2018
ANNUAL R EP ORT
Annual Meeting of Shareholders
Fresno First Bank
Wednesday, May 15, 2019 7:30 a.m.
7690 N. Palm Ave.
Fresno, CA 93711
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, 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
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:
(cid:190) We value our diverse strengths, hold ourselves and each other accountable,
and have each other’s back.
Relationship:
(cid:190) We build trust by being respectful and transparent with each other and our
clients.
Authentic:
(cid:190) We are honest, humble and have the courage to be vulnerable.
Commitment:
(cid:190) 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
To Our Shareholders:
This has been a busy year at Fresno First Bank. Everyone has worked hard to build a high-performing bank
with strong financial results, including progress on several strategic initiatives that will strengthen our
foundation and add value to the Bank. In 2018, we had record earnings of $6.25 million or $2.14 per diluted
share. Our asset growth was strong, ending the year at $467.2 million, reflecting a 15% growth rate over 2017.
The strength of our Bank is our core deposit franchise. At year’s end, over 60% of our deposits were in non-
interest-bearing checking accounts, which is one of the best ratios in the country. In 2018, our financial
performance was rewarded with the recognition of Communities First Financial Corporation (CFST) as one of
the OTCQX Top 50 Stocks based on overall performance. As an ESOP company, our entire team takes great
pride in our ownership culture and our ability to drive shareholder value.
As we grow, we continue to work on several strategic initiatives. Last year, we successfully opened a loan
production office in Los Angeles, immediately improving our loan growth. In addition, we hired a new Head of
SBA/Government Guaranteed lending to help expand this business line beyond the Central Valley, while
maintaining our position as the largest community bank SBA lender by volume in the Central Valley.
Our business model is based on blending a high-touch relationship focus with technological solutions that
create efficiencies for our customers and the Bank. With that in mind, in 2019 we are upgrading our core
operating system to provide a “Best in Class” user experience, while also establishing a platform that enables
the Bank to efficiently continue scaling up our business. In the end, however, our most important asset is still
our people. Through investment in our people and innovative employee initiatives, we continue to attract and
retain the best talent in the market.
The Bank continues to be dedicated to our local communities, which is seen directly in our lending activities,
our charitable giving, and our personal support of local community initiatives.
As shareholders ourselves, the entire team is proud of our financial results in 2018. We look forward to an
exciting year ahead and as we build shareholder value, we appreciate and thank you for your continued
support!
Mark D. Saleh, Chairman of the Board
Steve Miller, President & CEO,
(559) 905-1104
(818) 318-9716
Financial Highlights
Assets
(Values in Millions)
467
407
364
296
254
500
450
400
350
300
250
200
Total Assets
Asset growth remained strong
the year at $467.15
ending
million, reflecting a 15% growth
rate over 2017.
Deposit Composition
(Values in Millions)
Certificates of
Deposit
Money Market
Savings
Interest Checking
Non-Interest
Bearing
Total Deposits
Our core deposit portfolio
is the strength of our
franchise. Total deposits
have grown significantly
with noninterest bearing
deposits accounting for
62% of our entire deposit
base at year end.
450
400
350
300
250
200
150
100
50
0
Loan Composition
(Value in Millions)
350
300
250
200
150
100
50
0
Total Loans
Our loan portfolio is
well diversified. The
loan portfolio
total
to
increased
15%
$303.41 million
in
2018.
Residential RE 1-4
Family
RE Constr & Land
Development
Agriculture
Commercial Real
Estate
Commercial and
Industrial
Gross Revenue
Our earnings begin with
the top line revenue we
generate and our
primary source is the
net interest income
from loans and
investments. We had an
exceptional year with
gross revenue increasing
24%.
24,000
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
Gross Revenue
(Values in Thousands)
Non-Interest Income
Net Interest Income
Net Income
(Values in Thousands)
6,292
3,708
3,107
2,544
2,118
Net Income
Net income after tax is our
bottom line number. In
2018, net income was an
impressive $6.25 million or
$2.14 per diluted share a
67% increase over 2017.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Net Income After Tax
2018 Community Involvement
Fresno First Bank prides itself on helping our community. From sponsorships to volunteer
days, we enjoy giving back. Here are the major organizations we supported this year.
Central California Food Bank
The Central California Food Bank is dedicated to ending hunger in Central California. They
provide food to more than 220 agencies in Fresno, Madera, Kings, Kern and Tulare Counties
and serve over 280,000 people each month totaling over 38 million pounds.
Central Valley Veterans
Central Valley Veterans answer the immediate needs of local valley veterans, active duty
service members and their families. CVV is an all volunteer organization! Their mission is to
honor any United States Veterans with support and guidance to improve the quality of life.
Central Valley SCORE
SCORE, America’s premier source of free and confidential small business advice for
entrepreneurs and small businesses, is a nonprofit resource partner with the U.S. Small
Business Administration (SBA). We have over 300 SCORE offices across the country offering
free business mentoring and low- or no-cost workshops.
CSU Fresno
Fresno State has roots dating back to 1911, when the doors of the Fresno State Normal School
opened to 150 hopeful students. Today, the student population is more than 25,000 and the
University has garnered national attention for its rise in college rankings.
Valley Innovators
Fresno First Bank is the exclusive financial services partner of Valley Innovators. Steve Miller,
the founding Chairman, and Steve Canfield, Board member, are part of the Valley Innovators
leadership team. Valley Innovators provides entrepreneurs with the opportunity to obtain
education, network, and pitch their business for cash prizes while receiving marketing
exposure. Unlike most incubators and accelerators that host pitch contests, Valley Innovators
won’t require an equity stake from founders in order to win the prize money.
2018 Team Highlights
From tailgates to retirement parties, community service to team building. Fresno First Bank
had a lot to celebrate in 2018.
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COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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 ..........................................................
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Auditor’s Responsibility(cid:3)
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Opinion(cid:3)
(cid:3)
(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:76)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:69)(cid:82)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:68)(cid:76)(cid:85)(cid:79)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:86)(cid:15)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3) (cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3) (cid:82)(cid:73)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3) (cid:68)(cid:81)(cid:71)(cid:3) (cid:76)(cid:87)(cid:86)(cid:3) (cid:70)(cid:68)(cid:86)(cid:75)(cid:3) (cid:73)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:72)(cid:68)(cid:70)(cid:75)(cid:3) (cid:82)(cid:73)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:87)(cid:75)(cid:85)(cid:72)(cid:72)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3) (cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)
(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:85)(cid:71)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:79)(cid:72)(cid:86)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:17)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:38)(cid:85)(cid:82)(cid:90)(cid:72)(cid:3)(cid:47)(cid:47)(cid:51)(cid:3)
(cid:54)(cid:68)(cid:70)(cid:85)(cid:68)(cid:80)(cid:72)(cid:81)(cid:87)(cid:82)(cid:15)(cid:3)(cid:38)(cid:68)(cid:79)(cid:76)(cid:73)(cid:82)(cid:85)(cid:81)(cid:76)(cid:68)(cid:3)
(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
For the Years Ended December 31, 2018 and 2017
ASSETS
Cash and due from banks
Federal funds sold
Interest-bearing deposits in banks
2018
2017
$
10,699,827 $
26,437,000
5,244,561
5,731,158
43,765,000
5,240,000
Total cash and cash equivalents
42,381,388
54,736,158
Certificates of deposit
Securities available-for-sale
Securities held-to-maturity (fair value 2018 - $12,203,541)
Loans held for sale
Loans, net of allowance
SBIC investments and correspondent bank stock, at cost
Cash surrender value of life insurance
Premises and equipment, net
Interest receivable and other assets
10,906,000
83,856,984
12,091,875
4,080,500
299,502,561
2,434,241
7,780,366
285,946
3,888,975
5,199,000
72,663,649
-
-
260,609,698
2,235,785
8,072,190
269,960
3,631,262
Total assets
$ 467,208,836
$ 407,417,702
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest payable and other liabilities
$ 424,345,524 $ 371,400,535
1,444,352
2,148,928
Total liabilities
426,494,452
372,844,887
Commitments and contingencies (Notes 4 and 11)
Shareholders’ equity:
Common stock - 5,000,000 shares authorized, no
par value; 2,858,172 and 2,837,313 shares issued
and outstanding in 2018 and 2017, respectively
Retained earnings
Accumulated other comprehensive (loss) income
28,453,102
12,707,859
(446,577)
28,035,076
6,458,314
79,425
Total shareholders' equity
40,714,384
34,572,815
Total liabilities and shareholders' equity
$ 467,208,836 $ 407,417,702
See accompanying notes to the consolidated financial statements.
2.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2018, 2017, and 2016
2018
2017
2016
Interest Income:
Loans, including fees
Taxable investment securities
Tax-exempt investment securities
Federal funds sold and other
$
15,661,655
2,117,868
70,062
1,025,266
$
13,109,730
1,383,957
166,226
527,848
$
11,220,145
1,126,766
224,902
362,454
Total interest income
18,874,851
15,187,761
12,934,267
Interest Expense
Savings deposits, NOW, and
money market accounts
Time deposits
Other borrowings
Total interest expense
316,709
313,336
8
630,053
235,118
241,517
4
476,639
225,882
230,797
1,242
457,921
Net interest income
18,244,798
14,711,122
12,476,346
Provision for loan losses
950,000
825,000
1,266,000
Net interest income after
provision for loan losses
17,294,798
13,886,122
11,210,346
Non-interest income:
Service charges on deposits
(Loss) gain on sale of investment securities
Gain on sale of loans
Income from life insurance
Other
1,127,468
(14,137)
106,067
904,006
279,256
975,772
119,412
465,104
72,190
294,590
845,866
7,569
669,053
-
211,125
Total non-interest income
2,402,660
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
6,390,733
773,906
292,769
1,137,148
547,619
877,635
228,297
1,019,796
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
912,684
Total non-interest expenses
11,267,903
9,172,884
7,821,970
Income before income taxes
8,429,555
6,640,306
5,121,989
Provision for income taxes
2,180,010
2,956,608
2,046,880
Net income
Net income per share - basic
Net income per share - diluted
$
$
$
6,249,545
2.19
2.14
$
$
$
3,683,698
1.31
1.28
$
$
$
See accompanying notes to the consolidated 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, 2018, 2017, and 2016
Net income
$
6,249,545
$
3,683,698
$
3,075,109
2018
2017
2016
Other comprehensive income (loss):
Available(cid:486)for(cid:486)sale securities:
Unrealized holding (losses) gains during
the year
Reclassification adjustment for losses
(gains) realized in net income
(760,874)
60,666
(434,418)
14,137
(119,412)
(7,569)
Net unrealized losses
(746,737)
(58,746)
(441,987)
Income tax benefit
220,735
36,985
181,215
Other comprehensive loss
(526,002)
(21,761)
(260,772)
Total comprehensive income
$
5,723,543
$
3,661,937
$
2,814,337
See accompanying notes to the consolidated financial statements.
4.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended December 31, 2018, 2017, and 2016
Common Stock
Shares
Amount
Retained
Earnings
Comprehensive
Income (Loss)
Accumulated
Other
Total
Shareholders’
Equity
Balances, January 1, 2016
2,698,417 $ 26,916,375 $
(300,493) $
361,958 $
26,977,840
Stock based compensation
Exercise of stock options
Net issuance of restricted stock awards
Net income
Other comprehensive loss
-
7,126
26,500
-
-
137,752
-
-
-
-
-
-
-
3,075,109
-
-
-
-
-
(260,772)
137,752
-
-
3,075,109
(260,772)
Balances, December 31, 2016
2,732,043 $ 27,054,127 $ 2,774,616 $
101,186 $
29,929,929
Issuance of common stock
Stock based compensation
Exercise of stock options
Net issuance of restricted stock awards
Net income
Other comprehensive loss
43,800
-
20,300
41,170
-
-
521,220
383,920
75,809
-
-
-
-
3,683,698
-
-
-
-
-
-
-
-
-
(21,761)
521,220
383,920
75,809
-
3,683,698
(21,761)
Balances, December 31, 2017
2,837,313 $ 28,035,076 $ 6,458,314 $
79,425 $
34,572,815
Stock based compensation
Exercise of stock options
Net Issuance of restricted stock awards
Net income
Other comprehensive loss
-
151
20,708
-
-
418,026
-
-
-
-
-
-
-
6,249,545
-
-
-
-
-
(526,002)
418,026
-
-
6,249,545
(526,002)
Balances, December 31, 2018
2,858,172 $ 28,453,102 $12,707,859 $
(446,577) $
40,714,384
See accompanying notes to the consolidated financial statements.
5.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018, 2017, and 2016
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
From operating activities:
2018
2017
2016
$
6,249,545
$
3,683,698
$
3,075,109
Depreciation of premises and equipment
Amortization and accretion on securities
available for sale, net
Amortization and accretion on securities
held to maturity, net
Provision for loan losses
Loss (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 expense
Increase in value of life insurance
Increase in interest receivable
Increase (decrease) in interest payable
and other liabilities
Decrease (increase) in other assets
158,140
691,825
1,509
950,000
14,137
(106,067)
-
(4,080,500)
418,026
(221,418)
(344,458)
704,577
413,573
113,773
752,232
-
825,000
(119,412)
(465,104)
5,297,089
(4,831,985)
383,920
(72,190)
(369,778)
171,755
(44,884)
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
Net cash provided by operating activities
4,848,889
5,324,114
5,466,272
Cash flow from investing activities
Purchase of certificates of deposit
Proceeds from maturities of certificates of deposit
Proceeds from sales of certificates of deposit
Purchase of available(cid:486)for(cid:486)sale securities
Proceeds from maturities of available(cid:486)for(cid:486)sale
securities
Proceeds from sale of available(cid:486)for(cid:486)sale securities
Purchase of held-to-maturity securities
Proceeds from maturities of held-to-maturity securities
Net increase in loans
Purchase of SBIC investments and correspondent
bank stock
Purchase of company owned life insurance
Proceeds from company owned life insurance
Purchases of premises and equipment
(9,165,000)
492,000
2,966,000
(30,584,088)
17,183,027
755,000
(12,122,261)
28,877
(39,842,863)
(198,456)
-
513,242
(174,126)
(748,000)
748,000
-
(24,260,786)
9,514,210
7,720,311
-
-
(37,079,363)
(325,403)
(8,000,000)
-
(216,003)
(250,000)
746,000
-
(9,050,487)
10,503,189
-
-
-
(40,782,287)
(269,031)
-
-
(95,692)
Net cash used in investing activities
(70,148,648)
(52,647,034)
(39,198,308)
Cash flows from financing activities
Net increase in demand deposits and
savings accounts
Net (decrease) increase in time deposits
Net proceeds from exercise of stock options
Cash proceeds from issuance of common stock
61,949,710
(9,004,721)
-
-
36,809,014
2,260,817
75,809
521,220
60,701,815
3,517,579
-
-
Net cash provided by financing activities
52,944,989
39,666,860
64,219,394
Net change in cash and cash equivalents
(12,354,770)
(7,656,060)
30,487,358
Cash and cash equivalents, beginning of year
54,736,158
62,392,218
31,904,860
Cash and cash equivalents, end of year
$
42,381,388
$
54,736,158
$
62,392,218
(Continued)
6.
COMMUNITIES FIRST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31, 2018, 2017, and 2016
Supplemental disclosures of cash flow information:
Interest paid
Taxes paid
$
$
622,485
2,130,000
$
$
447,646
2,430,000
$
$
450,866
1,670,000
See accompanying notes to the consolidated financial statements.
7.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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. In September 2018 the Bank opened a loan production office in
Torrance, 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 for recognition and
disclosure through March 28, 2019, 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, 2018, and 2017, 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, 2018 and 2017.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash equivalents include cash, due from
banks, interest-bearing deposits in financial institutions with maturities of 90 days or less, and federal funds
sold. Generally, federal funds are sold for one-day periods and interest-bearing deposits are for periods of 90
days or less.
(Continued)
8.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities: Held-to-maturity securities consist of U.S. agency securities and mortgage-backed securities not
classified as trading securities or available-for-sale securities. These securities are carried at amortized cost
when management has the positive intent and ability to hold them to maturity. 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 securities are determined using the specific identification method. The
amortization of premiums and accretion of discounts are recognized as adjustments to interest income using
the interest method over the period to call or maturity.
Investments with fair values that are less than amortized cost are considered impaired. Impairment may result
from either a decline in the financial condition of the issuing entity or, in the case of fixed interest rate
investments, from rising interest rates. At each financial statement date, management assesses each
investment to determine if impaired investments are temporarily impaired or if the impairment is other than
temporary. This assessment includes a determination of whether the Company intends to sell the security, or
if it is more likely than not that the Company will be required to sell the security before recovery of its
amortized cost basis less any current-period credit losses. For debt securities that are considered other than
temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to
recovery of the amortized cost basis, the amount of impairment is separated into the amount that is credit
related (credit loss component) and the amount due to all other factors.
The credit loss component is recognized in earnings and is calculated as the difference between the
security’s amortized cost basis and the present value of its expected future cash flows. The remaining
difference between the security’s fair value and the present value of the future expected cash flows is
deemed to be due to factors that are not credit related and is recognized in other comprehensive income.
Loans: Loans are reported at the principal amount outstanding, net of deferred loan fees and costs and the
allowance for loan losses. Unearned discounts on installment loans are recognized as income over the terms
of the loans. Interest on other loans is calculated by using the simple interest method on the daily balance of
the principal amount outstanding.
Loan fees, net of certain direct costs of origination, are deferred and amortized over the contractual term of
the loan as an adjustment to the interest yield. During the years ended December 31, 2018, 2017, and 2016
salaries and employee benefits expense totaling $152,784, $143,711, and $125,208, respectively, were
deferred as loan origination costs.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of
interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of
interest or principal or when a loan becomes contractually past due by 90 days or more with respect to
interest or principal. When a loan is placed on non-accrual status, all interest previously accrued, but not
collected, is reversed against current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is probable. Interest accruals are
resumed on such loans only when they are brought fully current with respect to interest and principal and
when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and
interest.
(Continued)
9.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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, 2018 and 2017 reflects management's estimate of probable incurred losses in the portfolio.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as
more information becomes available.
The allowance consists of specific, general, and unallocated components. The specific component relates to
loans that are classified as impaired. Impaired loans, as defined, are measured based on the present value of
expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if
the loan is collateral dependent. The general component relates to non-impaired loans and is based on
historical loss experience and loss history experienced by the Company’s peers when the Company did not
have losses in a particular loan class, adjusted for qualitative factors impacting the loan portfolio. An
unallocated component is maintained to cover uncertainties that could affect management’s estimate of
probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in
the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.
The Company considers a loan impaired when it is probable that all amounts of principal and interest due will
not be collected according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, borrower’s ability to repay, credit worthiness,
collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans
that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record, current credit worthiness, and the
amount of the shortfall in relation to the principal and interest owed.
Troubled Debt Restructuring: In situations where, for economic or legal reasons related to a borrower’s
financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider,
the related loan is classified as a troubled debt restructuring. The Company measures any loss on the
troubled debt restructuring in accordance with the guidance concerning impaired loans set forth above.
Additionally, loans modified in troubled debt restructurings are generally placed on non-accrual status at the
time of restructuring. These loans are returned to accrual status after the borrower demonstrates
performance with the modified terms for a sustained period of time (generally six months) and has the
capacity to continue to perform in accordance with the modified terms of the restructured debt.
(Continued)
10.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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 Company held stock in the FHLB
totaling $1,434,600 and $1,200,000 at December 31, 2018 and 2017, 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, 2018 and 2017. Correspondent bank stock accounts on the
consolidated balance sheet include The Independent Bankers Bank (TIB) stock of $225,147 and $228,137
and Pacific Coast Bankers’ Bank (PCBB) stock of $400,000 and $400,000 at December 31, 2018 and 2017,
respectively. TIB and PCBB stock are carried at cost and were not considered impaired as of December 31,
2018 and 2017. 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 $74,494 and
$197,648 and the Central Valley Fund III of $300,000 and $210,000 at December 31, 2018 and 2017,
respectively. These investments are carried at cost and were not considered impaired as of December 31,
2018 and 2017.
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 $352,449, $244,235, and $184,438 for the years ended December 31, 2018, 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 operating expenses.
Loans Held for Sale: Loans held for sale are reported at the lower of cost or fair value. Cost generally
approximates market value, given the short duration of these assets. Net unrealized losses, if any, are
recorded as a valuation allowance and charged to earnings.
Income Taxes: The Company uses the asset and liability method to account for income taxes. Under such
method, deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the consolidated financial statement carrying amounts of existing assets and liabilities and their
respective tax basis (temporary differences). Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to
be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes in the period of enactment.
A valuation allowance against net deferred tax assets is established to the extent that it is more likely than not
that the benefits associated with the deferred tax assets will not be fully realized.
(Continued)
11.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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, 2018 and 2017. The Company recognizes interest
accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended
December 31, 2018 and 2017, 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 2014.
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)
12.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) the
assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that
constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
Servicing Rights: The Company sells or transfers loans, including the guaranteed portion of various
government agencies’ loans (with servicing retained) for cash proceeds equal to the principal amount of
loans, as adjusted to yield interest to the investor based upon the current market rates. The Company records
an asset representing the right to service a loan for others when it sells a loan and retains the servicing rights.
The carrying value of the loan is allocated between the loan and the servicing rights, based on their relative
fair values. The fair value of servicing rights is estimated by discounting estimated future cash flows from
servicing using discount rates that approximate current market rates and estimated prepayment rates.
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,
2018 and 2017 were $147,773 and $190,403, respectively. No impairment charges were recorded for the
years ended December 31, 2018 or 2017 related to servicing assets.
Reclassifications: Certain reclassifications have been made to the prior year consolidated financial
statements to conform to the classifications used in 2018. Reclassifications had no effect on prior year net
income or shareholders’ equity.
Adoption of New Accounting Standards:
FASB Accounting Standards Update (ASU) 2014-09 - Revenue from Contracts with Customers (Topic 606):
Revenue from Contracts with Customers was issued in May 2014. This ASU is the result of a joint project
initiated by the FASB and the International Accounting Standards Board (IASB) to clarify the principles for
recognizing revenue, and to develop common revenue standards and disclosure requirements that would: (1)
remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for
addressing revenue issues; (3) improve comparability of revenue recognition practices across entities,
industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial
statements through improved disclosures; and (5) simplify the preparation of financial statements by reducing
the number of requirements to which an entity must refer. The guidance affects any entity that either enters
into contracts with customers to transfer goods or services or enters into contracts for the transfer of
nonfinancial assets. The core principle is that an entity should recognize revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to
achieve the core principle. An entity should disclose sufficient information to enable users of financial
statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from
contracts with customers. Qualitative and quantitative information is required with regard to contracts with
customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain
or fulfill a contract. This ASU is effective for annual reporting periods beginning after December 15, 2017,
including interim periods therein, with early adoption permitted for reporting periods beginning after December
(Continued)
13.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
15, 2016. The Company adopted ASU 2014-09 on January 1, 2018 utilizing the modified
retrospective approach. Since the guidance does not apply to revenue associated with financial instruments
such as loans and investments, which are accounted for under other provisions of GAAP, there was no
impact to interest income, our largest component of income. The adoption of this ASU did not have a material
impact on the Company’s consolidated financial position, cash flows or results of operations. No cumulative
adjustment was required upon adoption.
The Company performed an overall assessment of revenue streams potentially affected by the ASU,
including certain deposit related fees and interchange fees, to determine the potential impact of this guidance
on our consolidated financial statements. Approximately 90% of our revenue, including all of our net interest
income and a portion of our noninterest income, is out of scope of the guidance. The contracts that are in
scope of the guidance are primarily related to service charges and fees on deposit accounts, debit card fees,
ATM processing fees, and other service charges, commissions and fees. We have completed analyzing the
individual contracts in scope and determined our revenue recognition practices within the scope of the ASU
as described below did not change in any material regard upon adoption of the ASU.
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-
based, account maintenance, and overdraft services. Transaction-based fees, which include services such as
ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the
transaction is executed as that is the point in time the Company fulfills the customer’s request. Account
maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month,
representing the period over which the Company satisfies the performance obligation. Overdraft fees are
recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the
customer’s account balance.
Merchant and Debit Card Fees: The Company earns interchange fees from cardholder transactions
conducted through the payment networks. Interchange fees from cardholder transactions represent a
percentage of the underlying transaction value and are recognized daily, concurrently with the transaction
processing services provided to the cardholder.
FASB Accounting Standards Update (ASU) 2016-01 - Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities, was issued January 2016. The
main provisions of the update are to eliminate the available-for-sale classification of accounting for equity
securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that
the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update
will require that equity securities be carried at fair market value on the balance sheet and any periodic
changes in value will be adjustments to the income statement. A practical expedient is provided for equity
securities without a readily determinable fair value, such that these securities can be carried at cost less any
impairment. ASU No. 2016-01 was effective for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. The Company adopted this ASU on January 1, 2018 and the impact
upon adoption was not material to the Company’s consolidated financial position, cash flows or results of
operations. No cumulative adjustment was required upon adoption.
Newly Issued Not Yet Effective Accounting Standards:
FASB Accounting Standards Update (ASU) 2016-02 - Leases - Overall (Subtopic 845), was issued February
2016. ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee's
obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for
the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to
(Continued)
14.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee
accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be
effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the
financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted
Improvements,” which, among other things, provides an additional transition method that would allow entities
to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements
and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the
period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-
Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting
for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-
02 and recorded a right-of-use asset and a corresponding lease liability, however the amounts were not
material. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not
reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any
expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply
the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting
guidance). We expect to account for lease and non-lease components separately because such amounts are
readily determinable under our lease contracts and because we expect this election will result in a lower
impact on our balance sheet.
FASB Accounting Standards Update (ASU) 2016-13 - Measurement of Credit Losses on Financial
Instruments (Subtopic 326): Financial Instruments - Credit Losses, commonly referred to as “CECL,” was
issued June 2016. The provisions of the update eliminate the probable initial recognition threshold under
current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves
required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected
credit losses over the contractual term of the financial asset and thereby require the use of reasonable and
supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets
carried at amortized cost, the requirement that reserves be established based on an organization’s
reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt
securities. Under the provisions of the update, credit losses recognized on available for sale (“AFS”) debt
securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the
accounting for purchased loans, with credit deterioration since origination, so that reserves are established at
the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is
adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon
acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the
accounting for purchased loans is made more comparable to the accounting for originated loans. Finally,
increased disclosure requirements under CECL require organizations to present the currently required credit
quality disclosures disaggregated by the year of origination or vintage. The FASB expects that the evaluation
of underwriting standards and credit quality trends by financial statement users will be enhanced with the
additional vintage disclosures. The Company is required to adopt ASU 2016-13 on January 1, 2021.
The Company has formed an internal task force that is responsible for oversight of the Company’s
implementation strategy for compliance with provisions of the new standard. The Company has also
established a project management governance process to manage the implementation across affected
disciplines. An external provider specializing in community bank loss driver and CECL reserving model
design as well as other related consulting services has been retained, and we have begun to evaluate
potential CECL modeling alternatives. As part of this process, the Company has determined potential loan
pool segmentation and sub-segmentation under CECL, as well as begun to evaluate the key economic loss
drivers for each segment. While the Company is currently unable to reasonably estimate the impact of
adopting this new guidance, management expects the impact of adoption will be significantly influenced by
(Continued)
15.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the composition and quality of the Company’s loans and investment securities as well as the economic
conditions as of the date of adoption. The Company also anticipates significant changes to the processes and
procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our
consolidated financial statements.
NOTE 2 – INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities are as follows:
Available(cid:486)for(cid:486)sale:
U.S. government and agency
securities
Mortgage(cid:486)backed securities
State and municipal agencies
Held-to-Maturity:
U.S. government and agency
securities
Mortgage(cid:486)backed securities
Available(cid:486)for(cid:486)sale:
U.S. government and agency
securities
Mortgage(cid:486)backed securities
State and municipal agencies
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Cost
Gains
Losses
Fair
Value
2018
$
50,145,139 $
26,776,144
7,569,683
184,843 $
54,964
47,598
(490,536) $
(327,426)
(103,425)
49,839,446
26,503,682
7,513,856
$
84,490,966 $
287,405 $
(921,387) $
83,856,984
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Estimated
Fair
Value
2018
$
922,437 $
11,169,438
5,203 $
113,333
- $
(6,870)
927,640
11,275,901
$
12,091,875 $
118,536 $
(6,870) $
12,203,541
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
There were no held-to-maturity investment securities as of December 31, 2017.
(Continued)
16.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 – INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of all investment securities as of December 31, 2018 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.
Available-for-sale
Within One Year
One to Five Years
Five to Ten Years
Beyond Ten Years
U.S. government and agency securities
Mortgage-backed securities
Held-to-maturity
U.S. government and agency securities
Mortgage-backed securities
Amortized
Estimated
Fair Value
$
- $
1,892,987
3,433,860
2,242,836
50,145,139
26,776,144
-
1,884,597
3,376,743
2,252,516
49,839,446
26,503,682
$
84,490,966 $
83,856,984
Amortized
Estimated
Fair Value
$
922,437 $
11,169,438
927,640
11,275,901
$
12,091,875 $
12,203,541
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:
2018
Available-for-sale
U.S. government and
agency securities
Mortgage backed securities
State and municipal
agencies
2018
Held-to-maturity
U.S. government and
agency securities
Mortgage backed securities
12 months or more
less than 12 Months
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$ 17,437,705 $
10,901,696
(373,987) $ 16,036,259 $
(247,441)
8,357,598
(116,549) $ 33,473,964 $
(79,985) 19,259,294
(490,536)
(327,426)
2,946,329
(92,884)
1,589,515
(10,541)
4,535,844
(103,425)
$ 31,285,730 $
(714,312) $ 25,983,372 $
(207,075) $ 57,269,102 $
(921,387)
12 months or more
less than 12 Months
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$
$
- $
-
- $
- $
-
- $
- $
- $
-
3,554,902
(6,870)
3,554,902
(6,870)
- $ 3,554,902 $
(6,870) $ 3,554,902 $
(6,870)
(Continued)
17.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 2 – INVESTMENT SECURITIES (Continued)
2017
Available-for-sale
U.S. government and
agency securities
Mortgage backed securities
State and municipal
agencies
12 months or more
less than 12 Months
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$ 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)
Certain investment securities shown in the previous table currently have fair values less than amortized cost
and therefore contain unrealized losses. The Company 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 Company 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, 2018 and 2017 and has
determined that no securities are other than temporarily impaired.
The Company does not have the intent to sell the investments that are impaired, and it is more likely than not
that the Company will not be required to sell those investments before recovery of the amortized cost basis.
The Company 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, 2018, there
were 55 investment securities with a value of $31,285,730 that were in a loss position for more than 12
months. The Company 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 proceeds from sales and calls of investment securities and the associated gains and losses are listed
below:
2018
2017
2016
Proceeds
Gross gains
Gross losses
$
$
755,000
-
14,137
$
7,720,311
137,849
18,437
-
7,569
-
Investment securities carried at approximately $8,708,000 and $13,590,000 at December 31, 2018 and 2017,
respectively, were pledged to secure public deposits or other purposes as permitted or required by law.
At year-end 2018 and 2017, there were no holdings of securities of any one issuer, other than the U.S.
Government and its agencies, in an amount greater than 10% of shareholders’ equity.
(Continued)
18.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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
2018
2017
$ 145,503,208 $ 133,928,596
76,306,248
18,115,171
14,224,548
21,285,130
9,904
101,666,857
17,794,333
10,349,961
28,080,467
15,273
303,410,099
263,869,597
(4,048,891)
141,353
(3,363,452)
103,553
Loans, net of allowance
$ 299,502,561 $ 260,609,698
The Company’s loan portfolio consists primarily of loans to borrowers within Fresno County, California.
All of the Company’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 Company’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.
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 Company’s commercial real estate portfolio are diverse in terms of type and industries
operating within the properties. This diversity helps reduce the Company’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.
(Continued)
19.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – LOANS (Continued)
Land and construction loans are primarily made to borrowers who are using the property for their own
purposes. Land loans are made with amortizing repayment terms to borrowers with proven, historic cash flow
sufficient to repay the loan. Collateral values are based on the current “as is” market value of the property.
Construction loans are made based on the borrower’s historic and projected cash flow. Risk arises from the
necessity to complete projects within specified cost and time limits. Trends in the construction industry may
also impact the credit quality of these loans, as demand drives construction activity. In addition, trends in real
estate values significantly impact the credit quality of these loans, as property values determine the economic
viability of future construction projects.
Residential real estate loans are 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 Company’s agricultural portfolio are diverse
in terms of type of crop. This diversity helps reduce the Company’s exposure to adverse economic events
that affect any single commodity. Management monitors and evaluates agricultural real estate loans based on
collateral, crop type, geography, and risk grade criteria.
The Company 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 Company’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 Company’s policies and
procedures.
(Continued)
20.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – LOANS (Continued)
Information related to impaired loans as of the year ended consisted of the following:
December 31, 2018
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
$
129,471 $
- $
423,621 $
- $
2,505,465 $
- $
3,058,557
-
-
-
-
-
-
-
Total recorded investment
In impaired loans
$
129,471 $
- $
423,621 $
- $
2,505,465 $
- $
3,058,557
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
$
129,471 $
- $
423,621 $
- $
2,505,465 $
- $
3,058,557
-
-
-
-
-
-
-
$
$
$
$
129,471 $
- $
423,621 $
- $
2,505,465 $
- $
3,058,557
- $
- $
- $
- $
- $
- $
-
48,507 $
- $
423,621 $
- $
2,505,465 $
- $
2,977,593
50,051 $
- $
- $
- $
822 $
- $
50,873
December 31, 2017
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
(Continued)
21.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – LOANS (Continued)
December 31, 2016
Commercial
and
Industrial
Residential
Commercial Land and
Real Estate Construction Real Estate Agriculture Consumer
Total
Recorded investment in impaired loans:
With no specific allowance
recorded
With 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 $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
- $
-
- $
- $
-
- $
- $
- $
- $
- $
-
-
325,660
- $
325,660
- $
-
-
325,660
- $
325,660
- $
15,227
- $
540,877
- $
-
The Company has established a loan risk rating system to measure and monitor the quality of the loan
portfolio. All loans are assigned a risk rating from the inception of the loan until the loan is paid off. The
primary loan grades are as follows:
Loans rated Pass – These are loans to borrowers with satisfactory financial support, repayment capacity, and
credit strength. Borrowers in this category demonstrate fundamentally sound financial positions, repayment
capacity, credit history, and management expertise. Loans in this category must have an identifiable and
stable source of repayment and meet the Company’s policy regarding debt service coverage ratios. These
borrowers are capable of sustaining normal economic, market, or operational setbacks without significant
financial impacts. Financial ratios and trends are acceptable. Negative external industry factors are generally
not present. The loan may be secured, unsecured, or supported by non-real estate collateral for which the
value is more difficult to determine and/or marketability is more uncertain. These loans carry a normal degree
of risk. The borrowers have the capacity to perform according to terms; any deviation from historic
performance is limited and temporary.
Loans rated Special Mention – These are loans that have potential weaknesses that deserve management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset or in the Company’s credit position at some future date. Special Mention assets are
not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
These loans exhibit a more weakened condition than Pass loans, but not to the degree where they would be
considered substandard. These loans show definite signs of deterioration or weakness, and the likelihood of
correction is somewhat questionable. Weaknesses might include significant earnings decline, collection of
accounts receivable is slowing, delayed accounts payable, greater dependency on line usage, and covenants
not being met and/or waived for short periods.
Loans rated Substandard – These are loans that are inadequately protected by the current sound worth and
paying capacity of the borrower or by the collateral pledged, if any. These loans have a well-defined
weakness or weaknesses that jeopardize the liquidation of the loan. They are characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are not corrected.
(Continued)
22.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – LOANS (Continued)
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.
The following table summarizes the loan portfolio by credit quality and product and/or collateral type as of
December 31, 2018:
Grade:
Commercial & industrial
Commercial real estate
Land & construction
Residential real estate
Agriculture
Consumer
Pass
Special
Mention
Substandard
Doubtful
Total
$ 144,403,368 $
101,666,857
17,371,575
10,349,961
23,823,514
15,273
321,020 $
778,820 $
-
-
-
1,752,311
-
-
422,758
-
2,504,642
-
- $ 145,503,208
- 101,666,857
17,794,333
-
10,349,961
-
28,080,467
-
15,273
-
Total
$ 297,630,548 $
2,073,331 $
3,706,220 $
- $ 303,410,099
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
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
2018
2017
$
292,670 $
-
422,758
-
2,504,642
-
-
-
422,758
-
2,506,941
-
$
3,220,070 $
2,929,699
(Continued)
23.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 3 – LOANS (Continued)
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2018:
30(cid:486)59
Days
60(cid:486)89
Days
Greater
Than
Past Due
Past Due
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
$
278,636 $
118,082
-
-
-
-
129,472 $
163,198 $
-
-
-
-
-
-
422,758
-
2,504,642
-
571,306 $ 144,931,902 $ 145,503,208 $
118,082 101,548,775 101,666,857
17,794,333
422,758
10,349,961
-
28,080,467
2,504,642
15,273
-
17,371,575
10,349,961
25,575,825
15,273
Total
$
396,718 $
129,472 $
3,090,598 $
3,616,788 $ 299,793,311 $ 303,410,099 $
-
-
-
-
-
-
-
The following table is an aging analysis of loans, segregated by class of loans, as of December 31, 2017:
30(cid:486)59
Days
60(cid:486)89
Days
Greater
Than
Past Due
Past Due
90 Days
Total
Past
Due
Current
Recorded
Investment>
90 Days and
Accruing
Total
Loans
Commercial & Industrial
Commercial Real Estate
Land & Construction
Residential Real Estate
Agriculture
Consumer
Total
$
$
- $
-
-
-
-
-
- $
- $
-
-
-
-
-
- $
-
422,758
-
2,506,941
-
- $ 133,928,596 $ 133,928,596 $
-
422,758
-
2,506,941
-
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
- $
2,929,699 $
2,929,699 $ 260,939,898 $ 263,869,597 $
There were no loans modified and considered troubled debt restructurings during 2018 or 2017.
(Continued)
-
-
-
-
-
-
-
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E
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 4 – PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Leasehold improvements
Furniture, fixtures, and equipment
Computer equipment
2018
2017
$
949,481 $
748,424
602,590
949,481
691,168
461,120
2,300,495
2,101,769
Less accumulated depreciation
(2,014,549)
(1,831,809)
$
285,946 $
269,960
In January 2016 the Company exercised the first of two potential five-year lease extensions for its main
banking and administrative offices. The Company 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 Company 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 commenced in March 2017 and will expire in
2021. In August 2018 the Company entered into a new lease for a loan production office in Torrance,
California. The lease term is for three years and commenced in September 2018 and will expire in 2021.
Depreciation expense amount to $158,140, $113,773, and $95,526 for the years ending December 31, 2018,
2017, and 2016, respectively.
At December 31, 2018, the future lease rental payable under non-cancellable operating lease commitments
for the Company’s offices were as follows:
2019
2020
2021
2022
2023
Thereafter
$
475,341
488,954
90,126
-
-
-
$ 1,054,421
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 $506,030, $427,293, and $333,726 for the
years ended December 31, 2018, 2017, and 2016, respectively.
(Continued)
28.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 5 – DEPOSITS
Customer deposits were as follows:
Non(cid:486)interest(cid:486)bearing demand
Savings, NOW, and money market accounts
Time deposits under $250,000
Time deposits $250,000 and over
2018
2017
$ 263,817,752 $ 198,918,372
127,384,112
28,468,051
16,630,000
124,434,441
22,269,747
13,823,584
$ 424,345,524 $ 371,400,535
At December 31, 2018, the scheduled maturities of time deposits are as follows:
2019
2020
2021
2022
2023
Thereafter
$ 29,297,158
4,365,930
1,626,107
376,241
427,895
-
$ 36,093,331
NOTE 6 – BORROWING ARRANGEMENTS
The Company may borrow up to $22,000,000 overnight on an unsecured basis from three correspondent
banks. The Company may also borrow up to approximately $117,000,000 from the Federal Home Loan Bank
of San Francisco, subject to providing collateral and fulfilling other conditions of the credit facility. The
Company has pledged investment securities of approximately $7,680,000 for the credit facility at Federal
Home Loan Bank of San Francisco. The Company 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
2018, and 2017, no 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, 2018, there was no amount outstanding under this arrangement.
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, 2018, 2017, and 2016 contributions to the ESOP were $310,000, $343,014, and
$237,252, respectively. The ESOP held 136,176 and 146,769 shares of common stock as of December 31, 2018
and 2017, respectively and there were no unearned shares of common stock held by the ESOP at December 31,
2018 and 2017.
(Continued)
29.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 7 – EMPLOYEE BENEFITS (Continued)
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, 2018, 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 was $284,120 and $89,911 for the years ended
December 31, 2018 and 2017, respectively. Accrued compensation payable under the salary continuations
plan totaled $374,031 and $89,911 at December 31, 2018 and 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:
2018
2017
2016
Current
Federal
State
Deferred
Federal
State
Remeasurement of deferred tax assets and
deferred tax liabilities at reduced federal
corporate tax rate
$ 1,659,081 $ 1,862,165 $ 1,386,395
491,485
914,424
730,961
2,573,505
2,593,126
1,877,880
(258,603)
(134,892)
65,373
(32,603)
112,116
56,884
-
330,712
-
(393,495)
363,482
169,000
Provision
$ 2,180,010 $ 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 $330,712 for the year
ended December 31, 2017.
(Continued)
30.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 8 – INCOME TAXES (Continued)
Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
principles with respect to income and expense recognition.
The following is a summary of the components of the net deferred tax asset accounts included in interest
receivable and other assets in the accompanying consolidated balance sheets at December 31:
Deferred tax assets:
Pre(cid:486)operating expenses
Depreciation
Allowance for loan losses
Stock(cid:486)based compensation
Deferred compensation
State tax deferral
Unrealized losses on available(cid:486)for(cid:486)sale securities
Non-accrual loan interest
Other
Deferred tax liabilities:
Unrealized gains on available(cid:486)for(cid:486)sale securities
Lease financing receivable
Other
2018
2017
$
24,587 $
121,635
819,645
95,128
110,577
195,717
187,428
-
128,287
36,882
132,856
538,790
61,019
26,581
156,645
-
44,676
72,542
1,683,004
1,069,991
-
(151,159)
(92,724)
(33,334)
(131,067)
(80,726)
(243,883)
(245,127)
Net deferred income tax asset
$ 1,439,121 $
824,864
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, 2017, 2016, and 2015 are open to audit by the federal authorities and
income tax returns for the years ended December 31, 2017, 2016, 2015, and 2014, are open to audit by state
authorities. As of December 31, 2018, 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.
NOTE 9 – RELATED PARTY TRANSACTIONS
The Company has granted loans to certain directors and their related interests with which they are
associated. The balance of these loans outstanding was approximately $836,000 and $638,000 at December
31, 2018 and 2017, respectively.
Deposits from certain directors, officers, and their related interests with which they are associated, held by the
Company at December 31, 2018 and 2017, amounted to approximately $5,597,000 and $4,451,000,
respectively.
(Continued)
31.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 10 – EARNINGS PER SHARE (EPS)
Earnings per share for the years ended December 31 were computed as follows:
2018
2017
2016
Basic earnings per share:
Net income available to common
shareholders
Weighted average common shares
outstanding
$ 6,249,545 $
3,683,698 $
3,075,109
2,855,761
2,816,454
2,728,600
Basic earnings per share
$
2.19 $
1.31 $
1.13
Diluted earnings per share:
Net income available to common shareholders,
diluted
$
6,249,545 $
3,683,698 $
3,075,109
Weighted average common shares
outstanding
Effect of dilutive stock options
2,855,761
64,975
2,816,454
55,079
2,728,600
23,643
Adjusted weighted average common shares
outstanding, diluted
2,920,736
2,871,533
2,752,243
Diluted earnings per share
$
2.14 $
1.28 $
1.12
At December 31, 2018, 2017 and 2016, there were 58,903, 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 Company 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 Company’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 Company uses
the same credit policies in making commitments as it does for loans reflected in the consolidated financial
statements.
(Continued)
32.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 11 – COMMITMENTS (Continued)
As of December 31, 2018, and 2017, the Company had the following outstanding financial commitments
whose contractual amount represents credit risk:
Commitments to extend credit
Letters of credit
2018
2017
$
77,433,577 $
1,005,658
61,180,483
1,577,000
$
78,439,235 $
62,757,483
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 Company
evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company, is based on management’s credit evaluation of the customer. The
majority of the Company’s commitments to extend credit and standby letters of credit are secured by real
estate.
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
compensation cost of $418,026, $383,920, and $137,752 in 2018, 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
term of the options.
(Continued)
33.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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, 2018,
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
108,036
Granted
Exercised
Forfeited, expired, or returned to
Plan through cashless exercise
Outstanding at end of year
Options exercisable
$
$
8.95
4.1 years
$ 1,144,695
-
-
(151) $
10.45
(349) $
10.45
107,536
107,536
$
$
8.95
8.95
3.1 years
$ 1,166,281
3.1 years
$ 1,166,281
As of December 31, 2018, there was no unrecognized compensation cost related to the outstanding stock
options.
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, 2018
Granted
Vested
Forfeited
Non-vested at December 31, 2018
53,843 $
25,175
(27,390)
(4,467)
47,161 $
12.29
20.00
12.13
20.55
16.22
As of December 31, 2018, there was approximately $480,878 of total unrecognized compensation cost
related to the outstanding restricted stock grants that will be recognized over a weighted average period of
1.5 years.
(Continued)
34.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 13 – SHAREHOLDERS’ EQUITY
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 0.000% for 2015 to 2.500% by 2019. The capital conservation buffer for 2017 was
1.250% and for 2018 is 1.875%. The net unrealized gain or loss on available for sale securities is not included
in computing regulatory capital. Management believes as of December 31, 2018, the Company and Bank
meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized, regulatory approval is required to
accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required. At year-end 2018 and 2017, the most recent regulatory
notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective
action.
There are no conditions or events since that notification that management believes have changed the
institution’s category.
Actual and required capital amounts and ratios, excluding the capital conservation buffer, are presented
below (dollar amounts in thousands):
December 31, 2018:
Common Equity Tier I Capital
(to Risk(cid:486)Weighted Assets)
Total Capital
(to Risk(cid:486)Weighted Assets)
Tier I Capital
(to Risk(cid:486)Weighted Assets)
Tier I Capital
(to Average Assets)
December 31, 2017:
Common Equity Tier I Capital
(to Risk(cid:486)Weighted Assets)
Total Capital
(to Risk(cid:486)Weighted Assets)
Tier I Capital
(to Risk(cid:486)Weighted Assets)
Tier I Capital
(to Average Assets)
$
$
$
$
$
$
$
$
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Ratio
40,918
15.3% $
12,000
>4.5% $
17,333
>6.5%
44,260
16.6% $
21,333
>8.0% $
26,667
>10.0%
40,918
15.3% $
16,000
>6.0% $
21,333
>8.0%
40,918
8.7% $
18,732
>4.0% $
23,415
>5.0%
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%
(Continued)
35.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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 Company 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 Company 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, 2018 and
2017.
(Continued)
36.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
NOTE 14 – FAIR VALUE (Continued)
The following table summarizes the Company’s assets that were measured at fair value on a recurring basis
at December 31, 2018:
Description of Assets
Securities available(cid:486)for(cid:486)sale
U.S. government and agency
securities
Mortgage(cid:486)backed securities
State and municipal agencies
Total
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2018
Significant
Significant
Other
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
$ 49,839,446
26,503,682
7,513,856
$
$ 83,856,984
$
-
-
-
-
$ 49,839,446
26,503,682
7,513,856
$
$ 83,856,984
$
-
-
-
-
The following table summarizes the Company’s assets that were measured at fair value on a recurring and
non-recurring basis at December 31, 2017:
Description of Assets
Securities available(cid:486)for(cid:486)sale
U.S. government and agency
securities
Mortgage(cid:486)backed securities
State and municipal agencies
Total
Quoted
Prices in
Active Markets
For Identical
Assets
(Level 1)
December 31,
2017
Significant
Other
Observable Unobservable
Significant
Inputs
(Level 2)
Inputs
(Level 3)
$ 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 fair value of a financial instrument is the amount at which the asset or obligation could be exchanged in a
current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are
made at a specific point in time based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could result from offering for sale at
one time the entire holdings of a particular financial instrument. Because no market value exists for a
significant portion of the financial instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment
and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on financial instruments both on and off the balance sheet without attempting
to estimate the value of anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Additionally, tax consequences related to the realization of the unrealized
gains and losses can have a potential effect on fair value estimates and have not been considered in many of
the estimates.
(Continued)
37.
COMMUNITIES FIRST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
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 and SBIC investments
approximates carrying value. The estimated fair values of financial instruments disclosed below as of
December 31, 2018 follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in
estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and
marketability factors. The fair values shown as of December 31, 2017 use an “entry price” approach.
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):
2018
2017
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
Securities held-to-maturity
Loans held for sale
Loans, net
SBIC investments
Correspondent bank stock
Interest receivable
Financial liabilities:
Deposits
Interest payable
42,381 $
10,906
83,857
12,092
4,081
299,503
374
2,060
1,939
42,381
11,173
83,857
12,204
4,081
295,939
374
N/A
1,939
Level 1 $
Level 2
Level 2
Level 2
Level 3
Level 3
Level 2
N/A
Level 2
54,736 $
5,199
72,664
-
-
260,610
408
1,828
1,595
54,736
5,316
72,664
-
-
258,519
408
N/A
1,595
424,346
25
387,220
25
Level 2
Level 2
371,401
18
343,415
18
Level 1
Level 2
Level 2
Level 2
Level 3
Level 3
Level 2
N/A
Level 2
Level 2
Level 2
38.
7690 N. Palm Avenue, Fresno, California 93711
559.439.0200
WWW.FRESNOFIRSTBANK.COM