7690 N. Palm Avenue, Fresno, California 93711
559.439.0200
WWW.FRESNOFIRSTBANK.COM
Message from the President & CEO
To Our Shareholders,
In 2017, the Bank achieved stellar results in regards to our key metrics. One of our main strategic
initiatives is to become a top 1% performing community bank, and we are well on our way to
that end. We surpassed an important milestone this year by growing past $400 million in assets.
Our single branch market model is a core strength, so it is important for us to achieve these mile-
stones and validate the potential of our business model.
Our team’s focused approach brought us success in all aspects of our business and during the
year total assets grew 12%, to $407.4 million, total deposits grew 12%, to $371.4 million, total
loans increased 16%, to $263.9 million and total after-tax profit increased 20% to $3.7 million.
The changes coming out of Washington will bring positive news to our industry through tax
reform and regulatory amendments. The new corporate tax rate will have an immediate favorable
impact to our core earnings starting in 2018, however, regulatory changes take a bit longer to
work through the system so we will wait to see the actual impact in the coming year.
In March of this year, the Bank announced the retirement of our Chairman and founding Board
member, David Price. He has been instrumental in developing the culture of the Bank, which
is rooted in the idea that by giving staff a “stake in the outcome” through our ESOP, the perfor-
mance of the Bank, the level of service for our customers and the return for our shareholders will
exceed the market. His leadership, enthusiasm and commitment to our vision and values have
been a driving force behind our success. Dave will be succeeded by Mark Saleh, who has been
our Vice-Chairman for the past 8 years. Through the smooth execution of our Board’s succession
plan, we are very encouraged by the opportunities lying ahead.
The Bank’s share price hit all-time highs throughout 2017 backed by our consistently strong fi-
nancial results. The team (employee owners through our ESOP) is proud of our performance and
happy to see that the market is finally recognizing the value of our franchise through our share
price. Thank you all for your continued support and we look forward to a great year in 2018.
Steve Miller
President & CEO
Mission Statement
We safeguard, invest, and move capital.
Vision Statement
We believe people deserve the opportunity
to achieve their aspirations and personal success.
Core Values
Teamwork:
• We value our diverse strengths, hold ourselves and each other accountable, and
have each other’s back.
Relationship:
• We build trust by being respectful and transparent with each other and our clients.
Authentic:
• We are honest, humble and have the courage to be vulnerable.
Commitment:
• We are resourceful, responsive and strive for excellence with pride of ownership.
“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
Chairman of the Board & Founding Director
In 2005, we opened Fresno First Bank. A great day, following nine
months of organizing and soliciting investors for our share offerings.
Our original Board of Directors; Gary Cocola, Morris Garcia, Jack
Holt, Robert Kubo, Mark Saleh, Joel Slonski, Al Smith, and Daniel
Suchy, pulled together and our shares were oversubscribed, which was
outstanding in my opinion.
Our mission from day one was to develop a culture of shared employee
ownership, utilizing the benefits of the Employee Stock Ownership Plan
(ESOP). I believe our culture was the major factor that helped us profit
even during the recession period of 2008-2011.
Fresno First Bank was recognized by the Great Game of Business with the All Star Award in
2015. In addition, Forbes Magazine recognized Fresno First Bank, in their March 2016 issue, as
one of the outstanding 25 small businesses in the United States. I personally, had the pleasure to
visit Forbes in New York City in 2017 to accept the award. This was a great honor to accept on
behalf of the employees, shareholders, and Board of Directors.
The time has come for me to step down as Chairman of the Board. It has been a great honor and
pleasure working with my fellow board members and representing the shareholders. Without the
shareholders, none of this would have been possible.
Per our organization's succession plan, Mark Saleh will become chairman, continuing the culture
and leadership we have strived for since the beginning. We all have faith in him.
Thank you for the privilege of serving as your Chairman of the Board for the past 13 years.
Dave Price
Chairman of the Board
Marketing Highlights
Fresno First Bank is Central California’s #1 SBA Community Bank
Lender Five Years Running
Fresno First Bank has been declared the top Community Bank SBA Lender for the 15 county Fresno District
for the fifth consecutive year. Fresno First Bank approved 37 SBA 7(a) loans totaling $16.7 million and
participated in SBA 504 loan approvals during the year which will yield approximately $15.6 million in
additional loans to small businesses in Central California.
“The credit for this recognition goes to our team. Their dedication and hard work has allowed us to keep the
top community bank lender spot in the Fresno District,” said Michael Fanucchi, our Senior Vice President. “As
a Preferred SBA lender, we are committed to the SBA Program,” said Fanucchi. “Our experienced team works
with a broad base of loans, including franchises and changes of ownership.”
Education and Training
Fresno First Bank partnered with California State University,
Fresno to provide internships, scholarships and through team
member participation on the Craig School of Business Board.
We also provided education and assistance to members of
Fresno SCORE through seminars to educate local entrepreneurs
on starting a business.
Two team members were accepted into the Fresno Chamber of
Commerce’s Leadership Fresno Program and are learning about
Fresno, its leaders, and how to affect changes in the community.
Fresno State University Football Tailgates
Fresno First Bank is a proud supporter of the Fresno State Athletic program. The Bank’s Tailgate space has
become a popular spot in the White Lot. We proudly welcome our customers to attend these events.
Community Involvement
Fresno First Bank team members adopted the Community Food Bank as their charity of choice in 2017. We
participated in 6 events ranging from food drives to warehouse work days.
In addition to the Fresno Community Food Bank, Fresno First Bank supported a variety of community partners
in 2017 with monetary donations, volunteer hours, and training and education. From the Heart Association, to
local teen sports, to Exceptional Parents Unlimited, our team members have proven that we live our values by
putting our community first.
Fresno First Bank team members supporting the Heart Association Wear Red Day.
Team Building
Fresno First Bank encourages our team members to have fun and build
strong relationships inside and outside of the bank. The team showcased
their skills through many team building activities.
Financial Highlights
Financial Highlights
the
the
Our earnings start with
top-line
revenue we generate. Our primary
revenue source is the net interest income
we earn from the loans and investments,
less
interest we pay depositors.
Additional revenue is generated from
services we provide and premiums from
loans we sell. We consider Core Revenue
the above less unusual or “one off” items
such as gains, or losses, from the sale of
securities or other assets which occur
occasionally but are not part of our normal
operations.
Core Revenue
$ in thousands
$20,000
$15,000
$10,000
$5,000
$0
In 2017, gross core revenue increased
16% compared to 2016. Over the last 5
years core revenue has doubled to $16.5
million.
2013
2014
2015
2016
2017
Interest Income
Non-Interest Income
Pre-Tax, Pre-Provison
Income
$ in thousands
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
2013
2014
2015
2016
2017
Pre-Tax, Pre-Provision Income
Pre-tax, pre-provision income may be one of
the best measures of the trend in operating
performance as it excludes the provision for
loans losses, which can be notoriously volatile
based on credit quality changes and portfolio
growth rates, and taxes which can vary year
to year based on differences in operating
activities, tax expense accruals, and changes
in tax rates.
In 2017, pre-tax, pre-provision
income
increased 17% compared to 2016 and since
2012 (over the past 5 years) is up 170%.
Net Income
$ in thousands
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2013
2014
2015
2016
2017
Net Income
Net income after tax is the bottom line number.
For 2017, net income increased 20% to $3.7
million, or $1.28 per share, compared to $3.1
million, or $1.12 per share for 2016.
With the signing into law of the Tax Cuts and
Jobs Act of 2017, generally accepted
tax
accounting principles require deferred
assets (DTAs) on corporate balance sheets be
revalued to reflect the net present value of the
future tax benefits based on the new 21% top
rate, which replaces the 35% top rate. As a
result of this accounting change, the Company
made a one-time adjustment to the value of its
DTAs causing a tax expense of $331,000.
The following table presents a year-to-year comparison of key financial results before the one-time
adjustment. Excluding the DTA adjustment, net income increased 30% for the year.
Comparison of 2017 vs. 2016 without the effect
of the accounting adjustment to deferred tax assets
Year to Date as of:
SELECT FINANCIAL INFORMATION AND
RATIOS (unaudited)
Dec. 31,
2017
Dec. 31,
2016
Percent Change
Income before DTA adjustment
$ 4,008
$ 3,074
Basic earnings per share before DTA
$ 1.42
$ 1.13
Fully diluted earnings per share before DTA
$ 1.39
$ 1.12
Return on average assets before DTA
Return on average equity before DTA
1.09%
12.23%
.98%
10.90%
30%
26%
25%
11%
12%
In 2017, the Company continued its robust,
organic growth.
Total assets increased 12% to $407.4 million at
December 31, 2017 compared to $363.5 million
at December 31, 2016.
Total loans grew 16% to $263.9 million at
December 31, 2017 from $227.7 million a year
ago.
Total deposits increased 12% to $371.4 million at
December 31, 2017 compared to $332.3 million
from a year earlier.
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
Balance Sheet
($ in millions)
2013
2014
2015
2016
2017
Net Loans
Deposits
Total Assets
$40
$35
$30
$25
$20
$15
$10
$5
$0
Capital and Leverage Ratio
($ in millions)
10.00%
9.50%
9.00%
8.50%
8.00%
7.50%
7.00%
2013
2014
2015
2016
2017
Total Capital
Capital to Assets - Leverage Ratio
the Board
Capital management is a key part of our business
that management and
take very
seriously. We strive to retain enough capital to
maintain well capitalized designations under
regulatory guidelines and provide for growth while
balancing returns for our shareholders.
Net shareholder’s equity increased to $34.6 million
at December 31, 2017 compared to $30.0 million
a year ago at December 31, 2016. The leverage
ratio also frequently referred to as the Tangible
Common Equity (TCE) Ratio increased from 8.23%
at December 31, 2016 to 8.49% at year-end
2017.
Our return on shareholders’ equity
in 2017
increased to 11.4% from 10.9% in 2016. The Book
value per common share
increased 11%
to
$12.18 at December 31, 2017 compared to $10.96
one year ago.
Our core deposit portfolio is the strength of
our franchise and our team shares a
common goal of driving new DDA account
acquisition.
demand
Noninterest-bearing
deposits
to $199.0 million at
increased 17%
December 31, 2017, representing 54% of
total deposits compared to $169.5 million
or 51% of total deposits one year ago.
$400
$300
$200
$100
$0
Strong Deposit Base
($ in millions)
2013
2014
2015
2016
2017
Non-Interest Bearing
Interest Checking
Savings
Money Market
Certificates of Deposit
$300
$200
$100
$0
Diversified Loan Portfolio
($ in millions)
2013
2014
2015
2016
2017
Residential RE
Land and Construction
Commercial RE
Agriculture
Commercial & Industrial
representing 51% of
The loan portfolio grew by 16% to $263.9 million
at December 31, 2017 from $227.7 million one
year ago. The portfolio is well diversified with
commercial and industrial loans totaling $133.9
million,
loans at
December 31, 2017. Commercial real estate (CRE)
loans totaled $76.3 million, or 29% of total loans.
Agriculture and land loans totaled $21.3 million, or
8% of loans, residential loans were $14.2 million, or
5% of loans, and real estate construction and land
development loans were $18.1 million, or 7% of
loans.
total
Of note, $86.9 million, or 33%, of the loan portfolio
are loans guaranteed by US Government programs
including the SBA, USDA and FSA.
At January 1, 2017, our stock was trading at $11.50 rising to $19.55 at year end, a 70% increase.
As of March 23, 2018 our stock was trading at $20.95.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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
7
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 sheets as of December 31, 2017 and 2016, and the
related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and
cash flows for the years 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 audits.
We conducted our audits 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, 2017 and 2016, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.
Sacramento, California
March 29, 2018
Crowe Horwath LLP
1.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
For the Years Ended December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
For the Years Ended December 31, 2017 and 2016
2017
2016
2017
2016
ASSETS
Cash and due from banks
Federal funds sold
Interest-bearing deposits in banks
$
5,731,158 $
43,765,000
5,240,000
6,879,474
52,604,573
2,908,171
ASSETS
Cash and due from banks
Federal funds sold
Interest-bearing deposits in banks
$
5,731,158 $
43,765,000
5,240,000
6,879,474
52,604,573
2,908,171
Total cash and cash equivalents
54,736,158
62,392,218
Total cash and cash equivalents
54,736,158
62,392,218
Certificates of deposit
Securities available-for-sale
Loans, net
SBIC investments and correspondent bank stock, at cost
Cash surrender value of life insurance
Premises and equipment
Interest receivable and other assets
5,199,000
72,663,649
260,609,698
2,243,609
8,072,190
269,960
3,623,438
Certificates of deposit
5,199,000
Securities available-for-sale
66,291,965
Loans, net
224,355,335
SBIC investments and correspondent bank stock, at cost
1,918,206
Cash surrender value of life insurance
-
Premises and equipment
167,730
Interest receivable and other assets
3,208,776
5,199,000
72,663,649
260,609,698
2,243,609
8,072,190
269,960
3,623,438
5,199,000
66,291,965
224,355,335
1,918,206
-
167,730
3,208,776
Total assets
$ 407,417,702
$ 363,533,230
Total assets
$ 407,417,702
$ 363,533,230
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest payable and other liabilities
$ 371,400,535 $ 332,330,704
1,272,597
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest payable and other liabilities
1,444,352
$ 371,400,535 $ 332,330,704
1,272,597
1,444,352
Total liabilities
372,844,887
333,603,301
Total liabilities
372,844,887
333,603,301
Commitments and contingencies (Notes 4 and 11)
Commitments and contingencies (Notes 4 and 11)
Shareholders’ equity:
Common stock - 5,000,000 shares authorized, no
par value; 2,837,313 and 2,732,043 shares issued
and outstanding in 2017 and 2016, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Shareholders’ equity:
26,634,874
1,400,202
6,458,314
79,425
25,943,065
1,111,062
2,774,616
101,186
Common stock - 5,000,000 shares authorized, no
par value; 2,837,313 and 2,732,043 shares issued
and outstanding in 2017 and 2016, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
26,634,874
1,400,202
6,458,314
79,425
25,943,065
1,111,062
2,774,616
101,186
Total shareholders' equity
34,572,815
29,929,929
Total shareholders' equity
34,572,815
29,929,929
Total liabilities and shareholders' equity
$ 407,417,702 $ 363,533,230
Total liabilities and shareholders' equity
$ 407,417,702 $ 363,533,230
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
2.
2.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2017 and 2016
Interest Income:
Interest and fees on loan
Interest on investment securities
Interest on federal funds sold and other
2017
2016
$
13,109,730
1,550,183
527,848
$
11,220,145
1,351,668
362,454
Total interest income
15,187,761
12,934,267
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
235,118
241,517
4
476,639
225,882
230,797
1,242
457,921
14,711,122
12,476,346
825,000
1,266,000
Net interest income after provision for loan losses
13,886,122
11,210,346
Non-interest income:
Service charges on deposits
Gain on sale of investment securities
Gain on sale of loans
Increase in cash surrender value of life insurance
Other
975,772
119,412
465,104
72,190
294,590
845,866
7,569
669,053
-
211,125
Total non-interest income
1,927,068
1,733,613
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-based compensation
Other expenses
5,384,920
664,325
281,600
661,744
467,937
458,050
387,838
866,470
4,606,768
515,668
202,900
558,765
434,913
315,649
274,623
912,685
Total non-interest expenses
9,172,884
7,821,970
Income before income taxes
6,640,306
5,121,989
Provision for income taxes
2,956,608
2,046,880
Net income
Net income per share - basic
Net income per share - diluted
$
$
$
3,683,698
1.31
1.28
$
$
$
See accompanying notes to the financial statements.
3,075,109
1.13
1.12
3.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2017 and 2016
Net income
$
3,683,698
$
3,075,109
Net income
$
3,683,698
$
3,075,109
2017
2016
2017
2016
Other comprehensive income (loss):
Available
for
sale securities:
Other comprehensive income (loss):
Available
for
sale securities:
Unrealized holding gains (losses) during the year
Reclassification adjustment for gains realized
‐
‐
in net income
60,666
(434,418)
(119,412)
(7,569)
Unrealized holding gains (losses) during the year
Reclassification adjustment for gains realized
in net income
‐
‐
Net unrealized losses
(58,746)
(441,987)
Net unrealized losses
Income tax benefit
Other comprehensive loss
36,985
181,215
Income tax benefit
(21,761)
(260,772)
Other comprehensive loss
60,666
(434,418)
(119,412)
(7,569)
(58,746)
(441,987)
36,985
181,215
(21,761)
(260,772)
Total comprehensive income
$
3,661,937
$
2,814,337
Total comprehensive income
$
3,661,937
$
2,814,337
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
4.
4.
I
Balances, January 1, 2016
N
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L
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Exercise of stock options
C
Net issuance of restricted stock awards
N
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F
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Net income
Net income
T
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Balances, December 31, 2016
R
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Issuance of common stock
S
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Stock based compensation
T
Exercise of stock options
N
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Balances, December 31, 2017
I
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COMMUNITIES FIRST FINANCIAL CORPORATION
6
1
6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
4
For the years ended December 31, 2017 and 2016
7
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-
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0
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,
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Amount
0
2
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,
3
8
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-
-
-
2
0
2
,
0
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0
4
Paid-in Capital
,
1
Retained
Earnings
Accumulated
Other
Comprehensive Shareholders’
Income (Loss)
$
1,033,984 $
(300,493) $
361,958 $ 26,977,840
l
-
-
-
-
-
2,698,417 $ 25,882,391 $
4
7
6
,
0
6
9
8
5
,
0
60,674
7
1
0
2
2
,
1
2
5
7,126
26,500
-
-
-
-
-
4
7
137,752
8
,
4
(60,674)
3
6
,
6
2
-
-
-
$
-
-
-
-
6
2,732,043
2
1
,
7
-
-
-
-
0
0
5
,
6
2
43,800
-
20,300
41,170
-
-
25,943,065
-
-
0
0
0
7
0
0
1
3
8
,
,
,
1
0
3
4
2
4
521,220
-
170,589
-
-
-
-
1,111,062
3
1
3
,
7
3
-
8
,
383,920
2
(94,780)
-
-
-
-
-
-
3,075,109
-
-
-
-
-
(260,772)
2,774,616
101,186
-
-
-
-
3,683,698
-
-
-
-
-
-
(21,761)
Total
.
s
t
n
e
Equity
m
e
t
a
t
s
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29,929,929
a
c
n
137,752
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n
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h
3,075,109
t
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(260,772)
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t
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521,220
n
a
383,920
p
m
75,809
o
-
c
c
a
3,683,698
e
(21,761)
e
S
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2,837,313 $ 26,634,874 $
1,400,202 $
6,458,314 $
79,425 $ 34,572,815
s
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See accompanying notes to the financial statements.
5.
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash from
operating activities:
equipment
Depreciation and amortization of premises and
Amortization and accretion of premiums and discounts
on securities available for sale, net
Provision for loan losses
Gain on sale of investment securities
Gain on sale of loans held for sale
Proceeds from sale of loans held for sale
Originations of loans held for sale
Stock based compensation
Increase in value of life insurance
Increase in interest receivable
Increase (decrease) in interest payable and other liabilities
Net (increase) decrease in other assets
Cash flow from investing activities
Purchase of certificates of deposit
Proceeds from maturities of certificates of deposit
Purchase of available
for
sale securities
Proceeds from maturities of available
for
sale securities
Proceeds from sale of available
for
sale securities
‐
‐
Net increase in loans
‐
‐
Purchase of SBIC investments and correspondent bank stock
‐
‐
Purchase of company owned life insurance
Purchases of premises and equipment
752,232
825,000
(119,412)
(465,104)
5,297,089
(4,831,985)
383,920
(72,190)
(369,778)
171,755
(44,884)
(748,000)
748,000
(24,260,786)
9,514,210
7,720,311
(37,079,363)
(325,403)
(8,000,000)
(144,429)
36,809,014
2,260,817
75,809
521,220
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2017 and 2016
2017
2016
2017
2016
$
3,683,698
$
3,075,109
Net income
Adjustments to reconcile net income to net cash from
operating activities:
Cash flows from operating activities
$
3,683,698
$
3,075,109
42,199
95,526
777,223
1,266,000
(7,569)
(669,053)
8,977,095
(8,308,042)
137,752
-
(437,459)
(370,605)
930,295
Depreciation and amortization of premises and
equipment
Amortization and accretion of premiums and discounts
on securities available for sale, net
Provision for loan losses
Gain on sale of investment securities
Gain on sale of loans held for sale
Proceeds from sale of loans held for sale
Originations of loans held for sale
Stock based compensation
Increase in value of life insurance
Increase in interest receivable
Increase (decrease) in interest payable and other liabilities
Net (increase) decrease in other assets
42,199
95,526
752,232
825,000
(119,412)
(465,104)
5,297,089
(4,831,985)
383,920
(72,190)
(369,778)
171,755
(44,884)
777,223
1,266,000
(7,569)
(669,053)
8,977,095
(8,308,042)
137,752
-
(437,459)
(370,605)
930,295
Net cash provided by operating activities
5,252,540
5,466,272
Net cash provided by operating activities
5,252,540
5,466,272
Cash flow from investing activities
(250,000)
746,000
(9,050,487)
10,503,189
-
(40,782,287)
(269,031)
-
(95,692)
for
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 SBIC investments and correspondent bank stock
Purchase of company owned life insurance
Purchases of premises and equipment
sale securities
for
sale securities
sale securities
for
‐
‐
‐
‐
(748,000)
748,000
(24,260,786)
9,514,210
7,720,311
(37,079,363)
(325,403)
(8,000,000)
(144,429)
(250,000)
746,000
(9,050,487)
10,503,189
-
(40,782,287)
(269,031)
-
(95,692)
Net cash used in investing activities
(52,575,460)
(39,198,308)
Net cash used in investing activities
(52,575,460)
(39,198,308)
Cash flows from financing activities
Net increase in demand deposits and savings accounts
Net increase in time deposits
Net proceeds from exercise of stock options
Cash proceeds from issuance of common stock
Cash flows from financing activities
60,701,815
3,517,579
-
-
Net increase in demand deposits and savings accounts
Net increase in time deposits
Net proceeds from exercise of stock options
Cash proceeds from issuance of common stock
36,809,014
2,260,817
75,809
521,220
60,701,815
3,517,579
-
-
Net cash provided by financing activities
39,666,860
64,219,394
Net cash provided by financing activities
39,666,860
64,219,394
Net (decrease) increase in cash and cash equivalents
(7,656,060)
30,487,358
Net (decrease) increase in cash and cash equivalents
(7,656,060)
30,487,358
Cash and cash equivalents, beginning of year
62,392,218
31,904,860
Cash and cash equivalents, beginning of year
62,392,218
31,904,860
Cash and cash equivalents, end of year
54,736,158
$
62,392,218
Cash and cash equivalents, end of year
Supplemental disclosures of cash flow information:
Supplemental disclosures of cash flow information:
Interest paid
Taxes paid
447,646
2,430,000
$
$
450,866
1,670,000
Interest paid
Taxes paid
$
$
$
$
$
$
54,736,158
$
62,392,218
447,646
2,430,000
$
$
450,866
1,670,000
See accompanying notes to the financial statements.
See accompanying notes to the financial statements.
6.
6.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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.
Subsequent Events: The Company has evaluated the effects of subsequent events that have occurred after
the period ending December 31, 2017 and through March 29, 2018 which is the date the consolidated
financial statements were available to be issued.
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.
Use of 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, 2017, and 2016, 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, 2017 and 2016.
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)
7.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Available-For-Sale: Available-for-sale securities consist of U.S. agency securities, obligations of
states and political subdivisions, 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.
Securities Available-For-Sale: Available-for-sale securities consist of U.S. agency securities, obligations of
states and political subdivisions, 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
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.
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.
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
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.
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, 2017 and 2016,
salaries and employee benefits expense totaling $143,711 and $125,208, respectively, were deferred as loan
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, 2017 and 2016,
salaries and employee benefits expense totaling $143,711 and $125,208, respectively, were deferred as loan
origination costs.
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
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.
interest.
(Continued)
(Continued)
8.
8.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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, 2017 and 2016 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)
9.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SBIC Investments and 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
$1,200,000 and $1,128,100 at December 31, 2017 and 2016, 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, 2017 and 2016. Correspondent bank stock accounts on the consolidated balance sheet
include The Independent Bankers Bank (TIB) stock of $228,137 and $228,137 and Pacific Coast Bankers’
Bank (PCBB) stock of $400,000 and $400,000 at December 31, 2017 and 2016, respectively. TIB and PCBB
stock are carried at cost and were not considered impaired as of December 31, 2017 and 2016. The
Company has made certain investments in Small Business Development Corporations (SBICs). SBIC
investments on the consolidated balance sheet include the Caltius Fund V of $197,648 and $161,969 and the
Central Valley Fund III of $210,000 and $0 at December 31, 2017 and 2016, respectively. These investments
are carried at cost and were not considered impaired as of December 31, 2017 and 2016.
SBIC Investments and 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
$1,200,000 and $1,128,100 at December 31, 2017 and 2016, 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, 2017 and 2016. Correspondent bank stock accounts on the consolidated balance sheet
include The Independent Bankers Bank (TIB) stock of $228,137 and $228,137 and Pacific Coast Bankers’
Bank (PCBB) stock of $400,000 and $400,000 at December 31, 2017 and 2016, respectively. TIB and PCBB
stock are carried at cost and were not considered impaired as of December 31, 2017 and 2016. The
Company has made certain investments in Small Business Development Corporations (SBICs). SBIC
investments on the consolidated balance sheet include the Caltius Fund V of $197,648 and $161,969 and the
Central Valley Fund III of $210,000 and $0 at December 31, 2017 and 2016, respectively. These investments
are carried at cost and were not considered impaired as of December 31, 2017 and 2016.
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.
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 $244,235 and $184,438 for the years ended December 31, 2017 and 2016, respectively.
Advertising Costs: The Company expenses the costs of advertising in the year incurred. Advertising expense
was $244,235 and $184,438 for the years ended December 31, 2017 and 2016, 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 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.
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
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.
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
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.
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
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.
that the benefits associated with the deferred tax assets will not be fully realized.
(Continued)
(Continued)
10.
10.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In accordance with accounting standards, the Company has assessed its tax positions and has concluded
there are no unrecognized tax benefits at December 31, 2017 and 2016. The Company recognizes interest
accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended
December 31, 2017 and 2016, 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 2013.
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 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.
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)
11.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
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.
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.
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.
Servicing rights are included in other assets on the consolidated balance sheets.
Servicing rights are included in other assets on the consolidated balance sheets.
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,
2017 and 2016 were $190,403 and $211,112, respectively. No impairment charges were recorded for the
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,
2017 and 2016 were $190,403 and $211,112, respectively. No impairment charges were recorded for the
years ended December 31, 2017 or 2016 related to servicing assets.
years ended December 31, 2017 or 2016 related to servicing assets.
Reclassifications: Certain reclassifications have been made to the 2016 consolidated financial statements to
Reclassifications: Certain reclassifications have been made to the 2016 consolidated financial statements to
conform to the classifications used in 2017.
conform to the classifications used in 2017.
(Continued)
(Continued)
12.
12.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
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
2017
$
42,017,880 $
21,994,134
8,538,880
397,002 $
34,591
93,567
(214,712) $
(131,101)
(66,592)
42,200,170
21,897,624
8,565,855
$
72,550,894 $
525,160 $
(412,405) $
72,663,649
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
2016
$
26,734,673 $
24,589,003
14,796,788
316,034 $
85,338
192,351
(61,966) $
(230,683)
(129,573)
26,988,741
24,443,658
14,859,566
$
66,120,464 $
593,723 $
(422,222) $
66,291,965
The amortized cost and estimated fair value of all investment securities as of December 31, 2017 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.
Within One Year
One to Five Years
Five to Ten Years
Beyond Ten Years
Amortized
Estimated
Fair Value
$
926,312 $
13,587,107
18,466,966
39,570,509
927,845
13,585,201
18,378,761
39,771,842
$
72,550,894 $
72,663,649
(Continued)
13.
2017
U.S. government and
agency securities
State and municipal
agencies
2016
U.S. government and
agency securities
State and municipal
agencies
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 2 – INVESTMENT SECURITIES (Continued)
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:
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:
12 months or more
less than 12 Months
Total
12 months or more
less than 12 Months
Total
Fair
Value
Unrealized
Unrealized
Loss
Loss
Fair
Value
Fair
Value
Unrealized
Loss
2017
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Mortgage backed securities
2,289,158
(60,640) 11,294,326
$ 1,728,232 $
(17,896) $ 19,747,080 $
(196,816) $ 21,475,312 $
(70,461) 13,583,484
(214,712)
(131,101)
U.S. government and
agency securities
Mortgage backed securities
2,591,021
(56,704)
1,251,194
(9,888)
3,842,215
(66,592)
State and municipal
agencies
$ 1,728,232 $
2,289,158
(17,896) $ 19,747,080 $
(60,640) 11,294,326
(196,816) $ 21,475,312 $
(70,461) 13,583,484
(214,712)
(131,101)
2,591,021
(56,704)
1,251,194
(9,888)
3,842,215
(66,592)
$ 6,608,411 $
(135,240) $ 32,292,600 $
(277,165) $ 38,901,011 $
(412,405)
$ 6,608,411 $
(135,240) $ 32,292,600 $
(277,165) $ 38,901,011 $
(412,405)
12 months or more
less than 12 Months
Total
12 months or more
less than 12 Months
Total
Fair
Value
Unrealized
Unrealized
Loss
Loss
Fair
Value
Fair
Value
Unrealized
Loss
2016
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Mortgage backed securities
966,765
(28,822) 13,625,902
(201,861) 14,592,667
$ 3,182,873 $
(22,234) $ 6,999,060 $
(39,732) $ 10,181,933 $
(61,966)
(230,683)
U.S. government and
agency securities
Mortgage backed securities
-
-
5,558,961
(129,573)
5,558,961
(129,573)
State and municipal
agencies
$ 3,182,873 $
966,765
(22,234) $ 6,999,060 $
(28,822) 13,625,902
(39,732) $ 10,181,933 $
(201,861) 14,592,667
(61,966)
(230,683)
-
-
5,558,961
(129,573)
5,558,961
(129,573)
$ 4,149,638 $
(51,056) $ 26,183,923 $
(371,166) $ 30,333,561 $
(422,222)
$ 4,149,638 $
(51,056) $ 26,183,923 $
(371,166) $ 30,333,561 $
(422,222)
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, 2017 and 2016 and has
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, 2017 and 2016 and has
determined that no securities are other than temporarily impaired.
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, 2017, there were 15
investment securities with a value of $6,608,000 that were in a loss position for more than 12 months. At
December 31, 2016, there were 12 investment securities with a value of $4,150,000 that were in a loss
position for more than 12 months. 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.
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, 2017, there were 15
investment securities with a value of $6,608,000 that were in a loss position for more than 12 months. At
December 31, 2016, there were 12 investment securities with a value of $4,150,000 that were in a loss
position for more than 12 months. 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)
(Continued)
14.
14.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 2 – INVESTMENT SECURITIES (Continued)
Proceeds from the sales of investment securities totaled $7,720,311 and $0 during the years ended
December 31, 2017 and 2016, respectively. Gross realized gains totaled $137,849 and $7,569 during 2017
and 2016, respectively. Gross realized losses totaled $18,437 and $0 during 2017 and 2016, respectively.
Investment securities carried at approximately $13,590,000 and $15,031,000 at December 31, 2017 and
2016, 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
2017
2016
$ 133,928,596 $ 100,488,896
76,560,970
14,086,527
13,643,268
22,869,834
12,791
76,306,248
18,115,171
14,224,548
21,285,130
9,904
263,869,597
227,662,286
(3,363,452)
103,553
(2,880,223)
(426,728)
$ 260,609,698 $ 224,355,335
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 enterprises for working
capital, equipment purchases, acquisition, partner/management buyout, growth and expansion, and any other
permissible purposes. The Bank’s management examines current and projected cash flow to determine the
ability of the borrower to repay its obligations as agreed. Commercial loans are primarily made based on the
identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower.
The cash flow 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)
15.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – LOANS (Continued)
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
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.
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
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.
viability of future construction projects.
Residential real estate loans are primarily made to individuals and business enterprises 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.
Residential real estate loans are primarily made to individuals and business enterprises 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,
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.
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
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)
(Continued)
16.
16.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – LOANS (Continued)
Information related to impaired loans as of December 31, 2017 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 specific allowance
recorded
$
- $
-
- $
422,758 $
- $
2,506,941 $
- $
2,929,699
-
-
-
-
-
-
Total recorded investment
In impaired loans
$
Unpaid principal balance of impaired loans:
- $
- $
422,758 $
- $
2,506,941 $
- $
2,929,699
With no specific allowance
recorded
With 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
$
$
$
$
$
- $
-
- $
- $
15,330 $
854 $
- $
422,758 $
- $
2,506,941 $
- $
2,929,699
-
-
-
-
-
-
- $
422,758 $
- $
2,506,941 $
- $
2,929,699
- $
- $
- $
- $
- $
- $
- $
- $
-
- $
1,880,211 $
- $
1,895,541
11,905 $
- $
12,274 $
- $
25,033
Information related to impaired loans as of December 31, 2016 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 specific allowance
recorded
$
- $
325,660
Total recorded investment
In impaired loans
$
325,660 $
Unpaid principal balance of impaired loans:
With no specific allowance
recorded
With 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
$
$
$
$
$
- $
325,660
325,660 $
15,227 $
540,877 $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
- $
-
- $
-
- $
- $
- $
-
- $
- $
- $
- $
- $
-
- $
- $
- $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
(Continued)
- $
-
-
325,660
- $
325,660
- $
-
-
325,660
- $
325,660
- $
15,227
- $
540,877
- $
-
17.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – LOANS (Continued)
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
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:
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
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.
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
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.
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
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.
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
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.
analysis is to be charged off.
(Continued)
(Continued)
18.
18.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – LOANS (Continued)
The following table summarizes the loan portfolio by credit quality and product and/or collateral type as of
December 31, 2017:
Grade:
Commercial & industrial
Commercial real estate
Land & construction
Residential real estate
Agriculture
Consumer
Pass
Special
Mention
Substandard
Doubtful
Total
$ 133,928,596 $
76,306,248
17,692,413
14,224,548
18,778,189
9,904
- $
-
-
-
-
-
- $
-
422,758
-
2,506,941
-
- $ 133,928,596
76,306,248
-
18,115,171
-
14,224,548
-
21,285,130
-
9,904
-
Total
$ 260,939,898 $
- $ $2,929,699 $
- $ 263,869,597
The following table summarizes the loan portfolio by credit quality and product and/or collateral type as of
December 31, 2016:
Grade:
Commercial & industrial
Commercial real estate
Land & construction
Residential real estate
Agriculture
Consumer
Pass
Special
Mention
Substandard
Doubtful
Total
$ 100,042,403 $
76,560,970
13,798,468
13,350,771
19,499,618
12,791
-
-
288,059
-
3,370,216
-
$151,493 $
-
-
292,497
-
-
295,000 $100,488,896
76,560,970
14,086,527
13,643,268
22,869,834
12,791
-
-
-
-
-
Total
$ 223,265,021 $
3,658,275 $
443,990 $
295,000 $227,662,286
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
2017
2016
$
- $
-
422,758
-
2,506,941
-
295,000
-
-
-
-
-
$
2,929,699 $
295,000
(Continued)
19.
$
$
$
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
Total
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
Total
off in 2017.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 3 – LOANS (Continued)
NOTE 3 – LOANS (Continued)
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2017:
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2017:
30
59
Days
60
89
Days
Greater
Than
Past Due
‐
Past Due
‐
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
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
- $
-
-
-
-
-
422,758
422,758
2,506,941
2,506,941
- $
-
-
-
- $ 133,928,596 $ 133,928,596 $
-
-
-
76,306,248
17,692,413
14,224,548
18,778,189
9,904
76,306,248
18,115,171
14,224,548
21,285,130
9,904
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
-
-
-
-
-
-
- $
2,929,699 $
2,929,699 $ 260,939,898 $ 263,869,597 $
-
Total
$
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
-
422,758
-
2,506,941
-
- $ 133,928,596 $ 133,928,596 $
-
422,758
-
2,506,941
-
76,306,248
18,115,171
14,224,548
21,285,130
9,904
76,306,248
17,692,413
14,224,548
18,778,189
9,904
- $
2,929,699 $
2,929,699 $ 260,939,898 $ 263,869,597 $
-
-
-
-
-
-
-
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2016:
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2016:
30
59
Days
60
89
Days
Greater
Than
Past Due
‐
Past Due
‐
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
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
- $
295,000 $
-
-
-
-
-
-
-
76,560,970
295,000 $ 100,193,896 $ 100,488,896 $
76,560,970
14,086,527
13,643,268
22,869,834
12,791
13,643,268
14,086,527
22,869,834
12,791
-
-
-
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
-
-
-
-
-
-
-
-
-
-
-
- $
295,000 $
295,000 $ 227,367,286 $ 227,662,286 $
-
Total
$
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
295,000 $
-
-
-
-
-
295,000 $ 100,193,896 $ 100,488,896 $
76,560,970
14,086,527
13,643,268
22,869,834
12,791
76,560,970
14,086,527
13,643,268
22,869,834
12,791
-
-
-
-
-
- $
295,000 $
295,000 $ 227,367,286 $ 227,662,286 $
-
-
-
-
-
-
-
There were no loans modified and considered troubled debt restructurings during 2017. During 2016, there
was one loan totaling $30,983 considered a troubled debt restructuring. That loan was subsequently charged
There were no loans modified and considered troubled debt restructurings during 2017. During 2016, there
was one loan totaling $30,983 considered a troubled debt restructuring. That loan was subsequently charged
off in 2017.
At December 31, 2017 the Bank has no loans considered troubled debt restructurings.
At December 31, 2017 the Bank has no loans considered troubled debt restructurings.
(Continued)
(Continued)
20.
20.
l
t
a
o
T
t
d
e
a
c
o
l
l
a
n
U
:
e
p
y
t
l
a
r
e
t
a
l
l
o
c
r
e
m
u
s
n
o
C
d
n
a
t
c
u
d
o
r
p
n
a
o
l
y
b
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
d
n
e
l
a
i
t
n
e
d
s
e
R
i
d
n
a
d
n
a
L
l
i
a
c
r
e
m
m
o
C
l
i
a
c
r
e
m
m
o
C
,
)
8
3
0
8
6
3
(
7
6
2
6
2
,
0
0
0
5
2
8
,
-
-
2
7
8
0
5
6
,
,
3
2
2
0
8
8
2
,
$
5
3
0
4
2
1
,
$
-
-
0
7
)
6
1
(
,
2
5
4
3
6
3
3
,
$
7
0
9
4
7
7
,
$
4
5
-
$
-
$
-
,
2
5
4
3
6
3
3
,
,
2
5
4
3
6
3
3
,
7
0
9
4
7
7
,
$
7
0
9
4
7
7
,
$
4
5
4
5
.
1
2
,
9
9
6
9
2
9
2
,
$
,
8
9
8
9
3
9
0
6
2
,
,
7
9
5
9
6
8
3
6
2
$
,
-
-
-
$
-
$
,
1
4
9
6
0
5
,
2
$
4
0
9
9
,
$
,
0
3
1
5
8
2
,
1
2
4
0
9
9
,
,
9
8
1
8
7
7
,
8
1
-
8
4
5
Consumer
,
4
2
2
,
4
1
8
4
5
,
4
2
2
,
4
1
70
$
-
-
1
7
(16)
1
,
5
1
54
1
,
8
1
-
-
6
8
5
5
(85,733)
6
7
,
,
7
2
8
2
31,122 $
1
4
3
1
4
,
2
9
6
,
7
1
Unallocated
Total
$
124,035
-
-
650,872
)
$ 2,880,223
d
e
(368,038)
u
n
26,267
n
825,000
o
C
i
t
(
$
774,907
$ 3,363,452
$
$
$
- $
-
9
4
9
,
31,122
0
5
4
31,122 $
$
$
8
4
2
,
6
0
3
,
6
7
-
8
4
2
,
54
6
0
3
,
6
54
7
$
$
-
$
-
774,907
3,363,452
$
774,907
$ 3,363,452
NOTE 3 – LOANS (Continued)
The following table summarizes the Bank’s allowance for loan losses for the year ended December 31, 2017 by loan product and collateral type:
$
$
$
$
I
I
I
I
d
n
a
6
1
0
2
S
T
N
N
O
E
T
M
A
E
R
T
O
A
T
P
S
R
Commercial
O
L
and Industrial
A
C
C
L
N
A
A
C
1,881,520
N
7
N
1
(368,038)
F
A
0
2
N
D
26,267
E
F
1
286,187
T
3
T
A
S
D
1,825,936
R
L
O
F
S
S
N
E
O
T
C
N
O
U
T
M
1,825,936
S
M
E
O
T
1,825,936
C
O
N
r
e
b
m
e
c
e
D
-
I
I
I
I
I
,
$
$
$
$
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
$
$
$
$
-
-
5
5
8
6
1
1
,
)
3
3
7
5
8
(
,
2
2
1
1
3
,
-
2
2
1
1
3
,
2
2
1
,
1
3
e
r
u
t
l
u
c
i
r
g
A
Commercial
Real Estate
-
-
e
Land and
t
a
Construction
t
s
E
0
1
5
,
0
7
8
1
3
,
2
2
Residential
Real Estate
8
8
2
2
8
8
Agriculture
,
,
2
2
9
9
$
$
$
116,855 $
$
$
$
$
$
$
457,384
-
r
-
a
e
(6,435)
y
e
h
450,949
t
r
o
f
s
e
s
s
o
l
-
n
a
o
450,949
l
r
o
f
450,949
e
c
n
a
w
o
l
a
e
R
$
n
o
i
t
c
u
r
$
t
s
n
o
C
$
e
t
a
t
s
E
l
a
$
e
R
229,849
$
-
-
(42,193)
9
4
8
,
9
2
187,656
2
-
-
$
-
-
-
4
8
3
,
187,656
7
5
4
187,656
$
)
3
9
1
,
2
4
(
$
$
)
5
3
4
,
6
(
$
$
$
-
70,510
$
-
-
22,318
-
92,828
$
-
-
92,828
92,828
$
-
-
$
8
2
8
,
2
9
6
5
6
,
7
8
1
$
9
4
9
,
0
5
4
$
6
3
9
,
5
2
8
,
1
6
5
6
,
7
8
$
1
$
9
4
9
,
0
5
4
$
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending balance
Period-end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Ending Balance
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
Ending balance
$
-
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$ 133,928,596
76,306,248
$ 76,306,248
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COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
The following table summarizes the Bank’s allowance for loan losses for the year ended December 31, 2016 by loan product and collateral type:
Commercial
and Industrial
Commercial
Real Estate
Land and
Construction
Residential
Real Estate
Agriculture
Consumer
Unallocated
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$
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$
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$
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$
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(1,961,105)
21,138
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(18,809)
(1,078,914)
-
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(72,427)
-
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(2,200)
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Ending balance
$ 1,881,520
$
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$
229,849
$
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$
116,855 $
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$
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$
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$
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$
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$
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$
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$
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$
1,866,087
457,384
229,849
70,510
116,855
70
124,035
Ending Balance
$ 1,881,519
$
457,384
$
229,849
$
70,510
$
116,855 $
70
$
124,035
NOTE 3 – LOANS (Continued)
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Period-end amount allocated to:
Loans individually evaluated
for impairment
Loans collectively evaluated
for impairment
Loans:
Individually evaluated
for impairment
Collectively evaluated
for impairment
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100,163,030
76,560,970
14,086,527
13,643,268
22,869,834
12,791
227,336,420
Ending balance
$100,488,896
$ 76,560,970
$ 14,086,527
$ 13,643,268
$ 22,869,834 $
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$
$227,662,286
(Continued)
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COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 4 – PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Leasehold improvements
Furniture, fixtures, and equipment
Computer equipment
2017
2016
$
949,481 $
691,168
461,120
1,220,352
598,887
863,059
2,101,769
2,682,298
Less accumulated depreciation and amortization
(1,831,809)
(2,514,568)
$
269,960 $
167,730
In January 2016 the Bank exercised the first of two potential five-year lease extensions 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 current lease extension expires on January 31, 2021. In
August 2016 the Bank entered into a new lease for additional office space in a building adjacent to the main
office. The lease term is for four years and will commenced in March 2017 and will expire in 2021.
Depreciation and amortization expense amount to $113,773 and $95,526 for the years ending December 31,
2017 and 2016, respectively.
At December 31, 2017, the future lease rental payable under non-cancellable operating lease commitments
for the Bank’s main and administrative offices were as follows:
2018
2019
2020
2021
Thereafter
$
451,735
463,753
476,936
57,361
-
$ 1,449,786
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 $427,293 and $333,726 for the years ended
December 31, 2017 and 2016 respectively.
(Continued)
23.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 5 – DEPOSITS
Customer deposits were as follows:
NOTE 5 – DEPOSITS
Customer deposits were as follows:
Non
interest
bearing demand
Savings, NOW, and money market accounts
Time deposits under $250,000
‐
‐
Time deposits $250,000 and over
2017
2016
127,384,112
$ 198,918,372 $ 169,538,554
119,954,916
24,611,921
18,225,313
16,630,000
28,468,051
$ 371,400,535 $ 332,330,704
interest
bearing demand
Non
Savings, NOW, and money market accounts
Time deposits under $250,000
Time deposits $250,000 and over
‐
‐
2017
2016
$ 198,918,372 $ 169,538,554
119,954,916
24,611,921
18,225,313
127,384,112
28,468,051
16,630,000
$ 371,400,535 $ 332,330,704
At December 31, 2017, the scheduled maturities of time deposits are as follows:
At December 31, 2017, the scheduled maturities of time deposits are as follows:
2018
2019
2020
2021
2022
Thereafter
$ 37,828,904
4,667,026
914,724
1,323,120
364,277
-
$ 45,098,051
2018
2019
2020
2021
2022
Thereafter
$ 37,828,904
4,667,026
914,724
1,323,120
364,277
-
$ 45,098,051
NOTE 6 – BORROWING ARRANGEMENTS
NOTE 6 – BORROWING ARRANGEMENTS
The Bank may borrow up to $22,000,000 overnight on an unsecured basis from three correspondent banks.
The Bank may also borrow up to approximately $101,000,000 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 $13,590,000 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 2017, and 2016, no
The Bank may borrow up to $22,000,000 overnight on an unsecured basis from three correspondent banks.
The Bank may also borrow up to approximately $101,000,000 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 $13,590,000 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 2017, and 2016, no
amounts were outstanding under these arrangements.
amounts were outstanding under these arrangements.
The Company has a line of credit with TIB under which it can borrow up to $7,500,000 for general corporate
purposes. The line is secured by a pledge of the underlying stock the Company holds of Fresno First Bank.
As of December 31, 2017, there was no amount outstanding under this arrangement.
The Company has a line of credit with TIB under which it can borrow up to $7,500,000 for general corporate
purposes. The line is secured by a pledge of the underlying stock the Company holds of Fresno First Bank.
As of December 31, 2017, there was no amount outstanding under this arrangement.
NOTE 7 – EMPLOYEE BENEFITS
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, 2017 and 2016, contributions to the ESOP were $343,014 and $237,252,
respectively. The ESOP held 146,769 and 103,069 shares of common stock as of December 31,
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, 2017 and 2016, contributions to the ESOP were $343,014 and $237,252,
respectively. The ESOP held 146,769 and 103,069 shares of common stock as of December 31,
(Continued)
(Continued)
24.
24.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 7 – EMPLOYEE BENEFITS (Continued)
2017 and 2016, respectively and there were no unearned shares of common stock held by the ESOP at
December 31, 2017 and 2016.
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, 2017 and 2016.
The Board of Directors approved a salary continuation plan for certain executives during 2017. Under the
Plan the Company is obligated to provide executives with annual benefits after retirement. The estimated
present value of these future benefits is accrued from the effective date of the plan and is expensed over the
years of service. The expense recognized under this plan for the year ended December 31, 2017 totaled
$89,911. Accrued compensation payable under the salary continuations plan totaled $89,911 at
December 31, 2017 and is included in interest payable and other liabilities on the Company’s balance sheet.
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
Remeasurement of deferred tax assets and
deferred tax liabilities at reduced federal
corporate tax rate
2017
2016
$ 1,862,165 $ 1,386,395
491,485
730,961
2,593,126
1,877,880
65,373
(32,603)
112,116
56,884
330,712
-
363,482
169,000
Provision
$ 2,956,608 $ 2,046,880
On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act of 2017 (the "Act") was
signed into law. Among other things, the Act reduces our corporate federal tax rate from 34% to 21% effective
January 1, 2018. As a result, we are required to re-measure, through income tax expense, our deferred tax
assets and liabilities using the enacted rate at which we expect them to be recovered or settled. The re-
measurement of our net deferred tax asset resulted in additional income tax expense of approximately
$330,712.
(Continued)
25.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 8 – INCOME TAXES (Continued)
NOTE 8 – INCOME TAXES (Continued)
Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
principles with respect to income and expense recognition.
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:
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:
Allowance for loan losses due to tax limitations
‐
Deferred tax assets:
Pre
operating expenses
Depreciation differences
Stock
based compensation
Deferred compensation
State tax deferral
‐
Non-accrual loan interest
Other
Deferred tax liabilities:
Unrealized gains on available
for
sale securities
Lease financing receivable
Other
‐
‐
2017
2016
Deferred tax assets:
$
36,882 $
132,856
538,790
61,019
26,581
156,645
44,676
72,542
68,458
300,826
538,893
35,159
-
167,105
57,715
173,959
1,069,991
1,342,115
(33,334)
(131,067)
(80,726)
(70,315)
-
(120,435)
(245,127)
(190,750)
Pre
operating expenses
Depreciation differences
‐
Allowance for loan losses due to tax limitations
Stock
Deferred compensation
State tax deferral
Non-accrual loan interest
based compensation
‐
Other
Deferred tax liabilities:
Unrealized gains on available
Lease financing receivable
Other
for
sale securities
‐
‐
2017
2016
$
36,882 $
132,856
538,790
61,019
26,581
156,645
44,676
72,542
68,458
300,826
538,893
35,159
-
167,105
57,715
173,959
1,069,991
1,342,115
(33,334)
(131,067)
(80,726)
(70,315)
-
(120,435)
(245,127)
(190,750)
Net deferred income tax asset
$
824,864 $ 1,151,365
Net deferred income tax asset
$
824,864 $ 1,151,365
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, 2016, 2015, and 2014 are open to audit by the federal authorities and
income tax returns for the years ended December 31, 2016, 2015, 2014, and 2013, are open to audit by state
authorities. As of December 31, 2017, the Company does not have any unrecognized tax benefits. The
Company does not expect unrecognized tax benefits to significantly increase or decrease within the next 12
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, 2016, 2015, and 2014 are open to audit by the federal authorities and
income tax returns for the years ended December 31, 2016, 2015, 2014, and 2013, are open to audit by state
authorities. As of December 31, 2017, the Company does not have any unrecognized tax benefits. The
Company does not expect unrecognized tax benefits to significantly increase or decrease within the next 12
months.
months.
NOTE 9 – RELATED PARTY TRANSACTIONS
NOTE 9 – RELATED PARTY TRANSACTIONS
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 $638,000 and $514,000 at December 31, 2017
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 $638,000 and $514,000 at December 31, 2017
and 2016, respectively.
and 2016, respectively.
Deposits from certain directors, officers, and their related interests with which they are associated, held by the
Bank at December 31, 2017 and 2016, amounted to approximately $4,451,000 and $5,049,000, respectively.
Deposits from certain directors, officers, and their related interests with which they are associated, held by the
Bank at December 31, 2017 and 2016, amounted to approximately $4,451,000 and $5,049,000, respectively.
(Continued)
(Continued)
26.
26.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 10 – EARNINGS PER SHARE (EPS)
Earnings per share for the years ended December 31 were computed as follows:
2017
2016
Basic earnings per share:
Net income available to common shareholders
$
3,683,698 $
3,075,109
Weighted average common shares outstanding
Weighted average restricted stock
2,746,382
70,072
2,728,600
40,125
Weighted average common shares and restricted
Stock outstanding
2,816,454
2,728,600
Basic earnings per share
$
1.31 $
1.13
Diluted earnings per share:
Net income available to common shareholders,
diluted
$
3,683,698 $
3,075,109
Weighted average common shares outstanding
Effect of dilutive stock options
2,816,454
55,079
2,728,600
23,643
Adjusted weighted average common shares
outstanding, diluted
2,871,533
2,752,243
Diluted earnings per share
$
1.28 $
1.12
At December 31, 2017 and 2016, there were 52,957 and 99,246 stock options 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)
27.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 11 – COMMITMENTS (Continued)
NOTE 11 – COMMITMENTS (Continued)
As of December 31, 2017, and 2016, the Bank had the following outstanding financial commitments whose
As of December 31, 2017, and 2016, the Bank had the following outstanding financial commitments whose
contractual amount represents credit risk:
contractual amount represents credit risk:
Commitments to extend credit
Letters of credit
$
61,180,483 $
1,577,000
66,615,942
3,392,000
Commitments to extend credit
Letters of credit
$
62,757,483 $
70,007,942
2017
2016
2017
2016
$
61,180,483 $
1,577,000
66,615,942
3,392,000
$
62,757,483 $
70,007,942
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.
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-BASED COMPENSATION
NOTE 12 – STOCK-BASED COMPENSATION
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
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 $383,920 and $137,752 in 2017 and 2016, respectively.
compensation cost of $383,920 and $137,752 in 2017 and 2016, respectively.
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
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.
term of the options.
(Continued)
(Continued)
28.
28.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 12 – STOCK-BASED COMPENSATION (Continued)
A summary of the status of stock options that have been granted by the Company as of December 31, 2017,
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
139,840
Granted
Exercised
Forfeited, expired, or returned to
Plan through cashless exercise
Outstanding at end of year
Options exercisable
$
$
8.88
4.3 years
$
366,312
-
-
(20,300) $
8.49
(11,504) $
108,036
106,702
$
$
8.75
8.95
8.94
4.1 years
$ 1,144,695
4.1 years
$ 1,132,443
Included in the stock options exercised during 2017, there were 1,053 shares that represent cashless stock
option exercises, 10,247 shares which represent exercises where previously owned shares were tendered in
lieu of cash, and 9,000 shares exercised for cash. As of December 31, 2017, there was approximately $800
of total unrecognized compensation cost related to the outstanding stock options that will be recognized over
a weighted average period of 5 months.
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.
A summary of changes in the Company’s non-vested restricted share grants for the year follows:
Non-vested at January 1, 2017
Granted
Vested
Forfeited
Non-vested at December 31, 2017
36,501 $
41,170
(23,828)
-
53,843 $
10.18
13.36
10.91
-
12.29
As of December 31, 2017, there was approximately $458,700 of total unrecognized compensation cost
related to the outstanding restricted stock grants that will be recognized over a weighted average period of
1.7 years.
(Continued)
29.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 13 – SHAREHOLDERS’ EQUITY
NOTE 13 – SHAREHOLDERS’ EQUITY
Regulatory Capital:
Regulatory Capital:
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. Under the Basel III rules, the Company must hold a capital
conservation buffer above the adequately capitalized risk-based ratios. The capital conservation buffer is
being phased in from 0.0% for 2015 to 2.5% by 2019. The capital conservation buffer for 2016 was .625%
and for 2017 is 1.25%. The net unrealized gain or loss on available for sale securities is not included in
computing regulatory capital. Management believes as of December 31, 2017, the Company and Bank meet
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. Under the Basel III rules, the Company must hold a capital
conservation buffer above the adequately capitalized risk-based ratios. The capital conservation buffer is
being phased in from 0.0% for 2015 to 2.5% by 2019. The capital conservation buffer for 2016 was .625%
and for 2017 is 1.25%. The net unrealized gain or loss on available for sale securities is not included in
computing regulatory capital. Management believes as of December 31, 2017, the Company and Bank meet
all capital adequacy requirements to which they are subject.
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 2017 and 2016, the most recent regulatory
notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective
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 2017 and 2016, 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
There are no conditions or events since that notification that management believes have changed the
institution’s category.
Actual and required capital amounts and ratios, excluding the capital conservation buffer, are presented
Actual and required capital amounts and ratios, excluding the capital conservation buffer, are presented
below (dollar amounts in thousands):
below (dollar amounts in thousands):
action.
institution’s category.
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Amount
Ratio
To be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
December 31, 2017:
Common Equity Tier I Capital
December 31, 2017:
Common Equity Tier I Capital
(to Risk
Weighted Assets)
Total Capital
Tier I Capital
Tier I Capital
(to Average Assets)
December 31, 2016:
Common Equity Tier I Capital
(to Risk
Weighted Assets)
Total Capital
Tier I Capital
Tier I Capital
(to Average Assets)
‐
‐
‐
‐
‐
‐
$
$
$
$
$
$
$
$
34,210
15.6% $
9,838
>4.5% $
14,211
>6.5%
(to Risk
Weighted Assets)
36,952
16.9% $
17,490
>8.0% $
21,863
>10.0%
(to Risk
Weighted Assets)
34,210
15.6% $
13,118
>6.0% $
17,490
>8.0%
34,210
8.6% $
15,912
>4.0% $
19,890
>5.0%
29,597
14.8% $
8,981
>4.5% $
12,972
>6.5%
(to Risk
Weighted Assets)
32,097
16.1% $
15,966
>8.0% $
19,958
>10.0%
(to Risk
Weighted Assets)
29,597
14.8% $
11,975
>6.0% $
15,966
>8.0%
29,597
8.4% $
14,014
>4.0% $
17,517
>5.0%
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, 2016:
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)
$
$
$
$
$
$
$
$
34,210
15.6% $
9,838
>4.5% $
14,211
>6.5%
36,952
16.9% $
17,490
>8.0% $
21,863
>10.0%
34,210
15.6% $
13,118
>6.0% $
17,490
>8.0%
34,210
8.6% $
15,912
>4.0% $
19,890
>5.0%
29,597
14.8% $
8,981
>4.5% $
12,972
>6.5%
32,097
16.1% $
15,966
>8.0% $
19,958
>10.0%
29,597
14.8% $
11,975
>6.0% $
15,966
>8.0%
29,597
8.4% $
14,014
>4.0% $
17,517
>5.0%
(Continued)
(Continued)
30.
30.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 13 – SHAREHOLDERS’ EQUITY (Continued)
Dividends:
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.
Common Stock:
On February 24, 2017, the Company issued 43,800 shares of its common stock totaling $521,220 as the
Company’s ESOP contribution for the years of 2016 and 2017.
NOTE 14 – FAIR VALUE
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, 2017 and
2016.
(Continued)
31.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 14 – FAIR VALUE (Continued)
NOTE 14 – FAIR VALUE (Continued)
The following table summarizes the Company’s assets that were measured at fair value on a recurring basis
The following table summarizes the Company’s assets that were measured at fair value on a recurring basis
at December 31, 2017:
at December 31, 2017:
Description of Assets
December 31,
Assets
2017
(Level 1)
Inputs
(Level 2)
Quoted
Prices in
Significant
Active Markets
Other
For Identical
Observable
Significant
Unobservable
Inputs
Description of Assets
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2017
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
$ 42,200,170
21,897,624
8,565,855
$
$ 42,200,170
21,897,624
8,565,855
$
$ 72,663,649
$
$ 72,663,649
$
Securities available
for
sale (recurring)
-
-
-
-
U.S. government and agency
‐
‐
securities
Mortgage
backed securities
State and municipal agencies
‐
Total
$ 42,200,170
21,897,624
8,565,855
$
$ 72,663,649
$
-
-
-
-
$ 42,200,170
21,897,624
8,565,855
$
$ 72,663,649
$
-
-
-
-
The following table summarizes the Company’s assets that were measured at fair value on a recurring and
The following table summarizes the Company’s assets that were measured at fair value on a recurring and
non-recurring basis at December 31, 2016:
non-recurring basis at December 31, 2016:
Description of Assets
December 31,
Assets
2016
(Level 1)
Inputs
(Level 2)
Quoted
Prices in
Significant
Active Markets
Other
For Identical
Observable
Significant
Unobservable
Inputs
Description of Assets
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2016
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
$ 26,988,741
24,443,658
14,859,566
$
$ 26,988,741
24,443,658
14,859,566
$
$ 66,291,965
$
$ 66,291,965
$
Securities available
for
sale (recurring)
-
-
-
-
U.S. government and agency
‐
‐
securities
Mortgage
backed securities
State and municipal agencies
‐
Total
$ 26,988,741
24,443,658
14,859,566
$
$ 66,291,965
$
-
-
-
-
$ 26,988,741
24,443,658
14,859,566
$
$ 66,291,965
$
-
-
-
-
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
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.
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
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 estimates
(Continued)
(Continued)
32.
32.
-
-
-
-
-
-
-
-
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
NOTE 14 – FAIR VALUE (Continued)
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.
The carrying amounts and estimated fair value of financial instruments not carried at fair value at
December 31 are summarized as follows (in thousands):
2017
2016
Carrying
Amount
Estimated Fair Value Carrying
Amount
Fair Value Hierarchy
Estimated Fair Value
Fair Value Hierarchy
Financial assets:
Cash and cash equivalents
Certificates of deposit
$
Securities available-for-sale
Loans, net
SBIC investments and
correspondent bank stock
Interest receivable
Financial liabilities:
Deposits
Interest payable
54,736 $
5,199
72,664
260,610
54,736
5,316
72,664
258,519
Level 1 $
Level 2
Level 2
Level 3
62,392 $
5,199
66,292
224,355
62,392
5,361
66,292
224,041
2,244
1,595
N/A
1,595
N/A
Level 2
1,918
1,410
N/A
1,410
371,401
18
343,415
18
Level 2
Level 2
332,331
25
313,789
25
Level 1
Level 2
Level 2
Level 3
N/A
Level 2
Level 2
Level 2
33.
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Annual Meeting of Shareholders
Fort Washington Country Club
Tuesday, May 15, 2018 5:30 p.m.
10272 N. Millbrook
Fresno, CA 93730
Corporate Office:
Transfer Agent:
Communities First Financial Corp.
7690 N. Palm Avenue, Suite 101
Fresno, CA 93711
559.439.0200
Continental Stock Transfer & Trust Co.
1 State Street Plaza 30th Floor
New York, NY 10004
212.509.4000
Independent Auditors:
Legal Counsel:
Crowe Horwath, LLP
400 Capitol Mall, Suite 1400
Sacramento, CA 95814
916.441.1000
Stuart & Moore
641 Higuera Street, Suite 302
San Luis Obispo, CA 93401
805.545.8590
Stock Facilitators:
Michael Natzic – D A Davidson & Co.
800.288.2811
Steven Levenson –Western Financial Corporation
619.234.3235
Michael Sammon - Fig Partners, LLC
312.242.0433
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7690 N. Palm Avenue, Fresno, California 93711
559.439.0200
WWW.FRESNOFIRSTBANK.COM