HOPFED BANCORP INC Form 10-Q for Period Ending 3/31/2014
: 6.21.0
 
Document and Entity Information
3 Months Ended
Mar. 31, 2014
May 5, 2014
Document And Entity Information [Abstract]
  
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q1 
 
Entity Registrant Name
HOPFED BANCORP INC 
 
Entity Central Index Key
0001041550 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
7,419,885 
Consolidated Condensed Statements of Financial Condition (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Assets
  
Cash and due from banks
$ 25,449 
$ 37,229 
Interest-earning deposits
8,730 
18,619 
Cash and cash equivalents
34,179 
55,848 
Federal Home Loan Bank stock, at cost
4,428 
4,428 
Securities available for sale
341,538 
318,910 
Loans held for sale
152 
 
Loans receivable, net of allowance for loan losses of $8,913 at March 31, 2014, and $8,682 at December 31, 2013
535,951 
543,632 
Accrued interest receivable
4,447 
5,233 
Real estate and other assets owned
1,680 
1,674 
Bank owned life insurance
9,764 
9,677 
Premises and equipment, net
23,063 
23,108 
Deferred tax assets
3,327 
4,610 
Intangible asset
97 
130 
Other assets
6,398 
6,399 
Total assets
965,024 
973,649 
Deposits:
  
Non-interest-bearing accounts
105,848 
105,252 
Interest-bearing accounts
  
Interest bearing checking accounts
190,804 
183,643 
Savings and money market accounts
93,780 
92,106 
Other time deposits
371,094 
381,996 
Total deposits
761,526 
762,997 
Advances from Federal Home Loan Bank
41,280 
46,780 
Repurchase agreements
50,129 
52,759 
Subordinated debentures
10,310 
10,310 
Advances from borrowers for taxes and insurance
572 
521 
Dividends payable
309 
326 
Accrued expenses and other liabilities
3,385 
4,239 
Total liabilities
867,511 
877,932 
Stockholders' equity
  
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at March 31, 2014, and December 31, 2013.
   
   
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,927,287 issued and 7,437,517 outstanding at March 31, 2014, and 7,927,287 issued and 7,447,903 outstanding at December 31, 2013
79 
79 
Additional paid-in-capital
58,333 
58,302 
Retained earnings
44,753 
44,694 
Accumulated other comprehensive income (loss), net of taxes
397 
(1,429)
Total stockholders' equity
97,513 
95,717 
Total liabilities and stockholders' equity
965,024 
973,649 
Common Stock [Member]
  
Stockholders' equity
  
Treasury stock
(6,049)
(5,929)
Total stockholders' equity
$ 79 
$ 79 
Consolidated Condensed Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2014
Dec. 31, 2013
Loans receivable, allowance for loan losses
$ 8,913 
$ 8,682 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
500,000 
500,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
15,000,000 
15,000,000 
Common stock, shares issued
7,927,287 
7,927,287 
Common stock, shares outstanding
7,437,517 
7,447,903 
Common Stock [Member]
  
Treasury stock, shares
489,770 
479,384 
Consolidated Condensed Statements of Income (USD $)
3 Months Ended
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2014
Mar. 31, 2013
Interest and dividend income:
  
Loans receivable
$ 6,327 
$ 6,882 
Investment in securities, taxable
1,779 
1,832 
Investment in securities, non-taxable
544 
585 
Interest-earning deposits
Total interest and dividend income
8,658 
9,305 
Interest expense:
  
Deposits
1,471 
2,046 
Advances from Federal Home Loan Bank
434 
444 
Repurchase agreements
249 
242 
Subordinated debentures
184 
182 
Total interest expense
2,338 
2,914 
Net interest income
6,320 
6,391 
Provision for loan losses
380 
376 
Net interest income after provision for loan losses
5,940 
6,015 
Non-interest income:
  
Service charges
778 
853 
Merchant card income
259 
223 
Mortgage origination revenue
58 
200 
Gain on sale of securities
13 
627 
Income from bank owned life insurance
95 
75 
Financial services commission
206 
297 
Other operating income
189 
208 
Total non-interest income
1,598 
2,483 
Non-interest expenses:
  
Salaries and benefits
3,795 
3,848 
Occupancy expense
909 
845 
Data processing expense
728 
650 
State deposit tax
246 
142 
Intangible amortization expense
32 
49 
Professional services expense
287 
393 
Deposit insurance and examination expense
197 
232 
Advertising expense
314 
333 
Postage and communications expense
143 
139 
Supplies expense
145 
136 
Loss on sale of real estate owned
23 
35 
Real estate owned expenses
130 
76 
Other operating expenses
375 
396 
Total non-interest expense
7,324 
7,274 
Income before income tax expense
214 
1,224 
Income tax expense
(140)
240 
Net income
$ 354 
$ 984 
Net income per share
  
Basic
$ 0.05 
$ 0.13 
Fully diluted
$ 0.05 
$ 0.13 
Dividend per share
$ 0.04 
$ 0.02 
Weighted average shares outstanding - basic
7,416,716 
7,488,445 
Weighted average shares outstanding - diluted
7,416,716 
7,488,445 
Consolidated Condensed Statements of Comprehensive Income (Loss) (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2014
Mar. 31, 2013
Statement Of Income And Comprehensive Income [Abstract]
  
Net income
$ 354 
$ 984 
Other comprehensive income, net of tax:
  
Unrealized gain (loss) on investment securities available for sale, net of tax effect of ($920) and $598 for the three months ended March 31, 2014, and March 31, 2013, respectively;
1,786 
(1,161)
Unrealized gain on derivatives, net of tax effect of ($25) and ($32) for the three month periods ending March 31, 2014, and March 31, 2013, respectively;
49 
63 
Reclassification adjustment for gains included in net income, net of tax effect of $4 and $213 for the three month periods ended March 31, 2014, and March 31, 2013, respectively;
(9)
(414)
Comprehensive income (loss)
$ 2,180 
$ (528)
Consolidated Condensed Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2014
Mar. 31, 2013
Statement Of Income And Comprehensive Income [Abstract]
  
Unrealized gain (loss) on investment securities available for sale, tax effect
$ (920)
$ 598 
Unrealized gain on derivatives, tax effect
(25)
(32)
Reclassification adjustment for gains included in net income, tax effect
$ 4 
$ 213 
Consolidated Condensed Statement of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
USD ($)
Common Stock [Member]
USD ($)
Preferred Stock [Member]
Common Stock Warrants [Member]
USD ($)
Additional Capital Surplus [Member]
USD ($)
Retained Earnings [Member]
USD ($)
Treasury Stock Preferred [Member]
USD ($)
Treasury Stock Common [Member]
USD ($)
Accumulated Other Comprehensive Income [Member]
USD ($)
Beginning balance at Dec. 31, 2012
$ 104,999 
$ 79 
 
$ 556 
$ 76,288 
$ 41,829 
$ (18,400)
$ (5,076)
$ 9,723 
Balance balance, shares at Dec. 31, 2012
 
7,502,812 
18,400 
      
Restricted stock awards, shares
 
227 
       
Consolidated Net income
984 
    
984 
   
Compensation expense, restricted stock awards
22 
   
22 
    
Net change in unrealized gain on securities available for sale, net of income taxes
(1,575)
       
(1,575)
Net change in unrealized loss on derivatives, net of income tax benefit
63 
       
63 
Repurchase of warrant
(257)
  
(556)
299 
    
Cash dividend to common stockholders
(150)
    
(150)
   
Ending balance at Mar. 31, 2013
104,086 
79 
  
76,609 
42,663 
(18,400)
(5,076)
8,211 
Ending balance, shares at Mar. 31, 2013
 
7,503,039 
18,400 
      
Beginning balance at Dec. 31, 2013
95,717 
79 
  
58,302 
44,694 
 
(5,929)
(1,429)
Balance balance, shares at Dec. 31, 2013
 
7,447,903 
       
Consolidated Net income
354 
    
354 
   
Repurchase of treasury stock
(120)
      
(120)
 
Repurchase of treasury stock, Shares
 
(10,386)
       
Compensation expense, restricted stock awards
31 
   
31 
    
Net change in unrealized gain on securities available for sale, net of income taxes
1,777 
       
1,777 
Net change in unrealized loss on derivatives, net of income tax benefit
49 
       
49 
Cash dividend to common stockholders
(295)
    
(295)
   
Ending balance at Mar. 31, 2014
$ 97,513 
$ 79 
  
$ 58,333 
$ 44,753 
 
$ (6,049)
$ 397 
Ending balance, shares at Mar. 31, 2014
 
7,437,517 
       
Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2014
Mar. 31, 2013
Net change in unrealized gain on securities available for sale, net of income taxes
$ (916)
$ 811 
Net change in unrealized loss on derivatives, net of income tax benefit
25 
32 
Accumulated Other Comprehensive Income [Member]
  
Net change in unrealized gain on securities available for sale, net of income taxes
(916)
811 
Net change in unrealized loss on derivatives, net of income tax benefit
$ 25 
$ 32 
Consolidated Condensed Statements of Cash Flows (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2014
Mar. 31, 2013
Cash flows from operating activities:
  
Net cash provided by operating activities
$ 1,864 
$ 2,903 
Cash flows from investing activities
  
Proceeds from sales, calls and maturities of securities available for sale
16,463 
41,814 
Purchase of securities available for sale
(36,904)
(40,938)
Net (increase) decrease in loans
7,068 
(6,396)
Proceeds from sale of foreclosed assets
137 
110 
Purchase of premises and equipment
(332)
(49)
Net cash used in investing activities
(13,568)
(5,459)
Cash flows from financing activities:
  
Net increase in demand deposits
596 
6,222 
Net increase (decrease) in time and other deposits
(2,067)
11,467 
Increase in advances from borrowers for taxes and insurance
51 
85 
Repayment of advances from Federal Home Loan Bank
(5,500)
(484)
Net decrease in repurchase agreements
(2,630)
(3,023)
Cash used to repurchase treasury stock
(120)
 
Cash used to repurchase warrant
 
(257)
Dividends paid on common stock
(295)
(150)
Net cash provided by financing activities
(9,965)
13,860 
Increase (decrease) in cash and cash equivalents
(21,669)
11,304 
Cash and cash equivalents, beginning of period
55,848 
37,176 
Cash and cash equivalents, end of period
34,179 
48,480 
Supplemental disclosures of cash flow information:
  
Interest paid
2,380 
2,782 
Income taxes paid
 
445 
Supplemental disclosures of non-cash investing and financing activities:
  
Loans charged off
196 
523 
Foreclosures and in substance foreclosures of loans during period
166 
77 
Net unrealized gains (losses) on investment securities classified as available for sale
2,688 
(2,386)
Increase (decrease) in deferred tax asset related to unrealized gains on investments
(916)
811 
Dividends declared and payable
324 
180 
Issue of unearned restricted stock
 
$ 2 
Basis of Presentation
3 Months Ended
Mar. 31, 2014
Accounting Policies [Abstract]
 
Basis of Presentation
(1) BASIS OF PRESENTATION

HopFed Bancorp, Inc. (the “Company”) was formed at the direction of Heritage Bank USA Inc, formerly Hopkinsville Federal Savings Bank (the “Bank”), to become the holding company of the Bank upon the conversion of the Bank from a federally chartered mutual savings bank to a federally chartered stock savings bank. The conversion was consummated on February 6, 1998. The Company’s primary assets are the outstanding capital stock of the converted Bank, and its sole business is that of the converted Bank.

On June 5, 2013, the Bank’s legal name became Heritage Bank USA Inc. and the Bank was granted a commercial bank charter by the Kentucky Department of Financial Institutions (“KDFI”). On June 5, 2013, the Bank became subject to regulation by the KDFI and the Federal Deposit Insurance Corporation (“FDIC”). On the same day, HopFed Bancorp was granted a bank holding company charter by the Federal Reserve Bank of Saint Louis (“FED”) and as such regulated by the FED.

The Bank operates a mortgage division, Heritage Mortgage Services, in Clarksville, Tennessee with agents located in several of its markets. The Bank has a financial services division, Heritage Solutions, with offices in Murray, Kentucky, Kingston Springs, Tennessee, and Pleasant View, Tennessee. Heritage Solutions agents travel throughout western Kentucky and middle Tennessee offering fixed and variable annuities, mutual funds and brokerage services.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair representation have been included. The results of operations and other data for the three month period ended March 31, 2014, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2014.

The accompanying unaudited financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2013, Consolidated Financial Statements.

 

Income Per Share
3 Months Ended
Mar. 31, 2014
Earnings Per Share [Abstract]
 
Income Per Share
(2) INCOME PER SHARE

The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2014, and March 31, 2013. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding.

 

     March 31,  
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 354,000       $ 984,000   

Average common shares outstanding

     7,416,716         7,488,445   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.05       $ 0.13   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 354,000       $ 984,000   

Average common shares outstanding

     7,416,716         7,488,445   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,416,716         7,488,445   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.05       $ 0.13   
  

 

 

    

 

 

 
Stock Compensation
3 Months Ended
Mar. 31, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Stock Compensation
(3) STOCK COMPENSATION

The Company incurred compensation cost related to the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan of $31,000 for the three month period ended March 31, 2014, and $22,000 for the three month period ended March 31, 2013, respectively. The Company issued 227 shares of restricted stock during the three month period ended March 31, 2013. The Company did not issue any shares of restricted stock during the three month period ended March 31, 2014. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2014:

 

Year Ending December 31,

   Future
Expense
 

2014

   $ 88,685   

2015

     101,302   

2016

     48,272   

2017

     3,125   
  

 

 

 

Total

   $ 241,384   
  

 

 

 

The compensation committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. In addition, award vesting may be accelerated due to certain events as outlined in the restricted stock award agreement. Any acceleration of vesting will change the timing of, but not the aggregate amount of, compensation expense incurred.

Securities
3 Months Ended
Mar. 31, 2014
Investments Debt And Equity Securities [Abstract]
 
Securities
(4) SECURITIES

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 March 31, 2014, the Company has 97 securities with unrealized losses. The carrying amount of securities and their estimated fair values at March 31, 2014, were as follows:

 

     March 31, 2014  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Unrestricted:

          

U.S. government and agency securities:

          

Agency debt securities

   $ 122,736         1,942         (1,839     122,839   

Taxable municipal bonds

     18,987         310         (491     18,806   

Tax free municipal bonds

     64,063         2,796         (511     66,348   

Trust preferred securities

     1,600         —           (111     1,489   

Commercial bonds

     2,000         —           (6     1,994   

Mortgage-backed securities:

          

GNMA

     28,712         629         (174     29,167   

FNMA

     74,186         553         (1,434     73,305   

FHLMC

     1,215         30         —          1,245   

NON-AGENCY CMOs

     10,951         4         (341     10,614   

AGENCY CMOs

     15,813         152         (234     15,731   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 340,263         6,416         (5,141     341,538   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

The carrying amount of securities and their estimated fair values at December 31, 2013, was as follows:

 

     December 31, 2013  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Unrestricted:

          

U.S. government and agency securities:

          

Agency debt securities

   $ 120,608         1,856         (2,441     120,023   

Taxable municipal bonds

     18,337         458         (738     18,057   

Tax free municipal bonds

     64,291         2,066         (898     65,459   

Trust preferred securities

     1,600         —           (111     1,489   

Commercial bonds

     2,000         —           (16     1,984   

Mortgage-backed securities:

          

GNMA

     17,327         590         (142     17,775   

FNMA

     70,104         526         (1,938     68,692   

FHLMC

     1,301         35         —          1,336   

SLMA CMO

     8,459         —           (374     8,085   

AGENCY CMOs

     16,296         134         (420     16,010   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 320,323         5,665         (7,078     318,910   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

The scheduled maturities of debt securities available for sale at March 31, 2014, were as follows:

 

March 31, 2014

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 501       $ 503   

Due in one to five years

     16,131         16,379   

Due in five to ten years

     44,634         44,675   

Due after ten years

     42,244         43,094   
  

 

 

    

 

 

 
     103,510         104,651   

Amortizing agency bonds

     105,876         106,825   

Mortgage-backed securities

     130,877         130,062   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

   $ 340,263       $ 341,538   
  

 

 

    

 

 

 

The scheduled maturities of debt securities available for sale at December 31, 2013, were as follows:

 

December 31, 2013

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 501       $ 505   

Due in one to five years

     12,630         12,954   

Due in five to ten years

     38,192         37,364   

Due after ten years

     49,284         49,314   
  

 

 

    

 

 

 
     100,607         100,137   

Amortizing agency bonds

     106,229         106,875   

Mortgage-backed securities

     113,487         111,898   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

   $ 320,323       $ 318,910   
  

 

 

    

 

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2014, 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
 
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities:

               

Agency debt securities

   $ 37,596         (1,186     12,687         (653     50,283         (1,839

Taxable municipals

     6,727         (236     4,127         (255     10,854         (491

Tax free municipals

     4,547         (109     7,089         (402     11,636         (511

Trust preferred securities

     —           —          1,489         (111     1,489         (111

Commercial bonds

     1,994         (6     —           —          1,994         (6

Mortgage-backed securities:

               

GNMA

     15,190         (167     805         (7     15,995         (174

FNMA

     33,463         (950     9,416         (484     42,879         (1,434

SLMA CMOs

     3,410         (198     1,798         (143     5,208         (341

AGENCY CMOs

     7,565         (70     1,877         (164     9,442         (234
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 110,492         (2,922     39,288         (2,219     149,780         (5,141
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2013, were 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
 
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities:

               

Agency debt securities

   $ 44,968         (2,107     6,793         (334     51,761         (2,441

Taxable municipal bonds

     7,903         (660     797         (78     8,700         (738

Tax free municipal bonds

     9,848         (692     3,720         (206     13,568         (898

Trust preferred securities

     —           —          1,489         (111     1,489         (111

Commercial bonds

     1,984         (16     —           —          1,984         (16

Mortgage-backed securities:

               

GNMA

     5,320         (128     1,551         (14     6,871         (142

FNMA

     42,464         (1,626     6,746         (312     49,210         (1,938

NON-AGENCY SLMA CMOs

     5,224         (374     —           —          5,224         (374

AGENCY CMOs

     7,031         (223     1,844         (197     8,875         (420
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 124,742         (5,826     22,940         (1,252     147,682         (7,078
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

At March 31, 2014, securities with a book value of approximately $161.6 million and a market value of approximately $163.7 million were pledged to various municipalities for deposits in excess of FDIC limits as required by law. The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $13.5 million secured by the Bank’s loan portfolio to secure additional municipal deposits.

At March 31, 2014, securities with a book and market value of $34.1 million were sold under agreements to repurchase from various customers. Furthermore, the Company has two wholesale repurchase agreements with third parties secured by investments with a combined book value of $19.6 million and a market value of $19.2 million. One repurchase agreement is in the amount of $6.0 million and has a maturity of September 18, 2016 and is currently callable on a quarterly basis and has a fixed rate of interest of 4.36%. The second repurchase agreement, in the amount of $10.0 million, has a maturity of September 5, 2014, is currently callable quarterly and has a fixed rate of interest of 4.28%.

Loans
3 Months Ended
Mar. 31, 2014
Receivables [Abstract]
 
Loans
(5) LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2014 and December 31, 2013. At March 31, 2014 and December 31, 2013, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

 

     March 31, 2014     March 31, 2014     December 31, 2013     December 31, 2013  
     Amount     Percent     Amount     Percent  
     (Dollars in thousands, except percentages)  

Real estate loans:

  

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

   $ 153,957        28.2   $ 155,252        28.1

Second mortgages (closed end)

     2,829        0.5     3,248        0.6

Home equity lines of credit

     33,947        6.2     34,103        6.2

Multi-family

     28,770        5.3     29,736        5.4

Construction

     11,278        2.1     10,618        1.9

Land

     34,154        6.3     34,681        6.3

Farmland

     47,608        8.7     51,868        9.4

Non-residential real estate

     154,083        28.3     157,692        28.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans

     466,626        85.6     477,198        86.4

Consumer loans

     15,260        2.8     11,167        2.0

Commercial loans

     63,098        11.6     64,041        11.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other loans

     78,358        14.4     75,208        13.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, gross

     544,984        100.0     552,406        100.0
    

 

 

     

 

 

 

Deferred loan cost, net of income

     (120       (92  

Less allowance for loan losses

     (8,913       (8,682  
  

 

 

     

 

 

   

Total loans

   $ 535,951        $ 543,632     
  

 

 

     

 

 

   

 

The Bank assigns an industry standard NAICS code to each loan in the Bank’s portfolio. By assigning a standard code to each type of loan, management can more readily determine concentrations in risk by industry, location and loan type. This information is most useful when analyzing the Bank’s non-residential real estate loan portfolio. At March 31, 2014, and December 31, 2013, the Bank’s non-residential real estate loan portfolio was made up of the following loan types:

 

     Balance      Balance  
     March 31, 2014      December 31, 2013  
     (Dollars in Thousands)  

Land

   $ 34,154       $ 34,681   

Manufacturing

     3,907         3,962   

Professional, Technical

     1,784         1,819   

Retail Trade

     11,902         10,916   

Other Services

     18,846         21,307   

Finance and Insurance

     2,439         1,862   

Agricultural, Forestry, Fishing & Hunting

     47,608         51,868   

Real Estate and Rental and Leasing

     55,778         55,692   

Wholesale Trade

     21,486         21,852   

Arts, Entertainment and Recreation

     3,656         3,015   

Accommodations / Food Service

     24,004         26,552   

Healthcare and Social Assistance

     6,668         6,862   

Transportation and Warehousing

     1,069         1,101   

Information

     2,309         2,390   

Admin Support / Waste Mgmt

     235         362   
  

 

 

    

 

 

 

Total

   $ 235,845       $ 244,241   
  

 

 

    

 

 

 

The allowance for loan losses totaled $8.9 million at March 31, 2014, $8.7 million at December 31, 2013, and $10.6 million at March 31, 2013, respectively. The ratio of the allowance for loan losses to total loans was 1.63% at March 31, 2014, 1.57% at December 31, 2013, and 1.95% at March 31, 2013.

The following table indicates the type and level of non-accrual loans at the periods indicated below:

 

     March 31, 2014      December 31, 2013      March 31, 2013  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 1,056         945         1,883   

Home equity line of credit

     49         1         66   

Junior lien

     1         2         3   

Multi-family

     —           —           —     

Construction

     —           175         177   

Land

     1,217         1,218         2,754   

Non-residential real estate

     6,585         6,546         951   

Farmland

     669         703         545   

Consumer loans

     2         13         65   

Commercial loans

     453         463         592   
  

 

 

    

 

 

    

 

 

 

Total non-accrual loans

   $ 10,032         10,066         7,036   
  

 

 

    

 

 

    

 

 

 

 

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2014:

 

     Balance
12/31/2013
      Charge off 
2014
    Recovery
2014
     Specific
Provision
2014
    General
Provision
2014
    Ending
Balance
3/31/2014
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 2,048         (35     8         (10     125        2,136   

Home equity line of credit

     218         —          1         —          —          219   

Junior liens

     39         —          5         4        (22     26   

Multi-family

     466         —          —           —          (134     332   

Construction

     88         (8     2         (6     4        80   

Land

     1,305         —          —           41        (133     1,213   

Non-residential real estate

     2,719         —          —           (80     250        2,889   

Farmland

     510         —          —           —          237        747   

Consumer loans

     541         (103     31         (137     343        675   

Commercial loans

     748         (50     —           (50     (52     596   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,682         (196     47         (238     618        8,913   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2013:

 

     Balance
12/31/2012
     Charge off
2013
    Recovery
2013
     Specific
Provision
2013
    General
Provision
2013
    Ending
Balance
12/31/2013
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 2,490         (852     329         (285     366        2,048   

Home equity line of credit

     374         (22     9         (88     (55     218   

Junior liens

     230         (119     71         5        (148     39   

Multi-family

     524         (38     164         (20     (164     466   

Construction

     256         —          —           (168     —          88   

Land

     2,184         (1,432     9         (718     1,262        1,305   

Non-residential real estate

     2,921         (1,041     14         757        68        2,719   

Farmland

     712         —          —           (202     —          510   

Consumer loans

     338         (649     246         228        378        541   

Commercial loans

     619         (291     32         437        (49     748   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 10,648         (4,444     874         (54     1,658        8,682   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

The table below presents past due and non-accrual balances at March 31, 2014, by loan classification allocated between performing and non-performing:

 

March 31, 2014

   Currently      30 - 89
Days
     Non-accrual      Special      Impaired Loans
Currently Performing
        
     Performing      Past Due      Loans      Mention      Substandard      Doubtful      Total  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 150,107         610         1,056         904         1,280         —           153,957   

Home equity line of credit

     33,256         148         49         —           494         —           33,947   

Junior liens

     2,764         —           1         42         22         —           2,829   

Multi-family

     23,871         —           —           4,899         —           —           28,770   

Construction

     11,278         —           —           —           —           —           11,278   

Land

     15,982         76         1,217         3,464         13,415         —           34,154   

Non-residential real estate

     141,228         47         6,585         488         5,735         —           154,083   

Farmland

     41,605         —           669         345         4,989         —           47,608   

Consumer loans

     14,576         28         2         —           654         —           15,260   

Commercial loans

     58,633         189         453         1,399         2,424         —           63,098   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 493,300         1,098         10,032         11,541         29,013         —           544,984   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents past due and non-accrual balances at December 31, 2013, by loan classification allocated between performing and non-performing:

 

     Currently      30 - 89
Days
     Non-accrual      Special      Impaired Loans
Currently Performing
        
December 31, 2013    Performing      Past Due      Loans      Mention      Substandard      Doubtful      Total  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 148,759         592         945         814         4,142         —           155,252   

Home equity line of credit

     33,369         93         1         —           640         —           34,103   

Junior liens

     3,126         —           2         43         77         —           3,248   

Multi-family

     29,736         —           —           —           —           —           29,736   

Construction

     10,443         —           175         —           —           —           10,618   

Land

     19,899         —           1,218         52         13,512         —           34,681   

Non-residential real estate

     142,701         343         6,546         515         7,587         —           157,692   

Farmland

     46,042         —           703         480         4,643         —           51,868   

Consumer loans

     10,493         234         13         —           427         —           11,167   

Commercial loans

     61,379         123         463         526         1,550         —           64,041   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 505,947         1,385         10,066           2,430         32,578         —           552,406   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mentioned, substandard and doubtful are paying as agreed. However, the customer’s financial statements may indicate weaknesses in their current cash flow, the customer’s industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customer’s future business prospects.

The Company does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Company’s loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Company’s Board of Directors on the status of the Company’s specific construction and development loans as well as the market trends in those markets in which the Company actively participates.

The Company’s annualized net charge off ratios for three month periods ended March 31, 2014, March 31, 2013, and the year ended December 31, 2013, was 0.11%, 0.33% and 0.66%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2014, March 31, 2013, and December 31, 2013, were 88.85%, 150.35%, and 86.25%, respectively.

The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the market value of the underlying collateral, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.

The Company conducts annual reviews on all loan relationships above one 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 Bank 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 23, Watch loans are included with satisfactory loans and classified as Pass.

Special Mention 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 risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan. These credit weaknesses, if not checked or corrected, will weaken the loan or inadequately protect the Bank’s credit position at some future date.

A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. The loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. This does not imply ultimate loss of the principal, but may involve burdensome administrative expenses and the accompanying cost to carry the credit. Examples of substandard loans include those to borrowers with insufficient or negative cash flow, negative net worth coupled with inadequate guarantor support, inadequate working capital, and/or significantly past-due loans and overdrafts.

A loan classified Doubtful has all the weaknesses inherent in a substandard credit except that the weaknesses make collection or liquidation in full (on the basis of currently existing facts, conditions, and values) highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors charge-off is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. The doubtful classification is applied to that portion of the credit in which the full collection of principal and interest is questionable.

A loan is considered to be impaired when management determines that it is possible that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. At March 31, 2014, December 31, 2013, and March 31, 2013, the Company’s impaired loans totaled $39.0 million, $42.6 million and $43.7 million, respectively. At March 31, 2014, December 31, 2013, and March 31, 2013, the Company’s specific reserve for impaired loans totaled $2.0 million, $1.9 million and $2.7 million, respectively.

 

A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2014, were as follows:

 

March 31, 2014

   Pass      Special
Mention
    

 

Impaired Loans

     Total      Specific
Allowance
for
Impairment
     Allowance
for
Performing
Loans
 
         Substandard      Doubtful           
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 150,717         904         2,336         —           153,957         580         1,556   

Home equity line of credit

     33,404         —           543         —           33,947         —           219   

Junior liens

     2,764         42         23         —           2,829         —           26   

Multi-family

     23,871         4,899         —           —           28,770         —           332   

Construction

     11,278         —           —           —           11,278         —           80   

Land

     16,058         3,464         14,632         —           34,154         730         483   

Non-residential real estate

     141,275         488         12,320         —           154,083         546         2,343   

Farmland

     41,605         345         5,658         —           47,608         —           747   

Consumer loans

     14,604         —           656         —           15,260         160         515   

Commercial loans

     58,822         1,399         2,877         —           63,098         —           596   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 494,398         11,541         39,045         —           544,984         2,016         6,897   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A summary of the Company’s impaired loans and their respective reserve at December 31, 2013, were as follows:

 

December 31, 2013

   Pass      Special
Mention
    

 

Impaired Loans

     Total      Allowance
for
Impairment
     Allowance
for
Performing
Loans
 
         Substandard      Doubtful           
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 149,351         814         5,087         —           155,252         597         1,451   

Home equity line of credit

     33,462         —           641         —           34,103         —           218   

Junior liens

     3,126         43         79         —           3,248         —           39   

Multi-family

     29,736         —           —           —           29,736         —           466   

Construction

     10,443         —           175         —           10,618         —           88   

Land

     19,899         52         14,730         —           34,681         771         534   

Non-residential real estate

     143,044         515         14,133         —           157,692         465         2,254   

Farmland

     46,042         480         5,346         —           51,868         —           510   

Consumer loans

     10,727         —           440         —           11,167         96         445   

Commercial loans

     61,502         526         2,013         —           64,041         —           748   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 507,332         2,430         42,644         —           552,406         1,929         6,753   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Impaired loans by classification type and the related valuation allowance amounts at March 31, 2014, were as follows:

 

     At March 31, 2014      For the three month period ended
March 31, 2014
 
Impaired loans with no recorded reserve    Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

One-to-four family mortgages

   $ 481         481         —           1,849         2   

Home equity line of credit

     543         543         —           592         3   

Junior liens

     23         23         —           51         1   

Multi-family

     —           —           —           —           —     

Construction

     —           —           —           88         —     

Land

     11,106         11,106         —           10,994         201   

Farmland

     5,658         5,658            8,217         102   

Non-residential real estate

     8,987         8,987         —           7,167         157   

Consumer loans

     14         14         —           35         —     

Commercial loans

     2,877         2,877         —           2,445         106   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     29,689         29,689         —           31,438         572   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with recorded reserve

              

One-to-four family mortgages

     1,855         1,855         580         1,863         6   

Home equity line of credit

     —           —           —           —           —     

Junior liens

     —           —           —           —           —     

Multi-family

     —           —           —           —           —     

Construction

     —           —           —           —           —     

Land

     3,526         5,039         730         3,687         23   

Farmland

     —           —           —           —           —     

Non-residential real estate

     3,333         4,118         546         3,346         76   

Consumer loans

     642         642         160         513         —     

Commercial loans

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     9,356         11,654         2,016         9,409         105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 39,045         41,343         2,016         40,847         677   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2013, were as follows:

 

     At December 31, 2013      For the year ended
December 31, 2013
 
Impaired loans with no recorded reserve    Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

One-to-four family mortgages

   $ 3,216         3,216         —           2,361         8   

Home equity line of credit

     641         641         —           564         3   

Junior liens

     79         79         —           239         1   

Multi-family

     —           —           —           990         —     

Construction

     175         175         —           1,072         5   

Land

     10,882         12,315         —           10,668         186   

Farmland

     5,346         5,346         —           6,955         149   

Non-residential real estate

     10,775         10,775         —           6,196         263   

Consumer loans

     56         56         —           48         —     

Commercial loans

     2,013         2,013         —           2,391         95   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     33,183         34,616         —           31,484         710   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with recorded reserve

              

One-to-four family mortgages

     1,871         1,871         597         2,501         9   

Home equity line of credit

     —           —           —           279         —     

Junior liens

     —           —           —           113         —     

Multi-family

     —           —           —           —           —     

Construction

     —           —           —           1,385         —     

Land

     3,848         3,848         771         2,741         29   

Farmland

     —           —           —           1,601         —     

Non-residential real estate

     3,358         4,222         465         2,243         111   

Consumer loans

     384         384         96         401         —     

Commercial loans

     —           —           —           346         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,461         10,325         1,929         11,610         149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 42,644         44,941         1,929         43,094         859   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:

 

    The restructuring constitutes a concession

 

    The debtor is experiencing financial difficulties

ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:

 

  1. If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Bank may have granted a concession. In that circumstance, the Bank should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR.

 

  2. A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics.

 

  3. A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant.

At March 31, 2014, and December 31, 2013, the Company has no loans classified as Troubled Debt Restructurings (TDR’s) that are reported as performing at March 31, 2014, and December 31, 2013, respectively. For the three month period ended March 31, 2014, no loans were classified as TDR and no loans were added or removed from TDR status during the three month period ended March 31, 2014.

Real Estate and Other Assets Owned
3 Months Ended
Mar. 31, 2014
Banking And Thrift [Abstract]
 
Real Estate and Other Assets Owned
(6) REAL ESTATE AND OTHER ASSETS OWNED

The Company’s real estate and other assets owned represent properties and personal collateral acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional real estate owned and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all real estate owned with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense.

At March 31, 2014, December 31, 2013, and March 31, 2013, the Company had balances in other real estate and assets owned and non-accrual loans consisting of the following:

 

     March 31, 2014     December 31, 2013     March 31, 2013  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 446        350        295   

Land

     1,034        1,124        1,112   

Non-residential real estate

     200        200        73   
  

 

 

   

 

 

   

 

 

 

Total other assets owned

   $ 1,680        1,674        1,480   
  

 

 

   

 

 

   

 

 

 

Total non-accrual loans

   $ 10,032        10,066        7,036   
  

 

 

   

 

 

   

 

 

 

Total non-performing assets

   $ 11,712        11,740        8,516   
  

 

 

   

 

 

   

 

 

 

Non-performing assets / Total assets

     1.21     1.21     0.86
  

 

 

   

 

 

   

 

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the three month period ending March 31, 2014:

 

            Activity During 2014        
     Balance
12/31/2013
     Foreclosures      Proceeds     Reduction
in Values
     Gain (Loss)
on Sale
    Balance
3/31/2014
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 350         166         (66     —           (4   $ 446   

Multi-family

     —           —           —          —           —          —     

Construction

     —           —           —          —           —          —     

Land

     1,124         —           (71     —           (19     1,034   

Non-residential real estate

     200         —           —          —           —          200   

Consumer assets

     —           —           —          —           —          —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 1,674         166         (137     —           (23   $ 1,680   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the year ended December 31, 2013:

 

            Activity During 2013        
     Balance
12/31/12
     Foreclosures      Proceeds     Reduction
in Values
    Gain (Loss)
on Sale
    Balance
12/31/13
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 258         1,052         (938     (26     4      $ 350   

Multi-family

     —           —           —          —          —          —     

Construction

     130         —           (110     (110     90        —     

Land

     1,112         80         —          (68     —          1,124   

Non-residential real estate

     44         240         (60     (11     (13     200   

Consumer assets

     4         7         (5     (4     (2     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,548         1,379         (1,113     (219     79      $ 1,674   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

Investments in Affiliated Companies
3 Months Ended
Mar. 31, 2014
Equity Method Investments And Joint Ventures [Abstract]
 
Investments in Affiliated Companies
(7) INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies accounted for under the equity method consist of 100% of the common stock of HopFed Capital Trust 1 (“Trust”), a wholly-owned statutory business trust. The Trust was formed on September 25, 2003. Summary financial information for the Trust follows (dollars in thousands):

 

Summary Statements of Financial Condition    At
March 31, 2014
     At
December 31, 2013
 

Assets - investment in subordinated debentures issued by HopFed Bancorp, Inc.

   $ 10,310         10,310   
  

 

 

    

 

 

 

Liabilities

     —           —     

Stockholder’s equity – trust preferred securities

     10,000         10,000   

Common stock (100% Owned by HopFed Bancorp, Inc.)

     310         310   
  

 

 

    

 

 

 

Total stockholders’ equity

   $ 10,310         10,310   
  

 

 

    

 

 

 

Summary Statements of Income

 

     Three Month Periods
Ended March 31,
 
     2014      2013  

Income – interest income from subordinated debentures issued by HopFed Bancorp, Inc.

   $ 86         88   
  

 

 

    

 

 

 

Net income

   $ 86         88   
  

 

 

    

 

 

 

Summary Statement of Stockholders’ Equity

 

     Trust
Preferred
Securities
     Common
Stock
     Retained
Earnings
    Total
Stockholders’
Equity
 

Beginning balances, December 31, 2013

   $ 10,000         310         —          10,310   

Net income

     —           —           86        86   

Dividends:

          

Trust preferred securities

     —           —           (83     (83

Common paid to HopFed Bancorp, Inc.

     —           —           (3     (3
  

 

 

    

 

 

    

 

 

   

 

 

 

Ending balances, March 31, 2014

   $ 10,000         310         —          10,310   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

Fair Value of Assets and Liabilities
3 Months Ended
Mar. 31, 2014
Fair Value Disclosures [Abstract]
 
Fair Value of Assets and Liabilities
(8) FAIR VALUE OF ASSETS AND LIABILITIES

In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

 

    Level 1 is for assets and liabilities that management has obtained quoted prices (unadjusted for transaction cost) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

 

    Level 2 is for assets and liabilities in which significant unobservable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

    Level 3 is for assets and liabilities in which significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Company’s portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral. The values for bank owned life insurance are obtained from stated values from the respective insurance companies. The liability associated with the Company’s derivative is obtained from a quoted value supplied by our correspondent banker. The value of real estate owned is obtained from appraisals completed on properties at the time of acquisition and annually thereafter.

 

Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis at March 31, 2014, are summarized below:

 

March 31, 2014

   Total carrying
value in the
     Quoted Prices
In Active
     Significant
Other
     Significant  

Description

   consolidated
balance sheet at
March 31, 2014
     Markets for
Identical Assets
(Level 1)
     Observable
Inputs
(Level 2)
     Unobservable
Inputs
(Level 3)
 

Assets

           

Available for sale securities

   $ 341,538         —           340,049         1,489   

Bank owned life insurance

   $ 9,764         —           9,764         —     

Liabilities

           

Interest rate swap

   $ 675         —           675         —     

The assets and liabilities measured at fair value on a recurring basis at December 31, 2013, are summarized below

 

December 31, 2013

   Total carrying
value in the
consolidated
     Quoted Prices
In Active
Markets for
     Significant
Other
Observable
     Significant
Unobservable
 

Description

   balance sheet at
December 31, 2013
     Identical Assets
(Level 1)
     Inputs
(Level 2)
     Inputs
(Level 3)
 

Assets

           

Available for sale securities

   $ 318,910         —           317,421         1,489   

Bank owned life insurance

   $ 9,677         —           9,677         —     

Liabilities

           

Interest rate swap

   $ 750         —           750         —     

 

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2014:

 

March 31, 2014

  

Total carrying

value in the

consolidated

    

Quoted Prices
In Active

Markets for

    

Significant
Other

Observable

     Significant
Unobservable
 

Description

   balance sheet at
March 31, 2014
     Identical Assets
(Level 1)
     Inputs
(Level 2)
     Inputs
(Level 3)
 
     (Dollars in Thousands)  
Assets   

Other real estate owned

   $ 1,680         —           —         $ 1,680   

Impaired loans, net of reserve of $2,016

   $ 37,029         —           —         $ 37,029   

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2013:

 

December 31, 2013

   Total carrying
value in the
     Quoted Prices
In Active
     Significant
Other
     Significant  

Description

   consolidated
balance sheet at
December 31, 2013
     Markets for
Identical Assets
(Level 1)
     Observable
Inputs
(Level 2)
     Unobservable
Inputs
(Level 3)
 
Assets            

Other real estate owned

   $ 1,674         —           —         $ 1,674   

Impaired loans, net of reserve of $1,929

   $ 40,715         —           —         $ 40,715   

 

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2014, and March 31, 2013, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

 

     2014      2013  

Three month period ended March 31,

   Other Assets      Other Liabilities      Other Assets      Other Liabilities  
     (Dollars in
Thousands)
                      

Fair value, January 1,

   $ 1,489         —           1,489         —     

Change in unrealized losses included in other comprehensive income for assets and liabilities still held at March 31,

        —           —           —     

Purchases, issuances and settlements, net

     —           —           —           —     

Transfers in and/or out of Level 3

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, March 31,

   $ 1,489         —           1,489         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The estimated fair values of financial instruments were as follows at March 31, 2014:

 

            Estimated
Fair
Value
     Quoted Prices
In Active Markets
for Identical
Assets
Level 1
     Using
Significant
Other
Observable
Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 
                    
     Carrying
Amount
             
     (Dollars in Thousands)  

Financial Assets:

  

Cash and due from banks

   $ 25,449         25,449       $ 25,449         —           —     

Interest-earning deposits

     8,730         8,730         8,730         —           —     

Securities available for sale

     341,538         341,538         —           340,049         1,489   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans receivable

     535,951         539,482         —           —           539,482   

Accrued interest receivable

     4,447         4,447         —           4,447         —     

Bank owned life insurance

     9,764         9,764         —           9,764         —     

Financial liabilities:

              

Deposits

     761,526         761,328         —           761,328         —     

Advances from borrowers for taxes and insurance

     572         572         —           572         —     

Advances from Federal Home Loan Bank

     41,280         44,865         —           44,865         —     

Repurchase agreements

     50,129         50,910         —           50,910         —     

Subordinated debentures

     10,310         10,091         —           —           10,091   

Off-balance-sheet liabilities:

              

Commitments to extend credit

     —           —           —           —           —     

Commercial letters of credit

     —           —           —           —           —     

Market value of interest rate swap

     675         675         —           675         —     

 

The estimated fair values of financial instruments were as follows at December 31, 2013:

 

     Carrying
Amount
     Estimated
Fair
Value
     Quoted Prices
In Active Markets
for Identical
Assets
Level 1
     Using
Significant
Other
Observable
Inputs
Level 2
     Significant
Unobservable
Inputs
Level 3
 
                
                
                
     (Dollars in Thousands)  

Financial Assets:

  

Cash and due from banks

   $ 37,229         37,229       $ 37,229         —           —     

Interest-earning deposits

     18,619         18,619         18,619         —           —     

Securities available for sale

     318,910         318,910         —           317,421         1,489   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans receivable

     543,632         546,319         —           —           546,319   

Accrued interest receivable

     5,233         5,233         —           5,233         —     

Bank owned life insurance

     9,677         9,677         —           9,677         —     

Financial liabilities:

              

Deposits

     762,997         763,605         —           763,605         —     

Advances from borrowers for taxes and insurance

     521         521         —           521         —     

Advances from Federal Home Loan Bank

     46,780         51,010         —           51,010         —     

Repurchase agreements

     52,759         53,712         —           53,712         —     

Subordinated debentures

     10,310         10,099         —           —           10,099   

Off-balance-sheet liabilities:

                 —     

Commitments to extend credit

     —           —           —           —           —     

Commercial letters of credit

     —           —           —           —           —     

Market value of interest rate swap

     750         750         —           750         —     

Stock Option
3 Months Ended
Mar. 31, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Stock Option
(9) STOCK OPTIONS

At March 31, 2014, all stock options outstanding were issued under the HopFed Bancorp, Inc. 1999 Stock Option Plan. At March 31, 2014, the Company can no longer issue options under this plan. The remaining 20,808 options are fully vested with a strike price of $16.67 and have a final maturity of June 1, 2014.

Derivative Instruments
3 Months Ended
Mar. 31, 2014
Derivative Instruments And Hedging Activities Disclosure [Abstract]
 
Derivative Instruments
(10) DERIVATIVE INSTRUMENTS

Under guidelines of Financial Accounting Standards Board (“FASB”) ASC 815, Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated statement of financial position. 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 statement of financial position with corresponding offsets recorded in the consolidated statement of financial position.

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 three month period ended March 31, 2014, or the year ended December 31, 2013.

In October of 2008, the Bank entered into an interest rate swap agreement for a term of seven years and an amount of $10.0 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 March 31, 2014, and December 31, 2013, the cost of the Bank to terminate the cash flow hedge was approximately $675,000 and $750,000, respectively.

Effect of New Accounting Pronouncements
3 Months Ended
Mar. 31, 2014
Accounting Changes And Error Corrections [Abstract]
 
Effect of New Accounting Pronouncements
(11) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

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 were 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, condition and cash flow.

ASU No. 2011-03, “Transfers and Servicing (Topic 860)—Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 became effective for the Company on January 1, 2012, and did not have a significant impact on the Company’s consolidated financial statements of income, 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 was applied prospectively. The implementation of ASU 2011-04 did not have a material impact on our consolidated financial statements of comprehensive income.

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 December 15, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements of income, condition, and cash flow.

 

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and did not a material impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05. This update to Comprehensive Income (Topic 220) defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The deferral supersedes only the paragraphs pertaining to how and where reclassification adjustments are presented. The amendments in this update were effective for public entities for reporting periods beginning after December 15, 2011. The implementation of ASU 2011-12 did not have a material impact on the Company’s consolidated statement of comprehensive income.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 was effective for the Company’s beginning January 1, 2013, and did not have a significant impact on the Company’s financial statements.

 

ASU 2012-06, “Business Combinations (Topic 805) – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 became effective for the Company on January 1, 2013, and did not have a significant impact on the Corporation’s financial statements.

ASU 2013-02, “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 amends recent guidance related to the reporting of comprehensive income to enhance the reporting of reclassifications out of accumulated other comprehensive income. ASU 2013-02 became effective for the Company on January 1, 2013, and did not have a significant impact on the Company’s financial statements.

ASU 2013-08, “Financial Services – Investment Companies (Topic 946) – Amendments to the Scope, Measurement and Disclosure Requirements.” ASU 2013-08 clarifies the characteristics of investment companies and sets forth a new approach for determining whether a company is an investment company. The fundamental characteristics of an investment company include (i) the company obtains funds from investors and provides the investors with investment management services; (ii) the company commits to its investors that its business purpose and only substantive activities are investing the funds for returns solely from capital appreciation, investment income, or both; and (iii) the company or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ASU 2013-08 also sets forth the scope, measurement and disclosure requirements for investment companies. ASU 2013-08 became effective for the Corporation on January 1, 2014, and did not have a significant impact on the Corporation’s financial statements.

ASU 2013-10, “Derivatives and Hedging (Topic 815) – Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” ASU 2013-10 permits the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate (“LIBOR”). ASU 2013-10 became effective for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013, and did not have a significant impact on the Company’s financial statements.

 

ASU 2013-12, “Definition of a Public Business Entity - An Addition to the Master Glossary.” ASU 2013-12 amends the Master Glossary of the FASB Accounting Standards Codification to include one definition of public business entity for future use in U.S. GAAP and identifies the types of business entities that are excluded from the scope of the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. There is no effective date for ASU 2013-12. ASU 2013-12 did not have a significant impact on the Company’s financial statements.

ASU 2014-01: Accounting for Investments in Qualified Affordable Housing Projects. The amendments in ASU 2014-01 permit entities to make an accounting policy election to account for investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The Company has not yet determined the impact of this amendment to its future financial statements.

ASU 2014-04; Receivables, Troubled Debt Restructurings by Creditors (Subtopic 310-40), the reclassification of residential real estate collateralized consumer mortgage loans upon foreclosure.” This amendment is intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. These amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (a) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (b) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures are required. The amendments are effective for the Company for annual periods and interim periods within those annual periods beginning after December 15, 2014. The Company has not yet determined the impact of the application of ASU 2014-04 on its future financial statements.

In April 2014, FASB issued ASU 2014-08; “Reporting Discontinued Operations and Disclosures of Components of an Entity.” This amendment changes the criteria for reporting discontinued operations, which includes a component of an entity or a group of components of an entity, a business or non-profit activity. This amendment requires additional disclosures about discontinued operations, including major changes in lines constituting pretax net income (loss) of the discontinued operation for the periods presented in the report. This amendment is effective with all annual periods beginning on or after December 15, 2015. The Company has not yet determined the impact of this amendment on its future 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.

Subsequent Event
3 Months Ended
Mar. 31, 2014
Subsequent Events [Abstract]
 
Subsequent Event
(12) SUBSEQUENT EVENT

On April 22, 2014, Community Bank Shares of Indiana (NASDAQ GM: CBIN), filed an 8-K announcing the purchase of First Financial Services Corporation (NASDAQ GM: FFKY). The announcement indicated that the transaction was expected to close late in the third quarter or the fourth quarter of 2014.

The Company currently owns a trust preferred security issued by FFKY with a $2.0 million par value, a $1.6 million cost basis and a $1.5 million market value. The subordinated debt issued by FFKY has been in deferral status since October 2010. At the close of this transaction, management will carefully review the status of the security.

Income Taxes
3 Months Ended
Mar. 31, 2014
Income Tax Disclosure [Abstract]
 
Income Taxes

(13) INCOME TAXES

The Company and its subsidiaries file consolidated federal income tax returns and Tennessee excise tax returns. The Company and its non-bank subsidiaries filed consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions.

The effective tax rate differs from the statutory federal rate of 35% and Tennessee excise rate of 6.50% due to investments in qualified municipal securities; bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses.

Loans (Policies)
3 Months Ended
Mar. 31, 2014
Derivative Instruments And Hedging Activities Disclosure [Abstract]
 
Troubled Debt Restructuring
Fair Value Measurement and Disclosures
Derivative Instruments and Hedging Activities
Balance Sheet
Comprehensive Income
Intangibles - Goodwill and Other
Business Combinations
Financial Services Investment Companies
Derivative and Hedging Activities
Definition of a Public Business Entity

On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:

 

    The restructuring constitutes a concession

 

    The debtor is experiencing financial difficulties

ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:

 

  1. If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Bank may have granted a concession. In that circumstance, the Bank should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR.

 

  2. A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics.

 

  3. A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant.

In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

 

    Level 1 is for assets and liabilities that management has obtained quoted prices (unadjusted for transaction cost) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

 

    Level 2 is for assets and liabilities in which significant unobservable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

    Level 3 is for assets and liabilities in which significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Company’s portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral.

Under guidelines of Financial Accounting Standards Board (“FASB”) ASC 815, Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated statement of financial position. 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 statement of financial position with corresponding offsets recorded in the consolidated statement of financial position.

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 three month period ended March 31, 2014, or the year ended December 31, 2013.

ASU 2011-11, “Balance Sheet (Topic 210) - “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 amends Topic 210, “Balance Sheet,” to require an entity to disclose both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing/lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU No. 2013-01, “Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11 is effective for annual and interim periods beginning on January 1, 2013, and did not a material impact on the Company’s financial statements.

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards update No. 2011-05. This update to Comprehensive Income (Topic 220) defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. The deferral supersedes only the paragraphs pertaining to how and where reclassification adjustments are presented. The amendments in this update were effective for public entities for reporting periods beginning after December 15, 2011. The implementation of ASU 2011-12 did not have a material impact on the Company’s consolidated statement of comprehensive income.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that an indefinite-lived intangible asset is impaired, then the entity must perform the quantitative impairment test. If, under the quantitative impairment test, the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. Permitting an entity to assess qualitative factors when testing indefinite-lived intangible assets for impairment results in guidance that is similar to the goodwill impairment testing guidance in ASU 2011-08. ASU 2012-02 was effective for the Company’s beginning January 1, 2013, and did not have a significant impact on the Company’s financial statements.

ASU 2012-06,“Business Combinations (Topic 805) – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force).” ASU 2012-06 clarifies the applicable guidance for subsequently measuring an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. Under ASU 2012-06, when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution and, subsequently, a change in the cash flows expected to be collected on the indemnification asset occurs (as a result of a change in cash flows expected to be collected on the assets subject to indemnification), the reporting entity should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets). ASU 2012-06 became effective for the Company on January 1, 2013, and did not have a significant impact on the Corporation’s financial statements.

ASU 2013-08, “Financial Services – Investment Companies (Topic 946) – Amendments to the Scope, Measurement and Disclosure Requirements.” ASU 2013-08 clarifies the characteristics of investment companies and sets forth a new approach for determining whether a company is an investment company. The fundamental characteristics of an investment company include (i) the company obtains funds from investors and provides the investors with investment management services; (ii) the company commits to its investors that its business purpose and only substantive activities are investing the funds for returns solely from capital appreciation, investment income, or both; and (iii) the company or its affiliates do not obtain or have the objective of obtaining returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests or that are other than capital appreciation or investment income. ASU 2013-08 also sets forth the scope, measurement and disclosure requirements for investment companies. ASU 2013-08 became effective for the Corporation on January 1, 2014, and did not have a significant impact on the Corporation’s financial statements.

ASU 2013-10, “Derivatives and Hedging (Topic 815) – Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.” ASU 2013-10 permits the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate (“LIBOR”). ASU 2013-10 became effective for qualifying new or re-designated hedging relationships entered into on or after July 17, 2013, and did not have a significant impact on the Company’s financial statements.

ASU 2013-12, “Definition of a Public Business Entity - An Addition to the Master Glossary.” ASU 2013-12 amends the Master Glossary of the FASB Accounting Standards Codification to include one definition of public business entity for future use in U.S. GAAP and identifies the types of business entities that are excluded from the scope of the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. There is no effective date for ASU 2013-12. ASU 2013-12 did not have a significant impact on the Company’s financial statements.
Income Per Share (Tables)
3 Months Ended
Mar. 31, 2014
Earnings Per Share [Abstract]
 
Reconciliation of Basic and Diluted Income Per Share
Reconciliation of Basic and Diluted Income Per Share

The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2014, and March 31, 2013.

 

     March 31,  
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 354,000       $ 984,000   

Average common shares outstanding

     7,416,716         7,488,445   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.05       $ 0.13   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 354,000       $ 984,000   

Average common shares outstanding

     7,416,716         7,488,445   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,416,716         7,488,445   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.05       $ 0.13   
  

 

 

    

 

 

 
Stock Compensation (Tables)
3 Months Ended
Mar. 31, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Company's Future Compensation Expense Related to Restricted Stock Vesting
Company's Future Compensation Expense Related to Restricted Stock Vesting

The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2014:

 

Year Ending December 31,

   Future
Expense
 

2014

     88,685   

2015

     101,302   

2016

     48,272   

2017

     3,125   
  

 

 

 

Total

   $ 241,384   
  

 

 

 
Securities (Tables)
3 Months Ended
Mar. 31, 2014
Investments Debt And Equity Securities [Abstract]
 
Amortized Cost of Securities and their Estimated Fair Values
Maturities of Debt Securities Available for Sale
Estimated Fair Value and Unrealized Loss Amounts of Impaired Investments

The carrying amount of securities and their estimated fair values at March 31, 2014, were as follows:

 

     March 31, 2014  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Unrestricted:

          

U.S. government and agency securities:

          

Agency debt securities

   $ 122,736         1,942         (1,839     122,839   

Taxable municipal bonds

     18,987         310         (491     18,806   

Tax free municipal bonds

     64,063         2,796         (511     66,348   

Trust preferred securities

     1,600         —           (111     1,489   

Commercial bonds

     2,000         —           (6     1,994   

Mortgage-backed securities:

          

GNMA

     28,712         629         (174     29,167   

FNMA

     74,186         553         (1,434     73,305   

FHLMC

     1,215         30         —          1,245   

NON-AGENCY CMOs

     10,951         4         (341     10,614   

AGENCY CMOs

     15,813         152         (234     15,731   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 340,263         6,416         (5,141     341,538   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

The carrying amount of securities and their estimated fair values at December 31, 2013, was as follows:

 

     December 31, 2013  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Unrestricted:

          

U.S. government and agency securities:

          

Agency debt securities

   $ 120,608         1,856         (2,441     120,023   

Taxable municipal bonds

     18,337         458         (738     18,057   

Tax free municipal bonds

     64,291         2,066         (898     65,459   

Trust preferred securities

     1,600         —           (111     1,489   

Commercial bonds

     2,000         —           (16     1,984   

Mortgage-backed securities:

          

GNMA

     17,327         590         (142     17,775   

FNMA

     70,104         526         (1,938     68,692   

FHLMC

     1,301         35         —          1,336   

SLMA CMO

     8,459         —           (374     8,085   

AGENCY CMOs

     16,296         134         (420     16,010   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 320,323         5,665         (7,078     318,910   
  

 

 

    

 

 

    

 

 

   

 

 

 

The scheduled maturities of debt securities available for sale at March 31, 2014, were as follows:

 

March 31, 2014

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 501       $ 503   

Due in one to five years

     16,131         16,379   

Due in five to ten years

     44,634         44,675   

Due after ten years

     42,244         43,094   
  

 

 

    

 

 

 
     103,510         104,651   

Amortizing agency bonds

     105,876         106,825   

Mortgage-backed securities

     130,877         130,062   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

   $ 340,263       $ 341,538   
  

 

 

    

 

 

 

The scheduled maturities of debt securities available for sale at December 31, 2013, were as follows:

 

December 31, 2013

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 501       $ 505   

Due in one to five years

     12,630         12,954   

Due in five to ten years

     38,192         37,364   

Due after ten years

     49,284         49,314   
  

 

 

    

 

 

 
     100,607         100,137   

Amortizing agency bonds

     106,229         106,875   

Mortgage-backed securities

     113,487         111,898   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

   $ 320,323       $ 318,910   
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2014, 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
 
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities:

               

Agency debt securities

   $ 37,596         (1,186     12,687         (653     50,283         (1,839

Taxable municipals

     6,727         (236     4,127         (255     10,854         (491

Tax free municipals

     4,547         (109     7,089         (402     11,636         (511

Trust preferred securities

     —           —          1,489         (111     1,489         (111

Commercial bonds

     1,994         (6     —           —          1,994         (6

Mortgage-backed securities:

               

GNMA

     15,190         (167     805         (7     15,995         (174

FNMA

     33,463         (950     9,416         (484     42,879         (1,434

SLMA CMOs

     3,410         (198     1,798         (143     5,208         (341

AGENCY CMOs

     7,565         (70     1,877         (164     9,442         (234
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 110,492         (2,922     39,288         (2,219     149,780         (5,141
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2013, were 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
 
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities:

               

Agency debt securities

   $ 44,968         (2,107     6,793         (334     51,761         (2,441

Taxable municipal bonds

     7,903         (660     797         (78     8,700         (738

Tax free municipal bonds

     9,848         (692     3,720         (206     13,568         (898

Trust preferred securities

     —           —          1,489         (111     1,489         (111

Commercial bonds

     1,984         (16     —           —          1,984         (16

Mortgage-backed securities:

               

GNMA

     5,320         (128     1,551         (14     6,871         (142

FNMA

     42,464         (1,626     6,746         (312     49,210         (1,938

NON-AGENCY SLMA CMOs

     5,224         (374     —           —          5,224         (374

AGENCY CMOs

     7,031         (223     1,844         (197     8,875         (420
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 124,742         (5,826     22,940         (1,252     147,682         (7,078
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

Loans (Tables)
3 Months Ended
Mar. 31, 2014
Receivables [Abstract]
 
Composition of Loan Portfolio by Type of Loan
Non-residential Real Estate Loan Portfolio
Non-accrual Loans
Allowance for Loan Loss Account by Loan
Past Due and Non-accrual Balances by Loan Classification
Summary of Company's Impaired Loans
Impaired Loans by Classification Type

At March 31, 2014 and December 31, 2013, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

 

     March 31, 2014     March 31, 2014     December 31, 2013     December 31, 2013  
     Amount     Percent     Amount     Percent  
     (Dollars in thousands, except percentages)  

Real estate loans:

  

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

   $ 153,957        28.2   $ 155,252        28.1

Second mortgages (closed end)

     2,829        0.5     3,248        0.6

Home equity lines of credit

     33,947        6.2     34,103        6.2

Multi-family

     28,770        5.3     29,736        5.4

Construction

     11,278        2.1     10,618        1.9

Land

     34,154        6.3     34,681        6.3

Farmland

     47,608        8.7     51,868        9.4

Non-residential real estate

     154,083        28.3     157,692        28.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans

     466,626        85.6     477,198        86.4

Consumer loans

     15,260        2.8     11,167        2.0

Commercial loans

     63,098        11.6     64,041        11.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other loans

     78,358        14.4     75,208        13.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, gross

     544,984        100.0     552,406        100.0
    

 

 

     

 

 

 

Deferred loan cost, net of income

     (120       (92  

Less allowance for loan losses

     (8,913       (8,682  
  

 

 

     

 

 

   

Total loans

   $