Document And Entity Information
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Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 25, 2012
Jun. 30, 2010
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2011    
Entity Registrant Name HOPFED BANCORP INC    
Entity Central Index Key 0001041550    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   7,493,975  
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Public Float     $ 55,721,821

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Assets    
Cash and due from banks $ 44,389 $ 54,042
Interest-earning deposits in Federal Home Loan Bank 4,371 6,942
Cash and cash equivalents 48,760 60,984
Federal Home Loan Bank stock, at cost (note 2) 4,428 4,378
Securities available for sale (notes 2, 7 and 8) 383,782 357,738
Loans receivable, net of allowance for loan losses of $11,262 at December 31, 2011, and $9,830 at December 31, 2010 (notes 3 and 7) 556,360 600,215
Accrued interest receivable 6,183 6,670
Real estate and other assets owned (note 14) 2,267 9,812
Bank owned life insurance 9,135 8,819
Premises and equipment, net (note 4) 23,431 24,289
Deferred tax assets (note 13) 1,132 3,788
Intangible asset (note 5) 519 810
Other assets 4,823 5,088
Total assets 1,040,820 1,082,591
Liabilities and Stockholders' Equity    
Non-interest-bearing accounts 79,550 69,139
Interest-bearing accounts    
NOW accounts 130,114 138,936
Savings and money market accounts 70,443 63,848
Other time deposits 519,988 555,006
Total deposits 800,095 826,929
Advances from Federal Home Loan Bank (note 7) 63,319 81,905
Repurchase agreements (note 8) 43,080 45,110
Subordinated debentures (note 10) 10,310 10,310
Advances from borrowers for taxes and insurance 153 239
Dividends payable 176 613
Accrued expenses and other liabilities 5,204 6,041
Total liabilities 922,337 971,147
Stockholders' equity (note 17):    
Preferred stock, par value $0.01 per share; authorized-500,000 shares; 18,400 shares issued and outstanding with a liquidation preference of $18,400,000 at December 31, 2011 and December 31, 2010      
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,895,336 issued and 7,492,420 outstanding at December 31, 2011, and 7,737,879 issued and 7,334,963 outstanding at December 31, 2010 79 77
Common stock warrants 556 556
Additional paid-in-capital 75,967 74,920
Retained earnings-substantially restricted 39,591 39,994
Treasury stock (at cost, 402,916 shares at December 31, 2011 and December 31, 2010) (5,076) (5,076)
Accumulated other comprehensive income, net of taxes 7,366 973
Total stockholders' equity 118,483 111,444
Total liabilities and stockholders' equity $ 1,040,820 $ 1,082,591

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]    
Loans receivable, allowance for loan losses $ 11,262 $ 9,830
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 500,000 500,000
Preferred stock, shares issued 18,400 18,400
Preferred stock, shares outstanding 18,400 18,400
Preferred stock liquidation preference $ 18,400,000 $ 18,400,000
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 15,000,000 15,000,000
Common stock, shares issued 7,895,336 7,737,879
Common stock, shares outstanding 7,492,420 7,334,963
Treasury stock, shares 402,916 402,916

Consolidated Statements Of Income
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Consolidated Statements Of Income (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Interest and dividend income      
Loans receivable $ 33,493 $ 38,037 $ 38,921
Securities available for sale 10,465 11,911 12,635
Securities held to maturity     12
Non-taxable securities available for sale 2,263 2,457 1,565
Interest-earning deposits 19 12 8
Total interest and dividend income 46,240 52,417 53,141
Interest expense:      
Deposits (note 6) 14,207 17,384 20,833
Advances from Federal Home loan Bank 2,557 3,292 4,070
Repurchase agreements 909 831 767
Subordinated debentures 742 739 642
Total interest expense 18,415 22,246 26,312
Net interest income 27,825 30,171 26,829
Provision for loan losses (note 3) 5,921 5,970 4,199
Net interest income after provision for loan losses 21,904 24,201 22,630
Non-interest income:      
Service charges 3,813 3,922 4,222
Merchant card income 768 698 612
Mortgage origination income 720 590 271
Realized gain from sale of securities available for sale, net (note 2) 2,897 3,504 2,715
Other than temporary impairment on investments (note 2) (155)   (200)
Income from bank owned life insurance 316 344 481
Financial services commission 894 971 983
Other operating income 940 1,077 1,141
Total non-interest income 10,193 11,106 10,225
Non-interest expenses:      
Salaries and benefits (note 12) 13,266 12,762 12,240
Occupancy expense (note 4) 3,269 3,158 3,074
Data processing expense 2,645 2,807 2,595
State deposit tax 627 640 619
Intangible amortization (note 5) 291 358 650
Goodwill impairment (note 5)     4,989
Professional services 1,372 1,225 1,002
Advertising expense 1,235 1,115 1,304
Postage and communications expense 549 557 616
Supplies expense 399 404 363
Deposit insurance and examination fees 2,021 2,107 2,026
Loss on sale of assets 145    
Loss (gain) on sale of real estate owned 1,703 (321)  
Expenses related to real estate owned 276 264 241
Other operating expenses 895 1,102 764
Total non-interest expense 28,693 26,178 30,483
Income before income tax expense 3,404 9,129 2,372
Income tax expense (note 13) 484 2,613 397
Net income 2,920 6,516 1,975
Less: Dividend on preferred shares 920 920 920
Accretion dividend on preferred shares 111 111 111
Net income available for common shareholders $ 1,889 $ 5,485 $ 944
Earnings per share available to common stockholders (note 18):      
Basic $ 0.25 $ 0.96 $ 0.25
Fully diluted $ 0.25 $ 0.96 $ 0.25
Weighted average shares outstanding-basic 7,460,294 5,732,495 [1] 3,714,195 [1]
Weighted average shares outstanding-diluted 7,460,294 5,732,495 [1] 3,714,195 [1]
[1] Weighted average shares outstanding (basic and diluted) for 2009 adjusted to reflected 2% stock dividend paid to shareholders of record on September 30, 2010 and October 3, 2011. Weighted average shares outstanding (basic and diluted) for 2010 adjusted to reflected 2% stock dividend paid to shareholders of record on October 3, 2011.

Consolidated Statements Of Income (Parenthetical)
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Consolidated Statements Of Income (Parenthetical)
12 Months Ended
Dec. 31, 2010
Dec. 31, 2009
Adjusted to reflect common stock dividend paid to shareholders 2.00% 2.00%
Adjusted to reflect common stock dividend paid to shareholders record date Oct. 03, 2011 Sep. 30, 2010
Dividend Paid [Member]
   
Adjusted to reflect common stock dividend paid to shareholders record date   Oct. 03, 2011

Consolidated Statements Of Comprehensive Income
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Consolidated Statements Of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Comprehensive Income [Abstract]      
Net income $ 2,920 $ 6,516 $ 1,975
Other comprehensive income, net of tax:      
Unrealized holding gain arising during the year, net of tax effect 8,443 431 3,553
Unrealized gain (loss) on derivatives, net of tax effect (138) (293) 351
Reclassification adjustment for gains included in net income, net of tax effect (1,912) (2,313) (1,791)
Comprehensive income $ 9,313 $ 4,341 $ 4,088

Consolidated Statements Of Changes In Stockholders' Equity
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Consolidated Statements Of Changes In Stockholders' Equity (USD $)
In Thousands, except Share data
Common Stock [Member]
USD ($)
Preferred Stock [Member]
Common Stock Warrants [Member]
USD ($)
Additional Paid-In Capital [Member]
USD ($)
Retained Earnings [Member]
USD ($)
Treasury Stock [Member]
USD ($)
Accumulated Other Comprehensive Income (Loss) [Member]
USD ($)
Total
USD ($)
Balance at Dec. 31, 2008 $ 41   $ 556 $ 44,193 $ 38,954 $ (6,495) $ 1,035 $ 78,284
Balance, shares at Dec. 31, 2008 3,585,049 18,400            
Net income         1,975     1,975
Restricted stock awards, shares 9,571              
Net change in unrealized gains (losses) on securities available for sale, net of taxes             1,762 1,762
Net change in unrealized gain (losses) on derivatives, net of taxes             351 351
Preferred stock dividend         (851)     (851)
Common stock dividends         (1,723)     (1,723)
Compensation expense, restricted stock awards       151       151
Accretion of preferred stock discount       111 (111)      
Balance at Dec. 31, 2009 41   556 44,455 38,244 (6,495) 3,148 79,949
Balance, shares at Dec. 31, 2009 3,594,620 18,400            
Net income         6,516     6,516
Restricted stock awards, shares 9,751              
Net change in unrealized gains (losses) on securities available for sale, net of taxes             (1,882) (1,882)
Net change in unrealized gain (losses) on derivatives, net of taxes             (293) (293)
Preferred stock dividend         (920)     (920)
Common stock issuance, net including treasury stock 35     28,917   1,419   30,371
Common stock issuance, net including treasury stock, shares 3,583,334              
Exercise of options, net, shares 3,800              
Stock dividend to common stockholders' 1     1,303 (1,304)      
Stock dividend to common stockholders', shares 143,458              
Cash dividend to common stockholders'         (2,431)     (2,431)
Compensation expense, restricted stock awards       134       134
Accretion of preferred stock discount       111 (111)      
Balance at Dec. 31, 2010 77   556 74,920 39,994 (5,076) 973 111,444
Balance, shares at Dec. 31, 2010 7,334,963 18,400            
Net income         2,920     2,920
Restricted stock awards 1     (1)        
Restricted stock awards, shares 10,972              
Net change in unrealized gains (losses) on securities available for sale, net of taxes             6,531 6,531
Net change in unrealized gain (losses) on derivatives, net of taxes             (138) (138)
Preferred stock dividend         (920)     (920)
Stock dividend to common stockholders' 1     819 (820)      
Stock dividend to common stockholders', shares 146,485              
Cash dividend to common stockholders'         (1,472)     (1,472)
Compensation expense, restricted stock awards       118       118
Accretion of preferred stock discount       111 (111)      
Balance at Dec. 31, 2011 $ 79   $ 556 $ 75,967 $ 39,591 $ (5,076) $ 7,366 $ 118,483
Balance, shares at Dec. 31, 2011 7,492,420 18,400            

Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical)
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Consolidated Statements Of Changes In Stockholders' Equity (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Changes In Stockholders' Equity [Abstract]      
Change in unrealized gain (losses) on securities available for sale, taxes $ (3,364) $ 969 $ (908)
Change in unrealized gain (losses) on derivatives, taxes $ 71 $ 151 $ (181)
Preferred stock dividend, rate 5.00% 5.00% 5.00%
Common stock dividends per share $ 0.2 $ 0.4 $ 0.48
Common stock issuance price per share   $ 8.55  
Common stock issuance, treasury stock shares used for issuance   112,639  
Common stock issuance, treasury stock average cost per share   $ 12.6  

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities:      
Net income $ 2,920 $ 6,516 $ 1,975
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for loan losses 5,921 5,970 4,199
Depreciation 1,569 1,586 1,548
Goodwill impairment     4,989
Amortization of intangible assets 291 358 650
Amortization of investment premiums and discounts, net 2,538 1,496 299
Other than temporary impairment charge on available for sale securities 155   200
Benefit for deferred income taxes (637) (210) (2,809)
Compensation expense, restricted stock grants and options 118 134 151
Income from bank owned life insurance (316) (344) (481)
Loss on sale or call of securities held to maturity     6
Gain on sale of securities available for sale (2,897) (3,504) (2,715)
Gain on sales of loans (720) (590) (271)
Loss on sale of premises and equipment 145 6 22
Proceeds from sales of loans 36,367 43,456 5,771
(Gain) loss on sale of foreclosed assets 1,703 (321) 241
Originations of loans sold (35,647) (42,866) (5,500)
(Increase) decrease in:      
Accrued interest receivable 487 (893) 75
Other assets 265 2,261 (5,867)
Increase (decrease) in:      
Accrued expenses and other liabilities (1,046) (661) (541)
Income taxes payable     716
Net cash provided by operating activities 11,216 12,394 2,658
Cash flows from investing activities      
Proceeds from sales, calls and maturities of securities held to maturity     448
Proceeds from sales, calls and maturities of securities available for sale 179,795 221,875 148,883
Purchase of securities available for sale (195,740) (290,765) (186,736)
Net (increase) decrease in loans 34,186 24,665 (19,857)
Purchase of Federal Home Loan Bank stock (50) (97) (231)
Proceeds from sale of foreclosed assets 9,590 3,897 902
Purchase of premises and equipment (856) (553) (455)
Net cash provided (used in) investing activities 26,925 (40,978) (57,046)
Cash flows from financing activities:      
Net increase (decrease) in deposits (26,834) 32,785 81,139
Increase (decrease) in advance payments by borrowers for taxes and insurance (86) 3 26
Advances from Federal Home Loan Bank 30,000 39,000 66,895
Repayment of advances from Federal Home Loan Bank (48,586) (59,560) (94,442)
Other advances     35,395
Repayment of other advances     (35,395)
Increase (decrease) in repurchase agreements (2,030) 9,050 7,380
Sale of common stock   28,952  
Sale of treasury stock   1,419  
Dividends paid on preferred stock (920) (920) (851)
Dividends paid on common stock (1,909) (2,272) (1,723)
Net cash provided (used) in financing activities (50,365) 48,457 58,424
Increase (decrease) in cash and cash equivalents (12,224) 19,873 4,036
Cash and cash equivalents, beginning of period 60,984 41,111 37,075
Cash and cash equivalents, end of period 48,760 60,984 41,111
Supplemental disclosures of cash flow information:      
Interest paid 9,589 11,826 14,424
Income taxes paid 2,105 4,110 2,420
Supplemental disclosures of non-cash investing and financing activities:      
Loans charged off 4,875 5,290 1,836
Foreclosures and in substance foreclosures of loans during year 3,748 11,505 1,473
Net unrealized gains (losses) on investment securities classified as available for sale 9,895 (2,851) 2,670
Increase (decrease) in deferred tax asset related to unrealized gain (losses) on investments (3,364) 969 (908)
Dividends declared and payable 176 613 454
Issue of unearned restricted stock $ 87 $ 92 $ 93

Summary Of Significant Accounting Policies_
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Summary Of Significant Accounting Policies:
12 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies:
(1) Summary of Significant Accounting Policies:

Nature of Operations and Customer Concentration

HopFed Bancorp, Inc. (the Corporation) is a bank holding company incorporated in the state of Delaware. The Company's principal business activities are conducted through it's wholly-owned subsidiary, Heritage Bank (the Bank), which is a federally chartered savings bank engaged in the business of accepting deposits and providing mortgage, consumer, construction and commercial loans to the general public through its retail banking offices. The Bank's business activities are primarily limited to western Kentucky and middle and western Tennessee. The Bank is subject to competition from other financial institutions. Deposits at the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation (FDIC).

As part of the enactment of the Dodd-Frank Financial Reform Act of 2010, the Corporation and Bank's former regulator, the Office of Thrift Supervision, was eliminated on July 21, 2011. The Bank is currently subject to comprehensive regulation, examination and supervision by the Office of Comptroller of the Currency (OCC) and the FDIC. Supervision of the Corporation is conducted by the Federal Reserve.

A substantial portion of the Bank's loans are secured by real estate in the western Kentucky and middle and west Tennessee markets. In addition, foreclosed real estate is located in this same market. Accordingly, the ultimate ability to collect on a substantial portion of the Bank's loan portfolio and the recovery of a substantial portion of the carrying amount of foreclosed real estate is susceptible to changes in local market conditions.

Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation, the Bank and its wholly-owned subsidiaries Fall & Fall Insurance and Fort Webb, LLC. (collectively the Company) for all periods. Significant inter-company balances and transactions have been eliminated in consolidation.

Accounting

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry.

 

The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE) under accounting principles generally accepted in the United States. Voting interest entities are entities are entities in which the total equity investment is a risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decision about the entity's activities. The Company consolidates voting interest entities in which it has all, or at least a majority of, the voting interest. As defined in applicable accounting standards, VIE's are entities in which it has all, or at least a majority of, the voting interest. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The subsidiary Fort Webb LLC is a VIE for which the Company is not the primary beneficiary. Accordingly, its accounts are not included in the Company's consolidated financial statements.

Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and revenues and expenses for the year. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan losses and foreclosed real estate, management obtains independent appraisals for significant properties.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand, amounts due on demand from banks, interest-earning deposits in the Federal Home Loan Bank and federal funds sold with maturities of three months or less.

Securities

The Company reports debt, readily-marketable equity, mortgage-backed and mortgage related securities in one of the following categories: (i) "trading" (held for current resale) which are to be reported at fair value, with unrealized gains and losses included in earnings; and (ii) "available for sale" (all other debt, equity, mortgage-backed and mortgage related securities) which are to be reported at fair value, with unrealized gains and losses reported net of tax as a separate component of stockholders' equity. At the time of new security purchases, a determination is made as to the appropriate classification. Realized and unrealized gains and losses on trading securities are included in net income. Unrealized gains and losses on securities available for sale are recognized as direct increases or decreases in stockholders' equity, net of any tax effect. Cost of securities sold is recognized using the specific identification method. The Company does not classify any portion of its securities portfolio as held to maturity.

Interest income on securities is recognized as earned. The Company purchases many agency bonds at either a premium or discount to its par value. Premiums and discounts on agency bonds are amortized using the net interest method. For callable bonds purchased at a premium, the premium is amortized to the first call date. The Company has determined that callable bonds purchased at a premium have a high likelihood of being called, and the decision to amortize premiums to their first call is a more conservative method of recognizing income. For agency bonds purchased at a discount, the discount is accreted to the final maturity date. For callable bonds purchased at discount and called before maturity, the Company recognizes a gain on the sale of securities. The Company amortizes premiums and accretes discounts on mortgage back securities and collateralized mortgage obligations based on the securities three month average prepayment speed.

Other Than Temporary Impairment

A decline in the fair value of any available-for-sale security below cost that is deemed to be other-than-temporary results in a reduction in the carrying amount to fair value. To determine whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss. If a credit loss is identified, management then considers whether it is more-likely-than-not that the Company will be required to sell the security prior to recovery. If management concludes that it is not more-likely-than-not that it will be required to sell the security, then the security is not other-than-temporarily impaired and the shortfall is recorded as a component of equity. If the security is determined to be other-than-temporarily impaired, the credit loss is recognized as a charge to earnings and a new cost basis for the security is established.

Restricted Stock

Other securities, such as Federal Home Loan Bank (FHLB) stock are recorded at cost, as it is not actively traded and are reviewed for impairment at least annually.

Loans Receivable

Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and deferred loan cost. The Statement of Financial Accounting Standards ASC 310-20, Nonrefundable Fees and Other Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, requires the recognition of loan origination fee income over the life of the loan and the recognition of certain direct loan origination costs over the life of the loan.

Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established based on management's periodic evaluation. The Company charges off loans after, in management's opinion, the collection of all or a large portion of the principal or interest is not collectable. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received while the loan is classified as non-accrual, when the loan is ninety days past due.

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower in accordance with the contractual terms of interest and principal.

The Company provides an allowance for loan losses and includes in operating expenses a provision for loan losses determined by management. Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management's estimate of the adequacy of the allowance for loan loss can be classified as either a reserve for currently classified loans or estimates of future losses in the current loan portfolio.

Loans are considered to be impaired when, in management's judgment, principal or interest is not collectible according to the contractual terms of the loan agreement. When conducting loan evaluations, management considers various factors such as historical loan performance, the financial condition of the borrower and adequacy of collateral to determine if a loan is impaired. Impaired loans and loans classified as temporary debt restructured may be classified as either substandard or doubtful and reserved for based on individual loans risk for loss. Loans not considered impaired may be classified as either special mention or watch and may be reserved for. Typically, unimpaired classified loans exhibit some form of weakness in either industry trends, collateral, or cash flow that result in a default risk greater than that of the Company's typical loan. All classified amounts include all unpaid interest and fees as well as the principal balance outstanding.

The measurement of impaired loans generally may be based on the present value of future cash flows discounted at the historical effective interest rate. However, the majority of the Company's problem loans become collateral dependent at the time they are judged to be impaired. Therefore, the measurement of impaired requires the Company to obtain a new appraisal to obtain the fair value of the collateral. The appraised value is then discounted to an estimated of the Company's net realizable value, reducing the appraised value by the amount of holding and selling costs. When the measured amount of an impaired loan is less than the recorded investment in the loan, the impairment is recorded as a charge to income and a valuation allowance, which is included as a component of the allowance for loan losses.

For loans not individually classified, Management considers the Company's recent charge off history, the Company's current past due and non-accrual trends, banking industry trends and both local and national economic conditions when making an estimate as to the amount to reserve for losses. In today's economic climate, the Company must be mindful of its local economy and the current loan portfolio mix.

Management believes it has established the allowance in accordance with accounting principles generally accepted in the United States of America and has taken into account the views of its regulators and the current economic environment.

Fixed Rate Mortgage Originations

The Company operates a mortgage division that originates mortgage loans in the name of assorted investors, including Federal Home Loan Mortgage Corporation (Freddie Mac). Originations for Freddie Mac are sold through the Bank while originations to other investors are sold directly to those investors. On a limited basis, loans sold to Freddie Mac may result in the Bank retaining loan servicing rights. In recent years, customers have chosen lower origination rates over having their loan locally serviced; thereby limiting the amount of new loans sold with servicing retained. At December 31, 2011, the Bank maintained a servicing portfolio of one to four family real estate loans of approximately $22.3 million. For the years ended December 31, 2011, and December 31, 2010, the Bank has reviewed the value of the servicing asset as well as the operational cost associated with servicing the portfolio. After this review, the Bank has determined that the values of its servicing rights are not material to the Company's consolidated financial statements.

Mortgage loans held for sale are generally delivered to secondary market investors under best efforts sales commitments entered into prior to the closing of the individual loan. Loan sales and related gains or losses are recognized at settlement. Loan fees earned for the servicing of secondary market loans are recognized as earned.

Real Estate and Other Assets Owned

Assets acquired through, or in lieu of, loan foreclosure or repossession carried at the lower of cost or fair value less selling expenses. Costs of improving the assets are capitalized, whereas costs relating to holding the property are expensed. Management conducts periodic valuations (no less than annually) and any adjustments to value are recognized in the current period's operations.

Brokered Deposits

The Company may choose to attract deposits from several sources, including using outside brokers to assist in obtaining time deposits using national distribution channels. Brokered deposits offer the Company an alternative to Federal Home Loan Bank advances and local retail time deposits.

Repurchase Agreements

The Company sells investments from its portfolio to business and municipal customers with a written agreement to repurchase those investments on the next business day. The repurchase product gives business customers the opportunity to earn income on liquid cash reserves. These funds are overnight borrowings of the Company secured by Company assets and are not FDIC insured. The Company has also entered into two long-term repurchase agreements with third parties as discussed in Note 8.

Revenue Recognition

Interest income on loans receivable is reported on the interest method. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired, placed in non-accrual status, or payments are past due more than 90 days. Interest earned as reported as income is reversed on any loans classified as non-accrual or past due more than 90 days. Interest may continue to accrue on loans over 90 days past due if they are well secured and in the process of collection.

Income Taxes

Income taxes are accounted for through the use of the asset and liability method. Under the asset and liability method, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in tax rates would be recognized in income in the period that includes the enactment date. The Company files its federal income tax return on a consolidated basis with its subsidiaries. The Company files its Tennessee state income tax return on a consolidated basis. All taxes are accrued on a separate entity basis.

Operating Segments

The Company's continuing operations include one primary segment, retail banking. The retail banking segment involves the origination of commercial, residential and consumer loans as well as the collections of deposits in eighteen branch offices.

Premises and Equipment

Land, land improvements, buildings, and furniture and equipment are carried at cost, less accumulated depreciation and amortization. Buildings and land improvements are depreciated generally by the straight-line method, and furniture and equipment are depreciated under various methods over the estimated useful lives of the assets. The Company capitalizes interest expense on construction in process at a rate equal to the Company's cost of funds. The estimated useful lives used to compute depreciation are as follows:

 

Land improvements

     5-15 years   

Buildings

     40 years   

Furniture and equipment

     5-15 years   

Goodwill

It is the Company's policy to review goodwill annually to determine if impairment exist. On October 7, 2009, the Company determined that all goodwill outstanding at September 30, 2009, was impaired and therefore was charged off.

Intangible Assets

The intangible assets for insurance contracts and core deposits related to the Fulton acquisition of September 2002 was amortized using the straight-line method over the estimated period of benefit of seven years and was fully amortized in July of 2009. The core deposit intangible asset related to the middle Tennessee acquisition of June 2006 is amortized using the sum of the year's digits method over an estimated period of nine years. On an annual basis, the Company evaluates the recoverability of the intangible assets and takes into account events or circumstances that warrant a revised estimate of the useful lives or indicates that impairment exists.

Bank Owned Life Insurance

Bank owned life insurance policies (BOLI) are recorded at the cash surrender value or the amount to be realized upon current redemption. The realization of the redemption value is evaluated for each insuring entity that holds insurance contracts annually by management.

Advertising

The Company expenses the production cost of advertising as incurred.

Financial Instruments

The Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and commercial letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Derivative Instruments:

Under guidelines ASC 815, Accounting for Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated balance sheets. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated balance sheet with corresponding offsets recorded in the consolidated balance sheet. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge's inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the years ended December 31, 2011, 2010 and 2009.

 

Fair Values of Financial Instruments

In October of 2008, the Bank entered into an interest rate swap agreement for a term of seven years and an amount of $10 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (Libor) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At December 31, 2011, the cost of the Bank to terminate the cash flow hedge is approximately $1,297,000.

The Bank, in the normal course of business, originates fixed rate mortgages that are sold to the Federal Home Loan Mortgage Corporation (Freddie Mac). Upon tentative underwriting approval by Freddie Mac, the Bank issues a best effort commitment to originate a fixed rate first mortgage under specific terms and conditions that the Bank intends to sell to Freddie Mac. The Bank no longer assumes a firm commitment to originate fixed rate loans, thus eliminating the risk of having to deliver loans they did not close or pay commitment fees to make Freddie Mac whole.

ASC 825, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Fair value estimates are made at a point in time, based on relevant market information and information about the financial instrument. Accordingly, such estimates involve uncertainties and matters of judgment and therefore cannot be determined with precision. ASC 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following are the more significant methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets' fair values, because they mature within 90 days or less and do not present credit risk concerns.

Available-for-sale securities

Fair values for investment securities available-for-sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments provided by a third party pricing service. The Company reviews all securities in which the book value is greater than the market value for impairment that is other than temporary. For securities deemed to be other than temporarily impaired, the Company reduces the book value of the security to its market value by recognizing an impairment charge on its income statement.

 

Loans Receivable

The fair values for loans receivable are estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics.

Letters of Credit

The fair value of standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. Such commitments have been made on terms which are competitive in the markets in which the Company operates, thus, the fair value of standby letters of credit equals the carrying value for the purposes of this disclosure.

Accrued Interest Receivable

Fair value is estimated to approximate the carrying amount because such amounts are expected to be received within 90 days or less and any credit concerns have been previously considered in the carrying value.

Repurchase Agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. Longer maturity repurchase agreements are assigned a fair value of book given the limited nature of a secondary market.

Bank Owned Life Insurance

The fair value of bank owned life insurance is the cash surrender value of the policy less redemption charges. By surrendering the policy, the Company is also subject to federal income taxes on all earnings previously recognized.

 

Deposits

The fair values disclosed for deposits with no stated maturity such as demand deposits, interest-bearing checking accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and other fixed maturity time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on such type accounts to a schedule of aggregated contractual maturities on such time deposits.

Advances from the Federal Home Loan Bank (FHLB)

The fair value of these advances is estimated by discounting the future cash flows of these advances using the current rates at which similar advances could be obtained.

Restricted Stock

The fair value of restricted stock is recorded at cost as this is the contractual redemption amount subject to certain restrictions.

Subordinated debentures

The book value of subordinated debentures is cost. The subordinated debentures re-price quarterly at a rate equal to three month libor plus 3.10%.

Off-Balance-Sheet Instruments

Off-balance-sheet lending commitments approximate their fair values due to the short period of time before the commitment expires.

Dividend Restrictions

The Company is not permitted to pay a dividend to common shareholders if it fails to make a quarterly interest payment to the holders of the Company's subordinated debentures or fails to make a quarterly dividend payment on preferred shares owned by the United States Treasury Department. Furthermore, the Bank may be restricted in the payment of dividends to the Company by the Bank's primary regulator, the Office of Comptroller of the Currency (OCC). Any restrictions imposed by the OCC would effectively limit the Company's ability to pay a dividend to its common stockholders as discussed in note 17.

Earnings Per Share

Earnings per share (EPS) consists of two separate components, basic EPS and diluted EPS. Basic EPS is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding plus dilutive common stock equivalents (CSE). CSE consists of dilutive stock options granted through the Company's stock option plan. Restricted stock awards represent future compensation expense and are dilutive. Common stock equivalents which are considered anti-dilutive are not included for the purposes of this calculation.

 

Both EPS and diluted EPS are reduced by the amount of dividend payments on preferred stock and the accretion of the discount on the preferred stock. The effect of the Company's dividend payment on preferred stock and accretion of the preferred stock discount reduced the Company's earnings by $1.0 million for the years ended December 31, 2011, December 31, 2010, and December 31, 2009, or $0.14 per share (basic and fully diluted) for the year ended December 31, 2011, $0.18 per share (basic and fully diluted) for the year ended December 31, 2010, and $0.28 per share (basic and fully diluted) for the year ended December 31, 2009.

Stock Compensation

The implementation of ASC 718, Compensation – Stock Compensation, had no effect on the Company's net income or earnings per share for the year ended December 31, 2011, 2010 and 2009, respectively.

The Company utilized the Black-Scholes valuation model to determine the fair value of stock options on the date of grant. The model derives the fair value of stock options based on certain assumptions related to the expected stock prices volatility, expected option life, risk-free rate of return and the dividend yield of the stock. The expected life of options granted is estimated based on historical employee exercise behavior. The risk free rate of return coincides with the expected life of the options and is based on the ten year Treasury note rate at the time the options are issued. The historical volatility levels of the Company's common stock are used to estimate the expected stock price volatility. The set dividend yield is used to estimate the expected dividend yield of the stock.

At December 31, 2011, the number of options outstanding and the weighted average exercise price of options have been adjusted for the 2% stock dividend paid to stockholders of record on September 30, 2010, and October 3, 2011.

Reclassifications

Certain items in prior financial statements have been reclassified to conform to the current presentation.

 

Effect of New Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 provides enhanced disclosures related to the credit quality of financing receivables and the allowance for credit losses, and provides that new and existing disclosures should be disaggregated based on how an entity develops its allowance for credit losses and how it manages credit exposures.

Under the provisions of ASU 2010-20, additional disclosures required for financing receivables include information regarding the aging of past due receivables, credit quality indicators, and modifications of financing receivables. The provisions of ASU 2010-20 were effective for periods ending after December 15, 2010, with the exception of the amendments to the roll-forward of the allowance for credit losses which are effective for periods beginning after December 15, 2010. Comparative disclosures are required only for periods ending subsequent to initial adoption. HopFed Bancorp adopted the provisions of ASU 2010-20 and has provided the required disclosures in the consolidated financial statements provided herein.

In 2010, the FASB issued ASU 2010-11, Scope Exception Related to Embedded Credit Derivatives. ASU 2010-11 amends ASC 815 to provide clarifying language regarding when embedded credit derivative features are not considered embedded derivatives subject to potential bifurcation and separate accounting. The provisions of ASU 2010-11 are effective for periods beginning after June 15, 2010, and require re-evaluation of certain preexisting contracts to determine whether the accounting for such contracts is consistent with the amended guidance in ASU 2010-11. If the fair value option is elected for an instrument upon adoption of the amendments to ASC 815, re-evaluation of such preexisting contracts is not required. The adoption of this standard did not impact the operating results of the Company.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income, new disclosure guidance related to the presentation of the Statement of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity and requires presentation of reclassification adjustments on the face of the income statement. The effective date of this pronouncement is for financial statement periods beginning after December 15, 2011. The adoption of this standard will not have a material impact on the Company's consolidated financial statements of income, condition and cash flow.

ASU 2011-01 - Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 ("ASU 2011-01"). ASU 2011-01 temporarily delayed the effective date of the disclosures surrounding troubled debt restructurings in Update 2010-20 for public companies. The Financial Accounting Standards Board ("FASB") deliberated on what constitutes a troubled debt restructuring and coordinated that guidance with the effective date of the new disclosures, which are effective for interim and annual periods ending after June 15, 2011.

 

In April 2011, the FASB issued ASU 2011-02, A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of ASU 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, including factors and examples for creditors to consider in evaluating when a credit restructuring results in a delay in payment that is insignificant, prohibits creditors from using the borrowers interest cost as a factor in determining whether the lender has granted a concession to the borrower, and added factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU 2011-02 ends the FASB's deferral of additional disclosures about troubled debt restructuring as required by ASU 2010-20. The provisions of ASU 2011-02 are effective for the Company's reporting period ending September 30, 2011. The adoption of ASU 2011-02 did not have a material impact on the Company's consolidated financial statements of income, financial condition and cash flow.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in United States of America generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (Topic 820) – Fair Value Measurement (ASU 2011-04), to provide consistent definition of the fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 is effective for reporting periods ending after March 30, 2012, and will be applied prospectively. The Company is currently evaluating the impact of ASU 2011-04.

In September 2011, the FASB issued ASU No. 2011-8, Intangibles – Goodwill and other, regarding testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting until is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The new guidance is effective on January 1, 2012. The Company does not anticipate that the implementation of ASU 2011-8 will have a material impact on our consolidated financial statements of income, condition and cash flow.

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.


Securities_
v0.0.0.0
Securities:
12 Months Ended
Dec. 31, 2011
Securities [Abstract]  
Securities:

Securities, which consist of debt and equity investments, have been classified in the consolidated balance sheets according to management's intent. The carrying amount of securities and their estimated fair values follow:

 

     December 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for Sale:

          

U.S. government and agency securities

   $ 171,141         3,511         (65     174,587   

Tax free municipal bonds

     60,432         4,623         —          65,055   

Taxable municipal bonds

     12,846         1,059         —          13,905   

Trust preferred securities

     2,000         —           (1,007     993   

Mortgage-backed securities:

          

GNMA

     30,427         1,413         (19     31,821   

FNMA

     59,195         2,101         (1     61,295   

FHLMC

     15,108         491         —          15,599   

NON-AGENCY CMOs

     2,012         7         (223     1,796   

AGENCY CMOs

     18,163         568         —          18,731   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 371,324         13,773         (1,315     383,782   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     December 31, 2010  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 

Restricted:

          

FHLB stock

   $ 4,378         —           —          4,378   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for Sale:

          

U.S. government and agency securities

   $ 163,365         2,921         (1,882     164,404   

Tax free municipal bonds

     64,967         481         (1,055     64,393   

Taxable municipal bonds

     17,037         105         (350     16,792   

Trust preferred securities

     2,000         —           (723     1,277   

Mortgage-backed securities:

          

GNMA

     30,325         873         (184     31,014   

FNMA

     27,324         1,247         (23     28,548   

FHLMC

     19,059         413         (29     19,443   

NON-AGENCY CMOs

     3,711         38         (205     3,544   

AGENCY CMOs

     27,388         1,039         (104     28,323   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 355,176         7,117         (4,555     357,738   
  

 

 

    

 

 

    

 

 

   

 

 

 

The scheduled maturities of debt securities available for sale at December 31, 2011, and December 31, 2010, were as follows:

 

2011

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 461         464   

Due in one to five years

     6,844         6,929   

Due in five to ten years

     24,471         26,153   

Due after ten years

     72,460         75,804   
  

 

 

    

 

 

 
     104,236         109,350   

Amortizing agency bonds

     142,183         145,190   

Mortgage-backed securities

     124,905         129,242   
  

 

 

    

 

 

 

Total securities available for sale

   $ 371,324         383,782   
  

 

 

    

 

 

 

 

2010

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 778         773   

Due in one to five years

     6,699         6,772   

Due in five to ten years

     21,825         22,069   

Due after ten years

     88,180         86,836   
  

 

 

    

 

 

 
     117,482         116,450   

Amortizing agency bonds

     129,887         130,416   

Mortgage-backed securities

     107,807         110,872   
  

 

 

    

 

 

 

Total securities available for sale

   $ 355,176         357,738   
  

 

 

    

 

 

 

FHLB stock is an equity interest in the Federal Home Loan Bank. FHLB stock does not have a readily determinable fair value because ownership is restricted and a market is lacking. FHLB stock is classified as a restricted investment security, carried at cost and evaluated for impairment.

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2011, are as follows:

 

     Less than 12 months     12 months or longer     Total  
     Estimated
Fair Value
     Unrealized
Losses
    Estimated
Fair Value
     Unrealized
Losses
    Estimated
Fair Value
     Unrealized
Losses
 

Available for sale

               

U.S. government and agency securities:

               

Agency debt securities

   $ 20,422         (54     2,007         (11     22,429         (65

Taxable municipals

     —           —          —           —          —           —     

Tax free municipals

     —           —          —           —          —           —     

Trust preferred securities

     —           —          993         (1,007     993         (1,007

Mortgage-backed securities:

               

GNMA

     1,925         (19     —           —          1,925         (19

FNMA

     —           —          81         (1     81         (1

FHLMC

     —           —          —           —          —           —     

NON-AGENCY CMOs

     —           —          1,494         (223     1,494         (223

AGENCY CMOs

     —           —          —           —          —           —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Available for Sale

   $ 22,347         (73     4,575         (1,242     26,922         (1,315
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluations. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2011, the Company has nine securities with unrealized losses. With the exception of two bonds discussed below, Management believes these unrealized losses relate to changes in interest rates and not credit quality. Management also believes the Company has the ability to hold these securities until maturity or for the foreseeable future and therefore no declines are deemed to be other than temporary.

The Company's most recent review for other than temporary impairment indicated that two private label CMO's were other than temporarily impaired due to adverse credit quality. As a result, the Company has reduced the book balance of two private label CMO's as follows:

 

CUSIP

  

Description

   Current
Par Value
     Current
Moody's
Credit Rating
   2011
Impairment
Charge
     2009
Impairment
Charge
     Total
Impairment
Charge
 

362290AC2

   GSR 2007 TR-AR12    $ 984,098       CC    $ 65,500       $ 180,000       $ 245,500   

12638PCQ0

   CSMC 2007-3 4A15    $ 719,907       Caa3    $ 89,500       $ 20,000       $ 109,500   

In June of 2008, the Company purchased $2 million par value of a private placement subordinated debenture issued by First Financial Services Corporation. The debenture is a thirty year security with a coupon rate of 8.00%. First Financial Services Corporation is a NASDAQ listed commercial bank holding company trading under the symbol FFKY and located in Elizabethtown, Kentucky. In October of 2010, FFKY informed the owners of its subordinated trust, including the Company, that it was deferring the dividend payments for up to five years as prescribed by the trust. FFKY has suffered significant asset quality issues that have resulted in negative earnings since 2009 and have negatively impacted FFKY's capital position.

Currently, FFKY is under a Consent Order issued jointly by the Kentucky State Department of Financial Institutions and the FDIC. The consent order requires FFKY to increase its Tier 1 Capital Ratio to 8% and its Total Risk Based Capital Ratio to 12.00%. At September 30, 2010, FFKY had not met the capital goals established by their regulators but remains "Adequately Capitalized" in accordance with FDIC guidelines.

 

The Company continues to monitor all quarterly reports issued by both FFKY and its bank subsidiary to determine if the investment in the subordinated trust is other than temporarily impaired. At December 31, 2011, the Company has determined, based on the suspension of the dividend, that the investment is not other than temporarily impaired and has taken a $1.0 million reduction in other comprehensive income related to the lack of current cash flow from the debenture. The Company has further determined, based on the financial trends and capital position of FFKY and its bank subsidiary, that the Company's investment in the subordinated debenture is not permanently impaired at this time.

On February 9, 2012, FFKY announced the sale of four branch offices located in Indiana to a local financial institution. At December 31, 2011, the branches held approximately $117.2 million in deposits and $35.4 million in loans. FFKY anticipates realizing a net gain of approximately $3.4 million on this transaction based on the financial information at December 31, 2011. This transaction is projected to increase the Tier 1 Capital of FFKY to 6.75% from 5.87%. The transaction is expected to close in the third quarter of 2012. The Company will continue to monitor all available public information as well as maintain a dialogue with the management team of FFKY to ascertain the future business prospects of FFKY and the Company's investment.

During 2011, the Company sold investment securities classified as available for sale for proceeds of $115.2 million resulting in gross gains of $3.2 million and gross losses of $335,000. During 2010, the Company sold investment securities classified as available for sale for proceeds of $103.8 million resulting in gross gains of $3.5 million and gross losses of $30,000. During 2009, the Company sold investment securities classified as available-for-sale for proceeds of $80.5 million resulting in gross gains of $2.7 million and gross losses of $17,000.

As part of its normal course of business, the Bank holds significant balances of municipal and other deposits that require the Bank to pledge investment instruments as collateral. At December 31, 2011, the Bank pledged investments with a book value of $124.2 million and a market value of approximately $133.0 million to various municipal entities as required by law. The Bank has pledged various investments with a book value of $5.8 million and a market value of $6.0 million to the Federal Home Loan Bank of Cincinnati to provide for a higher level of available borrowings. In addition, the Bank has provided $32.8 million of letters of credit issued by the Federal Home Loan Bank of Cincinnati to collateralize municipal deposits. The collateral for these letters of credit are the Bank's one to four family loan portfolio, commercial real estate portfolio and its multi-family loan portfolio.


Loans Receivable, Net_
v0.0.0.0
Loans Receivable, Net:
12 Months Ended
Dec. 31, 2011
Loans Receivable, Net [Abstract]  
Loans Receivable, Net:

The components of loans receivable in the consolidated balance sheets as of December 31, 2011, and December 31, 2010, were as follows:

 

     12/31/2011      12/31/2011     12/31/2010      12/31/2010  
     Amount      Percent     Amount      Percent  

Real estate loans:

          

One-to-four family (closed end) first mortgages

   $ 171,192         30.2   $ 182,671         30.0

Home equity lines of credit

     38,694         6.8     40,191         6.6

Junior lien

     6,209         1.1     6,196         1.0

Multi-family

     33,739         5.9     29,416         4.8

Construction

     11,931         2.1     23,361         3.8

Land

     52,338         9.2     60,063         9.9

Non-residential real estate

     183,485         32.3     195,285         32.0
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans

     497,588         87.6     537,183         88.1

Consumer loans

     15,110         2.7     18,060         3.0

Commercial loans

     54,673         9.7     54,439         8.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other loans

     69,783         12.4     72,499         11.9
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans, gross

     567,371         100.0     609,682         100.0
     

 

 

      

 

 

 

Deferred loan cost, net of income

     251           363      

Less allowance for loan losses

     11,262           9,830      
  

 

 

      

 

 

    

Total loans

   $ 556,360         $ 600,215      
  

 

 

      

 

 

    

The Company's loan portfolio balance has declined in each of the last two years. The decline is the result of a combination of factors, including a weak economy, both locally and nationally. In 2010 and 2011, unemployment in the Company's market area ranged from 9% to 13%. The Company's MOU with its former regulator, the OTS, restricted the Company's ability to grow its owner occupied commercial real estate loan portfolio.

The Company's loan portfolio includes a significant amount of loans secured by raw land and commercial real estate. These loans have come under increased regulatory scrutiny due to the potential for higher levels of losses. At December 31, 2011, the performance of the Company's land and commercial real estate loans has been satisfactory.

In 2010, the credit quality of the Company's multi-family loan portfolio began to experience an increase in delinquency and losses as compared to other segments of the loan portfolio due to the deployment of the more than 10,000 army personnel from the 101st Airborne at Fort Campbell, Kentucky, to the Middle East, reducing the number of potential renters in the Company's largest market. In the first half of 2011, the deployed troops returned to Fort Campbell, thus creating a strong demand for multi-family real estate properties. This demand allowed the Company to sell a large portion of its other real estate owned.

Loans serviced for the benefit of others totaled approximately $59.2 million, $56.3 million and $42.1 million at December 31, 2011, 2010 and 2009, respectively. At December 31, 2011, approximately $22.3 million of the $59.2 million in loans serviced by the Company are serviced for the benefit of Freddie Mac. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow amounts, disbursing payments to investors and foreclosure processing. The servicing rights associated with these loans are not material to the Company's consolidated financial statements. Qualified one-to-four family first mortgage loans, non-residential real estate loans, multi-family loans and commercial real estate loans are pledged to the Federal Home Loan Bank of Cincinnati as discussed in note 7.

The Company originates most fixed rate loans for immediate sale to the Federal Home Loan Mortgage Corporation (FHLMC) or other investors. Generally, the sale of such loans is arranged shortly after the loan application is tentatively approved through commitments.

The Company conducts annual reviews on all loan relationships above $1.0 million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower's credit history with the Company and other creditors, and current income tax information. As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

Satisfactory loans of average strength having some deficiency or vulnerability to changing economic or industry conditions. These customers should have reasonable amount of capital and operating ratios. Secured loans may lack in margin or liquidity. Loans to individuals, perhaps supported in dollars of net worth, but with supporting assets may be difficult to liquidate.

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Company does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency.

 

If considered marginal, a loan would be a "watch" until financial data demonstrated improved performance or further deterioration to a "substandard" grade usually within a 12-month period. In the table on page 65, Watch loans are included with satisfactory loans and classified as Pass.

Other Loans Especially Mentioned are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit ris