependency on line usage, and covenants
not being met and/or waived for short periods.
Loans rated Substandard – These are loans that are inadequately protected by the current sound worth and
paying capacity of the borrower or by the collateral pledged, if any. These loans have a well-defined
weakness or weaknesses that jeopardize the liquidation of the loan. They are characterized by the distinct
possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Loans rated Doubtful – These are loans that have all the weaknesses inherent in a loan classified as
Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on
the basis of currently known facts, conditions and values, highly questionable, and improbable. These loans
have a high probability of loss due to significant deterioration in financial condition of the borrower and
collateral value pledged, if any. The borrower is unable to demonstrate the ability to strengthen their financial
condition within a reasonable time; therefore, close supervision is required and the loan is placed on non-
accrual. The risk of loss is measured by an impairment analysis; any loss exposure determined through this
analysis is to be charged off.
(Continued)
19.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
The following table summarizes the loan portfolio by credit quality and product and/or collateral type as of
December 31, 2015:
Pass
Special
Mention
Substandard
Doubtful
Total
Grade:
Commercial and industrial
Commercial real estate
Land and construction
Residential real estate
Agriculture
Consumer
$ 72,207,229 $
63,534,864
11,823,378
14,775,364
23,232,211
37,613
- $
-
-
-
-
-
342,474 $
-
-
293,804
-
-
2,360,553 $ 74,910,256
63,534,864
11,823,378
15,069,169
23,232,211
37,613
-
-
-
-
-
Total
$
185,610,658 $ -
$ 636,279
$ 2,360,553
$ 188,607,489
The following table summarizes the loan portfolio by credit quality and product and/or collateral type as of
December 31, 2014:
Pass
Special
Mention
Substandard
Doubtful
Total
Grade:
Commercial and industrial
Commercial real estate
Land and construction
Residential real estate
Agriculture
Consumer
$ 56,871,911 $
825,529 $
52,601,572
7,717,903
14,286,001
22,704,848
44,796
3,233,847 $
3,776,738
342,998
‐
‐
‐
‐
‐
$ 7,353,583
‐
‐
‐
$ -
$ 60,931,287
56,378,310
7,717,903
14,628,999
22,704,848
44,796
‐
‐
‐
‐
‐
‐
$ 162,406,143
Total
$
154,227,031 $ 825,529
(Continued)
20.
-
-
-
-
-
‐
‐
‐
‐
‐
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2015:
30
59
Days
‐
Past Due
60
89
Days
‐
Past Due
Greater
Than
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
Commercial and industrial
Commercial real estate
-
Land and construction
Residential real estate
Agriculture
Consumer
Total
$
$
- $
-
-
-
-
-
- $
- $
-
2,360,553 $
-
-
-
-
-
-
-
-
-
2,360,553 $ 72,549,703 $ 74,910,256 $
-
63,534,864 63,534,864
-
-
-
-
-
11,823,378
15,069,169
23,232,211
37,613
11,823,378
15,069,169
23,232,211
37,613
- $
2,360,553 $
2,360,553 $ 188,607,489 $ 188,607,489 $
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2014:
30
59
Days
‐
Past Due
60
89
Days
‐
Past Due
Greater
Than
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
Commercial and industrial
Commercial real estate
Land and construction
‐
Residential real estate
Agriculture
Consumer
Total
$
$
$
‐
‐
‐
‐
-
‐
- $
$
3,269,247
‐
‐
$
‐
‐
‐
‐
3,269,247 $
‐
‐
‐
‐
‐
$
$ 60,931,287 $ 60,931,287 $
3,269,247
‐
53,109,063
56,378,310
7,717,903
14,628,999
22,704,848
44,796
7,717,903
14,628,999
22,704,848
44,796
‐
‐
‐
‐
3,269,247 $ 159,136,896 $ 162,406,143 $
‐
The following table shows the loans, segregated by class that were modified and considered troubled debt
restructurings during 2015:
‐
2015
Number of
Contracts
Pre-Modification Post-Modification
Outstanding
Recorded
Investment
Outstanding
Recorded
Investment
1 $
-
-
-
-
-
1,208,355 $
-
-
-
-
-
1,208,355
-
-
-
-
-
Commercial and industrial
Commercial real estate
Land and construction
Residential real estate
Agriculture
Consumer
Total
1 $
1,208,355 $
1,208,355
The troubled debt restructuring described above increased the allowance for loan losses by approximately
$1,190,000. During 2014, there were no loans that were modified and considered troubled debt
restructurings. During 2015 there were no troubled debt restructurings for which there was a payment default
within twelve months following the modification date.
The Bank has not committed to lend any additional amounts to customers with outstanding loans that are
classified as troubled debt restructurings.
(Continued)
21.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3 – LOANS (Continued)
Year end non-accrual loans, segregated by class, are as follows:
Commercial and industrial
Commercial real estate
Land and construction
Residential real estate
Agriculture
Consumer
2015
2014
$ 2,360,553 $
-
-
-
-
-
-
-
-
48,750
-
-
$ 2,360,553 $
48,750
(Continued)
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E
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 4 – PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Leasehold improvements
Furniture, fixtures, and equipment
Computer equipment
2015
2014
$ 1,217,831 $ 1,217,831
563,740
752,135
2,533,706
585,392
780,861
2,584,085
Less accumulated depreciation and amortization
(2,416,521)
(2,206,253)
$
167,564 $
327,453
The Bank has entered into a ten-year lease for its main banking and administrative offices. The Bank is
responsible for common area maintenance, taxes, and insurance to the extent they exceed the base year
amounts. The original lease was due to expire on January 31, 2016. During 2015 the Bank exercised the first
of two optional extensions to remain in its present location. The extended lease expires on January 31, 2021.
At December 31, 2015, the future lease rental payable under non-cancellable operating lease commitments
for the Bank’s main and administrative offices were as follows:
2016
2017
2018
2019
2020
Thereafter
$
322,170
322,170
322,170
331,836
340,961
28,483
$ 1,667,790
The minimum rental payments shown above are given for the existing lease obligations and are not a forecast
of future rental expense. Total rental expense was approximately $308,248 and 290,345 for the years ended
December 31, 2015 and 2014 respectively.
(Continued)
25.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 5 – DEPOSITS
Customer deposits were as follows:
interest
bearing demand
Non
Savings, NOW, and money market accounts
Time deposits under $250,000
Time deposits $250,000 and over
‐
‐
2015
2014
$ 120,303,379 $ 90,228,529
102,226,179
108,488,276
23,559,219
23,721,883
11,830,159
15,597,772
$ 268,111,310 $ 227,844,086
At December 31, 2015, the scheduled maturities of time deposits are as follows:
2016
2017
2018
2019
2020
Thereafter
$ 33,782,137
2,924,169
1,649,849
486,452
477,048
0
$ 39,319,655
NOTE 6 – BORROWING ARRANGEMENTS
The Bank may borrow up to $19,000,000 overnight on an unsecured basis from three correspondent banks.
The Bank may also borrow up to approximately $73,000,000 from the Federal Home Loan Bank of San
Francisco, subject to providing collateral and fulfilling other conditions of the credit facility. The Bank has
pledged investment securities of approximately $16,632,000 for the credit facility at Federal Home Loan Bank
of San Francisco. The Bank may also borrow from the Federal Reserve Bank of San Francisco, subject to
fulfilling other conditions of the credit facility and providing collateral. As of December 2015 and 2014, no
amounts were outstanding under these arrangements.
NOTE 7 – EMPLOYEE BENEFITS
The Company sponsors an employee stock ownership plan (ESOP) for eligible employees. Eligibility begins
after an employee has attained the age of 21 and completed one year of service, as defined in the ESOP
documents. Under the ESOP, the Company contributes a discretionary amount to the ESOP for the purchase
of the Company’s stock, to be held in trust for each participant to be distributed later in accordance with the
ESOP. For the years ended December 31, 2015 and 2014, contributions to the ESOP were $185,560 and
$181,782, respectively. The ESOP held 111,413 and 68,393 shares of common stock as of December 31,
2015 and 2014, respectively and there were no unearned shares of common stock held by the ESOP at
December 31, 2015 and 2014.
The Company sponsors a 401(k) plan for the benefit of its employees. The Company can match employee
contributions and make additional contributions annually as determined by the Board of Directors. The
Company made no contributions for the years ended December 31, 2015 and 2014.
(Continued)
26.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 8 – INCOME TAXES
The provision for income taxes for the years ended December 31 consists of the following:
Current
Federal
State
Deferred
Federal
State
Reversal of valuation allowance
2015
2014
$ 1,380,000 $
320,000
775,000
55,000
1,700,000
830,000
(187,000)
149,000
68,000
294,000
(38,000)
362,000
(66,000)
-
$ 1,596,000 $ 1,192,000
Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
principles with respect to income and expense recognition.
The following is a summary of the components of the net deferred tax asset accounts included in interest
receivable and other assets in the accompanying consolidated balance sheets at December 31:
Deferred tax assets:
Pre
operating expenses
Depreciation differences
‐
Allowance for loan losses due to tax limitations
Stock
based compensation
Operating loss carryforwards
‐
State tax deferral
Non-accrual loan interest
Other
Deferred tax liabilities:
Unrealized gains on available
for
sale securities
Other
‐
‐
Valuation allowance
2015
2014
$
86,000 $
319,000
771,000
42,000
-
109,000
45,000
133,000
1,505,000
103,000
225,000
659,000
274,000
98,000
-
110,000
‐
1,469,000
(252,000)
(116,000)
(280,000)
(118,000)
(368,000)
(398,000)
-
(66,000)
Net deferred income tax asset
$ 1,137,000 $ 1,005,000
(Continued)
27.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 8 – INCOME TAXES (Continued)
As of December 31, 2014, a valuation allowance of $66,000 was recorded for certain non-qualified stock
options the Company determined were more likely than not unable to be realized before option expiration. In
2015 the valuation allowance was reduced to zero as a result of the expiration and forfeiture of the stock
options related to the valuation allowance. The related deferred tax asset was written off in conjunction with
the valuation allowance. During 2015, the bank utilized all remaining California net operating loss carry-
forwards that existed at December 31, 2014. There is no further net operating loss carry-forward at
December 31, 2015.
The Company is subject to federal income tax and franchise tax of the state of California. Income tax returns
for the years ended December 31, 2014, 2013, and 2012 are open to audit by the federal authorities and
income tax returns for the years ended December 31, 2014, 2013, 2012, and 2011, are open to audit by state
authorities. Unrecognized tax benefits are not expected to significantly increase or decrease within the next
12 months.
NOTE 9 – RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain directors and their related interests
with which they are associated. The balance of these loans outstanding was approximately $492,000 and
$488,000 at December 31, 2015 and 2014, respectively.
Deposits from certain directors, officers, and their related interests with which they are associated, held by the
Bank at December 31, 2015 and 2014, amounted to approximately $3,621,000 and $3,511,000, respectively.
(Continued)
28.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 10 – EARNINGS PER SHARE (EPS)
Earnings per share for the years ended December 31 were computed as follows:
Basic earnings per share:
Net income
Dividends paid on Series A preferred stock
2015
2014
$ 2,539,163 $ 2,118,414
(303,983)
(302,965)
Net income available to common shareholders
Weighted average common shares outstanding
$ 2,236,198 $ 1,814,431
1,966,715
2,205,571
Basic earnings per share
$
1.01 $
0.92
Diluted earnings per share:
Net income available to common shareholders
Preferred stock dividends on convertible
Series A preferred stock
Net income available to common shareholders,
diluted
Weighted average common shares outstanding
Effect of dilutive stock options and restricted stock
Dilutive effect of Series A convertible preferred stock
Adjusted weighted average common shares outstanding,
diluted
$ 2,236,198 $ 1,814,431
302,965
303,983
$ 2,539,163 $ 2,118,414
1,966,715
33,893
668,038
2,205,571
73,399
445,359
2,724,329
2,668,646
Diluted earnings per share
$
0.93 $
0.79
At December 31, 2015 and 2014, there were 217,314 and 495,306 stock options and restricted stock grants,
respectively that could potentially dilute earnings per share in the future that were not included in the
computation of diluted earnings per share.
NOTE 11– COMMITMENTS
In the ordinary course of business, the Bank enters into financial commitments to meet the financing needs of
its customers. These financial commitments include commitments to extend credit and standby letters of
credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk not recognized
in the Company’s consolidated financial statements.
The Bank’s exposure to loan loss in the event of non-performance on commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments as it does for loans reflected in the consolidated financial
statements.
(Continued)
29.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 11 – COMMITMENTS (Continued)
As of December 31, 2015 and 2014, the Bank had the following outstanding financial commitments whose
contractual amount represents credit risk:
Commitments to extend credit
Letters of credit
2015
2014
$ 50,160,000 $ 46,107,000
1,240,000
‐
$ 51,400,000 $ 46,107,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since many of the commitments are expected to expire without being
drawn upon, the total amounts do not necessarily represent future cash requirements. The Bank evaluates
each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank, is based on management’s credit evaluation of the customer. The majority of the
Bank’s commitments to extend credit and standby letters of credit are secured by real estate.
NOTE 12 – STOCK OPTION PLAN
The Company’s 2005 Equity Based Compensation Plan (the Plan) was approved by its shareholders in
February 2006. Under the terms of the Plan, officers and key employees may be granted both non-qualified,
incentive stock options and restricted stock awards, and directors, who are not also an officer or employee,
may only be granted non-qualified stock options and restricted stock awards. The Plan provides for a
maximum number of shares that may be awarded to eligible employees and directors not to exceed 495,000
shares. In July 2012, the shareholders approved an additional 183,000 shares to be added to the Plan
increasing the total to 678,000 shares. In July 2015 the Shareholders approved the 2015 Equity Based
Compensation Plan to replace the 2005 plan which was due to expire at the end of 10 years. Upon approval,
the remaining unallocated shares in the 2005 Plan were transferred into the 2015 Plan for future grants. No
new shares were added to the 2015 Plan beyond those already approved under the 2005 plan. There are
774,782 shares authorized under the Plan. The total number of shares authorized has been retroactively
adjusted for the effect of stock dividends. Stock options are granted at a price not less than 100% of the fair
market value of the stock on the date of grant. Stock options expire no later than ten years from the date of
the grant and all equity-based awards generally vest over three years. The Plan provides for accelerated
vesting if there is a change of control, as defined in the Plan. The Company recognized stock based
compensation cost of $40,549 and $31,293 in 2015 and 2014, respectively. The Company did not recognize
tax expense related to stock-based compensation for either year ended December 31, 2015 and 2014.
The following table shows weighted average assumptions used in valuing stock options granted for the years
ended December 31:
Expected volatility
Expected term
Expected dividends
Risk free rate
Grant date fair value
2015
2014
18.10%
6.5 years
None
1.64%
$
1.62 $
18.99%
6.5 years
None
1.83%
2.23
(Continued)
30.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 12 – STOCK OPTION PLAN (Continued)
Since the Company has a limited amount of historical stock activity, the expected volatility is based on the
historical volatility of similar banks that have a longer trading history. The expected term represents the
estimated average period of time that the options remain outstanding. Since the Company does not have
sufficient historical data on the exercise of stock options, the expected term is based on the “simplified”
method that measures the expected term as the average of the vesting period and the contractual term. The
risk free rate of return reflects the grant date interest rate offered for U.S. Treasury bonds over the expected
term of the options.
A summary of the status of stock options that have been granted by the Company as of December 31, 2015,
and changes during the year ending thereon, is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Shares
Outstanding at beginning of year
Granted
Exercised
Forfeited, expired, or returned to
Plan through cashless exercise
Outstanding at end of year
Options exercisable
529,199
4,500
47,906
210,080
275,713
192,136
$
$
$
$
$
$
9.27
10.37
8.62
8.65
9.89
8.82
3.6 years
3.0 years
$
$
256,583
256,583
Included in the stock options exercised during 2015, there were 45,012 that represent cashless stock option
exercises and 2,894 which represent exercises where cash of $16,875 was received upon exercise.
As of December 31, 2015, there was approximately $19,801 of total unrecognized compensation cost related
to the outstanding stock options that will be recognized over a weighted average period of 1.3 years.
Share Award Plan: The Equity Compensation Plan provides for the issuance of restricted shares to directors
and officers. Compensation expense is recognized over the vesting period of the awards based on the fair
value of the stock at the issue date. The fair value of the stock was determined based on the closing price
listed for the Company’s stock on the date of grant.
(Continued)
31.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 12 – STOCK OPTION PLAN (Continued)
A summary of changes in the Company’s nonvested restricted share grants for the year follows:
Nonvested Shares
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested at January 1, 2015
Granted
Vested
Forfeited
0 $
0
15,000
10.25
0
0
Nonvested at December 31, 2015
15,000 $
10.25
As of December 31, 2015, there was approximately $145,208 of total unrecognized compensation cost
related to the outstanding restricted stock grants that will be recognized over a weighted average period of
2.8 years.
NOTE 13 – REGULATORY MATTERS
Banks are subject to regulatory capital requirements administered by federal banking agencies. Capital
adequacy guidelines and prompt corrective action regulations, involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital
amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking
Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on
January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule,
and fully phased in by January 1, 2019. The net unrealized gain or loss on available for sale securities is not
included in computing regulatory capital. Capital amounts and ratios for December 31, 2014 are calculated
using Basel I rules. Management believes as of December 31, 2015, the Company and Bank meet all capital
adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized, regulatory approval is required to
accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At year-end 2015 and 2014, the most recent regulatory
notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that management believes have changed the
institution’s category.
(Continued)
32.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 13 – REGULATORY MATTERS (Continued)
Actual and required capital amounts and ratios are presented below (dollar amounts in thousands):
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
$
$
$
$
$
$
$
26,353
15.4% $
7,706
>4.5% $
11,130
>6.5%
28,511
16.7% $
13,699
>8.0% $
17,124
>10.0%
26,353
15.4% $
10,274
>6.0% $
13,699
>8.0%
26,353
8.8% $
12,006
>4.0% $
15,007
>5.0%
25,529
18.3% $
11,170
> 8.0% $
13,962
> 10.0%
23,768
17.0% $
5,585
> 4.0% $
8,377
> 6.0%
23,768
9.1% $
10,493
> 4.0% $
13,116
> 5.0%
December 31, 2015:
Common Equity Tier I Capital
Weighted Assets)
(to Risk
Total Capital
(to Risk
Tier I Capital
(to Risk
Tier I Capital
(to Average Assets)
‐
‐
Weighted Assets)
‐
Weighted Assets)
December 31, 2014:
Total Capital
(to Risk
Tier I Capital
(to Risk
Tier I Capital
(to Average Assets)
‐
Weighted Assets)
‐
Weighted Assets)
The California Financial Code provides that a bank may not make a cash distribution to its shareholders in
excess of the lessor of the bank’s undivided profits or the bank’s net income for its last three fiscal years less
any distributions made to shareholders during the same period without the approval in advance of the
Commissioner of the California Department of Business Oversight.
NOTE 14 – FAIR VALUE MEASUREMENT
The following is a description of valuation methodologies used for assets and liabilities recorded at fair value:
Securities – The fair values of securities available-for-sale are determined matrix pricing, which is a
mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark
securities (Level 2).
Loans Held For Sale – The Bank does not record loans held for sale at fair value on a recurring basis. Loans
held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on
what secondary markets are currently offering for portfolios with similar characteristics (Level 2).
Collateral-Dependent Impaired Loans – The Bank does not record loans at fair value on a recurring basis.
However, from time to time, fair value adjustments are recorded on these loans to reflect: (1) partial write-
downs, through charge offs or specific reserve allowances, that are based on the current appraised or market-
quoted value of the underlying collateral, or (2) the full charge off of the loan carrying value. In some cases, the
properties for which market quotes or appraisal values have been obtained are located in areas where
comparable sales data is limited, outdated, or unavailable. Fair value estimates for collateral-dependent impaired
loans are obtained from real estate brokers or other third-party consultants. Adjustments are routinely made in
the appraisal process by the appraisers to adjust for differences between the comparable sales and income data
available. There were no collateral-dependent impaired loans measured at fair value at December 31, 2015.
There were no collateral-dependent impaired loans measured at fair value at December 31, 2014.
(Continued)
33.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 14 – FAIR VALUE MEASUREMENT
The following table summarizes the Company’s assets that were measured at fair value on a recurring and
non-recurring basis at December 31, 2015:
Description of Assets
Securities available
for
sale (recurring)
U.S. government and agency
‐
‐
securities
Mortgage
backed securities
State and municipal agencies
‐
Total
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2015
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
$ 31,330,932
23,802,500
13,641,663
$
$ 68,775,094
$
-
-
-
-
$ 31,330,932
23,802,500
13,641,663
$
$ 68,775,094
$
-
-
-
-
The following table summarizes the Company’s assets that were measured at fair value on a recurring and
non-recurring basis at December 31, 2014:
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2014
Description of Assets
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
Securities available
for
sale (recurring)
U.S. government and agency
‐
‐
securities
Mortgage
backed securities
State and municipal agencies
‐
Total
$ 28,436,255
22,794,793
14,522,842
$
$ 65,753,890
$
$ 28,436,255
22,794,793
14,522,842
$
$ 65,753,890
$
‐
‐
‐
‐
‐
‐
‐
‐
(Continued)
34.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 15 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a
current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are
made at a specific point in time based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale at
one time the entire holdings of a particular financial instrument. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on financial instruments both on and off the balance sheet without attempting
to estimate the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Additionally, tax consequences related to the realization of the unrealized
gains and losses can have a potential effect on fair value estimates and have not been considered in many of
the estimates.
The following methods and assumptions were used by the Company in estimating fair values of financial
instruments:
Financial Assets – The carrying amounts of cash, short-term investments due from customers on
acceptances, and bank acceptances outstanding are considered to approximate fair value. Short-term
investments include federal funds sold, securities purchased under agreements to resell, and interest bearing
deposits with banks. The fair values of securities available for sale are generally based on matric pricing,
which is a mathematical technique used widely in the industry to value debt securities without relying
exclusively on quoted prices for specific securities, but rather by relying on the securities’ relationship to other
benchmark securities. The fair value of variable loans that reprice frequently and that have experienced no
significant change in credit risk is based on carrying values. The fair values for all other loans are estimated
using discounted cash flow analyses and interest rates currently being offered for loans with similar terms to
borrowers with similar credit quality. Loans are generally expected to be held to maturity and any unrealized
gains or losses are not expected to be realized. Fair value for correspondent bank stock is not practical to
determine due to restrictions on transferability. Fair value for interest receivable approximates its carrying
value.
Financial Liabilities – The carrying amounts of deposit liabilities payable on demand, commercial paper, and
other borrowed funds are considered to approximate fair value. For fixed maturity deposits, fair value is
estimated by discounting estimated future cash flows using currently offered rates for deposits of similar
remaining maturities. The fair value of interest payable approximates its carrying amount.
Off-Balance Sheet Financial Instruments – The fair value of commitments to extend credit and standby letters
of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the credit standing of the counterparties. The fair value of the
commitments is not material.
(Continued)
35.
COMMUNITIES FIRST FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 15 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair value of financial instruments at December 31 is summarized as follows (in thousands):
Financial assets:
Cash and cash equivalents
Certificates of deposit
Securities available
for
Loans, net
‐
Loans held for sale
sale
‐
Correspondent bank stock
Interest receivable
Financial liabilities:
Deposits
Interest payable
2015
2014
Carrying
Amount
Estimated Fair Value Carrying
Amount
Fair Value Hierarchy
Estimated Fair Value
Fair Value Hierarchy
$
31,905 $
5,695
68,775
184,839
-
1,649
1,168
31,905
5,695
68,775
183,988
-
N/A
1,168
Level 1 $
Level 1
Level 2
Level 3
N/A
Level 2
18,575 $
5,200
65,754
159,380
-
1,137
1,049
18,575
5,200
65,754
161,503
-
N/A
1,049
268,111
41
255,356
41
Level 2
Level 2
227,844
30
228,148
30
Level 1
Level 1
Level 2
Level 3
N/A
Level 2
Level 2
Level 2
NOTE 16 – SUBSEQUENT EVENTS
The Company has evaluated the effects of subsequent events that have occurred after the period ending
December 31, 2015 and through March 28, 2016 which is the date the consolidated financial statements were
available to be issued.
36.
Sheila Frowsing, Director - President/CEO Sheila Kamps Insurance Agency
Jack Holt, Director - President of Holt Lumber Company, Inc.
Board of Directors
Dr. Robert Kubo, Director - Orthodontist, Kubo Orthodontic Group
Lorrie Lorenz, Director - Principal of Lorenz & Associates
Jared Martin, Director - Realtor, Keller Williams Realty
Steve Miller, Director - President & CEO of Fresno First Bank
David Price, Chairman - President/CEO David N. Price & Associates
Mark Saleh, Director - President of Wm. B. Saleh & Company
Joel Slonski, Director - Joel Slonski, CPA
Al Smith, Director – Former President/CEO Fresno Chamber of Commerce
Dr. Daniel Suchy, Director - Retired Physician
Employee Owners
Brandon Anaya, Customer Service Rep.
Jarod Ashton, VP/Commercial Loan Officer
Lisa Bassill, AVP/ Personal Banker
Tobi Burnes, Loan Documentation Clerk
Debbie Cameron, VP/Executive Secretary
Seven Campos, Merchant Services Officer
Steve Canfield, EVP/Chief Financial Officer
Lanny Chan, VP/Personal Banker
Craig DeShields, SVP/Senior Loan Officer
Ken Dodderer, SVP/Agri-Business Manager
Laura Drake, Customer Service Rep.
Pat Durkin, VP/SBA Loan Officer
Mary Edsberg, Loan Assistant
Regina Elisarraraz, Customer Service Rep.
Michael Fanucchi, SVP/SBA Dept. Manager
Catherine Fitzgerald, VP/Merchant Services
Melissa Gamez, Accounting Assistant
Evangelina Gonzalez, SVP/Operations
Julie Henvit, AVP/Operations Officer
David Kraechan, SVP/Commercial Loan Officer
Ryan McAbee, VP, Compliance Officer
Steve Miller , President & CEO
Michael Ossanna, VP/Commercial Loan Officer
Teresa Palsgaard, VP/Relationship Manager
Elizabeth Parsons, SBA Processor
Jennifer Peterson, VP, Customer Service Manager
Lee Reed, EVP/Chief Credit Officer
Margaret Rodriguez, Loan Assistant
Ruth Setencich, Business Banking Officer
Alice Shevenell, VP/Loan Services Manager
Noel Terriquez, Commercial Loan Analyst
Bradley Wakefield, Documentation Specialist
Nick Ward, Senior Loan Underwriter
Melanie Welch, SBA Loan Processor
Annual Meeting of Shareholders
Thursday, May 19, 2016 at 5:30 pm
Fort Washington Country Club
10272 N. Millbrook
Fresno, CA 93730
Corporate Office:
Communities First Financial Corp.
7690 N. Palm Avenue, Suite 101
Fresno, CA 93711
559.439.0200
Transfer Agent:
Continental Stock Transfer & Trust Co.
17 Battery Place
New York, NY 10004
212.509.4000
Independent Auditors:
Crowe Horwath, LLP
400 Capitol Mall, Suite 1400
Sacramento, CA 95814
916.441.1000
Legal Counsel:
Stuart & Moore
641 Higuera Street, Suite 302
San Luis Obispo, CA 93401
805.545.8590
Stock Facilitators:
Michael Natzic - Crowell, Weedon & Co
800.288.2811
Joey Warmerhoven – Wedbush Securities
866.662.0351
Tom Weil – Stifel
559.437.4060
Robert Cook - Fig Partners, LLC
866.344.2657
Annual Meeting of Shareholders
Thursday, May 19, 2016 at 5:30 pm
Fort Washington Country Club
10272 N. Millbrook
Fresno, CA 93730
Corporate Office:
Communities First Financial Corp.
7690 N. Palm Avenue, Suite 101
Fresno, CA 93711
559.439.0200
Transfer Agent:
Continental Stock Transfer & Trust Co.
17 Battery Place
New York, NY 10004
212.509.4000
Independent Auditors:
Crowe Horwath, LLP
400 Capitol Mall, Suite 1400
Sacramento, CA 95814
916.441.1000
Legal Counsel:
Stuart & Moore
641 Higuera Street, Suite 302
San Luis Obispo, CA 93401
805.545.8590
Stock Facilitators:
Michael Natzic - Crowell, Weedon & Co
800.288.2811
Joey Warmerhoven – Wedbush Securities
866.662.0351
Tom Weil – Stifel
559.437.4060
Robert Cook - Fig Partners, LLC
866.344.2657
7690 N. Palm Avenue, Fresno, California 93711
559.439.0200
WWW.FRESNOFIRSTBANK.COM