HOPFED BANCORP INC Form 10-Q for Period Ending 6/30/2014
: 6.21.0
 
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Aug. 5, 2014
Document And Entity Information [Abstract]
  
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2014 
 
Document Fiscal Year Focus
2014 
 
Document Fiscal Period Focus
Q2 
 
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
 
7,319,136 
Consolidated Condensed Statements of Financial Condition (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Assets
  
Cash and due from banks
$ 24,125 
$ 37,229 
Interest-earning deposits
5,766 
18,619 
Cash and cash equivalents
29,891 
55,848 
Federal Home Loan Bank stock, at cost
4,428 
4,428 
Securities available for sale
331,639 
318,910 
Loans held for sale
464 
 
Loans receivable, net of allowance for loan losses of $8,353 at June 30, 2014, and $8,682 at December 31, 2013
537,763 
543,632 
Accrued interest receivable
4,518 
5,233 
Real estate and other assets owned
1,490 
1,674 
Bank owned life insurance
9,837 
9,677 
Premises and equipment, net
22,896 
23,108 
Deferred tax assets
1,942 
4,610 
Intangible asset
65 
130 
Other assets
5,013 
6,399 
Total assets
949,946 
973,649 
Deposits:
  
Non-interest-bearing
103,550 
105,252 
Interest-bearing checking
194,659 
183,643 
Savings and money market
93,939 
92,106 
Time deposits
351,121 
381,996 
Total deposits
743,269 
762,997 
Federal Home Loan Bank advances
40,776 
46,780 
Repurchase agreements
51,125 
52,759 
Subordinated debentures
10,310 
10,310 
Advances from borrowers for taxes and insurance
723 
521 
Dividends payable
308 
326 
Accrued expenses and other liabilities
3,475 
4,239 
Total liabilities
849,986 
877,932 
Stockholders' equity:
  
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at June 30, 2014, and December 31, 2013.
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,947,525 issued and 7,395,285 outstanding at June 30, 2014, and 7,927,287 issued and 7,447,903 outstanding at December 31, 2013
79 
79 
Additional paid-in-capital
58,367 
58,302 
Retained earnings
45,382 
44,694 
Accumulated other comprehensive income (loss), net of taxes
2,899 
(1,429)
Total stockholders' equity
99,960 
95,717 
Total liabilities and stockholders' equity
949,946 
973,649 
Common Stock [Member]
  
Stockholders' equity:
  
Treasury stock- common (at cost, 552,240 shares at June 30, 2014, and 479,384 shares at December 31, 2013)
(6,767)
(5,929)
Total stockholders' equity
$ 79 
$ 79 
Consolidated Condensed Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2014
Dec. 31, 2013
Loans receivable, allowance for loan losses
$ 8,353 
$ 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
7,947,525 
7,927,287 
Common stock, shares outstanding
7,395,285 
7,447,903 
Common Stock [Member]
  
Treasury stock, shares
552,240 
479,384 
Consolidated Condensed Statements of Income (USD $)
3 Months Ended6 Months Ended
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Interest income:
    
Loans receivable
$ 6,503 
$ 6,676 
$ 12,830 
$ 13,558 
Securities available for sale-taxable
1,694 
1,764 
3,473 
3,596 
Securities available for sale-nontaxable
531 
547 
1,075 
1,132 
Interest-earning deposits
14 
13 
Total interest income
8,734 
8,994 
17,392 
18,299 
Interest expense:
    
Deposits
1,488 
1,936 
2,959 
3,982 
Advances from Federal Home Loan Bank
428 
446 
862 
890 
Repurchase agreements
245 
230 
494 
472 
Subordinated debentures
193 
182 
377 
364 
Total interest expense
2,354 
2,794 
4,692 
5,708 
Net interest income
6,380 
6,200 
12,700 
12,591 
Provision for loan losses
(261)
406 
119 
782 
Net interest income after provision for loan losses
6,641 
5,794 
12,581 
11,809 
Non-interest income:
    
Service charges
848 
937 
1,626 
1,790 
Merchant card income
276 
259 
535 
482 
Mortgage origination revenue
133 
212 
191 
412 
Gain on sale of securities
241 
789 
254 
1,416 
Income from bank owned life insurance
66 
87 
161 
162 
Financial services commission
168 
347 
374 
644 
Other operating income
213 
197 
402 
405 
Total non-interest income
1,945 
2,828 
3,543 
5,311 
Non-interest expenses:
    
Salaries and benefits
3,692 
3,714 
7,487 
7,562 
Occupancy
808 
882 
1,717 
1,727 
Data processing
736 
646 
1,464 
1,296 
Bank franchise tax
398 
147 
644 
289 
Intangible amortization
33 
48 
65 
97 
Professional services
341 
549 
628 
942 
Deposit insurance and examination
183 
179 
380 
411 
Advertising
341 
308 
655 
641 
Postage and communications
140 
139 
283 
278 
Supplies
158 
93 
303 
229 
Loss on real estate owned
102 
12 
125 
47 
Real estate owned
92 
32 
222 
108 
Other operating
423 
375 
798 
771 
Total non-interest expense
7,447 
7,124 
14,771 
14,398 
Income before income tax
1,139 
1,498 
1,353 
2,722 
Income tax expense
214 
332 
74 
572 
Net income
$ 925 
$ 1,166 
$ 1,279 
$ 2,150 
Net income per share:
    
Basic
$ 0.13 
$ 0.16 
$ 0.17 
$ 0.29 
Diluted
$ 0.13 
$ 0.16 
$ 0.17 
$ 0.29 
Dividend per share
$ 0.04 
$ 0.02 
$ 0.08 
$ 0.04 
Weighted average shares outstanding-basic
7,376,726 
7,488,906 
7,396,627 
7,488,788 
Weighted average shares outstanding-diluted
7,376,726 
7,488,906 
7,396,627 
7,488,788 
Consolidated Condensed Statements of Comprehensive Income (Loss) (USD $)
3 Months Ended6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Statement Of Income And Comprehensive Income [Abstract]
    
Net income
$ 925 
$ 1,166 
$ 1,279 
$ 2,150 
Other comprehensive income, net of tax:
    
Unrealized gain (loss) on investment securities available for sale, net of tax effect of ($1,340) and $3,405 for the three month periods ended June 30, 2014, and June 30, 2013, respectively; and ($2,260) and $4,003 for the six month periods ended June 30, 2014, and June 30, 2013, respectively;
2,601 
(6,610)
4,387 
(7,771)
Unrealized gain on derivatives, net of tax effect of ($31) and ($40) for the three month periods ended June 30, 2014, and June 30, 2013, respectively; and of ($56) and ($72) for the six month periods ending June 30, 2014, and June 30, 2013, respectively;
60 
77 
109 
140 
Reclassification adjustment for gains included in net income, net of tax effect of $82 and $268 for the three month periods ended June 30, 2014, and June 30, 2013, respectively; and $86 and $482 the six month periods ended June 30, 2014, and June 30, 2013, respectively;
(159)
(521)
(168)
(935)
Comprehensive income (loss)
$ 3,427 
$ (5,888)
$ 5,607 
$ (6,416)
Consolidated Condensed Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
3 Months Ended6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Statement Of Income And Comprehensive Income [Abstract]
    
Unrealized gain (loss) on investment securities available for sale, tax effect
$ (1,340)
$ 3,405 
$ (2,260)
$ 4,003 
Unrealized gain on derivatives, tax effect
(31)
(40)
(56)
(72)
Reclassification adjustment for gains included in net income, tax effect
$ 82 
$ 268 
$ 86 
$ 482 
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 (Loss) [Member]
USD ($)
Beginning balance at Dec. 31, 2012
$ 104,999 
$ 79 
 
$ 556 
$ 76,288 
$ 41,829 
$ (18,400)
$ (5,076)
$ 9,723 
Beginning balance, shares at Dec. 31, 2012
 
7,502,812 
18,400 
      
Restricted stock awards, shares
 
227 
       
Consolidated net income
2,150 
    
2,150 
   
Compensation expense, restricted stock awards
47 
   
47 
    
Net change in unrealized gain on securities available for sale, net of income tax expense (benefit)
(8,706)
       
(8,706)
Net change in unrealized loss on derivatives, net of income taxes
140 
       
140 
Repurchase of warrant
(257)
  
(556)
299 
    
Cash dividend to common stockholders
(300)
    
(300)
   
Ending balance at Jun. 30, 2013
98,073 
79 
  
76,634 
43,679 
(18,400)
(5,076)
1,157 
Ending balance, shares at Jun. 30, 2013
 
7,503,039 
18,400 
      
Beginning balance at Dec. 31, 2013
95,717 
79 
  
58,302 
44,694 
 
(5,929)
(1,429)
Beginning balance, shares at Dec. 31, 2013
 
7,447,903 
       
Restricted stock awards, shares
 
20,238 
       
Repurchase of treasury stock
(838)
      
(838)
 
Repurchase of treasury stock, shares
 
(72,856)
       
Consolidated net income
1,279 
    
1,279 
   
Compensation expense, restricted stock awards
65 
   
65 
    
Net change in unrealized gain on securities available for sale, net of income tax expense (benefit)
4,219 
       
4,219 
Net change in unrealized loss on derivatives, net of income taxes
109 
       
109 
Cash dividend to common stockholders
(591)
    
(591)
   
Ending balance at Jun. 30, 2014
$ 99,960 
$ 79 
  
$ 58,367 
$ 45,382 
 
$ (6,767)
$ 2,899 
Ending balance, shares at Jun. 30, 2014
 
7,395,285 
       
Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) (USD $)
6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2014
Jun. 30, 2013
Net change in unrealized gain on securities available for sale, income tax expense (benefit)
$ 2,173 
$ 4,485 
Net change in unrealized loss on derivatives, income taxes
56 
72 
Accumulated Other Comprehensive Income (Loss) [Member]
  
Net change in unrealized gain on securities available for sale, income tax expense (benefit)
2,173 
4,485 
Net change in unrealized loss on derivatives, income taxes
$ 56 
$ 72 
Consolidated Condensed Statements of Cash Flows (USD $)
6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2014
Jun. 30, 2013
Cash flows from operating activities:
  
Net cash provided by operating activities
$ 4,477 
$ 4,484 
Cash flows from investing activities
  
Proceeds from sales, calls and maturities of securities available for sale
52,414 
73,375 
Purchase of securities available for sale
(59,556)
(69,182)
Net (increase) decrease in loans
5,560 
(4,672)
Proceeds from sale of foreclosed assets
249 
462 
Purchase of premises and equipment
(508)
(74)
Net cash used in investing activities
(1,841)
(91)
Cash flows from financing activities:
  
Net increase (decrease) in demand deposits
(1,702)
343 
Net decrease in time and other deposits
(18,026)
(17,544)
Increase in advances from borrowers for taxes and insurance
202 
301 
Advances from Federal Home Loan Bank
15,000 
8,000 
Repayment of advances from Federal Home Loan Bank
(21,004)
(5,973)
Net increase (decrease) in repurchase agreements
(1,634)
3,564 
Cash used to repurchase warrant
 
(257)
Cash used to repurchase treasury stock
(838)
 
Dividends paid on common stock
(591)
(300)
Net cash used in financing activities
(28,593)
(11,866)
Decrease in cash and cash equivalents
(25,957)
(7,473)
Cash and cash equivalents, beginning of period
55,848 
37,176 
Cash and cash equivalents, end of period
29,891 
29,703 
Supplemental disclosures of Cash Flow Information:
  
Interest paid
4,752 
5,852 
Income taxes paid
 
495 
Supplemental disclosures of non-cash investing and financing activities:
  
Loans charged off
588 
2,370 
Foreclosures and in substance foreclosures of loans during period
190 
593 
Net unrealized gains (losses) on investment securities classified as available for sale
6,392 
(13,191)
Increase (decrease) in deferred tax asset related to unrealized gains on investments
(2,173)
4,485 
Dividends declared and payable
308 
150 
Issue of unearned restricted stock
$ 235 
$ 2 
Basis of Presentation
6 Months Ended
Jun. 30, 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 six month period ended June 30, 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
6 Months Ended
Jun. 30, 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 and six month periods ended June 30, 2014, and June 30, 2013. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrant outstanding.

 

     Three Month Periods Ended
June 30,
 
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 925,000       $ 1,166,000   

Average common shares outstanding

     7,376,726         7,488,906   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.13       $ 0.16   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 925,000       $ 1,166,000   

Average common shares outstanding

     7,376,726         7,488,906   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,376,726         7,488,906   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.13       $ 0.16   
  

 

 

    

 

 

 

 

     Six Month Periods Ended
June 30,
 
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 1,279,000       $ 2,150,000   

Average common shares outstanding

     7,396,627         7,488,788   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.17       $ 0.29   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 1,279,000       $ 2,150,000   

Average common shares outstanding

     7,396,627         7,488,788   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,396,627         7,488,788   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.17       $ 0.29   
  

 

 

    

 

 

 
Stock Compensation
6 Months Ended
Jun. 30, 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 $35,000 and $65,000 for the three and six month periods ended June 30, 2014, and $25,000 and $47,000 for the three and six month periods ended June 30, 2013, respectively. The Company issued 20,238 shares of restricted stock during the three and six month periods ended June 30, 2014. The Company issued 227 shares of restricted stock during the three and six month periods ended June 30, 2013. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at June 30, 2014:

 

Year Ending

December 31,

   Future
Expense
 

2014

   $ 95,260   

2015

     179,556   

2016

     126,526   

2017

     39,700   
  

 

 

 

Total

   $ 441,042   
  

 

 

 

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
6 Months Ended
Jun. 30, 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 June 30, 2014, the Company has 63 securities with unrealized losses. The carrying amount of securities and their estimated fair values at June 30, 2014, were as follows:

 

     June 30, 2014  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for sale:

          

U.S. Treasury securities

   $ 3,973         5         —          3,978   

U.S. Agency securities

     118,130         2,126         (1,210     119,046   

Corporate bonds

     2,000         5         —          2,005   

Taxable municipal bonds

     14,119         333         (226     14,226   

Tax free municipal bonds

     61,918         3,643         (227     65,334   

Trust preferred securities

     1,600         —           (111     1,489   

Mortgage-backed securities:

          

GNMA

     27,450         695         (101     28,044   

FNMA

     65,479         866         (749     65,596   

FHLMC

     1,142         38         —          1,180   

NON-AGENCY CMOs

     10,811         4         (194     10,621   

AGENCY CMOs

     20,040         206         (126     20,120   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 326,662         7,921         (2,944     331,639   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for sale securities:

          

U.S. Agency securities

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

Corporate bonds

     2,000         —           (16     1,984   

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   

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 CMOs

     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 June 30, 2014, were as follows:

 

     Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 195         197   

Due in one to five years

     20,422         20,711   

Due in five to ten years

     42,119         42,850   

Due after ten years

     41,010         42,905   
  

 

 

    

 

 

 
     103,746         106,663   

Amortizing agency bonds

     97,994         99,415   

Mortgage-backed securities

     124,922         125,561   
  

 

 

    

 

 

 

Total securities available for sale

   $ 326,662         331,639   
  

 

 

    

 

 

 

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

 

     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 in more than 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 securities available for sale

   $ 320,323         318,910   
  

 

 

    

 

 

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of June 30, 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

   $ 9,500         (79     37,734         (1,131     47,234         (1,210

Taxable municipals

     571         (4     7,595         (222     8,166         (226

Tax free municipals

     —           —          7,242         (227     7,242         (227

Trust preferred securities

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

Mortgage-backed securities:

               

GNMA

     11,316         (88     3,180         (13     14,496         (101

FNMA

     2,922         (1     27,806         (748     30,728         (749

NON-AGENCY CMOs

     2,499         (49     5,407         (145     7,906         (194

AGENCY CMOs

     2,970         (10     6,203         (116     9,173         (126
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Available for Sale

   $ 29,778         (231     96,656         (2,713     126,434         (2,944
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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 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
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

The applicable dates for determining when securities are in an unrealized loss position are June 30, 2014 and December 31, 2013. As such, it is possible that a security had a market value that exceeded its amortized cost on other days during the past twelve-month periods ended June 30, 2014 and December 31, 2013, but is in the “Investments with an Unrealized Loss of less than 12 months” category above.

As shown in the tables above, at June 30, 2014, the Company had approximately $2.9 million in unrealized losses on $126.4 million of securities. The unrealized losses associated with these investment securities are driven by changes in interest rates and the unrealized loss is recorded as a component of equity. These securities will continue to be monitored as a part of our ongoing impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond issuers. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. If a shortfall in future cash flows is identified, a credit loss will be deemed to have occurred and will be recognized as a charge to earnings and a new cost basis for the security will be established.

Because the Company currently does not intend to sell those securities that have an unrealized loss at June 30, 2014, and it is not more-likely-than-not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2014.

Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, the Company will consider selling the security, but will review each security on a case-by-case basis as these factors become known.

The carrying values of the Company’s investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that the Company will not recover the entire amortized cost bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future. There is also a risk that other-than-temporary impairment charges may occur in the future if management’s intention to hold these securities to maturity and or recovery changes.

At June 30, 2014, securities with a book value of approximately $185.7 million and a market value of approximately $192.5 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 June 30, 2014, securities with a book and market value of $35.1 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 $19.5 million and a market value of $19.4 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
6 Months Ended
Jun. 30, 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 June 30, 2014, and December 31, 2013. At June 30, 2014, and December 31, 2013, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

 

     June 30, 2014     June 30, 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

   $ 151,917        27.8   $ 155,252        28.1

Second mortgages (closed end)

     2,688        0.5     3,248        0.6

Home equity lines of credit

     33,206        6.1     34,103        6.2

Multi-family

     28,242        5.2     29,736        5.4

Construction

     13,327        2.4     10,618        1.9

Land

     29,579        5.4     34,681        6.3

Farmland

     45,616        8.3     51,868        9.4

Non-residential real estate

     157,795        28.9     157,692        28.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Total mortgage loans

     462,370        84.6     477,198        86.4

Consumer loans

     15,564        2.9     11,167        2.0

Commercial loans

     68,374        12.5     64,041        11.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other loans

     83,938        15.4     75,208        13.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total loans, gross

     546,308        100.0     552,406        100.0
    

 

 

     

 

 

 

Deferred loan cost, net of fees

     (192       (92  

Less allowance for loan losses

     (8,353       (8,682  
  

 

 

     

 

 

   

Total loans

   $ 537,763        $ 543,632     
  

 

 

     

 

 

   

 

 

The Company assigns an industry standard NAICS code to each loan in the Company’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 Company’s non-residential real estate loan portfolio. At June 30, 2014, and December 31, 2013, the Company’s non-residential real estate loan portfolio was made up of the following loan types:

 

     June 30, 2014      December 31, 2013  
     (Dollars in Thousands)  

Land

   $ 29,579         34,681   

Manufacturing

     5,053         3,962   

Professional, Technical

     1,489         1,819   

Retail Trade

     11,491         10,916   

Other Services

     21,041         19,206   

Finance & Insurance

     2,615         1,862   

Agricultural, Forestry, Fishing & Hunting

     45,616         51,868   

Real Estate and Rental and Leasing

     55,408         55,692   

Wholesale Trade

     20,824         21,852   

Arts, Entertainment & Recreation

     3,698         3,015   

Accommodations / Food Service

     24,200         26,552   

Healthcare and Social Assistance

     6,473         6,862   

Transportation & Warehousing

     1,025         1,101   

Information

     2,205         2,390   

Non-industry

     2,042         2,101   

Admin Support / Waste Mgmt

     231         362   
  

 

 

    

 

 

 

Total

   $ 232,990         244,241   
  

 

 

    

 

 

 

The allowance for loan losses totaled $8.4 million at June 30, 2014, and $8.7 million at December 31, 2013, and $9.4 million at June 30, 2013, respectively. The ratio of the allowance for loan losses to total loans was 1.53% at June 30, 2014, 1.57% at December 31, 2013, and 1.75% at June 30, 2013.

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

 

     June 30, 2014      December 31, 2013      June 30, 2013  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 524         945         1,131   

Home equity line of credit

     29         1         22   

Junior lien

     —           2         37   

Construction

     —           175         —     

Land

     1,217         1,218         2,255   

Non-residential real estate

     6,520         6,546         7,055   

Farmland

     13         703         781   

Consumer loans

     1         13         11   

Commercial loans

     431         463         520   
  

 

 

    

 

 

    

 

 

 

Total non-accrual loans

   $ 8,735         10,066         11,812   
  

 

 

    

 

 

    

 

 

 

 

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the six month period ended June 30, 2014:

 

     Balance
12/31/2013
     Charge off
2014
    Recovery
2014
     General
Provision
2014
    Specific
Provision
2014
    Ending
Balance
6/30/2014
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 2,048         (181     12         105        (125     1,859   

Home equity line of credit

     218         (20     2         2        18        220   

Junior liens

     39         —          7         (16     (7     23   

Multi-family

     466         —          —           (159     —          307   

Construction

     88         (10     4         —          —          82   

Land

     1,305         —          —           (80     (280     945   

Non-residential real estate

     2,719         —          —           309        (171     2,857   

Farmland

     510         —          —           275        32        817   

Consumer loans

     541         (196     64         52        132        593   

Commercial loans

     748         (181     51         (85     117        650   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 8,682         (588     140         403        (284     8,353   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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
     General
Provision
2013
    Specific
Provision
2013
    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 currently performing, past due and non-accrual balances at June 30, 2014, by loan classification allocated between performing and non-performing:

 

June 30, 2014

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

One-to-four family mortgages

   $ 145,897         669         524         204         4,623         —         $ 151,917   

Home equity line of credit

     32,561         33         29         —           583         —           33,206   

Junior liens

     2,627         —           —           41         20         —           2,688   

Multi-family

     23,093         —           —           2,928         2,221         —           28,242   

Construction

     13,327         —           —           —           —           —           13,327   

Land

     13,898         2,975         1,217         370         11,119         —           29,579   

Non-residential real estate

     136,374         3,158         6,520         4,829         6,914         —           157,795   

Farmland

     43,636         —           13         343         1,624         —           45,616   

Consumer loans

     15,197         4         1         —           362         —           15,564   

Commercial loans

     64,632         1,170         431         657         1,484         —           68,374   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 491,242         8,009         8,735         9,372         28,950         —         $ 546,308   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

     Currently
Performing
     30 - 89
Days
Past Due
     Non-accrual
Loans
     Special
Mention
     Impaired Loans
Currently Performing
        

December 31, 2013

               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 mention, 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 six month periods ended June 30, 2014, June 30, 2013, and the year ended December 31, 2013, was 0.16%, 0.77% and 0.66%, respectively. The ratios of allowance for loan losses to non-accrual loans at June 30, 2014, June 30, 2013, and December 31, 2013, were 95.6%, 86.3%, and 139.0% respectively.

The determination of the allowance for loan losses is based on management’s analysis, completed 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 dollars 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 25, Watch loans are included with satisfactory loans and classified as Pass.

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

ASubstandard 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 probable 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 using the fair value of the collateral if the loan is collateral dependent. Currently, it is management’s practice to test all loans for impairment that are classified as substandard or doubtful with an outbalance of more than $250,000. At June 30, 2014, December 31, 2013, and June 30, 2013, the Company’s impaired loans totaled $37.7 million, $42.6 million and $40.4 million, respectively. At June 30, 2014, December 31, 2013, and June 30, 2013, the Company’s specific reserve for impaired loans totaled $1.5 million, $1.9 million and $3.5 million, respectively.

 

A summary of the Company’s loans, including their respective regulatory classification and their respective specific reserve at June 30, 2014, were as follows:

 

            Special      Impaired Loans            

Specific

Allowance

for

    

Allowance

for

Performing

 

June 30, 2014

   Pass      Mention      Substandard      Doubtful      Total      Impairment      Loans  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 146,566         204         5,147         —         $ 151,917       $ 303       $ 1,555   

Home equity line of credit

     32,594         —           612         —           33,206         —           220   

Junior liens

     2,627         41         20         —           2,688         —           25   

Multi-family

     23,093         2,928         2,221         —           28,242         —           307   

Construction

     13,327         —           —           —           13,327         —           82   

Land

     16,873         370         12,336         —           29,579         491         452   

Non-residential real estate

     139,532         4,829         13,434         —           157,795         636         2,222   

Farmland

     43,636         343         1,637         —           45,616         33         783   

Consumer loans

     15,201         —           363         —           15,564         83         510   

Commercial loans

     65,802         657         1,915         —           68,374         —           651   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 499,251         9,372         37,685         —         $ 546,308       $ 1,546       $ 6,807   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

  

            Special      Impaired Loans            

Specific

Allowance

for

    

Allowance

for

Performing

 
     Pass      Mention      Substandard      Doubtful      Total      Impairment      Loans  
     (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 June 30, 2014, were as follows:

 

     At June 30, 2014      For the six month period
ended June 30, 2014
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

Impaired loans with no recorded reserve:

  

One-to-four family mortgages

   $ 3,261         3,261         —           2,319         83   

Home equity line of credit

     612         612         —           599         14   

Junior liens

     20         20         —           41         1   

Multi-family

     2,221         2,221         —           74         64   

Construction

     —           —           —           58         —     

Land

     9,014         9,014         —           10,334         191   

Farmland

     1,331         1,331         —           5,921         71   

Non-residential real estate

     9,449         9,449         —           7,927         218   

Consumer loans

     31         31         —           34         1   

Commercial loans

     1,915         1,915         —           2,268         45   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 27,854         27,854         —           29,575         688   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with recorded reserve:

  

One-to-four family mortgages

   $ 1,886         1,886         303         1,871         50   

Home equity line of credit

     —           —           —           —           —     

Junior liens

     —           —           —           —           —     

Multi-family

     —           —           —           —           —     

Construction

     —           —           —           —           —     

Land

     3,322         3,322         491         3,565         64   

Farmland

     306         306         33         1,221         17   

Non-residential real estate

     3,985         5,176         636         2,439         183   

Consumer loans

     332         332         83         439         —     

Commercial loans

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,831         11,022         1,546         9,535         314   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 37,685         38,876         1,546         39,110         1,002   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

     At December 31, 2013                
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in thousands)  

Impaired loans with no recorded reserve:

              

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   

Non-residential real estate

     10,775         10,775         —           6,196         263   

Farmland

     5,346         5,346         —           6,955         149   

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   

Non-residential real estate

     3,358         4,222         465         2,243         111   

Farmland

     —           —           —           1,601         —     

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans of June 30, 2014 and December 31, 2013, by portfolio segment and based on impairment method as of June 30, 2014 and December 31, 2013 (in thousands):

 

     Commercial      Land
Development/
Construction
     Commercial
Real Estate
     Residential
Real Estate
     Consumer      Total  

June 30, 2014:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ —         $ 491       $ 669       $ 303       $ 83       $ 1,546   

Collectively evaluated for impairment

     650         535         3,312         1,800         510         6,807   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 650       $ 1,026       $ 3,981       $ 2,103       $ 593       $ 8,353   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 1,915       $ 12,336       $ 17,292       $ 5,779       $ 363       $ 37,685   

Loans collectively evaluated for impairment

     66,459         30,570         214,361         182,032         15,201         508,623   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 68,374       $ 42,906       $ 231,653       $ 187,811       $ 15,564       $ 546,308   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Commercial      Land
Development/
Construction
     Commercial
Real Estate
     Residential
Real Estate
     Consumer      Total  

December 31, 2013:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ —         $ 771       $ 465       $ 597       $ 96       $ 1,929   

Collectively evaluated for impairment

     748         622         3,230         1,708         445         6,753   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 748       $ 1,393       $ 3,695       $ 2,305       $ 541       $ 8,682   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 2,013       $ 14,905       $ 19,479       $ 5,807       $ 440       $ 42,644   

Loans collectively evaluated for impairment

     62,028         30,394         219,817         186,796         10,727         509,762   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 64,041       $ 45,299       $ 239,296       $ 192,603       $ 11,167       $ 552,406   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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:

 

    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.

 

    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.

 

    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 June 30, 2014, and December 31, 2013, the Company has no loans classified as TDR’s that are reported as performing on June 30, 2014, and December 31, 2013, respectively. For the six month period ended June 30, 2014, no loans were classified as TDR and no loans were added or removed from TDR status during the six month period ended June 30, 2014.

Real Estate and Other Assets Owned
6 Months Ended
Jun. 30, 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 June 30, 2014, December 31, 2013, and June 30, 2013, the Company had balances in other real estate owned and non-accrual loans consisting of the following:

 

     June 30, 2014     December 31, 2013     June 30, 2013  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 356        350      $ 447   

Land

     934        1,124        1,112   

Non-residential real estate

     200        200        73   
  

 

 

   

 

 

   

 

 

 

Total other real estate owned

     1,490        1,674        1,632   
  

 

 

   

 

 

   

 

 

 

Total non-accrual loans

     8,735        10,066        11,812   
  

 

 

   

 

 

   

 

 

 

Total non-performing assets

   $ 10,225        11,740      $ 13,444   
  

 

 

   

 

 

   

 

 

 

Non-performing assets / Total assets

     1.08     1.21     1.42
  

 

 

   

 

 

   

 

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the six month period ending June 30, 2014:

 

     Activity During 2014  
     Balance
12/31/2013
     Foreclosures      Proceeds     Reduction
in Values
    Gain (Loss)
on Sale
    Balance
6/30/2014
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 350         190         (178     (5     (1     356   

Land

     1,124         —           (71     (100     (19     934   

Non-residential real estate

     200         —           —          —          —          200   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,674         190         (249     (105     (20     1,490   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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
12/31/2012
     Foreclosures      Proceeds     Reduction
in Values
    Gain (Loss)
on Sale
    Balance
12/31/2013
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 258         1,052         (938     (26     4        350   

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
6 Months Ended
Jun. 30, 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 June 30, 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 Statement of Income

 

     Three Month Periods
Ended June 30,
     Six Month Period
Ended June 30,
 
         2014              2013              2014              2013      

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

   $ 87         88       $ 173         176   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 87         88       $ 173         176   
  

 

 

    

 

 

    

 

 

    

 

 

 

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

     —           —           173        173   

Dividends:

          

Trust preferred securities

     —           —           (168     (168

Common paid to HopFed Bancorp, Inc.

     —           —           (5     (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Ending balances, June 30, 2014

   $ 10,000         310         —          10,310   
  

 

 

    

 

 

    

 

 

   

 

 

 
Fair Value of Assets and Liabilities
6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]
 
Fair Value of Assets and Liabilities

(8) FAIR VALUE OF ASSETS AND LIABILITIES

ASC 820-10, Fair Value Measurements 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 June 30, 2014, are summarized below:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
June 30, 2014
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
            (Dollars in
Thousands)
               

Assets

           

Available for sale securities

   $ 331,639         —           330,150         1,489   

Bank owned life insurance

   $ 9,837         —           9,837         —     

Liabilities

           

Interest rate swap

   $ 585         —           585         —     

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

 

Description

   Total carrying
value in the
consolidated
balance sheet at
December 31, 2013
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
            (Dollars in
Thousands)
               

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 June 30, 2014:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
June 30, 2014
     Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
            (Dollars in
Thousands)
               

Assets

           

Other real estate and repossessed asset

   $ 1,490         —           —         $ 1,490   

Impaired loans, net of reserve of $1,546

   $ 36,139         —           —         $ 36,139   

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

 

Description

   Total carrying
value in the
consolidated
balance sheet at
December 31, 2013
   Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
          (Dollars in
Thousands)
               

Assets

           

Other real estate and repossessed assets

   $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 six month periods ended June 30, 2014, and June 30, 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.

 

Six month period ended June 30,

   2014      2013  
     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 June 30,

     —           —           —           —     

Purchases, issuances and settlements, net

     —           —           —           —     

Transfers in and/or out of Level 3

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, June 30,

   $ 1,489         —           1,489         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The estimated fair values of financial instruments were as follows at June 30, 2014:

 

     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

   $ 24,125         24,125       $ 24,125         —           —     

Interest-earning deposits

     5,766         5,766         5,766         —           —     

Securities available for sale

     331,639         331,639         —           330,150         1,489   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans held for sale

     464         464         —           —           464   

Loans receivable

     537,763         541,610         —           —           541,610   

Accrued interest receivable

     4,518         4,518         —           4,518         —     

Bank owned life insurance

     9,837         9,837         —           9,837         —     

Financial liabilities:

              

Deposits

     743,269         744,334         —           744,334         —     

Advances from borrowers for taxes and insurance

     723         723         —           723         —     

Advances from Federal Home Loan Bank

     40,776         44,189         —           44,189         —     

Repurchase agreements

     51,125         51,690         —           51,690         —     

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

     585         585         —           585         —     

 

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 Options
6 Months Ended
Jun. 30, 2014
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
 
Stock Options

(9) STOCK OPTIONS

At June 30, 2014, all stock options outstanding were issued under the HopFed Bancorp, Inc. 1999 Stock Option Plan and have expired.

Derivative Instruments
6 Months Ended
Jun. 30, 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 six month period ended June 30, 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 June 30, 2014, and December 31, 2013, the cost of the Bank to terminate the cash flow hedge was approximately $585,000 and $750,000, respectively.

Regulatory Changes
6 Months Ended
Jun. 30, 2014
Banking And Thrift [Abstract]
 
Regulatory Changes

(11) REGULATORY CHANGES

On June 5, 2013, the Company announced that its wholly owned subsidiary, Heritage Bank, has completed its conversion from a federally chartered savings and loan to a state chartered commercial bank regulated by the Kentucky Department of Financial Institutions and the Federal Deposit Insurance Corporation. In connection with the Bank’s charter conversion, the Company has received approval from the Board of Governors of the Federal Reserve System (the “Federal Reserve”) to convert our holding company from a savings and loan holding company to a bank holding company also with an effective date of June 5, 2013.

On July 2, 2013, the Board of Governors of the Federal Reserve Bank approved the final rule for BASEL III capital requirements for all commercial banks charted in the United States of America. The rule was subsequently approved by the FDIC on July 9, 2013. The rule will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the final rule, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage ratio of 4 percent for all banking organizations. In addition, for the largest, most internationally active banking organizations, the final rule includes a new minimum supplementary leverage ratio that takes into account off-balance sheet exposures. The transition period for implementation of Basel III is January 1, 2015, through December 31, 2018. The Company is currently evaluating the impact of Basel III on our financial statements.

Effect of New Accounting Pronouncements
6 Months Ended
Jun. 30, 2014
Accounting Changes And Error Corrections [Abstract]
 
Effect of New Accounting Pronouncements

(12) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

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 have 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 is effective for the Company’s beginning January 1, 2013 (early adoption permitted) and is not expected to 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.

In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. These amendments are 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. The 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: (1) the creditor obtaining legal title to the residential real estate property upon completion of residential foreclosure, or (2) 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 about such activities are required by these amendments. The amendments in ASU 2014-04 become effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014, and early adoption is permitted. The Company is assessing the impact that these amendments will have on its financial position and results of operations, but does not currently anticipate that it will have a material impact.

On June 12, 2014, the FASB issued ASU 2014-11, which makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (“repos”). ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings.

ASU 2014-11 also amends ASC 860 to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in ASC 860-10-40-5 should be accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. For public business entities, the accounting changes are effective for the first interim or annual period beginning after December 15, 2014. The Company is assessing the impact that these amendments will have on its financial position and results of operations.

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.

Income Taxes
6 Months Ended
Jun. 30, 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)
6 Months Ended
Jun. 30, 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
Receivables-Troubled Debt Restructurings by Creditors
Repurchase Agreements

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:

 

    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.

 

    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.

 

    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.

ASC 820-10, Fair Value Measurements 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 six month period ended June 30, 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 have 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 is effective for the Company’s beginning January 1, 2013 (early adoption permitted) and is not expected to 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.

In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. These amendments are 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. The 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: (1) the creditor obtaining legal title to the residential real estate property upon completion of residential foreclosure, or (2) 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 about such activities are required by these amendments. The amendments in ASU 2014-04 become effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014, and early adoption is permitted. The Company is assessing the impact that these amendments will have on its financial position and results of operations, but does not currently anticipate that it will have a material impact.

On June 12, 2014, the FASB issued ASU 2014-11, which makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (“repos”). ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings.

ASU 2014-11 also amends ASC 860 to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in ASC 860-10-40-5 should be accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. For public business entities, the accounting changes are effective for the first interim or annual period beginning after December 15, 2014. The Company is assessing the impact that these amendments will have on its financial position and results of operations.

Income Per Share (Tables)
6 Months Ended
Jun. 30, 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 and six month periods ended June 30, 2014, and June 30, 2013.

 

     Three Month Periods Ended
June 30,
 
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 925,000       $ 1,166,000   

Average common shares outstanding

     7,376,726         7,488,906   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.13       $ 0.16   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 925,000       $ 1,166,000   

Average common shares outstanding

     7,376,726         7,488,906   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,376,726         7,488,906   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.13       $ 0.16   
  

 

 

    

 

 

 

 

     Six Month Periods Ended
June 30,
 
     2014      2013  

Basic IPS:

     

Net income available to common stockholders

   $ 1,279,000       $ 2,150,000   

Average common shares outstanding

     7,396,627         7,488,788   
  

 

 

    

 

 

 

Net income per share available to common shareholders, basic

   $ 0.17       $ 0.29   
  

 

 

    

 

 

 

Diluted IPS

     

Net income available to common stockholders

   $ 1,279,000       $ 2,150,000   

Average common shares outstanding

     7,396,627         7,488,788   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     7,396,627         7,488,788   
  

 

 

    

 

 

 

Net income per share available to common shareholders, diluted

   $ 0.17       $ 0.29   
  

 

 

    

 

 

 
Stock Compensation (Tables)
6 Months Ended
Jun. 30, 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 June 30, 2014:

 

Year Ending

December 31,

   Future
Expense
 

2014

   $ 95,260   

2015

     179,556   

2016

     126,526   

2017

     39,700   
  

 

 

 

Total

   $ 441,042   
  

 

 

 
Securities (Tables)
6 Months Ended
Jun. 30, 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

At June 30, 2014, the Company has 63 securities with unrealized losses. The carrying amount of securities and their estimated fair values at June 30, 2014, were as follows:

 

     June 30, 2014  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for sale:

          

U.S. Treasury securities

   $ 3,973         5         —          3,978   

U.S. Agency securities

     118,130         2,126         (1,210     119,046   

Corporate bonds

     2,000         5         —          2,005   

Taxable municipal bonds

     14,119         333         (226     14,226   

Tax free municipal bonds

     61,918         3,643         (227     65,334   

Trust preferred securities

     1,600         —           (111     1,489   

Mortgage-backed securities:

          

GNMA

     27,450         695         (101     28,044   

FNMA

     65,479         866         (749     65,596   

FHLMC

     1,142         38         —          1,180   

NON-AGENCY CMOs

     10,811         4         (194     10,621   

AGENCY CMOs

     20,040         206         (126     20,120   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 326,662         7,921         (2,944     331,639   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

          

FHLB stock

   $ 4,428         —           —          4,428   
  

 

 

    

 

 

    

 

 

   

 

 

 

Available for sale securities:

          

U.S. Agency securities

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

Corporate bonds

     2,000         —           (16     1,984   

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   

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 CMOs

     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 June 30, 2014, were as follows:

 

     Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 195         197   

Due in one to five years

     20,422         20,711   

Due in five to ten years

     42,119         42,850   

Due after ten years

     41,010         42,905   
  

 

 

    

 

 

 
     103,746         106,663   

Amortizing agency bonds

     97,994         99,415   

Mortgage-backed securities

     124,922         125,561   
  

 

 

    

 

 

 

Total securities available for sale

   $ 326,662         331,639   
  

 

 

    

 

 

 

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

 

     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 in more than 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 securities available for sale

   $ 320,323         318,910   
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of June 30, 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

   $ 9,500         (79     37,734         (1,131