UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File No. 001-38074

 

Community First Bancshares, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Federal

 

82-1147778

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

3175 Highway 278

Covington, Georgia

 

30014

(Address of Principal Executive Offices)

 

(Zip Code)

 

(770) 786-7088

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.  YES      NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES       NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.   See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer

 

 

  

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES       NO  

As of August 2, 2018, 7,538,250 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.

 

 

 

 


 

Community First Bancshares, Inc.

Form 10-Q

Table of Contents

 

 

 

 

 

Page

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets at June 30, 2018 (unaudited) and September 30, 2017

 

2

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2018 and 2017 (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive (Loss) Income for the Three Months and Nine Months Ended June 30, 2018 and 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2018 and 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

32

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

32

 

 

 

 

 

Item 5.

 

Other Information

 

32

 

 

 

 

 

Item 6.

 

Exhibits

 

32

 

 

 

 

 

 

 

SIGNATURES

 

33

 

 

1


 

PART I – FINANCI AL INFORMATION

Item 1.

Financial Statements

COMMUNITY FIRST BANCSHARES, INC.

Consolidated Balance Sheets

 

 

 

June 30, 2018

(unaudited)

 

 

September 30, 2017

(audited)

 

 

 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

 

Cash and due from banks, including reserve requirement of $1,808 and $1,483 at

   June 30, 2018 and September 30, 2017, respectively

 

$

3,807

 

 

 

3,625

 

Interest-earning deposits in other depository institutions

 

 

22,516

 

 

 

32,318

 

Cash and cash equivalents

 

 

26,323

 

 

 

35,943

 

Investment securities held-to-maturity (estimated fair values of $990 and $1,001)

 

 

1,000

 

 

 

1,000

 

Investment securities available-for-sale

 

 

22,198

 

 

 

14,345

 

Federal Home Loan Bank stock

 

 

580

 

 

 

216

 

Loans held for sale

 

 

 

 

 

117

 

Loans, net

 

 

223,286

 

 

 

213,193

 

Other real estate owned

 

 

 

 

 

61

 

Premises and equipment, net

 

 

9,168

 

 

 

8,454

 

Bank owned life insurance

 

 

7,135

 

 

 

 

Accrued interest receivable and other assets

 

 

3,241

 

 

 

4,486

 

Total assets

 

$

292,931

 

 

 

277,815

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Passbook accounts

 

$

23,953

 

 

 

22,655

 

Interest-bearing checking

 

 

42,720

 

 

 

38,981

 

Market rate checking

 

 

23,646

 

 

 

22,556

 

Non-interest bearing checking

 

 

26,996

 

 

 

25,050

 

Certificate of deposits

 

 

86,131

 

 

 

85,371

 

Total deposits

 

 

203,446

 

 

 

194,613

 

Federal Home Loan Bank advances

 

 

7,570

 

 

 

 

Accrued interest payable and other liabilities

 

 

5,617

 

 

 

6,406

 

Total liabilities

 

 

216,633

 

 

 

201,019

 

Commitments

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock (par value $0.01 per share, 19,000,000 shares authorized,

   7,538,250 outstanding at June 30, 2018 and September 30, 2017)

 

 

75

 

 

 

75

 

Preferred stock (1,000,000 shares authorized, no shares outstanding at

   June 30, 2018 or September 30, 2017)

 

 

 

 

 

 

Additional paid in capital

 

 

33,070

 

 

 

33,055

 

Unearned ESOP shares

 

 

(2,748

)

 

 

(2,837

)

Retained earnings

 

 

46,436

 

 

 

46,446

 

Accumulated other comprehensive (loss) income

 

 

(535

)

 

 

57

 

Total stockholders' equity

 

 

76,298

 

 

 

76,796

 

Total liabilities and stockholders' equity

 

$

292,931

 

 

 

277,815

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

2


 

COMMUNITY FIRST BANCSHARES, INC.

Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

3,330

 

 

 

3,044

 

 

$

9,573

 

 

 

8,811

 

Investment securities, including dividends

 

 

150

 

 

 

71

 

 

 

428

 

 

 

141

 

Interest-earning deposits

 

 

90

 

 

 

138

 

 

 

263

 

 

 

242

 

Total interest income

 

 

3,570

 

 

 

3,253

 

 

 

10,264

 

 

 

9,194

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

365

 

 

 

291

 

 

 

997

 

 

 

780

 

Borrowings

 

 

37

 

 

 

 

 

 

98

 

 

 

 

Total interest expense

 

 

402

 

 

 

291

 

 

 

1,095

 

 

 

780

 

Net interest income before provision for loan losses

 

 

3,168

 

 

 

2,962

 

 

 

9,169

 

 

 

8,414

 

Provision for loan losses

 

 

300

 

 

 

-

 

 

 

300

 

 

 

 

Net interest income after provision for loan losses

 

 

2,868

 

 

 

2,962

 

 

 

8,869

 

 

 

8,414

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

 

175

 

 

 

178

 

 

 

520

 

 

 

539

 

Small Business Administration (SBA) loan fees

 

 

485

 

 

 

-

 

 

 

655

 

 

 

-

 

Other

 

 

134

 

 

 

101

 

 

 

354

 

 

 

377

 

Total non-interest income

 

 

794

 

 

 

279

 

 

 

1,529

 

 

 

916

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,647

 

 

 

1,539

 

 

 

5,116

 

 

 

3,969

 

Deferred compensation

 

 

51

 

 

 

55

 

 

 

156

 

 

 

164

 

Occupancy

 

 

428

 

 

 

327

 

 

 

1,248

 

 

 

901

 

Advertising

 

 

55

 

 

 

49

 

 

 

128

 

 

 

163

 

Data processing

 

 

216

 

 

 

169

 

 

 

658

 

 

 

572

 

Other real estate owned

 

 

53

 

 

 

14

 

 

 

63

 

 

 

37

 

Net gain on sale of other real estate owned

 

 

(4

)

 

 

(17

)

 

 

(33

)

 

 

(24

)

Legal and accounting

 

 

223

 

 

 

145

 

 

 

706

 

 

 

357

 

Organizational dues and subscriptions

 

 

82

 

 

 

74

 

 

 

226

 

 

 

226

 

Director compensation

 

 

53

 

 

 

71

 

 

 

164

 

 

 

181

 

Federal deposit insurance premiums

 

 

16

 

 

 

17

 

 

 

49

 

 

 

72

 

Other

 

 

256

 

 

 

315

 

 

 

857

 

 

 

956

 

Total non-interest expenses

 

 

3,076

 

 

 

2,758

 

 

 

9,338

 

 

 

7,574

 

Income before income taxes

 

 

586

 

 

 

483

 

 

 

1,060

 

 

 

1,756

 

Income tax expense (benefit)

 

 

(32

)

 

 

129

 

 

 

1,070

 

 

 

609

 

Net (loss) income

 

$

618

 

 

 

354

 

 

$

(10

)

 

 

1,147

 

Basic and diluted earnings (loss) per share

 

$

0.08

 

 

$

0.03

 

 

$

(0.00

)

 

$

0.03

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

3


 

COMMUNITY FIRST BANCSHARES, INC.

Consolidated Statements of Comprehensive (Loss) Income

(unaudited)

 

 

 

Three Months Ended June 30,

 

 

Nine Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Net (loss) income

 

$

618

 

 

$

354

 

 

$

(10

)

 

$

1,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (loss) gain on available for sale securities,

   net of taxes of $(1), $30, $(218) and $34 for the three months

   and nine months ended June 30, 2018 and 2017

 

 

(2

)

 

 

57

 

 

 

(592

)

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income

 

 

(2

)

 

 

57

 

 

 

(592

)

 

 

65

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive (loss) income

 

$

616

 

 

$

411

 

 

$

(602

)

 

$

1,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

4


 

COMMUNITY FIRST BANCSHARES, INC.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(10

)

 

 

1,147

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

671

 

 

 

327

 

Provision for loan losses

 

 

300

 

 

 

 

ESOP expense

 

 

104

 

 

 

64

 

Deferred income tax

 

 

1,171

 

 

 

(152

)

Net gain on sale of other real estate owned

 

 

(33

)

 

 

(11

)

Originations of loans held for sale

 

 

(843

)

 

 

(1,487

)

Increase in cash surrender value of life insurance

 

 

(135

)

 

 

 

Proceeds from sales of loans held for sale

 

 

960

 

 

 

1,960

 

Change in:

 

 

 

 

 

 

 

 

Accrued interest receivable and other assets

 

 

293

 

 

 

228

 

Accrued interest payable and other liabilities

 

 

(784

)

 

 

172

 

Net cash provided by operating activities

 

 

1,694

 

 

 

2,248

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of investment securities available-for-sale

 

 

(10,319

)

 

 

(14,019

)

Net change in loans

 

 

(10,445

)

 

 

(19,785

)

Purchases of premises and equipment

 

 

(1,233

)

 

 

(3,798

)

Proceeds from paydowns of investment securities available-for-sale

 

 

1,502

 

 

 

340

 

Proceeds from maturity of investment securities held-to-maturity

 

 

 

 

 

5,000

 

Purchases of other investments

 

 

(364

)

 

 

(11

)

Purchase of bank owned life insurance

 

 

(7,000

)

 

 

 

Proceeds from sales of other real estate owned

 

 

142

 

 

 

381

 

Net cash used in investing activities

 

 

(27,717

)

 

 

(31,892

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net change in demand and savings deposits

 

 

8,833

 

 

 

13,294

 

Proceeds from stock offering

 

 

 

 

 

34,640

 

Funding of ESOP

 

 

 

 

 

(2,955

)

Stock offering expenses

 

 

 

 

 

(1,485

)

Proceeds from FHLB advances

 

 

7,570

 

 

 

 

Net cash provided by financing activities

 

 

16,403

 

 

 

43,494

 

Net change in cash and cash equivalents

 

 

(9,620

)

 

 

13,850

 

Cash and cash equivalents at beginning of period

 

 

35,943

 

 

 

25,693

 

Cash and cash equivalents at end of period

 

 

26,323

 

 

 

39,543

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

1,071

 

 

 

780

 

Supplemental disclosures of noncash investing activities:

 

 

 

 

 

 

 

 

Other real estate owned acquired through foreclosures

 

 

1,143

 

 

 

817

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

(1)

Basis of Presentation

Community First Bancshares, Inc. (the “Company”) is a savings and loan holding company headquartered in Covington, Georgia. The Company has one operating subsidiary, Newton Federal Bank (the “Bank”), conducting banking activities primarily in Newton County, Georgia and surrounding counties. The main emphasis of the Bank is providing mortgage loans in its primary lending area.  It offers customary banking services such as consumer and commercial checking accounts, savings accounts, certificates of deposit, mortgage, commercial and consumer loans, money transfers and a variety of other banking services.

The accompanying unaudited consolidated financial statements and notes thereto contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the financial position of the Company as of June 30, 2018 and the results of its operations and its cash flows for the periods presented. The interim consolidated financial information should be read in conjunction with the annual financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.

The results of operations for the quarter and nine months ended June 30, 2018, are not necessarily indicative of the results to be expected for the full year or for any other period.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term include, but are not limited to, the determination of the allowance for loan losses, the valuation of other real estate acquired in connection with foreclosure or in satisfaction of loans and valuation allowances associated with the realization of deferred tax assets, which are based on future taxable income.

Summary of Significant Accounting Policies – The accounting and reporting policies of the Company conform to GAAP and general practices within the banking industry. There have been no material changes or developments in the application of principles or in our evaluation of the accounting estimates and the underlying assumptions or methodologies that we believe to be Critical Accounting Policies as disclosed in the Company’s financial statements for the year ended September 30, 2017 included in the Company’s Form 10-K.

Net income per share is calculated for the period that the Company’s shares of common stock were outstanding, which includes the current quarter and a portion of the same quarter in the previous year.  The net income for the current period was $618,000 and the weighted average common shares outstanding were 7,538,250.  The net loss for the current year-to-date period was $10,000 and the weighted average common shares outstanding were 7,538,250.  The net income for the previous period that the Company’s shares of common stock were outstanding (April 27, 2017 through June 30, 2017) was $249,000 and the weighted average common shares outstanding were 7,538,250.

Recent Accounting Pronouncements

There have been no pronouncements issued during the quarter that would have a material impact on the Company's financial statements.

(2)

Investment Securities

Investment Securities Held-to-Maturity

Investment securities held-to-maturity at June 30, 2018 and September 30, 2017 are as follows: (in thousands)

 

June 30, 2018

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

U.S. Government sponsored enterprises

 

$

1,000

 

 

 

 

 

 

(10

)

 

 

990

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government sponsored enterprises

 

$

1,000

 

 

 

1

 

 

 

 

 

 

1,001

 

 

6


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

The U.S. government sponsored enterprise securities as of June 30, 2018 were comprised of one debt financing security issued by a government agency that matures within   t wo years.

There were no sales of securities held-to-maturity during the three and nine months ended June 30, 2018 or 2017.

Securities with a carrying value of approximately $1,000,000 were pledged to secure public deposits at both June 30, 2018 and September 30, 2017.

Investment Securities Available-for-Sale

Investment securities available-for-sale at June 30, 2018 and September 30, 2017 were as follows: (in thousands)

 

 

 

Amortized

 

 

Gross

Unrealized

 

 

Gross

Unrealized

 

 

Estimated

 

June 30, 2018

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Municipal securities - tax exempt

 

$

5,704

 

 

 

5

 

 

 

(122

)

 

 

5,587

 

Municipal securities - taxable

 

 

3,126

 

 

 

 

 

 

(138

)

 

 

2,988

 

Government agency securities

 

 

502

 

 

 

 

 

 

(12

)

 

 

490

 

Government agency mortgage-backed securities

 

 

13,589

 

 

 

 

 

 

(456

)

 

 

13,133

 

Total

 

$

22,921

 

 

 

5

 

 

 

(728

)

 

 

22,198

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal securities - tax exempt

 

$

5,756

 

 

 

119

 

 

 

(2

)

 

 

5,873

 

Government agency securities

 

 

502

 

 

 

 

 

 

 

 

 

502

 

Government agency mortgage-backed securities

 

 

8,000

 

 

 

6

 

 

 

(36

)

 

 

7,970

 

Total

 

$

14,258

 

 

 

125

 

 

 

(38

)

 

 

14,345

 

 

There were 34 and eight securities in an unrealized loss position less than 12 months as of June 30, 2018 and September 30, 2017, respectively.    There were six and no securities in an unrealized loss position greater than 12 months as of June 30, 2018 and September 30, 2017, respectively.

 

7


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

The amortized cost and estimated fair value of investment securities available-for-sale at June 30, 2018 , by contractual maturity, are shown below. Maturities of mortgage-backed securities will differ from contractual maturities because borrower s may have the right to call or prepay certain obligations with or without call or prepayment penalties. Therefore, these securities are not included in the maturity categories. (in thousands)

 

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost

 

 

Fair Value

 

Municipal securities - tax exempt

 

 

 

 

 

 

 

 

Within 1 year

 

$

 

 

 

 

1 to 5 years

 

 

491

 

 

 

491

 

5 to 10 years

 

 

5,213

 

 

 

5,096

 

Greater than 10 years

 

 

 

 

 

 

 

 

 

5,704

 

 

 

5,587

 

Municipal securities - taxable

 

 

 

 

 

 

 

 

Within 1 year

 

 

 

 

 

 

1 to 5 years

 

 

 

 

 

 

5 to 10 years

 

 

1,127

 

 

 

1,094

 

Greater than 10 years

 

 

1,999

 

 

 

1,894

 

 

 

 

3,126

 

 

 

2,988

 

Government agency securities

 

 

 

 

 

 

 

 

Within 1 year

 

 

 

 

 

 

1 to 5 years

 

 

502

 

 

 

490

 

5 to 10 years

 

 

 

 

 

 

Greater than 10 years

 

 

 

 

 

 

 

 

 

502

 

 

 

490

 

Government agency mortgage-backed securities

 

 

13,589

 

 

 

13,133

 

Total

 

$

22,921

 

 

 

22,198

 

 

There were no sales of securities available-for-sale during the three and nine months ended June 30, 2018 or 2017.

Securities with a carrying value of approximately $490,000 and $502,000 were pledged to secure public deposits at June 30, 2018 and September 30, 2017, respectively.

(3)

Loans and Allowance for Loan Losses

Major classifications of loans, by collateral code, at June 30, 2018 and September 30, 2017 are summarized as follows: (in thousands)

 

 

June 30, 2018

 

 

September 30, 2017

 

Commercial (secured by real estate)

 

$

37,491

 

 

 

29,861

 

Commercial and industrial

 

 

27,613

 

 

 

21,060

 

Construction, land and acquisition & development

 

 

21,475

 

 

 

25,165

 

Residential mortgage 1-4 family

 

 

137,986

 

 

 

138,875

 

Consumer installment

 

 

2,730

 

 

 

2,783

 

Total

 

 

227,295

 

 

 

217,744

 

Less allowance for loan losses

 

 

(4,009

)

 

 

(4,551

)

Total loans, net

 

$

223,286

 

 

 

213,193

 

 

The Bank grants loans and extensions of credit to individuals and a variety of firms and corporations located primarily in Newton County and other surrounding Georgia counties. A substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market.

Qualifying loans in the amount of approximately $123,949,000 and $137,462,000 were pledged to secure the line of credit from Federal Home Loan Bank (the “FHLB”) at June 30, 2018 and September 30, 2017, respectively.

8


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method for the nine months ended June 30, 2018 and 201 7 : (in thousands)

 

June 30, 2018

 

Commercial

(Secured by Real

Estate)

 

 

Commercial

and Industrial

 

 

Construction,

Land and

Acquisition & Development

 

 

Residential

Mortgage

 

 

Consumer

Installment

 

 

Unallocated

 

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,548

 

 

 

863

 

 

 

349

 

 

 

1,704

 

 

 

79

 

 

 

8

 

 

 

4,551

 

Provision

 

 

(412

)

 

 

1,807

 

 

 

(134

)

 

 

(970

)

 

 

15

 

 

 

(6

)

 

 

300

 

Charge-offs

 

 

 

 

 

(1,100

)

 

 

 

 

 

(44

)

 

 

(27

)

 

 

 

 

 

(1,171

)

Recoveries

 

 

102

 

 

 

22

 

 

 

 

 

 

205

 

 

 

 

 

 

 

 

 

329

 

Ending balance

 

$

1,238

 

 

 

1,592

 

 

 

215

 

 

 

895

 

 

 

67

 

 

 

2

 

 

 

4,009

 

Ending allowance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

.

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

3

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

11

 

Collectively evaluated for impairment

 

 

1,235

 

 

 

1,592

 

 

 

215

 

 

 

887

 

 

 

67

 

 

 

2

 

 

 

3,998

 

Total ending allowance

 

$

1,238

 

 

 

1,592

 

 

 

215

 

 

 

895

 

 

 

67

 

 

 

2

 

 

 

4,009

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,994

 

 

 

277

 

 

 

 

 

 

5,835

 

 

 

2

 

 

 

 

 

 

8,108

 

Collectively evaluated for impairment

 

 

35,497

 

 

 

27,336

 

 

 

21,475

 

 

 

132,151

 

 

 

2,728

 

 

 

 

 

 

219,187

 

Total loans

 

$

37,491

 

 

 

27,613

 

 

 

21,475

 

 

 

137,986

 

 

 

2,730

 

 

 

 

 

 

227,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

1,595

 

 

 

643

 

 

 

143

 

 

 

1,882

 

 

 

36

 

 

 

10

 

 

 

4,309

 

Provision

 

 

(122

)

 

 

202

 

 

 

196

 

 

 

(278

)

 

 

9

 

 

 

(7

)

 

 

 

Charge-offs

 

 

 

 

 

(15

)

 

 

 

 

 

(41

)

 

 

(14

)

 

 

 

 

 

(70

)

Recoveries

 

 

52

 

 

 

 

 

 

 

 

 

253

 

 

 

9

 

 

 

 

 

 

314

 

Ending balance

 

$

1,525

 

 

 

830

 

 

 

339

 

 

 

1,816

 

 

 

40

 

 

 

3

 

 

 

4,553

 

Ending allowance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

2

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

5

 

Collectively evaluated for impairment

 

 

1,523

 

 

 

830

 

 

 

339

 

 

 

1,813

 

 

 

40

 

 

 

3

 

 

 

4,548

 

Total ending allowance

 

$

1,525

 

 

 

830

 

 

 

339

 

 

 

1,816

 

 

 

40

 

 

 

3

 

 

 

4,553

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,922

 

 

 

37

 

 

 

 

 

 

5,698

 

 

 

4

 

 

 

 

 

 

7,661

 

Collectively evaluated for impairment

 

 

25,634

 

 

 

20,649

 

 

 

24,199

 

 

 

132,183

 

 

 

2,773

 

 

 

 

 

 

205,438

 

Total loans

 

$

27,556

 

 

 

20,686

 

 

 

24,199

 

 

 

137,881

 

 

 

2,777

 

 

 

 

 

 

213,099

 

 

The Bank individually evaluates all loans for impairment that are on nonaccrual status or are rated substandard (as described below).  Additionally, all troubled debt restructurings are evaluated for impairment.  A loan is considered impaired when, based on current events and circumstances, it is probable that all amounts due according to the contractual terms of the loan will not be collected.  Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, at the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Interest payments received on impaired loans are applied as a reduction of the outstanding principal balance.

9


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

Impaired loans at June 30, 2018 and September 30, 201 7 were as follows: (in thousands)

 

June 30, 2018

 

Recorded

Investment

 

 

Unpaid

Principal

Balance

 

 

Allocated

Related

Allowance

 

 

Average

Recorded

Investment

 

 

Interest

Income

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial (secured by real estate)

 

$

211

 

 

 

1,194

 

 

 

 

 

 

231

 

 

 

7

 

Commercial and industrial

 

 

277

 

 

 

1,383

 

 

 

 

 

 

853

 

 

 

 

Construction, land and acquisition & development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

4,955

 

 

 

6,760

 

 

 

 

 

 

4,712

 

 

 

148

 

Consumer installment

 

 

2

 

 

 

2

 

 

 

 

 

 

3

 

 

 

 

 

 

 

5,445

 

 

 

9,339

 

 

 

 

 

 

5,799

 

 

 

155

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial (secured by real estate)

 

 

1,783

 

 

 

1,783

 

 

 

3

 

 

 

1,802

 

 

 

60

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and acquisition & development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

880

 

 

 

921

 

 

 

8

 

 

 

853

 

 

 

32

 

Consumer installment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,663

 

 

 

2,704

 

 

 

11

 

 

 

2,655

 

 

 

92

 

Total impaired loans

 

$

8,108

 

 

 

12,043

 

 

 

11

 

 

 

8,454

 

 

 

247

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial (secured by real estate)

 

$

83

 

 

$

2,745

 

 

 

 

 

 

115

 

 

 

7

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and acquisition & development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

5,611

 

 

 

7,678

 

 

 

 

 

 

5,636

 

 

 

51

 

Consumer installment

 

 

3

 

 

 

3

 

 

 

 

 

 

4

 

 

 

 

 

 

 

5,697

 

 

 

10,426

 

 

 

 

 

 

5,755

 

 

 

58

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial (secured by real estate)

 

 

1,810

 

 

 

1,810

 

 

 

10

 

 

 

1,834

 

 

 

28

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction, land and acquisition & development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

 

 

685

 

 

 

685

 

 

 

4

 

 

 

696

 

 

 

10

 

Consumer installment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,495

 

 

 

2,495

 

 

 

14

 

 

 

2,530

 

 

 

38

 

Total impaired loans

 

$

8,192

 

 

 

12,921

 

 

 

14

 

 

 

8,285

 

 

 

96

 

 

10


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

The following table presents the aging of the recorded investment in past due loans, as well as the recorded investment in nonaccrual loans, as of June 30, 2018 and September 30, 2017 by class of loans: (in thousands)

 

June 30, 2018

 

30 -59

Days

Past Due

 

 

60- 89

Days

Past Due

 

 

90 Days or Greater

Past Due

 

 

Total

Past Due

 

 

Current

 

 

Total

 

 

Nonaccrual

 

Commercial (secured by real estate)

 

$

 

 

 

212

 

 

 

39

 

 

 

251

 

 

 

37,240

 

 

 

37,491

 

 

 

252

 

Commercial and industrial

 

 

434

 

 

 

26

 

 

 

298

 

 

 

758

 

 

 

26,855

 

 

 

27,613

 

 

 

324

 

Construction, land and acquisition &

   development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,475

 

 

 

21,475

 

 

 

 

Residential mortgage

 

 

325

 

 

 

1,419

 

 

 

1,097

 

 

 

2,841

 

 

 

135,145

 

 

 

137,986

 

 

 

3,184

 

Consumer installment

 

 

33

 

 

 

2

 

 

 

25

 

 

 

60

 

 

 

2,670

 

 

 

2,730

 

 

 

25

 

Total

 

$

792

 

 

 

1,659

 

 

 

1,459

 

 

 

3,910

 

 

 

223,385

 

 

 

227,295

 

 

 

3,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial (secured by real estate)

 

$

 

 

 

 

 

 

45

 

 

 

45

 

 

 

29,816

 

 

 

29,861

 

 

 

129

 

Commercial and industrial

 

 

19

 

 

 

45

 

 

 

 

 

 

64

 

 

 

20,996

 

 

 

21,060

 

 

 

 

Construction, land and acquisition &

   development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,165

 

 

 

25,165

 

 

 

 

Residential mortgage

 

 

173

 

 

 

3,236

 

 

 

1,559

 

 

 

4,968

 

 

 

133,907

 

 

 

138,875

 

 

 

3,540

 

Consumer installment

 

 

24

 

 

 

7

 

 

 

 

 

 

31

 

 

 

2,752

 

 

 

2,783

 

 

 

 

Total

 

$

216

 

 

 

3,288

 

 

 

1,604

 

 

 

5,108

 

 

 

212,636

 

 

 

217,744

 

 

 

3,669

 

 

There were no loans past due over 90 days and still accruing interest as of June 30, 2018 and September 30, 2017.

The table below presents information on troubled debt restructurings including the number of loan contracts restructured and the pre- and post-modification recorded investment that occurred during the nine months ended June 30, 2017.  There were none for the nine months ended June 30, 2018. (in thousands)

 

 

 

 

 

 

 

Pre-

Modification

Outstanding

 

 

Post-

Modification

Outstanding

 

 

Troubled Debt

Restructurings that have

Subsequently Defaulted

 

June 30, 2017

 

Number of

Contracts

 

 

Recorded

Investment

 

 

Recorded

Investment

 

 

Number of

Contracts

 

 

Recorded

Investment

 

Residential mortgage

 

 

1

 

 

$

18

 

 

$

18

 

 

 

1

 

 

 

76

 

 

The Bank has allocated an allowance for loan losses of approximately $9,000 and $12,000 to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2018 and September 30, 2017, respectively.

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.  The Bank analyzes loans individually by classifying the loans as to credit risk.  This analysis is performed on a continuous basis.  The Bank uses the following definitions for its risk ratings:

Special Mention. Loans have potential weaknesses that may, if not corrected, weaken or inadequately protect the Bank's credit position at some future date.  Weaknesses are generally the result of deviation from prudent lending practices, such as over advances on collateral.  Credits in this category should, within a 12 month period, move to Pass if improved or drop to Substandard if poor trends continue.

Substandard. Inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any.  Loans have a well-defined weakness or weaknesses such as primary source of repayment is gone or severely impaired or cash flow is insufficient to reduce debt.  There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful.   Loans have weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable.  The likelihood of a loss on an asset or portion of an asset classified Doubtful is high.

11


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

Loss.   Loans considered uncollectible and of such little value that the continuance as a Bank asset is not warranted.  This does not mean that the loan has no recovery or salvage value, but rather the ass et should be charged off even though partial recovery may be possible in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.  As of June 30, 2018 and September 30, 2017, and based on the most recent analysis performed, the risk category of loans by class of loans were as follows: (in thousands)

 

June 30, 2018

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful/

Loss

 

 

Total

 

Commercial (secured by real estate)

 

$

36,911

 

 

 

 

 

 

580

 

 

 

 

 

 

37,491

 

Commercial and industrial

 

 

27,289

 

 

 

 

 

 

324

 

 

 

 

 

 

27,613

 

Construction, land and acquisition & development

 

 

21,439

 

 

 

 

 

 

36

 

 

 

 

 

 

21,475

 

Residential mortgage

 

 

128,594

 

 

 

66

 

 

 

9,326

 

 

 

 

 

 

137,986

 

Consumer installment

 

 

2,687

 

 

 

 

 

 

43

 

 

 

 

 

 

2,730

 

Total

 

$

216,920

 

 

 

66

 

 

 

10,309

 

 

 

 

 

 

227,295

 

 

September 30, 2017

 

Pass

 

 

Special

Mention

 

 

Substandard

 

 

Doubtful/

Loss

 

 

Total

 

Commercial (secured by real estate)

 

$

29,416

 

 

 

 

 

 

445

 

 

 

 

 

 

29,861

 

Commercial and industrial

 

 

21,015

 

 

 

 

 

 

45

 

 

 

 

 

 

21,060

 

Construction, land and acquisition & development

 

 

25,165

 

 

 

 

 

 

 

 

 

 

 

 

25,165

 

Residential mortgage

 

 

132,725

 

 

 

224

 

 

 

5,926

 

 

 

 

 

 

138,875

 

Consumer installment

 

 

2,783

 

 

 

 

 

 

 

 

 

 

 

 

2,783

 

Total

 

$

211,104

 

 

 

224

 

 

 

6,416

 

 

 

 

 

 

217,744

 

 

(4)

Deposits

The aggregate amounts of certificates of deposit of $250,000 or more, the standard FDIC deposit insurance coverage limit per depositor, were approximately $11,253,000 at June 30, 2018 and $10,151,000 at September 30, 2017.  The aggregate amounts of certificates of deposit of $100,000 or more were approximately $40,239,000 at June 30, 2018 and $36,885,000 at September 30, 2017.

(5)

Borrowings

The following Federal Home Loan Bank of Atlanta (“FHLB”) advances, which required monthly or quarterly interest payments, were outstanding at June 30, 2018:

 

Advance Date

 

Advance

 

Interest Rate

 

Maturity

 

Rate

 

Call Feature

10/25/2017

 

$

2,710,000

 

1.98%

 

10/26/2020

 

Fixed

 

None

10/25/2017

 

1,250,000

 

1.81%

 

10/25/2019

 

Fixed

 

None

11/13/2017

 

1,190,000

 

1.87%

 

11/13/2019

 

Fixed

 

None

11/13/2017

 

2,420,000

 

2.02%

 

11/13/2020

 

Fixed

 

None

 

 

$

7,570,000

 

 

 

 

 

 

 

 

 

At September 30, 2017, the Company had no advances outstanding from the FHLB.

The FHLB advances were collateralized by certain loans which totaled approximately $123,949,000 at June 30, 2018, and by the Company’s investment in FHLB stock which totaled $580,400 at June 30, 2018.  

 

12


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

( 6 )

Employee Stock Ownership Plan

The Company sponsors an employee stock ownership plan (“ESOP”) that covers all employees who meet certain service requirements. The Company makes annual contributions to the ESOP in amounts as defined by the plan document. These contributions are used to pay debt service and purchase additional shares. Certain ESOP shares are pledged as collateral for debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year.

In April 2017, the ESOP borrowed $2,954,990 payable to the Company for the purpose of purchasing shares of the Company’s common stock. A total of 295,499 shares were purchased with the loan proceeds as part of the Company’s initial stock offering. Total ESOP expense for the three and nine months ended June 30, 2018 was approximately $33,000 and $104,000, respectively. There was $64,000 ESOP expense for the three and nine months ended June 30, 2017.  The balance of the note payable of the ESOP was $2,820,473 at June 30, 2018. Because the source of the loan payments are contributions received by the ESOP from the Company, the related notes receivable is shown as a reduction of stockholders’ equity. As of June 30, 2018, 11,820 shares have been released.

( 7 )

Stockholders’ Equity

Prior to January 1, 1996, the Bank was permitted under the Internal Revenue Code (the “Code”) a special bad debt deduction related to additions to tax bad debt reserves established for the purpose of absorbing losses. The provisions of the Code permitted the Bank to deduct from taxable income an allowance for bad debts based on the greater of a percentage of taxable income before such deduction or actual loss experience.  Retained earnings at June 30, 2018 includes approximately $3,625,000 for which no deferred Federal income tax liability has been recognized. The amounts represent an allocation of income for bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate.

On August 20, 1996, legislation was passed which eliminated the percentage of taxable income bad debt deduction for thrift institutions for tax years beginning after December 31, 1995. This legislation also requires a thrift to generally recapture the excess of its current tax reserves over its 1987 base year reserves whereas the base year reserves are frozen from taxation. No additional financial statement tax expense resulted from this legislation as the Bank had previously provided deferred taxes on this recaptured amount.  A write down of our deferred tax assets by approximately $1.0 million was made in the quarter ended December 31, 2017 as a result of the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%.  The write-down is subject to adjustment in future periods.

On October 31, 2016, the Board of Directors of the Bank adopted a Plan of Reorganization from a Mutual Savings Association to a Mutual Holding Company and Stock Issuance Plan (the “Plan”).  The Plan was subject to the approval of the Board of Governors of the Federal Reserve System and the affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting.  Pursuant to the Plan, on April 27, 2017 the Bank converted to a stock savings bank and is now organized in the mutual holding company structure.  The Bank issued all of its outstanding stock to the Company, which sold 3,467,595 shares of common stock to the public at $10.00 per share, representing 46% of its outstanding shares of common stock.  This amount included shares purchased by the Bank’s employee stock ownership plan (“ESOP”), which purchased 3.92% of the common stock of the new holding company outstanding upon the completion of the reorganization and stock issuance.  The Company is organized as a corporation under the laws of the United States.  Community First Bancshares, MHC has been organized as a mutual holding company under the laws of the United States and owns 54% of the outstanding common stock of the Company.          

(8 )

Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  From time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets. Additionally, the Company is required to disclose, but not record, the fair value of other financial instruments.

13


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.  These levels are:

Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Cash and Cash Equivalents

The carrying value of cash and cash equivalents is a reasonable estimate of fair value.

Investment Securities Available-for-Sale

Available-for-sale securities are recorded at market value.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds.  Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds.  Securities classified as Level 3 include asset-backed securities in less liquid markets.

Investment Securities Held-to-Maturity

Held-to-maturity securities are recorded at cost, adjusted for the amortization or accretion of premiums and discounts.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds.  Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds.  Securities classified as Level 3 include asset-backed securities in less liquid markets.

FHLB Stock

The carrying value of FHLB Stock approximates fair value.

Loans and Loans Held for Sale

The Company does not record loans at fair value on a recurring basis.  However, from time to time, a loan is considered impaired and a specific reserve is established within the allowance for loan losses.  Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired.  Once a loan is identified as individually impaired, management measures impairment in accordance with GAAP.  The fair value of impaired loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows.  Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.  In accordance with GAAP, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.  When the fair value of the collateral is based on an observable market price, the Company records the impaired loan

14


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

as nonrecurring Level 2.  When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. For disclosure purposes, the fair value of fixe d rate loans which are not considered impaired is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For unimpaired variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes.

The estimated fair value of loans held for sale, classified within Level 2, is approximated by the carrying value, given the short-term nature of the loans and similarly to what secondary markets are currently offering for portfolios of loans with similar characteristics.

Other Real Estate Owned

Other real estate properties are adjusted to fair value upon transfer of the loans to other real estate.  Subsequently, other real estate assets are carried at fair value less estimated selling costs.  Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price, the Bank records the other real estate as nonrecurring Level 2.  When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the other real estate asset as nonrecurring Level 3.

Bank Owned Life Insurance

For disclosure purposes, the carrying value of the cash surrender value of life insurance reasonably approximates fair value.

Deposits

The fair value of passbook accounts, interest bearing checking accounts, non-interest bearing checking accounts and market rate checking accounts is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificates of deposit is estimated by discounting the future cash flows using current rates at which comparable certificates would be issued.

Federal Home Loan Bank Advances

For disclosure purposes, the fair value of Federal Home Loan Bank fixed rate borrowings are estimated using discounted cash flows, based on the current incremental borrowing rates for similar types of borrowing arrangements.

Commitments to Extend Credit

Commitments to extend credit are short-term and, therefore, the carrying value and the fair value are considered immaterial for disclosure.

Assets Recorded at Fair Value on a Recurring Basis

The Company’s only assets recorded at fair value on a recurring basis are available-for-sale securities that had fair values of approximately $22,198,000 and $14,345,000 at June 30, 2018 and September 30, 2017, respectively.  They are classified as Level 2.  

15


COMMUNITY FIRST BANCSHARES, INC.

Notes to Unaudited Consolidated Financial Statements

 

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP.  These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period.  Assets measured at fair value on a nonrecurring basis are included in the table below as of June 30, 2018 and September 30, 2017 (in thousands).

 

June 30, 2018

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other real estate owned

 

$

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

 

 

 

 

 

 

 

8,097

 

 

 

8,097

 

Total assets at fair value

 

$

 

 

 

 

 

 

8,097

 

 

 

8,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other real estate owned

 

$

 

 

 

 

 

 

61

 

 

 

61

 

Impaired loans

 

 

 

 

 

 

 

 

8,178

 

 

 

8,178

 

Total assets at fair value

 

$

 

 

 

 

 

 

8,239

 

 

 

8,239

 

 

The carrying amounts and estimated fair values (in thousands) of the Company’s financial instruments at June 30, 2018 and September 30, 2017 are as follows:

 

 

 

June 30, 2018

 

 

September 30, 2017

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

 

 

Amount

 

 

Fair Value

 

 

Amount

 

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,323

 

 

 

26,323

 

 

 

35,943

 

 

 

35,943

 

Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

available-for-sale

 

$

22,198

 

 

 

22,198

 

 

 

14,345

 

 

 

14,345

 

held-to-maturity

 

$

1,000

 

 

 

990

 

 

 

1,000

 

 

 

1,001

 

FHLB Stock

 

$

580

 

 

 

580

 

 

 

216

 

 

 

216

 

Loans held for sale

 

$

 

 

 

 

 

 

117

 

 

 

117

 

Loans, net

 

$

223,286

 

 

 

191,305

 

 

 

213,193

 

 

 

198,637

 

Cash surrender value of life insurance

 

$

7,135

 

 

 

7,135

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

203,446

 

 

 

203,075

 

 

 

194,613

 

 

 

194,300

 

FHLB advances

 

$

7,570

 

 

 

7,703

 

 

 

 

 

 

 

 

Limitations

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 Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

 

 

16


 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of financial condition and results of operations at June 30, 2018 and September 30, 2017 and for the three months and nine months ended June 30, 2018 and 2017 is intended to assist in understanding the financial condition and results of operations of the Company.  The information contained in this section should be read in conjunction with the unaudited consolidated financial statements and the notes thereto appearing in Part I, Item 1, of this quarterly report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning.  These forward-looking statements include, but are not limited to:

 

statements of our goals, intentions and expectations;

 

statements regarding our business plans, prospects, growth and operating strategies;

 

statements regarding the quality of our loan and investment portfolios; and

 

estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  Accordingly, you should not place undue reliance on such statements.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this quarterly report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

general economic conditions, either nationally or in our market areas, that are worse than expected;

 

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses;

 

our ability to access cost-effective funding;

 

fluctuations in real estate values and both residential and commercial real estate market conditions;

 

demand for loans and deposits in our market area;

 

our ability to implement and change our business strategies;

 

competition among depository and other financial institutions;

 

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

 

adverse changes in the securities or secondary mortgage markets;

 

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements, including as a result of Basel III;

 

the impact of the Dodd-Frank Act and the implementing regulations;

 

changes in tax laws;

 

changes in the quality or composition of our loan or investment portfolios;

 

technological changes that may be more difficult or expensive than expected;

 

failure or breaches of IT security systems;

 

the inability of third-party providers to perform as expected;

 

our ability to manage market risk, credit risk and operational risk in the current economic environment;

17


 

 

our ability to introduce new products and services, enter new markets successfully and capitalize on growth opportunities;

 

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

 

changes in consumer spending, borrowing and savings habits;

 

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

 

our ability to retain key employees;

 

our compensation expense associated with equity allocated or awarded to our employees; and

 

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Summary of Significant Accounting Policies

A summary of our accounting policies is described in Note 1 of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.  The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies:

Allowance for Loan Losses.   The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the allowance for loan losses is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan losses and therefore the appropriateness of the allowance for loan losses could change significantly.

The allocation methodology applied by the Bank is designed to assess the appropriateness of the allowance for loan losses and includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or

18


 

circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for loan losses was appropriate at June 30, 2018 . The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the allowance for loan losses. As a result of such re views, we may have to adjust our allowance for loan losses.  However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is the responsibility of the Bank and any increase or decrease i n the allowance is the responsibility of management.  

Income Taxes.   The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the results of operations and reported earnings.

The Company and the Bank file a federal and a state income tax return.  Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense. A write down of our deferred tax assets by approximately $1.0 million was made in the quarter ended December 31, 2017 as a result of the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%.  The write-down is subject to adjustment in future periods.  

Comparison of Financial Condition at June 30, 2018 and September 30, 2017

Total assets increased $15.1 million, or 5.4%, to $292.9 million at June 30, 2018 from $277.8 million at September 30, 2017.  The increase was due primarily to increases in loans and investment securities available-for-sale, as well as the purchase of bank owned life insurance.  

Cash and cash equivalents decreased $9.6 million, or 26.8%, to $26.3 million at June 30, 2018 from $35.9 million at September 30, 2017. The decrease resulted from our using excess cash to purchase investment securities, bank owned life insurance and to fund continued loan growth, partially offset by cash provided from FHLB advances and increased deposits.     

We had no loans held for sale at June 30, 2018 compared to $117,000 at September 30, 2017.

Loans held for investment increased $9.6 million, or 4.4%, to $227.3 million at June 30, 2018 from $217.7 million at September 30, 2017.  Commercial real estate loans increased $7.6 million, or 25.6%, to $37.5 million at June 30, 2018 from $29.9 million at September 30, 2017.  In addition, commercial and industrial loans increased $6.6 million, or 31.1%, to $27.6 million at June 30, 2018 from $21.1 million at September 30, 2017.  These increases were largely due to increases in commercial construction loans and Small Business Administration loans.

Securities available-for-sale increased $7.9 million, or 54.7%, to $22.2 million at June 30, 2018, from $14.3 million at September 30, 2017. We purchased securities available-for-sale with a portion of the excess cash and cash equivalents we held during the nine-month period ended June 30, 2018.

Bank owned life insurance of $7.0 million was purchased during the nine months ended June 30, 2018, and had a cash surrender value of $7.1 million at June 30, 2018.

Total deposits increased $8.8 million, or 4.5%, to $203.4 million at June 30, 2018 from $194.6 million at September 30, 2017.  The increase was caused by increases in all deposit categories.  The largest increase was in interest-bearing checking accounts, which increased $3.7 million, or 9.6%.    

19


 

We had $7. 6 million of borrowings at June 30, 2018 and no outstanding borrowings at September 30, 2017 .  We have recently b egun borrowing from the Federal Home Loan Bank of Atlanta to fund loan growth and support operations.  

Stockholders’ equity decreased $498,000, or 0.6%, to $76.3 million at June 30, 2018 from $76.8 million at September 30, 2017. We had a net loss of $10,000 for the nine months ended June 30, 2018, mostly due to a write down of our deferred tax assets by approximately $1.0 million as a result of the enactment of the Tax Cuts and Jobs Act of 2017.   We also had $535,000, net of taxes, of unrecognized loss on securities available-for-sale as of June 30, 2018 as compared to an unrecognized gain of $57,000 on securities available-for-sale as of September 30, 2017.

Average Balance Sheets

The following tables set forth average balance sheets, annualized average yields and costs, and certain other information for the periods indicated.  No tax-equivalent yield adjustments have been made, as the effects would be immaterial.  All average balances are monthly average balances.  Non-accrual loans were included in the computation of average balances.   The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.  Loan balances exclude loans held for sale.

 

  

 

For the Three Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

Average

Outstanding

Balance

 

 

Interest

 

 

Average

Yield/Rate

 

 

Average

Outstanding

Balance

 

 

Interest

 

 

Average

Yield/Rate

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

224,948

 

 

$

3,330

 

 

 

5.92

%

 

$

202,726

 

 

$

3,044

 

 

 

6.01

%

Securities

 

 

23,537

 

 

 

141

 

 

 

2.39

%

 

 

14,054

 

 

 

69

 

 

 

1.95

%

Interest-earning deposits

 

 

19,151

 

 

 

90

 

 

 

1.89

%

 

 

53,363

 

 

 

138

 

 

 

1.03

%

Federal Home Loan Bank of Atlanta stock

 

 

580

 

 

 

9

 

 

 

6.16

%

 

 

216

 

 

 

2

 

 

 

4.49

%

Total interest-earning assets

 

 

268,216

 

 

 

3,570

 

 

 

5.32

%

 

 

270,359

 

 

 

3,253

 

 

 

4.81

%

Non-interest-earning assets

 

 

23,777

 

 

 

 

 

 

 

 

 

 

 

15,957

 

 

 

 

 

 

 

 

 

Total assets

 

$

291,993

 

 

 

 

 

 

 

 

 

 

$

286,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook savings accounts

 

$

24,169

 

 

$

5

 

 

 

0.08

%

 

$

22,830

 

 

$

3

 

 

 

0.05

%

Interest-bearing checking

 

 

42,812

 

 

 

67

 

 

 

0.62

%

 

 

38,159

 

 

 

48

 

 

 

0.50

%

Market rate checking accounts

 

 

23,034

 

 

 

33

 

 

 

0.56

%

 

 

22,055

 

 

 

14

 

 

 

0.26

%

Certificates of Deposit

 

 

85,798

 

 

 

260

 

 

 

1.22

%

 

 

87,544

 

 

 

226

 

 

 

1.04

%

Total interest-bearing deposits

 

 

175,813

 

 

 

365

 

 

 

0.83

%

 

 

170,588

 

 

 

291

 

 

 

0.68

%

Federal Home Loan Bank advances

 

 

7,570

 

 

 

37

 

 

 

1.97

%

 

 

134

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

183,383

 

 

 

402

 

 

 

0.88

%

 

 

170,722

 

 

 

291

 

 

 

0.68

%

Non-interest-bearing liabilities

 

 

32,567

 

 

 

 

 

 

 

 

 

 

 

48,187

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

215,950

 

 

 

 

 

 

 

 

 

 

 

218,910

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

76,043

 

 

 

 

 

 

 

 

 

 

 

67,406

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

291,993

 

 

 

 

 

 

 

 

 

 

$

286,316

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

3,168

 

 

 

 

 

 

 

 

 

 

$

2,963

 

 

 

 

 

Net interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

4.44

%

 

 

 

 

 

 

 

 

 

 

4.13

%

Net interest-earning assets (2)

 

$

84,833

 

 

 

 

 

 

 

 

 

 

$

99,637

 

 

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

4.72

%

 

 

 

 

 

 

 

 

 

 

4.38

%

Average interest-earning assets to interest-bearing

   liabilities

 

 

146.26

%

 

 

 

 

 

 

 

 

 

 

158.36

%

 

 

 

 

 

 

 

 

 

(1)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

20


 

 

 

 

For the Nine Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

Average

Outstanding

Balance

 

 

Interest

 

 

Average

Yield/Rate

 

 

Average

Outstanding

Balance

 

 

Interest

 

 

Average

Yield/Rate

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

218,904

 

 

$

9,573

 

 

 

5.83

%

 

$

195,972

 

 

$

8,811

 

 

 

6.00

%

Securities

 

 

23,145

 

 

 

407

 

 

 

2.34

%

 

 

10,626

 

 

 

134

 

 

 

1.67

%

Interest-earning deposits

 

 

22,045

 

 

 

263

 

 

 

1.59

%

 

 

33,197

 

 

 

242

 

 

 

0.97

%

Federal Home Loan Bank of Atlanta stock

 

 

514

 

 

 

21

 

 

 

5.52

%

 

 

208

 

 

 

7

 

 

 

4.75

%

Total interest-earning assets

 

 

264,608

 

 

 

10,264

 

 

 

5.17

%

 

 

240,003

 

 

 

9,194

 

 

 

5.11

%

Non-interest-earning assets

 

 

22,335

 

 

 

 

 

 

 

 

 

 

 

18,547

 

 

 

 

 

 

 

 

 

Total assets

 

$

286,943

 

 

 

 

 

 

 

 

 

 

$

258,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook savings accounts

 

$

23,953

 

 

$

9

 

 

 

0.05

%

 

$

22,554

 

 

$

7

 

 

 

0.04

%

Interest-bearing checking

 

 

41,665

 

 

 

186

 

 

 

0.59

%

 

 

34,307

 

 

 

110

 

 

 

0.43

%

Market rate checking accounts

 

 

22,830

 

 

 

63

 

 

 

0.37

%

 

 

22,283

 

 

 

43

 

 

 

0.26

%

Certificates of Deposit

 

 

85,229

 

 

 

739

 

 

 

1.16

%

 

 

85,887

 

 

 

620

 

 

 

0.96

%

Total interest-bearing deposits

 

 

173,677

 

 

 

997

 

 

 

0.77

%

 

 

165,031

 

 

 

780

 

 

 

0.63

%

Federal Home Loan Bank advances

 

 

6,668

 

 

 

98

 

 

 

1.96

%

 

 

45

 

 

 

 

 

 

 

Total interest-bearing liabilities

 

 

180,345

 

 

 

1,095

 

 

 

0.81

%

 

 

165,076

 

 

 

780

 

 

 

0.63

%

Non-interest-bearing liabilities

 

 

30,381

 

 

 

 

 

 

 

 

 

 

 

37,355

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

210,726

 

 

 

 

 

 

 

 

 

 

 

202,431

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

76,217

 

 

 

 

 

 

 

 

 

 

 

56,119

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

286,943

 

 

 

 

 

 

 

 

 

 

$

258,550

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

9,169

 

 

 

 

 

 

 

 

 

 

$

8,414

 

 

 

 

 

Net interest rate spread (1)

 

 

 

 

 

 

 

 

 

 

4.36

%

 

 

 

 

 

 

 

 

 

 

4.48

%

Net interest-earning assets (2)

 

$

84,263

 

 

 

 

 

 

 

 

 

 

$

74,927

 

 

 

 

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

4.62

%

 

 

 

 

 

 

 

 

 

 

4.67

%

Average interest-earning assets to interest-bearing

   liabilities

 

 

146.72

%

 

 

 

 

 

 

 

 

 

 

145.39

%

 

 

 

 

 

 

 

 

 

(1)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)

Net interest margin represents net interest income divided by average total interest-earning assets.

 

21


 

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated.  The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).  The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).  The total column represents the sum of the prior columns.  For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

 

  

 

Three Months Ended June 30,

2018 vs. 2017

 

 

Nine Months Ended June 30,

2018 vs. 2017

 

 

 

Increase (Decrease) Due to

 

 

Total

 

 

Increase (Decrease) Due to

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Increase

 

 

 

 

 

 

 

 

 

 

Increase

 

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

 

Volume

 

 

Rate

 

 

(Decrease)

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

560

 

 

$

(274

)

 

$

286

 

 

$

1,139

 

 

$

(377

)

 

$

762

 

Securities

 

 

54

 

 

 

18

 

 

 

72

 

 

 

203

 

 

 

70

 

 

 

273

 

Interest-earning deposits and federal funds

 

 

(419

)

 

 

371

 

 

 

(48

)

 

 

(134

)

 

 

155

 

 

 

21

 

Federal Home Loan Bank of Atlanta stock

 

 

6

 

 

 

1

 

 

 

7

 

 

 

12

 

 

 

2

 

 

 

14

 

Total interest-earning assets

 

 

201

 

 

 

116

 

 

 

317

 

 

 

1,220

 

 

 

(150

)

 

 

1,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook savings accounts

 

 

 

 

 

2

 

 

 

2

 

 

 

 

 

 

2

 

 

 

2

 

Interest-bearing checking

 

 

6

 

 

 

13

 

 

 

19

 

 

 

27

 

 

 

49

 

 

 

76

 

Market rate checking

 

 

1

 

 

 

18

 

 

 

19

 

 

 

1

 

 

 

19

 

 

 

20

 

Certificates of deposits

 

 

(29

)

 

 

63

 

 

 

34

 

 

 

(8

)

 

 

127

 

 

 

119

 

Total deposits

 

 

(22

)

 

 

96

 

 

 

74

 

 

 

20

 

 

 

197

 

 

 

217

 

Federal Home Loan Bank advances

 

 

33

 

 

 

4

 

 

 

37

 

 

 

97

 

 

 

1

 

 

 

98

 

Total interest-bearing liabilities

 

 

11

 

 

 

100

 

 

 

111

 

 

 

117

 

 

 

198

 

 

 

315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net interest income

 

$

190

 

 

$

16

 

 

$

206

 

 

$

1,103

 

 

$

(348

)

 

$

755

 

 

Comparison of Operating Results for the Three Months Ended June 30, 2018 and 2017

General. Net income increased $264,000, or 74.6%, to $618,000 for the three months ended June 30, 2018, compared to $354,000 for the three months ended June 30, 2017.  The increase was due to increases in interest income, non-interest income, and an adjustment to our deferred tax asset, partially offset by increases in non-interest expense, the provision for loan losses and interest expense.  

Interest Income. Interest income increased $317,000, or 9.7%, to $3.6 million for the three months ended June 30, 2018 from $3.3 million for the three months ended June 30, 2017.  The increase was due primarily to increases in interest income on loans and securities.  Interest income on loans, which is our primary source of interest income, increased $286,000, or 9.4%, to $3.3 million for the three months ended June 30, 2018 from $3.0 million for the three months ended June 30, 2017.  Our average balance of loans increased $22.2 million, or 11.0%, to $224.9 million for the three months ended June 30, 2018 from $202.7 million for the three months ended June 30, 2017.  The increase in the average balance of loans resulted from our continued increased focus on commercial lending, including construction lending, and our construction lending has benefitted from the opening of our loan production office in Bogart, Georgia in January 2016, our loan production office in Braselton, Georgia in May 2017 and from continued growth of Small Business Administration loans.  Our average yield on loans decreased nine basis points to 5.92% for the three months ended June 30, 2018 from 6.01% for the three months ended June 30, 2017.   

In addition to the increase in interest income on loans, interest income on securities increased $79,000 to $150,000 for the three months ended June 30, 2018 from $71,000 for the three months ended June 30, 2017.  Our average balance of securities increased $9.5 million, or 67.5%, to $23.5 million for the three months ended June 30, 2018 from $14.1 million for the three months ended June 30, 2017, as we have deployed excess cash and cash equivalents into higher yielding investments.

Interest income on interest-earning deposits decreased $48,000, or 34.8%, to $90,000 for the three months ended June 30, 2018 from $138,000 for the three months ended June 30, 2017.  Our average balance of interest-earning deposits decreased $34.2 million,

22


 

or 64.1%, to $19.2 million for the three months ended June 30, 2018 from $53.4 million for the t hree months ended June 30, 2017, as we have deployed excess cash and cash equivalents into higher yielding investments.

Interest Expense. Interest expense increased $111,000, or 38.1%, to $402,000 for the three months ended June 30, 2018 compared to $291,000 for the three months ended June 30, 2017, due to an increase in interest expense on deposits and new borrowings entered into during the quarter ended December 31, 2017.  We experienced an increase in interest expense for all deposit categories.  Specifically, interest expense on certificates of deposit increased $34,000, or 15.0%, to $260,000 for the three months ended June 30, 2018 from $226,000 for the three months ended June 30, 2017.  This increase resulted from an increase in the average rate we paid on certificates of deposit.  The average rate we paid on certificates of deposit increased 18 basis points to 1.22% for the three months ended June 30, 2018 from 1.04% for the three months ended June 30, 2017, reflecting our increasing interest rates in response to changes in market interest rates.  The average balance of certificates of deposit decreased to $85.8 million for the three months ended June 30, 2018 compared to $87.5 million for the three months ended June 30, 2017.  Interest expense on interest-bearing checking accounts increased $19,000 to $67,000 for the three months ended June 30, 2018 compared to $48,000 for the three months ended June 30, 2017.  Both the average balance and average rate we paid on interest-bearing checking accounts increased, as we have increased the rate earned on our Kasasa reward based checking accounts and continue to see an increase in the number of Kasasa accounts opened.  

Interest expense on borrowings increased to $37,000 for the three months ended June 30, 2018 compared to no such expense for the three months ended June 30, 2017.  We have recently begun borrowing from the Federal Home Loan Bank of Atlanta to fund loan growth and support operations.  

Net Interest Income. Net interest income increased $206,000, or 6.9%, to $3.2 million for the three months ended June 30, 2018 from $3.0 million for the three months ended June 30, 2017, as a result of increases in net interest rate spread and net interest margin, which offset a decrease in net interest-earning assets. Our net interest rate spread increased by 31 basis points to 4.44% for the three months ended June 30, 2018 from 4.13% for the three months ended June 30, 2017, and our net interest margin increased by 34 basis points to 4.72% for the three months ended June 30, 2018 from 4.38% for the three months ended June 30, 2017, as we have been able to increase our yields on interest-earning assets faster than the rates we have paid on interest-bearing liabilities.  Our average net interest-earning assets decreased by $14.8 million, or 14.9%, to $84.8 million for the three months ended June 30, 2018 from $99.6 million for the three months ended June 30, 2017 due to increased deposits and borrowings while average earning assets were down slightly as the previous period included excess funds from over subscription of the capital offering before the excess was returned.  

Provision for Loan Losses.   Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See “—Summary of Significant Accounting Policies” for additional information.

After an evaluation of these factors, we recorded a provision for loan losses of $300,000 for the three months ended June 30, 2018 and did not record a provision for loan losses for the three months ended June 30, 2017.  Our allowance for loan losses was $4.0 million at June 30, 2018 compared to $4.6 million at September 30, 2017 and $4.6 million at June 30, 2017.  The allowance for loan losses to total loans was 1.76% at June 30, 2018 compared to 1.81% at March 31, 2018 and 2.14% at June 30, 2017.  The allowance for loan losses to non-performing loans was 105.92% at June 30, 2018 compared to 65.13% at March 31, 2018 and 129.35% at June 30, 2017.  We had a charge-off of $700,000 during the three months ended June 30, 2018 as a result of one commercial loan relationship that resulted from overstated billings that were used as collateral to secure the loan.  Additionally we had recoveries of $242,000 during the three months ended June 30, 2018.  To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at June 30, 2018.  However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses.  However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-interest Income. Non-interest income increased $515,000 to $794,000 for the three months ended June 30, 2018 from $279,000 for the three months ended June 30, 2017.  The increase resulted primarily from an increase in Small Business Administration and United States Department of Agriculture loan fees and sale premium income of $485,000 for the three months ended June 30, 2018 compared to no such income for the three months ended June 30, 2017.

23


 

Non-interest Ex penses. Non-interest expenses information is as follows.

 

 

 

Three Months Ended

June 30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percent

 

 

 

(Dollars in thousands)

 

Salaries and employee benefits

 

$

1,647

 

 

$

1,539

 

 

$

108

 

 

 

7.0

%

Deferred compensation

 

 

51

 

 

 

55

 

 

 

(4

)

 

 

(7.8

)%

Occupancy

 

 

428

 

 

 

327

 

 

 

101

 

 

 

30.9

%

Advertising

 

 

55

 

 

 

49

 

 

 

6

 

 

 

12.2

%

Data processing

 

 

216

 

 

 

169

 

 

 

47

 

 

 

27.8

%

Other real estate owned

 

 

53

 

 

 

14

 

 

 

39

 

 

 

278.6

%

Net gain on sale of other real estate owned

 

 

(4

)

 

 

(17

)

 

 

13

 

 

 

76.5

%

Legal and accounting

 

 

223

 

 

 

145

 

 

 

78

 

 

 

53.8

%

Organizational dues and subscriptions

 

 

82

 

 

 

74

 

 

 

8

 

 

 

10.9

%

Director compensation

 

 

53

 

 

 

71

 

 

 

(18

)

 

 

(25.4

)%

Federal deposit insurance premiums

 

 

16

 

 

 

17

 

 

 

(1

)

 

 

(5.9

)%

Other

 

 

256

 

 

 

315

 

 

 

(59

)

 

 

(18.8

)%

Total non-interest expenses

 

$

3,076

 

 

$

2,758

 

 

$

318

 

 

 

11.5

%

 

Salaries and employee benefits expense increased due to increased staff for growth and infrastructure.      Occupancy increased due to the completion of a new bank operations center.  Data processing expense increased due to new account growth.  Legal and accounting expense increased as a result of our being a public company.            

Income Tax Expense. Income tax expense for the three months ended June 30, 2018 reflected our recording of a one-time benefit of $162,000 that resulted in income tax benefit of $32,000.  Income tax expense for the three months ended June 30, 2017 was $129,000.  Income tax expense for the quarter ended June 30, 2018 was reduced due to the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%.  The one-time benefit of $162,000 resulted from the completion of a cost segregation study on a building placed in service during 2017.  The study enabled the reallocation of real property to personal property under the applicable provisions of the Internal Revenue Code, which resulted in substantially shorter depreciable tax lives and accelerated depreciation methods.  Our deferred tax asset remains subject to adjustment in future periods.

Comparison of Operating Results for the Nine Months Ended June 30, 2018 and 2017

General. Net income decreased $1.2 million to a net loss of $10,000 for the nine months ended June 30, 2018, compared to net income of $1.1 million for the nine months ended June 30, 2017.  The net loss was due to our write down of our deferred tax assets by approximately $1 million as a result of the enactment of the Tax Cuts and Jobs Act of 2017 and an increase in non-interest expenses and provision for loan losses, partially offset by an increase in net interest income.    

Interest Income. Interest income increased $1.1 million, or 11.6%, to $10.3 million for the nine months ended June 30, 2018 from $9.2 million for the nine months ended June 30, 2017.  The increase was primarily due to increases in interest income on loans and securities.

Interest income on loans increased $762,000, or 8.6%, to $9.6 million for the nine months ended June 30, 2018 from $8.8 million for the nine months ended June 30, 2017.  Our average balance of loans increased $22.9 million, or 11.7%, to $218.9 million for the nine months ended June 30, 2018 from $196.0 million for the nine months ended June 30, 2017.  The increase in the average balance of loans resulted from our continued increased focus on commercial lending, including construction lending, and our construction lending has benefitted from the opening of our loan production office in Bogart, Georgia in January 2016, our loan production office in Braselton, Georgia in May 2017 and from continued growth of Small Business Administration loans.  Our average yield on loans decreased 17 basis points to 5.83% for the nine months ended June 30, 2018 from 6.00% for the nine months ended June 30, 2017,  

In addition to the increase in interest income on loans, interest income on securities increased $287,000 to $428,000 for the nine months ended June 30, 2018 from $141,000 for the nine months ended June 30, 2017.  Our average balance of securities increased $12.5 million, or 117.8%, to $23.1 million for the nine months ended June 30, 2018 from $10.6 million for the nine months ended June 30, 2017, as we have deployed excess cash and cash equivalents into higher yielding investments.  

24


 

Interest income on interest-earning deposits increased $21,000, or 8.7%, to $263,000 for the nine months ended June 30, 2018 from $242,000 for the nine months en ded June 30, 2017.  The increase was due to a 62 basis point increase in yield, as our average balance of interest-earning deposits decreased $11.2 million, or 33.6%, to $22.0 million for the nine months ended June 30, 2018 from $33.2 million for the nine months ended June 30, 2017, as we have deployed excess cash and cash equivalents into higher yielding investments.

Interest Expense. Interest expense increased $315,000, or 40.4%, to $1.1 million for the nine months ended June 30, 2018 compared to $780,000 for the nine months ended June 30, 2017, due to an increase in interest expense on deposits and new borrowings entered into during the quarter ended December 31, 2017.  We experienced an increase in interest expense for all deposit categories.  Specifically, interest expense on certificates of deposit increased $119,000, or 19.2%, to $739,000 for the nine months ended June 30, 2018 from $620,000 for the nine months ended June 30, 2017.  This increase resulted from an increase in the average rate we paid on certificates of deposit.  The average rate we paid on certificates of deposit increased 20 basis points to 1.16% for the nine months ended June 30, 2018 from 0.96% for the nine months ended June 30, 2017, reflecting our increasing interest rates in response to changes in market interest rates.  The average balance of certificates of deposit remained relatively unchanged, at $85.2 million for the nine months ended June 30, 2018 compared to $85.9 million for the nine months ended June 30, 2017.  Interest expense on interest-bearing checking accounts increased $76,000 to $186,000 for the nine months ended June 30, 2018 compared to $110,000 for the nine months ended June 30, 2017.  Both the average balance and average rate we paid on interest-bearing checking accounts increased, as we have increased the rate paid on our Kasasa reward based checking accounts and continue to see an increase in the number of Kasasa accounts opened.     

Interest expense on borrowings increased to $98,000 for the nine months ended June 30, 2018 compared to no such expense for the nine months ended June 30, 2017.  We have recently begun borrowing from the Federal Home Loan Bank of Atlanta to fund loan growth and support operations.  

Net Interest Income. Net interest income increased $755,000, or 9.0%, to $9.2 million for the nine months ended June 30, 2018 from $8.4 million for the nine months ended June 30, 2017, as a result of a higher balance of net interest-earning assets, which offset decreases in net interest rate spread and net interest margin. Our average net interest-earning assets increased by $9.3 million, or 12.5%, to $84.3 million for the nine months ended June 30, 2018 from $74.9 million for the nine months ended June 30, 2017.  Our net interest rate spread decreased by 12 basis points to 4.36% for the nine months ended June 30, 2018 from 4.48% for the nine months ended June 30, 2017, and our net interest margin decreased by five basis points to 4.62% for the nine months ended June 30, 2018 from 4.67% for the nine months ended June 30, 2017, reflecting primarily our cost of funds increasing faster than our average yield on our interest-earning assets.

Provision for Loan Losses.   Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. See “—Summary of Significant Accounting Policies” for additional information.

After an evaluation of these factors, we recorded a provision for loan losses of $300,000 for the nine months ended June 30, 2018 and did not record a provision for loan losses for the nine months ended June 30, 2017.  Our allowance for loan losses was $4.0 million at June 30, 2018 compared to $4.6 million at September 30, 2017 and $4.6 million at June 30, 2017.  The allowance for loan losses to total loans was 1.76% at June 30, 2018 compared to 2.09% at September 30, 2017 and 2.14% at June 30, 2017.  The allowance for loan losses to non-performing loans was 105.92% at June 30, 2018 compared to 124.04% at September 30, 2017 and 129.35% at June 30, 2017.  Of the $1.2 million charge off during the nine months ended June 30, 2018, $1.1 million was from one commercial loan relationship as a result of overstated billings that were used as collateral to secure the loan.  Additionally we had recoveries of $329,000 during the nine months ended June 30, 2018.  To the best of our knowledge, we have recorded all loan losses that are both probable and reasonable to estimate at June 30, 2018.  However, future changes in the factors described above, including, but not limited to, actual loss experience with respect to our loan portfolio, could result in material increases in our provision for loan losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, will periodically review our allowance for loan losses, and as a result of such reviews, we may have to adjust our allowance for loan losses.  However, regulatory agencies are not directly involved in the process of establishing the allowance for loan losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management.

Non-interest Income. Non-interest income increased $613,000 to $1.5 million for the nine months ended June 30, 2018 from $916,000 for the nine months ended June 30, 2017.  The increase resulted primarily from an increase in Small Business

25


 

Administration and United States Department of Agriculture loan fee s and sale premium income of $655,000 for the nine months ended June 30, 2018 , compared to no such income for the nine months ended June 30, 2017.

Non-interest Expenses. Non-interest expenses information is as follows.

 

 

 

Nine Months Ended

June 30,

 

 

Change

 

 

 

2018

 

 

2017

 

 

Amount

 

 

Percent

 

 

 

(Dollars in thousands)

 

Salaries and employee benefits

 

$

5,116

 

 

$

3,969

 

 

$

1,147

 

 

 

28.9

%

Deferred compensation

 

 

156

 

 

 

164

 

 

 

(8

)

 

 

(4.9

)%

Occupancy

 

 

1,248

 

 

 

901

 

 

 

347

 

 

 

38.5

%

Advertising

 

 

128

 

 

 

163

 

 

 

(35

)

 

 

(21.5

)%

Data processing

 

 

658

 

 

 

572

 

 

 

86

 

 

 

15.0

%

Other real estate owned

 

 

63

 

 

 

37

 

 

 

26

 

 

 

70.3

%

Net gain on sale of other real estate owned

 

 

(33

)

 

 

(24

)

 

 

(9

)

 

 

37.5

%

Legal and accounting

 

 

706

 

 

 

357

 

 

 

349

 

 

 

97.8

%

Organizational dues and subscriptions

 

 

226

 

 

 

226

 

 

 

 

 

 

 

Director compensation

 

 

164

 

 

 

181

 

 

 

(17

)

 

 

(9.4

)%

Federal deposit insurance premiums

 

 

49

 

 

 

72

 

 

 

(23

)

 

 

(31.9

)%

Other

 

 

857

 

 

 

956

 

 

 

(99

)

 

 

(10.4

)%

Total non-interest expenses

 

$

9,338

 

 

$

7,574

 

 

$

1,764

 

 

 

23.3

%

 

Salaries and employee benefits expense increased due to increased staff for growth and infrastructure.  Occupancy increased due to the completion of a new bank operations center.  Data processing expense increased due to new account growth.  Legal and accounting expense increased as a result of our being a public company.

Income Tax Expense. Income tax expense for the nine months ended June 30, 2018 reflected our recording of a one-time deferred tax adjustment of $1.0 million and a one-time benefit of $162,000 that resulted in income tax expense of $1.1 million.  Income tax expense for the nine months ended June 30, 2017 was $609,000.  Income tax expense for the nine months ended June 30, 2018 was reduced due to the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%.  The one-time deferred tax adjustment was due to the enactment of the Tax Cuts and Jobs Act of 2017, which reduced the maximum federal corporate income tax rate to 21% from 35%.  The one-time benefit of $162,000 resulted from the completion of a cost segregation study on a building placed in service during 2017.  The study enabled the reallocation of real property to personal property under the applicable provisions of the Internal Revenue Code, which resulted in substantially shorter depreciable tax lives and accelerated depreciation methods.  Our deferred tax asset remains subject to adjustment in future periods.

Management of Market Risk

General.   Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates.  Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates.  Our Asset/Liability Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.  We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.  We have implemented the following strategies to manage our interest rate risk:

 

limiting our reliance on non-core/wholesale funding sources;

 

growing our volume of transaction deposit accounts;

 

increasing our investment securities portfolio, with an average maturity of less than 15 years;

26


 

 

diversifying our loan por tfolio by adding more commercial-related loans, which typically have shorter maturities and/or balloon payments; and

 

continuing to price our one- to four-family residential real estate loan products in a way that encourages borrowers to select our balloon loans as opposed to longer-term, fixed-rate loans.

By following these strategies, we believe that we are better positioned to react to increases in market interest rates.  In addition, beginning in calendar year 2018, we intend to introduce adjustable-rate, one- to four-family residential real estate loans (in addition to our existing home equity loans and lines of credit, which are originated with adjustable interest rates).

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model.  Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.  We estimate what our net interest income would be for a 12-month period.  We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.  A basis point equals one-hundredth of one percent, and 100 basis points equals one percent.  An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The table below sets forth, as of June 30, 2018, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

 

Change in Interest Rates

(basis points) (1)

 

Net Interest Income

Year 1 Forecast

 

 

Year 1 Change

from Level

 

 

 

(Dollars in thousands)

 

 

 

 

 

+400

 

$

12,645

 

 

 

5.16

%

+200

 

 

12,341

 

 

 

2.63

%

Level

 

 

12,025

 

 

 

-200

 

 

11,037

 

 

 

(8.21

)%

-400

 

 

10,276

 

 

 

(14.55

)%

 

(1)

Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that at June 30, 2018, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 2.63% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience an 8.21% decrease in net interest income.  At June 30, 2017, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 0.65% increase in net interest income, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 7.34% decrease in net interest income.

Net Economic Value. We also compute amounts by which the net present value of our assets and liabilities (net economic value or “NEV”) would change in the event of a range of assumed changes in market interest rates.  This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value.  The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by 200 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

27


 

The table below sets forth, as of June 30, 2018 , the calculation o f the estimated changes in our NEV that would result from the designated immediate changes in the United States Treasury yield curve.

 

Change in Interest

 

 

 

 

 

Estimated Increase (Decrease) in NEV

 

 

NEV as a Percentage of Present

Value of Assets (3)

 

Rates (basis

points) (1)

 

Estimated

NEV (2)

 

 

Amount

 

 

Percent

 

 

NEV

Ratio (4)

 

 

Increase (Decrease)

(basis points)

 

(Dollars in thousands)

 

+400

 

$

53,897

 

 

$

(13,228

)

 

 

(19.71

)%

 

 

20.75

%

 

 

(239

)

+200

 

 

59,822

 

 

 

(7,303

)

 

 

(10.88

)%

 

 

21.85

%

 

 

(129

)

 

 

67,125

 

 

 

 

 

 

 

23.14

%

 

 

-200

 

 

70,408

 

 

 

3,283

 

 

 

4.89

%

 

 

23.03

%

 

 

(11

)

-400

 

 

68,610

 

 

 

1,485

 

 

 

2.21

%

 

 

22.24

%

 

 

(90

)

 

(1)

Assumes an immediate uniform change in interest rates at all maturities.

(2)

NEV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

NEV Ratio represents NEV divided by the present value of assets.

The table above indicates that at June 30, 2018, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 10.88% decrease in net economic value, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 4.89% increase in net economic value.  At June 30, 2017, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 9.66% decrease in net economic value, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 0.52% increase in net economic value.

GAP Analysis. In addition, we analyze our interest rate sensitivity by monitoring our interest rate sensitivity “gap.” Our interest rate sensitivity gap is the difference between the amount of our interest-earning assets maturing or repricing within a specific time period and the amount of our interest-bearing liabilities maturing or repricing within that same time period.  A gap is considered positive when the amount of interest rate sensitive assets maturing or repricing during a period exceeds the amount of interest rate sensitive liabilities maturing or repricing during the same period, and a gap is considered negative when the amount of interest rate sensitive liabilities maturing or repricing during a period exceeds the amount of interest rate sensitive assets maturing or repricing during the same period.

28


 

The following table sets forth our interest-earning assets and our interest-bearing liabilities at June 30, 2018 , which are anticipated to reprice or mature in each of the future time periods shown based upon certa in assumptions. The amounts of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability.  The table sets forth an approximation of the projected repricing of assets and liabilities at June 30, 2018 , on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and as a result of contractual rate adjustments on adjustable-rate loans.  Amounts are based on a preliminary balance sheet as of June 30, 2018 , and may not equal amounts included in our un audited consolidated financial statements for the quarter ended June 30, 2018 .  However, we believe that there would be no material changes in the results of the gap analysis if the unaudited financial results included in Part 1, Item 1 of this quarterly r eport had been utilized.

 

 

 

Time to Repricing

 

 

 

 

 

 

 

Zero to 90 Days

 

 

Zero to 180 Days

 

 

Zero Days to

One Year

 

 

Zero Days to

Two Years

 

 

Zero Days to

Five Years

 

 

Total

 

 

 

 

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

21,914

 

 

 

21,914

 

 

 

21,914

 

 

 

21,914

 

 

 

21,914

 

 

$

26,085

 

Investments

 

 

1,467

 

 

 

1,965

 

 

 

2,972

 

 

 

5,939

 

 

 

11,021

 

 

 

24,137

 

Net loans

 

 

35,899

 

 

 

50,218

 

 

 

65,844

 

 

 

92,412

 

 

 

158,623

 

 

 

227,361

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,962

 

Total

 

$

59,280

 

 

 

74,097

 

 

 

90,730

 

 

 

120,265

 

 

 

191,558

 

 

$

295,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

 

$

50,027

 

 

 

53,888

 

 

 

61,612

 

 

 

77,058

 

 

 

108,716

 

 

$

130,269

 

Certificates of deposit

 

 

6,236

 

 

 

10,459

 

 

 

22,529

 

 

 

36,115

 

 

 

68,539

 

 

 

86,131

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings

 

 

 

 

 

 

 

 

 

 

 

2,440

 

 

 

7,570

 

 

 

10,390

 

Other liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,066

 

Equity capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59,689

 

Total (1)

 

$

56,263

 

 

 

64,347

 

 

 

84,141

 

 

 

115,613

 

 

 

184,825

 

 

$

295,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset/liability gap

 

$

3,017

 

 

 

9,750

 

 

 

6,589

 

 

 

4,652

 

 

 

6,733

 

 

 

 

 

Gap/assets ratio (2)

 

 

1.02

%

 

 

3.30

%

 

 

2.23

%

 

 

1.57

%

 

 

2.28

%

 

 

 

 

 

(1)

Amounts do not foot due to rounding.

(2)

Gap/assets ratio equals the asset/liability gap for the period divided by total assets ($292.6 million).

At June 30, 2018, our asset/liability gap from zero days to one year was $6.6 million, resulting in a gap/assets ratio of 2.23%.  At June 30, 2017, our asset/liability gap from zero days to one year was $1.5 million, resulting in a gap/assets ratio of 0.55%.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net interest income and NEV tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on net interest income and NEV and will differ from actual results.  Furthermore, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Additionally, certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. In the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, deposits and borrowings.

29


 

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business.  Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures.  Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities of securities.  We also have the ability to borrow from the Federal Home Loan Bank of Atlanta.  At June 30, 2018, we had a $71.8 million line of credit with the Federal Home Loan Bank of Atlanta, and had $7.6 million in borrowings outstanding.  In addition, at June 30, 2018, we had a $5.0 million unsecured federal funds line of credit and a $7.5 million unsecured federal funds line of credit.  No amount was outstanding on these lines of credit at June 30, 2018.  

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.  Net cash provided by operating activities was $1.7 million and $2.2 million for the nine months ended June 30, 2018 and 2017, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, was $27.7 million and $31.9 million for the nine months ended June 30, 2018 and 2017, respectively. Net cash provided by financing activities, consisting of activity in deposit accounts and proceeds from FHLB advances, was $16.4 million and $43.5 million for the nine months ended June 30, 2018 and 2017, respectively.

We are committed to maintaining a strong liquidity position.  We monitor our liquidity position on a daily basis.  We anticipate that we will have sufficient funds to meet our current funding commitments.  Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At June 30, 2018, we exceeded all of our regulatory capital requirements, and we were categorized as “well capitalized” at June 30, 2018.  Management is not aware of any conditions or events since the most recent notification that would change our category.  The Bank’s actual capital amounts and ratios for June 30, 2018 and September 30, 2017 are presented in the table below (in thousands).

 

 

 

 

 

 

 

 

 

 

For Capital

 

 

To Be Well Capitalized

 

 

 

 

 

 

 

 

 

 

 

Adequacy

 

 

Under Prompt Corrective

 

 

 

Actual

 

 

Purposes

 

 

Action Provisions

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

As of June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

60,126

 

 

 

30

%

 

$

8,970

 

 

 

4.50

%

 

$

12,957

 

 

 

6.50

%

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

62,636

 

 

 

31

%

 

$

15,947

 

 

 

8

%

 

$

19,934

 

 

 

10

%

Tier I Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

60,126

 

 

 

30

%

 

$

11,960

 

 

 

6

%

 

$

15,947

 

 

 

8

%

Tier I Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Average Assets)

 

$

60,126

 

 

 

20

%

 

$

11,736

 

 

 

4

%

 

$

14,670

 

 

 

5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Tier 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

59,919

 

 

 

33

%

 

$

8,069

 

 

 

4.50

%

 

$

11,655

 

 

 

6.50

%

Total Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

62,189

 

 

 

35

%

 

$

14,344

 

 

 

8

%

 

$

17,930

 

 

 

10

%

Tier I Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Risk Weighted Assets)

 

$

59,919

 

 

 

33

%

 

$

10,758

 

 

 

6

%

 

$

14,344

 

 

 

8

%

Tier I Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(to Average Assets)

 

$

59,919

 

 

 

22

%

 

$

11,122

 

 

 

4

%

 

$

13,902

 

 

 

5

%

 

30


 

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal b anking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” t hat exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may co nsider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  A financial institution can elect to be subject to this new definition.

 

The net proceeds from the stock offering significantly increased our liquidity and capital resources. Over time, our level of liquidity may be reduced as the net proceeds from the stock offering are used for general corporate purposes, including the funding of loans. Our financial condition and results of operations are expected to be enhanced and result in increases in net interest-earning assets and net interest income. However, due to the increase in equity from the stock offering proceeds, our return on equity will be lower until we can utilize the proceeds raised in the stock offering.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit.  While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon.  Such commitments are subject to the same credit policies and approval process accorded to loans we make.  At June 30, 2018, we had outstanding commitments to originate loans of $28.0 million.  We anticipate that we will have sufficient funds available to meet our current lending commitments.  Time deposits that are scheduled to mature in less than one year from June 30, 2018 totaled $24.0 million.  Management expects that a substantial portion of the maturing time deposits will be renewed.  However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations.  Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

It em 3.

Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in Part 1, Item 2 of this quarterly report under “Management of Market Risk.”

Item 4.

Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2018. Based on that evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2018, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31


 

PART II – OTHE R INFORMATION

Item 1.

Legal Proceedings

We are not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business.  At June 30, 2018, we were not involved in any legal proceedings the outcome of which would be material to our financial condition or results of operations.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

 

Exhibit

 

 

Number

 

Description

 

 

 

3.1

 

Charter of Community First Bancshares, Inc. (1)

 

 

 

3.2

 

Bylaws of Community First Bancshares, Inc. (2)

 

 

 

3.3

 

Amendment to Bylaws of Community First Bancshares, Inc. (3)

 

 

 

31.1

 

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32

 

Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.0

 

The following materials for the quarter ended June 30, 2018, formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Comprehensive (Loss) Income, (iv) Statements of Cash Flows, and (v) Notes to Financial Statements

 

(1)

Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215041).

(2)

Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, as amended (Commission File No. 333-215041).

(3)

Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 31, 2017 (Commission File No. 001-38074).

 

32


 

SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

COMMUNITY FIRST BANCSHARES, INC.

 

 

 

 

 

 

Date:

 

August 9, 2018

 

 

/s/ Johnny S. Smith

 

 

 

 

 

Johnny S. Smith

 

 

 

 

 

President and Chief Executive Officer

 

 

 

 

 

 

Date:

 

August 9, 2018

 

 

/s/ Tessa M. Nolan

 

 

 

 

 

Tessa M. Nolan

 

 

 

 

 

Senior Vice President and Chief Financial Officer

 

 

33

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