CFB Annual Report 2019

2 0 1 9 A N N U A L R E P O R T

E X P A N D I N G W I T H

PURPOSE

1

EXPANDING WITH PURPOSE

TABLE OF CONTENTS

President's Report to the Shareholders.............................................................. 2

Business of the Company.................................................................................. 4

Management’s Discussion of Financial Condition and Results of Operations....... 6

Independent Auditor's Report........................................................................... 15

Consolidated Balance Sheets........................................................................... 16

Consolidated Statements of Operations............................................................ 17

Consolidated Statements of Comprehensive Income........................................ 18

Consolidated Statements of Changes in Shareholders' Equity.......................... 18

Consolidated Statements of Cash Flows........................................................... 19

Notes to Consolidated Financial Statements..................................................... 20

Locations Map................................................................................................. 52

2

1

2019 ANNUAL REPORT EXPANDING WITH PURPOSE

President’s Report to the Shareholders

of Community First Bancorporation

Dear Shareholders,

I am very pleased to report that 2019 was another solid year of investment and growth for the Company. We are

investing in the future of your Company, while remaining focused on safe and sound growth.

In 2019

your Bank

achieved

An increase in total assets of 9.57% to $418,564,000 as of December 31, 2019

compared to $382,019,000 at December 31, 2018.

An increase in total outstanding loans of $43,131,000, or 15.47%, to

$322,012,000 as of December 31, 2019 compared to $278,881,000

as of December 31, 2018.

An increase in our deposits of 7.25% to $353,246,000 as of December 31, 2019

from $329,369,000 in December 31, 2018.

An increase in the Bank’s loan to deposit ratio to 91.16% as of year-end 2019.

We continue to have excellent asset quality with a past due ratio on our loan portfolio at year end of a mere .38%.

At December 31, 2019, the Bank had $1,384,000 in non-performing assets, compared to $1,208,000 at December

31, 2018. At the end of 2019 the Bank had no loans in foreclosure.

The Bank recorded a net recovery of $124,000 of previous loan charge-offs in 2019, continuing a trend of

recoveries of previously charged-off loans. Net recoveries were $74,000 in 2018. At December 31, 2019, our

allowance for loan and lease losses totaled $3,740,000, or 1.16% of outstanding loans. We believe an allowance at

this level is an important tool in preserving the safety and soundness of the Bank.

For 2019 our earnings declined to $1,142,000 from $4,440,000 for 2018. This decline was primarily due to an

increased tax expense which was not experienced in 2018 and increased expenses associated with our growth

strategy. In 2018 we recaptured $3.8 million of deferred tax assets that had been previously reserved. The

recapture of the deferred tax asset was the largest item of recovery remaining from the Great Recession.

The additional expenses in 2019 primarily resulted from the investments made to restructure our operations

in order to enhance the Bank’s opportunities for future growth. For example, our expansion into the greater

Charlotte metropolitan region has resulted in the Bank’s employee health insurance program no longer serving our

associates. We have transitioned to a new program that will allow the Bank to provide reasonable coverages at

more competitive pricing over our multi-state footprint.

During 2019 the Bank continued its strategic growth plan. In June we opened our first new full-service financial

center in nearly ten years. This new office in Greenville, South Carolina provides the Bank with an entrance into a new

and more vibrant market with significant business development opportunities.

During the year our Board of Directors and management continued to focus upon opportunities to increase revenue,

particularly noninterest income. Over the last several years smaller banks have suffered a deterioration in noninterest

income due to declines in account fees and service income resulting from increased competition and the “no fee or

free” accounts found in the market space. One response to this challenge embraced by many smaller banks is the

expanded origination of mortgage loans and the recognition of related origination fees as noninterest income. There

are many banking entities, large and small, and non-bank entities offering mortgage loans to consumers in our market

areas. In June of 2019 we hired an exceptional mortgage professional to review our current program and to enhance

our business model. In July of 2019, we launched the development of SeaTrust Mortgage Company, a subsidiary of the

Bank, in Wilmington, North Carolina. SeaTrust Mortgage will be an originating lender with investors purchasing its loans.

Beginning in the first quarter of 2020, SeaTrust Mortgage will initiate loan originations with a highly advanced

technology platform which we anticipate will be well received in the market. The Board of Directors has authorized

SeaTrust Mortgage to operate in North Carolina, South Carolina, Georgia, Florida, Tennessee and Virginia. Further

expansion of these markets is expected in the future.

In August of 2019, the Company completed a nonpublic capital offering of $10 million resulting in net proceeds of $9.3

million. This additional capital allows the Bank to continue with its organic growth strategy while also allowing us to be

positioned for strategic growth opportunities should they arise.

In late 2019 we requested and subsequently received approval to open full-service financial centers

in Dallas and Charlotte, North Carolina. These new locations will open in February and March of

2020. We believe our entrance into the greater Charlotte metropolitan region will significantly

enhance our loan and deposit business development opportunities in 2020 and beyond.

As of December 31, 2019, our tangible book value per share was $8.18, an increase of $1.72 per

common share, or 26.63%, from $6.46 per common share as of December 31, 2014. We

believe our growth strategy is working, and we will continue planting seeds for tomorrow

to achieve expansion of our profits and to further increase the value of our shareholders’

investments.

Our Board, management team and associates thank each of you for your continued

support of the Bank. It is hard for me to believe that I have had the privilege of being

your President and CEO since January 4, 2015. Over that time we have deepened

our management, expanded our footprint and made great strides in enhancing

shareholder value. I am more excited about our future today than at any time in

the past. I encourage each of you to join us at the annual shareholders’ meeting

on May 20, 2020 to learn about your Company’s future and why our motto is “We

Know What Matters”. We think you will find that our future is very bright.

Sincerely,

Richard D. Burleson

President and Chief Executive Officer

2 3

3


BUSINESS OF

THE COMPANY

Community First Bancorporation (the “Company”) is a South Carolina corporation

and a bank holding company incorporated on May 23, 1997. The Company

commenced operations on October 16, 1997, upon effectiveness of the acquisition

of Community First Bank (the “Bank”) as a wholly owned subsidiary. The principal

business of the Company is ownership and operation of the Bank. In November

2011, the Company acquired Bank of Westminster (“Westminster”), Westminster,

South Carolina, in an all cash transaction pursuant to the merger of Westminster with

and into the Bank.

Business of the Bank

The Bank is a South Carolina state bank which was incorporated in December, 1988, and commenced operations as a

commercial bank in March, 1990. In 2017, the Bank established Community First Financial Services, which works through

a trusted partner to offer online pricing options for various types of insurance products. To date, Community First Financial

Services has engaged in limited operations. In 2019, SeaTrust Mortgage Company (“SeaTrust”), a wholly-owned subsidiary

of the Bank headquartered in Wilmington, North Carolina, was established to offer mortgage loan services to consumers in

the Southeast. SeaTrust expects to sell substantially all of the mortgage loans it originates and does not expect to retain any

mortgage servicing rights. To date, SeaTrust has engaged in limited operations.

At December 31, 2019, the Bank operates from its offices in Walhalla, Seneca, Anderson, Westminster, Williamston,

and Greenville, South Carolina. The Bank also operates loan production offices (“LPO”) in Charlotte and Concord, North

Carolina. In 2019 the Greenville, South Carolina LPO opened as a full-service location, and the Fort Mill, South Carolina LPO

consolidated into the Charlotte LPO.

Deposits

The Bank offers a full range of deposit services,

including checking accounts, NOW accounts,

retirement accounts (including Individual

Retirement Accounts), time deposits and savings

accounts of various types, ranging from daily

money market accounts to longer-term certificates

of deposit. The transaction accounts and time

certificates are tailored to the principal market

area at rates competitive with those offered by

other institutions in the area. All deposit accounts

are insured by the Federal Deposit Insurance

Corporation (“FDIC”) up to the maximum amount

permitted by law. The Bank solicits these accounts

from individuals, businesses, associations and

organizations, and government authorities. The

Bank does not offer trust services.

Lending Activities

The Bank offers a range of lending services, including commercial loans, consumer loans, and real estate mortgage

loans. The Bank offers secured and unsecured, short-to-intermediate term loans, with floating and fixed interest rates for

commercial and consumer purposes. Consumer loans generally include car, recreational vehicle, and boat loans, home

equity improvement loans (secured by first and second mortgages), personal expenditure loans, education loans, and

overdraft lines of credit. Commercial loans generally include short term unsecured loans, short and intermediate term real

estate mortgage loans, loans secured by listed stocks, loans secured by equipment, inventory, and accounts receivable.

Management believes that the credit staff possesses knowledge of the community and lending skills appropriate to enable

the Bank to maintain a sufficient volume of high quality loans.

To address the risks inherent in making loans, management maintains an allowance for loan losses based on, among other

things, an evaluation of the Bank’s loan loss experience, management’s experience at other financial institutions in the

market area, peer data, the amount of and trends in past due and nonperforming loans, current economic conditions and

the values of loan collateral.

Other Services

E X P A N D I N G O U R

VISION

The Bank participates in a network of automated teller machines that may be used by Bank customers throughout the

United States and the world. The Bank offers credit and debit cards together with related lines of credit. The lines of credit

may be used for overdraft protection as well as pre-authorized credit for personal purchases and expenses. The Bank also

provides direct deposit of payroll and social security benefits, and automatic drafts for various accounts. The Bank offers

foreign payments and currency exchange through a correspondent bank. The Bank offers an internet banking product

accessible via the Bank’s website at www.C1stbank.com. The interactive banking product includes an electronic bill

payment service that allows customers to make scheduled and/or recurring bill payments electronically. The Bank also

offers mobile banking as a component of internet banking. Additionally, the Bank offers remote check deposit services,

merchant services, and other related services to commercial and small business customers.

4 5


MANAGEMENT’S DISCUSSION

OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following information describes various financial

aspects of the Bank's business. This information

should be read in conjunction with the consolidated

financial statements of the Company, which appear

elsewhere in this document.

Effect of Economic Trends

During 2019, the economy grew across a wide range of industries within the Company’s footprint and markets. Employment

opportunities continued to grow while unemployment rates remained at historical lows. However, there are concerns related

to the uncertainty present in the global and U.S. economies and the resulting impact to markets in our footprint in 2020. The

effects of Coronavirus, specifically COVID-19, on international trade and supply chains, travel, and other production activities

may disturb and negatively impact the markets in which we operate. Further, we expect the interest rate environment

to be challenging in 2020 as a result of the Federal Reserve’s lowering of short-term interest rates and possible further

reductions in the future. Net interest margin pressures could negatively impact the earnings growth we would expect from

projected increases in interest-earning assets.

Earnings Performance

The Company reported net income of $1,142,000 in 2019 compared to $4,440,000 in 2018 and $887,000 in 2017. After

adjusting for dividends allocated to preferred shares, the net income per common share was $0.19 for 2019, $1.02 for

2018, and $0.18 for 2017. Fully diluted net income per share was $0.19 for 2019. Stock based compensation in the form

of vested options has the potential to create a difference between basic and fully diluted earnings per common share. In

2019 and 2018, the effect of vested options on earnings per common share was minimal. In 2017, there was no dilutive


NET INTEREST INCOME

effect. Net income decreased significantly in 2019 relative to 2018 due to the reversal of the Company’s deferred tax asset

valuation allowance in 2018. Additionally, the Bank incurred significant expenses in salaries and professional fees related to

the establishment of SeaTrust during 2019.

The Company’s net interest income (the difference between interest earned on interest earning assets and interest paid

on interest bearing liabilities) after provision for loan losses increased to $14,110,000 in 2019 from $13,145,000 and

$12,043,000 in 2018 and 2017, respectively. The Company had noninterest income of $2,549,000 in 2019 following

$2,273,000 in 2018 and $2,683,000 in 2017. Noninterest income for 2019 included loan referral fee income of $134,000

and $0 in 2018 and 2017. The Company recorded a provision to the allowance for loan losses of $40,000 in 2019,

$148,000 in 2018, and $0 in 2017. The Company had other operating expenses of $15,183,000, $14,791,000, and

$13,837,000, in 2019, 2018, and 2017, respectively.

Net Interest Income

Net interest income is the amount of interest earned on interest earning assets (loans, investment securities, deposits in

other banks and federal funds sold), less the interest expenses incurred on interest bearing liabilities (interest bearing

deposits and borrowed money), and is the principal source of the Bank's earnings. Net interest income is affected by the

level of interest rates, volume and mix of interest earning assets and the relative funding of these assets. Due to the fact

that the Bank’s and therefore, the Company’s, assets are largely monetary in nature, material changes in interest rates can

have a material impact on the Bank’s net interest income.

For the years ended December 31, 2019, 2018, and 2017, net interest income was $14,150,000, $13,293,000, and

$12,043,000, respectively. The increase in net interest income in 2019 compared to 2018 and 2017 is primarily attributable

to larger volumes of loans, the asset type with the highest yield for the Bank. The increase in interest income was partially

offset by increases in the Bank’s interest expense (see “Rate/Volume Analysis of Net Interest Income” below). In 2019 the

average balance of loans outstanding increased $27,692,000 in comparison to 2018 average loan balances. Average yields

on total loans increased to 5.26% from 5.04% in 2018. The increase in interest income attributable to loans was partially

offset by a decrease in interest income attributable to investments as those instruments amortized. Average balances on

6 7


investment securities declined by $4,400,000 in 2019 compared to 2018; however, yields on investments increased slightly

at 2.31% in 2019 compared to 2.29% in 2018. Average yields on total interest earning assets increased from 4.38% in

2018 to 4.65% in 2019.


RELATIONSHIPS

The table, "Average Balances, Yields and Rates," provides a detailed analysis of the effective yields and rates on the categories of

interest earning assets and interest bearing liabilities for the Company for the years ended December 31, 2019, compared to 2018.

ASSETS

Average Balances, Yields and Rates

(Dollars in Thousands)

Year Ended December 31, 2019 Year Ended December 31, 2018

Interest Average Interest Average

Average Income/ Yields/ Average Income/ Yields/

Balances (1) Expense Rates (2) Balances (1) Expense Rates (2)

Interest-earning cash $ 27,839 $ 532 1.91% $ 25,505 $ 412 1.62%

Investment securities 46,651 1,078 2.31% 51,051 1,169 2.29%

Loans (3) 298,855 15,733 5.26% 271,163 13,654 5.04%

TOTAL interest earning assets 373,345 17,343 4.65% 347,719 15,235 4.38%

Non interest earning assets, net 28,166 22,965

TOTAL assets $ 401,511 $ 370,684

Rate/Volume

Analysis of

Net Interest

Income

As discussed under the caption “Net Interest Income,” the Bank’s net income is

largely dependent on net interest income. The table below calculates the relative

impact on net interest income caused by changes in the average balances (volume)

of interest sensitive assets and liabilities and the impact caused by changes in

interest rates earned or paid. Each table compares two years as indicated below.

The effect of a change in average balance has been determined by applying the

average rate in the earlier year to the change in average balance in the later year, as

compared with the earlier year. The effect of a change in the average rate has been

determined by applying the average balance in the earlier year to the change in the

average rate in the later year, as compared with the earlier year.

LIABILITIES AND

SHAREHOLDERS' EQUITY

Interest bearing liabilities:

Interest bearing transaction accounts $ 72,734 $ 59 .08% $ 67,246 $ 41 .06%

Savings and money market 65,887 187 .28% 64,796 122 .19%

Time deposits 142,673 2,718 1.91% 129,879 1,603 1.23%

Borrowings 11,548 229 1.98% 8,055 176 2.18%

Total interest bearing liabilities 292,842 3,193 1.09% 269,976 1,942 .72%

Noninterest bearing demand deposits

and other Liabilities and equity 108,669 100,708

Total liabilities and shareholders' equity $ 401,511 $ 370,684

Interest rate spread (4) 3.55% 3.66%

Net interest income and

net yield on earning assets (5) $ 14,150 3.79% $ 13,293 3.82%

Interest free funds supporting

earning assets (6) $ 80,503 $ 77,743

(1) Average balances of interest-earning assets and interest-bearing liabilities calculated on a daily basis.

(2) Calculated based on the number of days in the year that each type of asset or liability was in existence. Yield calculated on a pre-tax basis.

(3) Nonaccruing loans are included in the average loan balances and income on such loans is recognized on a cash basis.

(4) Total yield on interest earning assets less the rate paid on total interest bearing liabilities.

(5) Net interest income divided by total interest earning assets.

(6) Total interest earning assets less total interest bearing liabilities.

Year Ended December 31, 2019 compared to 2018

(Dollars in Thousands)

Increase (Decrease) Due To

Rate Volume Rate/Volume (1) Change

INTEREST EARNED ON:

Securities (2) $ 11 $ (101) $ (1) $ (91)

Interest-earning cash 75 38 7 120

Loans 621 1,394 64 2,079

Total interest income 707 1,331 70 2,108

INTEREST PAID ON:

Deposits 928 175 95 1,198

Borrowings (16) 76 (7) 53

Total interest expense 912 251 88 1,251

Change in Net Interest Income $ (205) $1,080 $ (18) $ 857

(1) Rate/Volume is calculated as the difference between the average balances for the periods multiplied by the difference between

the average rates for the periods.

(2) Income calculated on a pre-tax basis.

8 9

2019 ANNUAL REPORT


Interest Rate Sensitivity

Interest rate sensitivity measures the timing and magnitude of the repricing of assets compared with the repricing of

liabilities and is an important part of asset/liability management. The objective of interest rate sensitivity management

is to generate stable growth in net interest income, and to control the risks associated with interest rate movements.

Management constantly reviews interest rate risk exposure and the expected interest rate environment so that

adjustments in interest rate sensitivity can be made in a timely manner.

When interest sensitive liabilities exceed interest sensitive assets for a specific repricing “horizon,” a negative interest

sensitivity gap results. The gap is positive when interest sensitive assets exceed interest sensitive liabilities. For a

bank with a negative gap, falling interest rates would be expected to have a positive effect on net interest income and

increasing rates would be expected to have the opposite effect. However, if one or more assumptions prove incorrect, the

margin may not be impacted in the manner expected. On a cumulative basis, rate sensitive liabilities slightly exceeded

rate sensitive assets, resulting in a slight liability sensitive position at the end of 2019 at the one-year time horizon,

assuming that all assets and liabilities would reprice at the earliest possible time. However, many instruments may not

reprice in conjunction with final maturities, and interest-bearing liabilities, in particular, may not reprice in conjunction

with or by the same magnitude as movements in market interest rates.

Noninterest Income

Noninterest income, which consists primarily of service charges on deposit accounts, other fee income, increases in the

cash surrender value of bank owned life insurance contracts, loan referral fees, and gains and losses on securities sales,

increased by $276,000. The main reasons for the increase relate to loan referral fees in 2019, an increase in mortgage

brokerage income, and increase in interchange fees. Additionally, there were no losses on the sale of investment

securities recognized in 2019 compared to $50,000 in losses on the sale of investment securities in 2018 which were

included in other noninterest income on the accompanying statements of operations. Mortgage brokerage income

increased to $88,000 in 2019 compared to $48,000 in 2018. Interchange fees income was $863,000 in 2019 compared

to $773,000 in 2018.

Noninterest Expenses

Noninterest expenses, which consist primarily of salaries and

employee benefits, occupancy costs, data processing expenses,

professional fees and expenses of foreclosed assets, totaled

$15,183,000 in 2019, $14,791,000 in 2018, and $13,837,000

in 2017. Salaries and employee benefits increased in each of

the periods due to an increase in employees and personnel

costs. Additionally, these costs increased in 2019 as a result

of the Greenville branch opening and SeaTrust. Net occupancy

and equipment expenses also increased in 2019 compared to

2018 as a result of the Greenville branch opening and SeaTrust.

Data processing expenses increased approximately 13.80% to

$1,204,000 in 2019 compared to $1,058,000 2018. Expenses of

foreclosed assets declined in 2019 compared to 2018 primarily due

to fewer maintenance costs and related legal fees. Other noninterest

expense was $2,665,000 in 2019, $2,308,000 in 2018, and

$2,275,000 in 2017.

Income Taxes

In 2018 the Company recorded an income tax benefit of $3,813,000

as a result of reversing the valuation allowance against its deferred

tax asset, net of current income taxes. The valuation allowance

was recorded against the Company’s deferred tax asset in 2012

and 2011. A valuation allowance is recorded against a deferred tax

asset in situations where evidence regarding the ability to use the

benefit in the near term does not outweigh the likelihood that the

benefit will not be available for use. In 2018 the Company was able

to demonstrate that evidence exists that the Company will be able

to utilize the tax benefits in the near term. In 2019 the Company

has continued to demonstrate its ability to utilize the tax benefits.

The Company recorded income tax expense of $334,000 in 2019.

Refer to Notes 1 and 12 to the Company’s consolidated financial

statements contained elsewhere herein for more information.

Liquidity

Liquidity is the ability to meet current and future obligations

through liquidation or maturity of existing assets or the acquisition

of additional liabilities. Adequate liquidity is necessary to meet the

requirements of customers for loans and deposit withdrawals in the

most timely and economical manner. Some liquidity is ensured by

maintaining assets that may be immediately converted into cash

at minimal cost (amounts due from banks and federal funds sold).

However, the most manageable sources of liquidity are composed

of liabilities, with the primary focus on liquidity management being

on the ability to obtain deposits within the Bank's service area. Core

Greenville, SC Branch

OPENED in May 2019

SeaTrust Mortgage

Company ESTABLISHED

in Wilmington, NC

Expansion and Diversification

INCREASES Noninterest

Income by $276,000

Core Deposits

Equal to 80.58% of

TOTAL ASSETS

10 11


deposits (total deposits less time deposits greater than $250,000) provide a relatively stable funding base, and were equal

to 80.58% and 81.89% of total assets at December 31, 2019 and 2018, respectively.


RESOURCES

Asset liquidity is provided from several sources, including amounts due from banks and federal funds sold, unpledged

securities, and funds from maturing loans. The Company had $24,037,000 in cash and cash equivalents at December 31,

2019. The Bank has access to a line of credit with the Federal Home Loan Bank of Atlanta (“FHLB”), which is subject to

various conditions and may be terminated at the option of the lender, as an additional source of liquidity funding. The line

with the FHLB is equal to 25% of assets, provided that adequate collateral is available for pledging. The line may be used

for short or long term funding needs and may be used on a fixed or variable-rate basis. As of December 31, 2019, the

Bank had $15,000,000 in borrowings from the FHLB of Atlanta. As of December 31, 2019, approximately $89,968,000 of

additional funds were available under the FHLB line provided that eligible collateral is available. The Bank primarily uses

loans to collateralize advances, but can also pledge bonds and mortgage-backed securities issued by U.S. Government

agencies as collateral. As of December 31, 2019 loans with a value of $16,040,000 were available as collateral to the FHLB

for future borrowing capacity. Additional securities with a market value of $36,707,000 were unpledged and could be used

as collateral for borrowings should the Company require additional funding. Management believes that the Bank's overall

liquidity sources are adequate to meet its operating needs in the ordinary course of its business.

Off-Balance Sheet Risk

The Company, through the operations of the Bank, makes contractual commitments to extend credit in the ordinary course

of its business activities. These commitments are legally binding agreements to lend money to customers of the Bank at

predetermined interest rates for a specified period of time. At December 31, 2019 and 2018, unfunded commitments to

extend credit were $47,585,000 and $46,691,000, respectively. Past experience indicates that many of these commitments

to extend credit will expire unused and it is unlikely that a large portion would be used in a short period of time. However,

through its various sources of liquidity discussed above, the Bank believes that it will have the necessary resources to meet

these obligations should the need arise.


EXPERTISE

The Bank offers an automatic overdraft protection product for non-maturing deposits. Approximately $3,107,000 of

overdraft protection is available to customers under this product as of December 31, 2019. The Bank expects that much of

this capacity will not be utilized. During 2019, the average balance of total non-maturing deposit overdrafts for participating

bank customers was approximately $69,000.

In addition to commitments to extend credit, the Bank also issues standby letters of credit which are assurances to a third

party that it will not suffer a loss if the Bank's customer fails to meet its contractual obligation to the third party. Standby

letters of credit totaled approximately $570,000 at December 31, 2019. Past experience indicates that many of these

standby letters of credit will expire unused. However, through its various sources of liquidity discussed above, the Bank

believes that it will have the necessary resources to meet these obligations should the need arise.

Neither the Company nor the Bank is involved in other off-balance sheet contractual relationships, unconsolidated related

entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments

or significantly impact earnings. The Company maintained obligations under non-cancelable operating lease agreements at

December 31, 2019. The Company has approximately five years remaining on a seven-year contract with a company which

provides data and item processing and ATM network services. The monthly costs are approximately $72,000. Refer to Note

14 to the Company’s consolidated financial statements for additional discussion on other commitments and contingencies

and financial instruments with off-balance sheet risk.

Capital Resources

The Company completed a two-stage stock offering in 2019 which raised a net of $9,329,000 in capital through the

issuance of 1,333,334 shares of common stock. Total shareholders’ equity increased from $36,614,000 at December

31, 2018 to $48,175,000 at December 31, 2019. The increase was due to net income, the Company’s stock offering,

items related to stock-based compensation, and a net increase in accumulated other comprehensive income related to

changes in market values on the Company’s available for sale securities. The Company may determine that additional

capital is required to support planned growth and expansion in the coming years. The Company’s internal policies require

maintenance of sufficient capital to remain classified as a Well Capitalized institution under the regulatory capital guidelines.

The Bank is subject to regulatory capital adequacy standards. The Bank’s regulatory capital requirements and positions are

summarized in Note 10 to the consolidated financial statements contained elsewhere herein.

12 13


INDEPENDENT AUDITOR’S REPORT

To the Board of Directors

Community First Bancorporation and Subsidiaries

Walhalla, South Carolina

Report on the Financial Statements

We have audited the accompanying consolidated financial statements of Community First Bancorporation and its

subsidiaries, which comprise the consolidated balance sheets as of December 31, 2019 and 2018, and the related

consolidated statements of operations, comprehensive income, changes in shareholders’ equity and cash flows for each of

the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements.

MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of these consolidated financial statements in

accordance with accounting principles generally accepted in the United States of America; this includes the design,

implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated

financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted

our audits in accordance with auditing standards generally accepted in the United States of America. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks

of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk

assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the

consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no

such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated

financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial

position of Community First Bancorporation and its subsidiaries as of December 31, 2019 and 2018, and the results of

its operations and its cash flows for each of the three years in the period ended December 31, 2019 in accordance with

accounting principles generally accepted in the United States of America.

Greenville, South Carolina

March 18, 2020

15


CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except share information)

CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands, except per common share information)

16 17


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Dollars in thousands)

CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(Dollars in thousands, except share information)

18 19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per common share information)

NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION - Community First Bancorporation (the “Company,” “we” and other such terms), a bank holding company,

and its wholly-owned subsidiary, Community First Bank (the “Bank”), are engaged in providing domestic commercial banking

services from offices in Walhalla, Seneca, Anderson, Williamston, Westminster, and Greenville, South Carolina. The Bank has

loan production offices in Concord and Charlotte, North Carolina. The Company is a South Carolina corporation and its banking

subsidiary is a state chartered commercial bank with its deposits insured by the Federal Deposit Insurance Corporation (the

“FDIC”). Therefore, the Company and its bank subsidiary operate under the supervision, rules and regulations of the Board

of Governors of the Federal Reserve System (the “Federal Reserve”), FDIC and South Carolina State Board of Financial

Institutions. Community First Bank was organized on December 1, 1988 and received its charter and commenced operations

on March 12, 1990. The holding company was incorporated on May 23, 1997. In 2017, the Bank established Community

First Financials Services, which works through a trusted partner to offer online pricing options for various types of insurance

products. To date, Community First Financial Services has engaged in limited operations. In 2019, SeaTrust Mortgage Company

(“SeaTrust”), a wholly-owned subsidiary of the Bank headquartered in Wilmington, North Carolina, was established to offer

mortgage loan services to consumers in the Southeast. To date, SeaTrust has engaged in limited operations.

Community First Bank is a community-oriented institution offering a full range of traditional banking services, with the

exception of trust services. Substantially all of its loans are made to individuals and businesses within its local markets in

South Carolina and North Carolina, and substantially all of its deposits are acquired within its local market areas.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION - The consolidated financial statements include the accounts

of the parent company and its subsidiaries after elimination of all significant intercompany balances and transactions. The

accounting and reporting policies of the Company and its subsidiaries are in conformity with generally accepted accounting

principles and general practices within the banking industry.

ACCOUNTING ESTIMATES - In preparing financial statements in conformity with generally accepted accounting principles,

management is required to make estimates and assumptions that affect the reported amounts of revenues and expenses

during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are

particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses

and valuation of deferred tax assets. In connection with the determination of the allowance for loan losses, management

has identified specific loans and adopted a policy of providing amounts for loan valuation purposes which are not identified

with any specific loan but are derived from actual loss experience ratios, loan types, loan volume, economic conditions and

industry standards. Management believes that the allowance for loan losses is adequate. While management uses available

information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic

conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the banking

subsidiary’s allowance for loan losses. Such agencies may require additions to the allowance based on their judgments about

information available to them at the time of their examination.

CONCENTRATIONS OF CREDIT RISK - Most of the Company’s, and its banking subsidiary’s, activities are with customers

located within the Company’s local market areas. See Note 4 for a discussion of the types of lending the Bank is engaged

in. The ability of borrowers to comply with the terms of their loan contracts is largely dependent upon local real estate and

general economic conditions in our market areas. We do not have any significant concentrations to any single industry or

customer nor do we engage in originating, holding, guaranteeing, servicing or investing in loans where the terms of the loan

give rise to a concentration of credit risk.

SECURITIES – The majority of the securities invested by the Company and the Bank are considered to have low levels of credit

risk. Equity securities that have readily determinable fair values and all debt securities are classified generally at the time of

purchase into one of three categories: held-to-maturity, trading, or available-for-sale. Debt securities that we have the positive

intent and ability to hold until ultimate maturity are classified as held-to-maturity and are accounted for at amortized cost.

Debt and equity securities bought and held primarily for sale in the near term would be classified as trading, and accounted for

on an estimated fair value basis, with unrealized gains and losses included in other income; however, we have never held any

securities for trading purposes. Securities not classified as either held-to-maturity or trading are classified as available-forsale

and are accounted for at estimated fair value. Unrealized holding gains and losses on available-for-sale debt securities

are excluded from net income and recorded as other comprehensive income, net of applicable income tax effects. Effective

January 1, 2019, the change in fair value of equity securities is recognized in net income in accordance with Accounting

Standards Update (“ASU”) 2016-01. Dividend and interest income, including amortization of any premium or accretion of

discount arising at acquisition, are included in earnings for all three categories of securities. Realized gains and losses on

all categories of securities are included in other operating income, based on the amortized cost of the specific security on a

trade date basis.

FEDERAL HOME LOAN BANK STOCK - The Bank is a member of the Federal Home Loan Bank of Atlanta (“FHLB”) and,

accordingly, is required to own restricted stock in that institution in amounts that may vary from time to time. Because of the

restrictions imposed, the stock may not be sold to other parties, but is redeemable by the FHLB at the same price as that at

which it was acquired by the Bank. We evaluate this security for impairment based on the probability of ultimate recoverability

of the par value of the investment. No impairment has been recognized based on this evaluation.

LOANS AND INTEREST INCOME – The recorded investment in a loan is generally its principal amount outstanding, increased

or reduced by net deferred loan costs or fees. Interest income on loans is recognized using the interest method based upon the

principal amounts outstanding. Loan origination and commitment fees and certain direct loan origination costs are deferred

and amortized as an adjustment of the related loan’s yield. Generally, these amounts are amortized over the contractual life

of the related loans or commitments.

We determine past due status according to the loan’s contractual terms. A scheduled payment is considered to have been made

only if all amounts due, including principal and interest, have been received. Any payments received in amounts exceeding

the contractual amount due do not extend the next due date. Instead, any such payments are treated as curtailments and

deducted from the last scheduled payment.

A loan is considered to be impaired when, in management’s judgment based on current information and events, it is probable

that the obligation’s principal or interest will not be collectible in accordance with the terms of the original loan agreement.

Impaired loans include nonaccrual loans and loans past due according to their contractual terms 90 days or more with respect

to interest or principal payments and other loans where, based on current information and events, it is probable that we will

be unable to collect principal and interest payments according to the contractual terms of the loan agreements. A loan is not

considered to be impaired, however, if any periods of delay or shortfalls of amounts expected to be collected are insignificant

or if we expect that we will collect all amounts due including accrued interest at the contractual interest rate during the period

of delay. Impaired loans that have been evaluated individually under our normal loan review process are carried in the balance

sheet at the lowest of (1) the present value of expected future cash flows discounted at the loan’s effective interest rate, which

is the contractual interest rate adjusted for any deferred loan fees or costs, premium or discount existing at the inception or

acquisition of the loan, (2) a value not to exceed its observable market price or the fair value of the collateral if repayment of

the loan is expected to be provided solely by the underlying collateral, or (3) its recorded amount. Generally, the accrual of

20 21


interest is discontinued on nonaccrual loans and any previously accrued interest on such loans is reversed against current

income. Any subsequent interest income is recognized on a cash basis when received unless collectability of a significant

amount of principal is in serious doubt. In such cases, collections are credited first to the remaining principal balance on a cost

recovery basis. A nonaccrual loan is not returned to accrual status unless principal and interest are current and the borrower

has demonstrated the ability to continue making payments as agreed.

ALLOWANCE FOR LOAN LOSSES - An allowance for loan losses is maintained at a level estimated by management to provide

adequately for probable losses we believe are inherent in the loan portfolio. The allowance for loan losses is established

through a provision for loan losses charged to expense. If we determine that a loss has been incurred, the estimated amount

of the loss is charged off and deducted from the allowance. The provision for loan losses and recoveries on loans previously

charged off are added to the allowance. Changes in the estimated allowance for loan losses which are deemed necessary

due to the occurrence of new events or because more information is obtained are accounted for as changes in accounting

estimates in the accounting period in which the changes occur. Assessing the adequacy of the allowance for loan losses

requires the exercise of considerable judgment about the collectability of loans, the quality, mix and size of the overall loan

portfolio, economic conditions that may affect the loan portfolio generally or an individual borrower’s ability to repay, collateral

values, and historical losses.

When management determines that a loan will not perform substantially as agreed, a review of the loan is initiated to

ascertain whether it is more likely than not that a loss has occurred. Loans identified as impaired loans may be carried in the

balance sheet at the lowest of their recorded amount, the present value of expected cash flows, or, in the case of collateral

dependent impaired loans, the fair value of any underlying collateral less estimated costs of sale or other disposal. To account

for an impaired loan that is not collateral dependent, a specific allowance may be included in the allowance for loan losses.

For an impaired loan that is considered to be collateral dependent, any shortfall of the fair value of the collateral compared

with the recorded investment in the loan is generally charged off against the allowance and the amount of any expected costs

to sell or otherwise dispose of the property is maintained in the allowance for loan losses as a specific reserve.

In addition to the specific allowances previously described, the allowance for loan losses also is composed of general and

unallocated amounts. General amounts are provided for loans, excluding those for which specific amounts were determined,

by applying estimated loss percentages to the portfolio categorized using risk grades. The unallocated portion of the allowance

consists of an amount deemed appropriate to provide for the elements of imprecision and estimation risk inherent in the

specific and general amounts, and is determined based on management’s evaluation of various conditions that are not

directly measured by the other components of the allowance. This evaluation includes consideration of general national

and local economic and business conditions affecting key lending market areas, credit quality trends, collateral values, loan

volumes, portfolio seasoning, and any identified credit concentrations. The findings of internal credit reviews and results from

external audits and regulatory examinations are also considered.

We utilize our risk grading system for all loans held in the portfolio. This system involves our lending officers’ assigning a risk

grade, on a loan-by-loan basis, considering information about the borrower’s capacity to repay, collateral, payment history,

and other known factors. Assigned risk grades are updated monthly for any known changes in circumstances affecting the

borrower or the loan. The risk grading system is monitored on a continuing basis by management and an external credit

reviewer who is independent of the lending function.

We estimate losses related to off-balance-sheet credit exposures such as loan commitments, standby letters of credit, and

any unrecognized liabilities under recourse provisions related to certain mortgage loans that are originated by the Bank’s

personnel, but are funded by another financial institution, based on historical experience and by monitoring any large positions

individually. When management determines that a loss on such a position has been incurred, a charge is made against

earnings and a liability for off-balance-sheet positions is recorded.

PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is

computed using the straight-line method. Rates of depreciation are generally based on the following estimated useful lives:

buildings - 40 years; land improvements - 15 years; furniture and equipment - 3 to 25 years. The cost of assets sold or

otherwise disposed of and the related accumulated depreciation are eliminated from the accounts and the resulting gains or

losses are reflected in the consolidated statement of operations. Maintenance and repairs are charged to current expense as

incurred and the costs of major renewals and improvements are capitalized.

FORECLOSED ASSETS - Assets (primarily real estate and vehicles) acquired through, or in lieu of, foreclosure are held for sale

and are initially recorded at fair value, less estimated costs to sell, at the date of foreclosure, establishing a new cost basis.

Losses determined as of the date a collateral is acquired are charged against the allowance for loan losses. Subsequent to

foreclosure or acquisition, valuations are periodically obtained from independent appraisers and the assets are carried at the

lower of the new cost basis or fair value, less estimated costs to sell. Revenues and expenses from operations and changes

in any subsequent valuation allowance are included in expenses of foreclosed assets.

BANK-OWNED LIFE INSURANCE – In connection with the supplemental retirement benefits described in Note 13, the Bank

has purchased life insurance policies on certain key executives and employees. The bank-owned life insurance is recorded

at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value

adjusted for other charges or other amounts due that are probable at settlement.

TRANSFERS OF FINANCIAL ASSETS - Transfers of financial assets are accounted for as sales when control over the assets

has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated

from us, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge

or exchange the transferred assets, and (3) we do not maintain effective control over the transferred assets through an

agreement to repurchase them before their maturity.

ADVERTISING - We expense advertising and promotion costs as they are incurred. See Note 11.

RETIREMENT PLANS – We have a salary reduction profit sharing plan pursuant to Section 401(k) of the Internal Revenue

Code as more fully described in Note 13. We currently do not sponsor any other postretirement or postemployment benefits. In

2019, the Company resolved outstanding claims with the former Chief Executive Officer regarding postretirement payments.

See Note 13 for additional information.

DEFERRED INCOME TAXES - We use an asset and liability approach for financial accounting and reporting of deferred income

taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and income

tax bases of assets and liabilities as measured by the currently enacted tax rates, which are assumed will be in effect when

these differences reverse. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a

valuation allowance is recognized. Deferred income tax expense or credit is the result of changes in deferred tax assets and

liabilities. See Note 12 for more information.

NET INCOME PER COMMON SHARE - Net income per common share is calculated by dividing net income available to

common shareholders by the weighted average number of shares of the Company’s common stock outstanding during

the period. Net income per common share, assuming dilution, is calculated by dividing net income available to common

shareholders by the total of the weighted average number of shares outstanding during the period and the weighted average

number of any dilutive potential common shares and stock options that would have been outstanding if the dilutive potential

shares and stock options had been issued. In computing the number of dilutive potential common shares, it is assumed that

all dilutive stock options are exercised at the beginning of each year and that the proceeds are used to purchase shares of the

Company’s common stock at the average market price during the year. See Note 9.

22 23


COMPREHENSIVE INCOME - Comprehensive income consists of net income for the current period and other comprehensive

income (loss), defined as income, expenses, gains and losses that bypass the consolidated statements of operations and

are reported directly in a separate component of shareholders’ equity. We classify and report items of other comprehensive

income (loss) according to their nature, report total comprehensive income in the consolidated statements of changes in

shareholders’ equity, and display the accumulated balance of other accumulated comprehensive income (loss) separately in

the shareholders’ equity section of the consolidated balance sheets. At December 31, 2019 and 2018, the only component of

accumulated other comprehensive income (loss) was unrealized gains and losses on available-for-sale investments.

REVENUE FROM CONTRACTS WITH CUSTOMERS - The Company records revenue from contracts with customers in

accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”).

Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract,

determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize

revenue when (or as) the Company satisfies a performance obligation.

NOTE 2 – CASH AND DUE FROM BANKS

Banks are generally required by regulation to maintain an average cash reserve balance based on a percentage of deposits.

The cash reserve balances may be in the form of vault cash or unencumbered deposit balances with the Federal Reserve

Bank. At December 31, 2019 and 2018, the Bank was required to maintain reserves of approximately $2,654 and $1,325,

respectively.

NOTE 3 – SECURITIES

The aggregate amortized cost and estimated fair values of securities, as well as gross unrealized gains and losses of securities

were as follows:

The Company adopted the guidance on January 1, 2019 using a modified retrospective approach. The Company’s revenue

is comprised of net interest income and noninterest income. The Company’s primary source of revenue is derived from

interest earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606.

The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue

from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of

Operations was not necessary. A description of the Company’s revenue streams accounted for under ASC 606, Revenue from

contracts with customers follows:

Service charges on deposits and ATM and interchange fees – Fees from these services are either transaction-based, for

which the performance obligations are satisfied when the individual transaction is processed, or set periodic service charges,

for which the performance obligations are satisfied over the period the service is provided. Transaction-based fees are

recognized at the time the transaction is processed, and periodic service charges are recognized over the service period.

Gains on sales of other real estate – A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer. ASC 606 lists several criteria required to conclude that a contract for sale exists,

including a determination that the institution will collect substantially all of the consideration to which it is entitled. In addition

to the loan-to-value, the analysis is based on various other factors, including the credit quality of the borrower, the structure

of the loan, and any other factors that may affect collectability.

Our accounting policies did not change materially since the principles of revenue recognition from Topic 606 are largely

consistent with existing guidance and current practices applied by our business. Since there was no net income impact upon

adoption of the new guidance, a cumulative effect adjustment to opening retained earnings was not deemed necessary.

Consistent with the modified retrospective approach, the Company did not adjust prior period amounts.

Equity securities consist of Federal National Mortgage Association preferred stock and are measured at fair value. Prior to the

adoption of ASU 2016-01, equity securities were classified as available for sale. During 2019, $23 of income was recognized

due to the change in fair value of equity securities.

CONSOLIDATED STATEMENTS OF CASH FLOWS - The consolidated statements of cash flows report net cash provided or

used by operating, investing and financing activities and the net effect of those flows on cash and cash equivalents. Cash

equivalents include amounts due from banks, federal funds sold and securities purchased under agreements to resell.

RECLASSIFICATIONS – Certain reclassifications have been made to prior years’ financial statements in order to comply with

current year presentation. These reclassifications had no effect on previously reported results of operations or shareholders’

equity.

24 25


The amortized cost and estimated fair value of available-for-sale debt securities by contractual maturity are shown below:

At December 31, 2019 and 2018, 11 and one securities, respectively, had been continuously in an unrealized loss position

for less than 12 months, and 21 and 51 securities, respectively, had been continuously in an unrealized loss position for 12

months or more. We do not consider these investments to be other-than-temporarily impaired because the unrealized losses

involve primarily securities issued by government-sponsored enterprises and state, county and municipal governments, none

of the rated securities have been downgraded below investment grade, and there have been no failures by the issuers

to remit their periodic interest payments as required. Although we classify our investment securities as available-for-sale,

management has not determined that any specific securities will be disposed of prior to maturity and believes that we have

both the ability and the intent to hold those investments until a recovery of fair value, including until maturity. Substantially all

of the issuers of state, county and municipal securities held were rated at least “investment grade” as of December 31, 2019

and 2018. For non-rated state, county and municipal government obligations with significant unrealized losses, management

periodically reviews financial information and continuing disclosures to assess the issuers’ condition and ability to honor their

obligations.

No securities were sold, called, or matured in 2019. During 2018, one security was sold, resulting in net realized losses of $50

and one security matured. No securities were called in 2018. During 2017, 21 securities were sold, resulting in net realized

gains of $11. No securities were called or matured in 2017.

The estimated fair values and gross unrealized losses of investment securities whose estimated fair values were less than

amortized cost as of December 31, 2019 and 2018 which had not been determined to be other-than-temporarily impaired

are presented below. The securities have been aggregated by investment category and the length of time that individual

securities have been in a continuous unrealized loss position.

At December 31, 2019 securities with a carrying value of $8,591 were pledged as collateral to secure public deposits and for

other purposes required or permitted by law.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans consisted of the following:

Certain officers and directors of the Company and its banking subsidiary, their immediate families and business interests

were loan customers of, and had other transactions with, the banking subsidiary in the normal course of business. Related

party loans are made on substantially the same terms, including interest rates and collateral, as loans made to unrelated third

parties and do not involve more than normal risk of collectability of loans to such third parties. The aggregate dollar amount

of these loans was $3,673 and $3,222 at December 31, 2019 and 2018, respectively. During 2019, $885 of new loans and

advances on lines of credit were made and repayments and other reductions totaled $434.

As of December 31, 2019 and 2018 there were no significant concentrations of credit risk in any single borrower or groups of

borrowers. Our loan portfolio consists primarily of extensions of credit to businesses and individuals in our market areas. The

economy of these areas is diversified and does not depend on any one industry or group of related industries. Management

26 27


has established loan policies and practices that include set limitations on loan-to-collateral value for different types of

collateral, requirements for appraisals, obtaining and maintaining current credit and financial information on borrowers, and

credit approvals. The Bank makes loans to consumers that are collateralized by personal property such as boats, recreational

vehicles and automobiles through a direct relationship with fully vetted retailers that meet certain criteria. The Bank utilizes

defined underwriting procedures which are designed to mitigate risks associated with such loans, which are financed

indirectly to consumers. These loans are typically made with loan to actual collateral values averaging 100% and typically

have terms ranging from 60 to 180 months on average. Internal policy limits allow a maximum loan to value of 130% and

term of 240 months, respectively.

The following tables provide information about the credit quality of the Bank’s loans as indicated by its internal risk grading

system:

The following tables provide information about the payment status of loans:

The following table provides information about nonaccrual loans:

Loans that are graded Special Mention are not believed to represent more than a minimal likelihood of loss. A rating of Special

Mention indicates that a change in the borrower’s circumstances, or some other event, has occurred such that an elevated

level of monitoring is warranted. Such loans generally are evaluated collectively for purposes of estimating the allowance

for loan losses. Loans graded Substandard are believed to present a moderate likelihood of loss due to the presence of

well-defined weakness in the borrower’s financial condition, a change in the customer’s demonstrated repayment history,

the effects of lower collateral values combined with other financial difficulties that the borrower may be experiencing, and

deterioration of other indicators of the borrower’s ability to service the loan as agreed. Loans graded Doubtful are believed

to present a high likelihood of loss due to serious deterioration of a borrower’s financial condition, severe past due status

and/or substantial deterioration of collateral value, or other factors. Loans graded Substandard and Doubtful are evaluated

individually for impairment. Management updates its internal risk grading no less often than monthly.

Impaired loans are generally nonaccrual loans, loans that are 90 days or more delinquent as to principal or interest payments,

and other loans where, based on current information and events, it is probable that we will be unable to collect principal

and interest payments according to the contractual terms of the loan agreements. A loan is not considered to be impaired,

however, if any periods of delay or shortfalls of amounts expected to be collected are insignificant or if we expect that we will

collect all amounts due including interest accrued at the contractual interest rate during the period of delay.

As of December 31, 2019, 2018 and 2017, no loans were past due 90 days or more and still accruing interest.

28 29


Following is a summary of our impaired loans, by class:

The amount of interest income that would have been included in income if nonaccrual loans had been current in accordance

with their terms was approximately $32, $23, and $55 for 2019, 2018, and 2017, respectively. There were no irrevocable

commitments to lend additional funds to debtors owing amounts on impaired loans at December 31, 2019, 2018, or 2017.

The following tables provide information about how we evaluated loans for impairment, the amount of the allowance for loan

losses estimated for loans subjected to each type of evaluation, and the related total amounts, by loan portfolio segment:

30 31


Troubled debt restructurings (“TDRs”) occur when, for reasons related to a borrower’s financial difficulties, we agree to modify

the terms of a loan and, in the process, grant a concession. Modifications of loan terms and concessions granted may take

many forms. Sometimes, both we and the borrower may grant concessions. In such cases, we are considered to have granted

a concession if the value of the concession(s) we made in the borrower’s favor exceed the value of the concession(s) made

by the borrower in our favor.

The following tables provide additional information about charge-offs and recoveries of loans, and the provision and

allowance for loan losses for the years ended December 31, 2019 and 2018:

Due to the concessions granted in loan modifications that result in TDRs, we generally recognize loan losses when such

modifications are made. For loans in the real estate segment, TDR recognition generally indicates that the loans are collateral

dependent. Consequently, we write down such restructured loans to the extent that the pre-modification outstanding recorded

investment exceeds the fair value of the collateral, less estimated selling costs. For loans in the other segments, collateral may

or may not be held. If we hold collateral and the loan is collateral dependent, we write down to the fair value of the collateral.

If we hold no collateral, the expected cash flows under the modified terms are discounted at the effective interest rate of

the original loan and, if there is a shortfall, we write down to that amount. In both cases, if we had previously allowed for the

losses sufficiently in the allowance for loan losses, no further provision expense would result in the current period. If we had

not previously allowed sufficiently, additional current expenses may be necessary to cover the shortfall.

At December 31, 2019 and 2018, the recorded investment in TDRs totaled $5,612 and $6,360, respectively. There were no

loans modified during 2019 that were considered to be TDRs. During 2018, four modified loans were considered to be TDRs

with a pre-modification outstanding recorded investment of $361 and a post-modification outstanding recorded investment

of $330. During 2019, one loan with a recorded investment of $95 subsequently defaulted payment within 12 months of

the restructuring date. During 2018, there were no TDRs that subsequently defaulted payment within 12 months of the

restructuring date.

All TDRs were considered classified and impaired at December 31, 2019 and 2018. Of the balance outstanding at December 31,

2019, four loans totaling $147 were on nonaccrual status. The remaining loans were accruing and performing in accordance

with the new terms. The allowance for loan losses associated with troubled debt restructurings, on the basis of a current

evaluation of loss, was $179 and $212 at December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018, we had no new loan commitments to borrowers who have loans included in TDRs.

NOTE 5 – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

The following table provides information about charge-offs and recoveries of loans, and the provision and allowance for loan

losses:

Depreciation expense for the years ended December 31, 2019, 2018, and 2017 was $444, $404, and $437, respectively.

32 33


NOTE 6 - FORECLOSED ASSETS

The following table summarizes activity with respect to foreclosed assets:

NOTE 8 – LONG-TERM DEBT

At December 31, 2019 and 2018, the Bank had the ability to borrow up to 25 percent of its total assets from the FHLB subject

to available qualifying collateral and collateralization requirements. We may use different forms of collateral (certain eligible

loans, certain investment securities, etc.) for each advance and the amounts of collateral required to secure borrowings vary

depending upon the type of collateral utilized.

At December 31, 2019 and 2018, the outstanding balances of FHLB advances are summarized as follows:

NOTE 7 – DEPOSITS

A summary of deposits follows:

The scheduled maturity dates, conversion dates, and related interest rates on FHLB advances at December 31, 2019:

At December 31, 2019 and 2018, time deposits greater than $250,000 totaled $15,967 and $16,314, respectively.

As of December 31, 2019 and 2018, $80 and $78, respectively, of overdrawn deposit balances were reclassified as loans.

As of December 31, 2019 and 2018, deposits of directors, officers and their related business interests totaled approximately

$4,034 and $4,104, respectively.

At December 31, 2019, the scheduled maturities of time deposits were as follows:

The above advances can be converted to variable interest rates at the option of the FHLB. If the FHLB converts the advances

to variable rates of interest, the Bank has the option to prepay the advances without penalty.

We have pledged certain of our first mortgage loans secured by one-to-four family residential properties and our holdings

of FHLB stock (collectively, “qualifying collateral instruments”) to secure our debt due to the FHLB under a blanket lien

agreement. The amount of qualifying collateral instruments pledged to secure any potential borrowings as of December 31,

2019 and 2018 was approximately $16,040 and $15,128, respectively.

We have been granted access to the Federal Reserve Bank of Richmond’s (the “FRB”) Discount Window which would allow

us to borrow approximately $36,707 and $40,256 from it at the end of 2019 and 2018, respectively, subject to our providing

collateral of sufficient market value.

The Company has arranged for unsecured and secured lines of credit totaling $25,000 and $5,000, respectively, from

correspondent banks. The Company has not pledged securities toward these lines and did not draw on these lines during

2019 or 2018. The lines are usable on a short-term basis and may be withdrawn by the correspondent banks at any time.

34 35


NOTE 9 – SHAREHOLDERS’ EQUITY

PREFERRED STOCK - The Company issued 3,150 shares of Series A Cumulative Convertible Preferred Stock (“Series A”) on

December 31, 2009. The shares were issued following the approval on January 27, 2009, by the Company’s shareholders, of

an amendment to the Company’s articles of incorporation authorizing the issuance of up to 10,000,000 shares of preferred

stock in one or more series with the preferences, limitations, and relative rights of each series to be determined by the

Company’s Board of Directors before any such series is issued. The issued shares have a liquidation preference of $1,000

each. On the tenth anniversary of the Effective Date (as defined), or June 17, 2019, the shares became convertible to shares

of common stock at the option of the holder. The original conversion ratio was 100 shares of common stock per surrendered

share of preferred stock. The number of shares of common stock to be issued upon conversion was affected by 5% stock

dividends issued in each of the years 2010 and 2011. As a result, on December 31, 2019, the total number of common shares

that could be issued if all shares of preferred stock were surrendered to be converted into shares of common stock is 347,287

shares. As of December 31, 2019, zero shares of preferred stock have been converted into common stock.

Dividends on the Series A non-voting preferred shares accumulate at 5% per annum and, under the terms of the preferred

stock, no cash dividends may be declared or become payable on common shares unless all of the accumulated preferred

shares have been paid. In 2017 the Company began paying current dividends on the outstanding preferred shares. In 2018

the Company paid a portion of previously accrued, but unpaid dividends. The Company paid the remaining previously accrued

dividends during 2019 and none are outstanding at December 31, 2019.

In August 2017, 49,500 NSOs were granted to the employees of the Company. Each option has an exercise price of $7.10 as

determined on the grant date and expires 10 years from the grant date. The fair value of each option award was estimated on

the date of the grant using the Black-Scholes option valuation model, which resulted in a per share fair value of $3.03. These

options are scheduled to vest over a five-year period.

In August 2018, 20,000 NSOs were granted to a member of the Board of Directors and an executive officer of the Company.

Each option has an exercise price of $8.15 as determined on the grant date and expires 10 years from the grant date. The

fair value of each option award was estimated on the date of the grant using the Black-Scholes option valuation model, which

resulted in a per share fair value of $3.21. These options are scheduled to vest over a five-year period.

In December 2019, 10,000 ISOs were granted to an employee of the Company. Each option has an exercise price of $7.50 as

determined on the grant date and expires 10 years from the grant date. The fair value of each option award was estimated on

the date of the grant using the Black-Scholes option valuation model, which resulted in a per share fair value of $2.77. These

options are scheduled to vest over a five-year period.

A summary of the activity in the 2016 Plan is presented below:

COMMON STOCK - The Company completed a two-stage stock offering in 2019 which raised a net of $9,329 in capital

through the issuance of 1,333,334 shares of common stock. See below for the offering’s effect on net income per common

share.

STOCK OPTIONS - The Company currently awards incentive stock options under a plan approved by the Company’s

Shareholders in 2016, as amended. The 2016 Long-Term Stock Incentive Plan (“The 2016 Plan”) replaced the 1998 Stock

Option Plan (“the 1998 Plan”). All options granted under the 1998 Plan expired, with none exercised, in 2016.

Pursuant to the 2016 Plan, as amended, 500,000 shares of the Company’s authorized but unissued common stock were

reserved for possible issuance pursuant to the exercise of stock awards. Under the 2016 Plan, eligible employees will

be eligible for awards of non-qualified stock options (“NSOs”), incentive stock options (“ISOs”), rights to receive shares

of common stock at a future date or dates (“Restricted Stock Units”), restricted shares of the Company’s common stock

(“Restricted Stock”), and/or performance units having a designated value (“Performance Units”) (collectively “Awards”) over

the 10-year term of the 2016 Plan. Non-employees (including non-employee directors) will be eligible for awards of NSOs,

Restricted Stock Units and/or Restricted Stock. Except with respect to Awards then outstanding, unless sooner terminated, all

Awards must be granted or awarded on or before the 10th anniversary of the date on which the 2016 Plan was approved by

the Company’s shareholders, May 25, 2016.

In December 2016, 55,000 NSOs were granted to the members of the Board of Directors and certain executive officers of the

Company. Each option has an exercise price of $6.48 as determined on the grant date and expires 10 years from the grant

date. The fair value of each option award was estimated on the date of the grant using the Black-Scholes option valuation

model, which resulted in a per share fair value of $2.85. These options are scheduled to vest over a five-year period.

In May 2017, 72,700 NSOs were granted to the members of the Board of Directors and certain executive officers of the

Company. Each option has an exercise price of $7.10 as determined on the grant date and expires 10 years from the grant

date. The fair value of each option award was estimated on the date of the grant using the Black-Scholes option valuation

model, which resulted in a per share fair value of $3.04. These options are scheduled to vest over a five-year period.

In May 2017, the Company granted 2,500 restricted stock units to an executive officer of the Company. The restricted

stock units vested over the eight month period ended December 31, 2017. In November 2017, the Company granted 5,000

restricted stock units to an executive officer of the Company. The restricted stock units vested over the six month period ended

May 31, 2018. In January 2018, a former executive officer of the Company forfeited 916 restricted stock units in connection

with the exercise of stock options.

Total expense recognized in the statement of operations for share-based payment arrangements during the years ended

December 31, 2019, 2018, and 2017 was $105, $125, and $100, respectively.

36 37


As of December 31, 2019 and 2018, there was $273 and $310, respectively, of total unrecognized expense related to nonvested

share based compensation arrangements granted under the Plan. That cost is expected to be recognized over a

weighted average period of 4.0 years.

NET INCOME PER COMMON SHARE – Net Income per common share and net income per common share, assuming dilution,

were computed as follows:

to maintain certain capital as a percentage of assets and certain off-balance sheet items adjusted for predefined credit

risk factors (risk-weighted assets). Quantitative measures of capital adequacy include the leverage ratio (Tier 1 capital as

a percentage of average assets), Tier 1 risk-based capital ratio (Tier 1 capital as a percent of risk-weighted assets), Total

Risk-Based Capital rate (Total Risk-Based Capital as a percentage of Total Risk-Weighted assets), and Common Equity Tier 1

(“CET1”) capital ratio. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary

actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under

capital adequacy guidelines and the regulatory framework for prompt corrective action applicable to banks, the Company

and the Bank must meet specific capital guidelines. Prompt corrective action provisions are not applicable to bank holding

companies.

At December 31, 2019, the Bank exceeded all regulatory capital requirements as of that date. The Bank was categorized as

"well-capitalized" at December 31, 2019 under applicable regulatory requirements.

The actual capital amounts and ratios and minimum regulatory amounts and ratios for the Company and the Bank are

presented in the table that follows.

As previously discussed, during the year ended December 31, 2019, the Company completed a two-stage stock offering 2019

which raised a net of $9,329 in capital through the issuance of 1,333,334 shares of common stock.

DIVIDENDS – The FRB granted its approval for the Company to pay all dividends accumulated on the Company’s cumulative

preferred stock as prescribed in the preferred stock instruments through November 15, 2012. When preferred stock dividends

accumulate and are unpaid, the Company is unable to make any distributions to holders of its common stock until such time

as all of the arrearages on the preferred stock are satisfied. In December 2018 the Company paid $394 of $788 in accrued

dividends on preferred stock. The Company paid the remaining $394 in accrued dividends on preferred stock in 2019.

NOTE 10 – REGULATORY MATTERS

All bank holding companies and banks are subject to various regulatory capital requirements administered by the federal

banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional

discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated

financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, bank

holding companies and banks must meet specific capital guidelines that involve quantitative measures of their assets,

liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and

classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require the Company and the Bank

38 39


NOTE 11 – NONINTEREST EXPENSES

Other expenses are summarized below:

A reconciliation between the income tax expense (benefit) and the amount computed by applying the federal statutory rate of

21% for 2019 and 2018 and 34% for 2017 to income before income taxes follows:

Deferred tax assets and liabilities included in the consolidated balance sheets consisted of the following:

NOTE 12 – INCOME TAXES

The Company’s provision for income taxes differs from applying the federal statutory income tax rate to income before income

taxes. The primary difference results from the changes effected from the enactment of the Tax Cuts and Jobs Act (“Tax Act”)

on December 22, 2017, including the impact of a remeasurement of the deferred taxes at the rate in which the deferred taxes

are expected to reverse which is 21% for federal purposes.

Income tax expense (benefit) consisted of:

As of December 31, 2019, we have federal net operating loss carryforwards totaling $15,898 that expire as follows: $2,226

in 2032, $3,522 in 2033, $2,937 in 2034, $3,409 in 2035, $896 in 2036, $709 in 2037, and $2,199 with no expiration. As

of December 31, 2019, we have South Carolina net operating loss carryforwards totaling $2,348, of which $2,179 will expire

2026 through 2037 with the remainder having no expiration.

Deferred tax assets represent the future tax benefit of deductible differences and, if it is more-likely-than-not that a tax asset

will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value.

40 41


During 2018 the Company reversed the majority of the valuation allowance as management believes the net deferred tax

asset will ultimately be realized. The remaining valuation allowance relates to the parent company’s state operating loss

carryforwards for which its ability to realize is uncertain. Realization of deferred tax assets is dependent upon sufficient

taxable income during the period that deductible temporary differences and carryforwards are expected to be available to

reduce taxable income. Based on management’s projections, the deferred tax assets are more-likely-than-not to be fully

recovered with projected taxable income.

As of December 31, 2019 and 2018, there were no uncertain tax positions. The amount of uncertain tax positions may

increase or decrease in the future for various reasons including adding amounts for current tax positions, expiration of

open tax returns due to statutes of limitations, changes in management’s judgment about the level of uncertainty, status of

examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. The Company’s policy

is to report interest and penalties, if any, related to uncertain tax positions in income tax expense. With few exceptions, the

Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2016.

NOTE 13 – RETIREMENT PLANS

The Company sponsors the Community First Bank 401(k) Plan (the “401(k) Plan”) for the exclusive benefit of all eligible

employees and their beneficiaries. Employees are eligible to participate in the 401(k) Plan with a minimum age requirement

of 18, and there is no minimum service requirement for deferral. Employees are allowed to defer and contribute any amount

of their salary, up to a maximum determined under the Internal Revenue Code each year. The Company provides a safe

harbor match of 100% of each dollar deferred up to 3% of eligible compensation and 50% of each dollar deferred between

3% and 5% of eligible compensation for employees with a minimum of 1,000 hours of service during the 12-month period

immediately following date of hire. The Board of Directors can also elect to make discretionary contributions. Employees are

fully vested in any discretionary contributions after five years of service. The employer contributions to the plan for 2019, 2018

and 2017 totaled $181, $150, and $133, respectively.

In 2007, the Bank’s Board of Directors approved certain supplemental retirement benefits for a former Chief Executive Officer

under an unfunded salary continuation plan (the “Plan”). The Plan is not a qualified retirement plan for federal income tax

purposes. In accordance with applicable accounting principles, the Bank accrued expected compensation expenses related

to the Plan. In 2013, the Bank began making payments to the former executive officer under the Plan. During 2015, the

Bank ceased making payments to the executive officer due to certain issues of suspected misconduct. The former executive

officer filed claims against the Bank in state court. In 2019, the Bank and the former executive officer resolved those claims.

No further impact on the Company’s consolidated financial statements is expected. At December 31, 2018 the deferred

compensation expense accrued and unpaid totaled $2,949 and is included in Other Liabilities in the Company’s consolidated

financial statements for that year.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

COMMITMENTS TO EXTEND CREDIT - In the normal course of business, the Bank is party to financial instruments with offbalance-sheet

risk. These financial instruments include commitments to extend credit and standby letters of credit, and have

elements of credit risk in excess of the amount recognized in the balance sheet. The exposure to credit loss in the event of

nonperformance by the other parties to the financial instruments for commitments to extend credit and standby letters of

credit is represented by the contractual, or notional, amount of those instruments. Generally, the same credit policies used for

on-balance-sheet instruments, such as loans, are used in extending loan commitments and standby letters of credit.

Following are the off-balance-sheet financial instruments whose contract amounts represent credit risk:

Loan commitments involve agreements to lend to a customer as long as there is no violation of any condition established in

the contract. Commitments generally have fixed expiration dates or other termination clauses and some involve payment

of a fee. Many of the commitments are expected to expire without being fully drawn; therefore, the total amount of loan

commitments does not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on

a case-by-case basis. The amount of collateral obtained, if any, upon extension of credit is based on management’s credit

evaluation of the borrower. Collateral held varies but may include commercial and residential real properties, accounts

receivable, inventory and equipment.

The Bank offers an automatic overdraft protection product for non-maturing deposits and expects that much of this capacity

will not be utilized. During 2019, the average balance of total non-maturing deposit overdrafts for participating bank customers

was approximately $69.

Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. The credit

risk involved in issuing standby letters of credit is the same as that involved in making loan commitments to customers.

FUTURE MINIMUM LEASE PAYMENTS – The Company occupies office space under leases expiring on various dates through

2021. The estimated future minimum lease payments under these noncancelable operating leases are $44 and $33 in 2020

and 2021, respectively.

As of January 23, 2020 SeaTrust entered into an assumption agreement for additional leased office space in Wilmington,

North Carolina. The lease of additional space begins February 1, 2020 and terminates on June 1, 2021. SeaTrust intends to

sub-lease the space occupied as of December 31, 2019. Estimated payments due under the additional lease are $86 and

$39 in 2020 and 2021, respectively.

LITIGATION – As of December 31, 2019, the Bank was involved as a defendant in litigation brought by a former bank customer.

The former customer is asserting tort claims, as well as a claim for an accounting, against the Bank and a former Bank employee

based on allegations that the former employee, who held the former customer’s power of attorney, misappropriated funds

from the former customer’s account. The former customer is seeking damages in excess of $1,750. The Bank is vigorously

defending its interests, has denied all of the former customer’s substantive allegations, has asserted various defenses, and

has asserted counterclaims against the former customer of approximately $789. In September 2017, the Court entered an

order granting the Bank summary judgment on all claims. Counsel for the former customer filed a motion to reconsider that

order. Counsel for the Bank argued that motion in December, 2017, and the court still has it under consideration.

Prior to 2015, the Board of Directors became aware of a loan to a customer which was charged off in excess of $800 without

their informed agreement. The Bank obtained a payoff agreement and schedule from this customer. Discussion with the

customer and further investigation by the Bank revealed the loan proceeds may have been used to also benefit the Bank’s

former Chief Executive Officer, the Bank’s former Chairman of the Board, and their related interests. When the customer

defaulted on the payoff agreement, the Bank filed legal actions against all three parties and their related companies for the

full amount of the loan. Counterclaims were filed by the customer. During the course of the litigation the trial Court issued an

42 43


order awarding the former Chief Executive Officer $64 in discovery-related sanctions. The Bank and the parties resolved the

remaining issues in the litigation and all claims by all parties were dismissed, including the counterclaims asserted by the

customer.

The following is a summary of the measurement attributes applicable to financial assets and liabilities that would be measured

at fair value on a recurring basis:

NOTE 15 – DISCLOSURES ABOUT FAIR VALUES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between

market participants at the measurement date. A three-level hierarchy is used for fair value measurements based upon the

transparency of inputs to the valuation. For disclosure purposes, fair values for assets and liabilities are shown in the level

of the hierarchy that correlates with the least observable level input that is significant to the fair value measurement in its

entirety. The three levels of the fair value hierarchy are described as follows:

Level 1 inputs reflect quoted prices in active markets for identical assets or liabilities.

Level 2 inputs reflect observable inputs that may consist of quoted market prices for similar assets or liabilities, quoted prices

that are not in an active market, or other inputs that are observable in the market and can be corroborated by observable

market data for substantially the full term of the assets or liabilities being valued.

Level 3 inputs reflect the use of pricing models and/or discounted cash flow methodologies using other than contractual

interest rates or methodologies that incorporate a significant amount of management judgment, use of the entity’s own data,

or other forms of unobservable data.

Pricing for securities available-for-sale is obtained from an independent third-party that uses a process that may incorporate

current prices, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids,

offers, other reference items and industry and economic events that a market participant would be expected to use as

inputs in valuing the securities. Not all of the inputs listed apply to each individual security at each measurement date. The

independent third party assigns specific securities into an “asset class” for the purpose of assigning the applicable level of

the fair value hierarchy used to value the securities. Securities available-for-sale are measured at fair value with unrealized

gains and losses, net of income taxes, recorded in other comprehensive income. Effective January 1, 2019, the change in

fair value of equity securities is recognized in net income in accordance with Accounting Standards Update (“ASU”) 2016-01.

Fair values of collateral dependent impaired loans are estimated based on recent appraisals of the underlying properties or

other information derived from market sources. The fair value of foreclosed assets is estimated based on recent appraisals or

other information obtained from market sources. Management reviews all fair value estimates periodically or whenever new

information indicates that there may have been a significant change in the fair value of a property.

44 45


The following is a summary of assets measured at fair value on a nonrecurring basis in the consolidated balance sheets,

including the general classification of such instruments pursuant to the valuation hierarchy.

NOTE 16 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core

principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to

customers in an amount equal to the consideration the entity receives or expects to receive. The guidance was effective for

the Company for annual periods beginning after December 15, 2018 and interim periods within annual reporting periods

beginning after December 15, 2019. See Note 1 for additional information.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address

certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will

be effective for fis¬cal years beginning after December 15, 2018, and interim periods within fiscal years beginning after

December 15, 2019. The Company applied the guidance by means of a cumulative-effect adjustment to the balance sheet

as of the beginning of the fiscal year of adoption. The amendments did not have a material effect on the Company’s financial

statements.

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to revise certain aspects of

recognition, measurement, presentation, and disclosure of leasing transactions. We expect to adopt the guidance using the

modified retrospective method and practical expedients for transition. The practical expedients allow us to largely account

for our existing leases consistent with current guidance except for the incremental balance sheet recognition for lessees. We

have started an initial evaluation of our leasing contracts and activities. We have also started developing our methodology to

estimate the right-of use assets and lease liabilities, which is based on the present value of lease payments. We do not expect

a material change to the timing of expense recognition, but we are early in the implementation process and will continue

to evaluate the impact. The amendments were originally effective for fiscal years beginning after December 15, 2019, and

interim periods within fiscal years beginning after December 15, 2020 with early adoption permitted. In November 2019, the

FASB determined that these amendments will be deferred one year and be effective for fiscal years beginning after December

15, 2020 for private companies. We are evaluating our existing disclosures and may need to provide additional information as

a result of adoption of the Accounting Standards Update (“ASU”). We do not expect to adopt the ASU before the effective date.

classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other

than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with

performance or service conditions that have certain characteristics and also allowing them to make a one-time election to

switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments were

effective for the Company for annual periods beginning after December 15, 2017, and interim periods within annual reporting

periods beginning after December 15, 2018. The amendments did not have a material effect on the financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain

debt securities. The amendments were originally effective for the Company for annual periods beginning after December 15,

2020, and interim periods within annual reporting periods beginning after December 15, 2021 with early adoption permitted

for all organizations for periods beginning after December 15, 2018. In November 2019, the FASB determined that these

amendments will be deferred and be effective for fiscal years beginning after December 15, 2022 for private companies.

While early adoption is permitted, we do not expect to elect that option. The Company will apply the amendments to the ASU

through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. We expect the ASU

will result in an increase in the recorded allowance for loan losses given the change to estimated losses over the contractual

life of the loans adjusted for expected prepayments. In addition to our allowance for loan losses, we will also record an

allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the

adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic

conditions and forecasts at that time. The Company is currently evaluating the effect that implementation of the new standard

will have on its financial position, results of operations, and cash flows.

In May 2017, the FASB amended the requirements in Receivables – Nonrefundable Fees and Other Costs Topic of the

Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a

premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will

be effective for the Company for annual periods beginning after December 15, 2019 and interim periods within an annual

periods beginning after December 15, 2020. The Company does not expect these amendments to have a material impact on

its financial statements.

In August 2018, the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification. The

amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts

Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments are

effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early

adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU

and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments

to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected

to have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2016, the FASB issued guidance to simplify several aspects of the accounting for share-based payment award

transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the

46 47


NOTE 17 – CONDENSED FINANCIAL INFORMATION

The following is condensed financial information of Community First Bancorporation (parent company only).

NOTE 18 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through March 18, 2020, the date these consolidated financial statements

were available to be issued, and has determined that there are no other subsequent events that would require recognition or

disclosure in the Company’s consolidated financial statements.

This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT furnished pursuant to Part 350 of

the Federal Deposit Insurance Corporation’s Rules and Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED

OR CONFIRMED FOR ACCURACY OR RELEVANCE, BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.

Community First Bancorporation will furnish free of charge a copy of this Annual Report upon written request to

Community First Bancorporation, P.O. Box 1097, Walhalla, South Carolina 29691.

48 49

Stock Transfer Agent

Transfer Online, Inc.

512 SE Salmon St., Portland, OR 97214

(503) 227-2950

info@transferonline.com

www.transferonline.com

Stock Symbol

CFOK

COMMUNITY FIRST BANK

Full-Service Offices

1600 Sandifer Blvd., Seneca, SC 29678

3685 Blue Ridge Blvd., Walhalla, SC 29691

306 East Windsor St., Westminster, SC 29693

449 Highway 123 Bypass, Seneca, SC 29678

2007 East Greenville St., Anderson, SC 29621

4002 Clemson Blvd., Anderson, SC 29621

208 East Main St., Williamston, SC 29697

210 Brendan Way, Greenville, SC 29615

202 West Trade St., Dallas, NC 28034


Loan Production Offices

800 East Arrowood Rd., Charlotte, NC 28217

300 McGill Avenue NW, Ste 200, Concord, NC 28207

C1stBank.com


2020 LOCATIONS

ANDERSON - CLEMSON BLVD

ANDERSON - HWY 81

Winston-Salem

4002 Clemson Boulevard

Anderson, SC 29623

GREENVILLE

2007 E Greenville Street

Anderson, SC 29621

SENECA

Asheville

Raleigh

Walhalla

Greenville

Seneca

Westminster Williamston

Anderson

Dallas

Charlotte

(Loan Production Office)

Rock Hill

Concord

(Loan Production Office)

210 Brendan Way

Greenville, SC 29616

WALHALLA

1600 Sandifer Boulevard

Seneca, SC 29679

WESTMINSTER

SENECA - NORTH (Corporate HQ)

Columbia

Wilmington

(SeaTrust Mortgage)

3685 Blue Ridge Boulevard

Walhalla, SC 29691

306 East Windsor Street

Westminster, SC 29693

Myrtle Beach

WILLIAMSTON

DALLAS

449 Hwy 123 Bypass

Seneca, SC 29679

Charleston

208 East Main Street

Williamston, SC 29697

202 West Trade Street

Dallas, NC 28034

C1stBank.com

CFB Annual Report 2019

Transform your PDFs into Flipbooks and boost your revenue!

Delete template?

Save as template ?