HOPFED BANCORP INC (HFBC) Form 10-Q for Period Ending 3/31/2015
: 6.22.4
 
Document and Entity Information
3 Months Ended
Mar. 31, 2015
May 7, 2015
Document And Entity Information [Abstract]
  
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
HFBC 
 
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
 
7,046,244 
Consolidated Condensed Statements of Financial Condition (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Assets
  
Cash and due from banks
$ 26,150 
$ 34,389 
Interest-earning deposits
9,599 
6,050 
Cash and cash equivalents
35,749 
40,439 
Federal Home Loan Bank stock, at cost
4,428 
4,428 
Securities available for sale
259,867 
303,628 
Loans held for sale
2,051 
1,444 
Loans receivable, net of allowance for loan losses of $6,170 at March 31, 2015, and $6,289 at December 31, 2014
548,740 
539,264 
Accrued interest receivable
4,228 
4,576 
Real estate and other assets owned
2,352 
1,927 
Bank owned life insurance
10,055 
9,984 
Premises and equipment, net
23,282 
22,940 
Deferred tax assets
1,092 
2,261 
Intangible asset
17 
33 
Other assets
5,245 
4,861 
Total assets
897,106 
935,785 
Deposits:
  
Non-interest-bearing accounts
110,828 
115,051 
Interest-bearing accounts
  
Interest bearing checking accounts
189,882 
186,616 
Savings and money market accounts
102,284 
97,726 
Other time deposits
324,215 
331,915 
Total deposits
727,209 
731,308 
Advances from Federal Home Loan Bank
19,000 
34,000 
Repurchase agreements
45,466 
57,358 
Subordinated debentures
10,310 
10,310 
Advances from borrowers for taxes and insurance
793 
513 
Dividends payable
272 
301 
Accrued expenses and other liabilities
3,180 
3,593 
Total liabilities
806,230 
837,383 
Stockholders' equity
  
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at March 31, 2015, and December 31, 2014.
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,949,665 issued and 7,045,941 outstanding at March 31, 2015, and 7,949,665 issued and 7,171,282 outstanding at December 31, 2014
79 
79 
Additional paid-in-capital
58,515 
58,466 
Retained earnings
46,827 
45,729 
Treasury stock
(11,267)
(9,429)
Unallocated ESOP shares (at cost, 600,000 shares at March 31, 2015, and no shares at December 31, 2014)
(7,884)
 
Accumulated other comprehensive income, net of taxes
4,606 
3,557 
Total stockholders' equity
90,876 
98,402 
Total liabilities and stockholders' equity
$ 897,106 
$ 935,785 
Consolidated Condensed Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
  
Loans receivable, allowance for loan losses
$ 6,170 
$ 6,289 
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
7,949,665 
7,949,665 
Common stock, shares outstanding
7,045,941 
7,171,282 
Treasury stock, shares
903,724 
778,383 
Unallocated ESOP shares
600,000 
Consolidated Condensed Statements of Income (USD $)
3 Months Ended
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2015
Mar. 31, 2014
Interest and dividend income
  
Loans receivable
$ 6,290 
$ 6,327 
Investment in securities, taxable
2,448 
1,779 
Investment in securities, non-taxable
453 
544 
Interest-earning deposits
Total interest and dividend income
9,195 
8,658 
Interest expense
  
Deposits
1,260 
1,471 
Advances from Federal Home Loan Bank
69 
434 
Repurchase agreements
120 
249 
Subordinated debentures
184 
184 
Total interest expense
1,633 
2,338 
Net interest income
7,562 
6,320 
Provision for loan losses
215 
380 
Net interest income after provision for loan losses
7,347 
5,940 
Non-interest income
  
Service charges
714 
778 
Merchant card income
270 
259 
Mortgage origination revenue
177 
58 
Gain on sale of securities
366 
13 
Income from bank owned life insurance
71 
95 
Financial services commission
159 
206 
Other operating income
156 
189 
Total non-interest income
1,913 
1,598 
Non-interest expenses
  
Salaries and benefits
4,184 
3,795 
Occupancy expense
738 
909 
Data processing expense
692 
728 
Other state taxes
248 
246 
Intangible amortization expense
16 
32 
Professional services expense
329 
287 
Deposit insurance and examination expense
117 
197 
Advertising expense
306 
314 
Postage and communications expense
132 
143 
Supplies expense
146 
145 
Loss (gain) on sale of real estate owned
(7)
23 
Real estate owned expenses
137 
130 
Other operating expenses
432 
375 
Total non-interest expense
7,470 
7,324 
Income before income tax expense
1,790 
214 
Income tax expense (benefit)
435 
(140)
Net income
$ 1,355 
$ 354 
Net income per share
  
Basic
$ 0.20 
$ 0.05 
Fully diluted
$ 0.20 
$ 0.05 
Dividend per share
$ 0.04 
$ 0.04 
Weighted average shares outstanding - basic
6,732,456 
7,416,716 
Weighted average shares outstanding - diluted
6,732,456 
7,416,716 
Consolidated Condensed Statements of Comprehensive Income (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2015
Mar. 31, 2014
Statement of Comprehensive Income [Abstract]
  
Net income
$ 1,355 
$ 354 
Other comprehensive income (loss), net of tax:
  
Unrealized gain on investment securities available for sale, net of tax effect of ($632) and ($920) for the three months ended March 31, 2015, and March 31, 2014, respectively;
1,227 
1,786 
Unrealized gain on derivatives, net of tax effect of ($32) and ($25) for the three month periods ending March 31, 2015, and March 31, 2014, respectively;
64 
49 
Reclassification adjustment for gains included in net income, net of tax effect of $124 and $4 for the three month periods ended March 31, 2015, and March 31, 2014, respectively;
(242)
(9)
Comprehensive income
$ 2,404 
$ 2,180 
Consolidated Condensed Statements of Comprehensive Income (Parenthetical) (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2015
Mar. 31, 2014
Statement of Comprehensive Income [Abstract]
  
Unrealized gain on investment securities available for sale, tax effect
$ (632)
$ (920)
Unrealized gain on derivatives, tax effect
(32)
(25)
Reclassification adjustment for other than temporary impairment included in net income, tax effect
$ 124 
$ 4 
Consolidated Condensed Statement of Stockholders Equity (USD $)
In Thousands, except Share data
Total
Common Stock [Member]
Preferred Stock [Member]
Additional Capital Surplus [Member]
Retained Earnings [Member]
Treasury Stock Common [Member]
Accumulated Other Comprehensive Income [Member]
Additional Common Stock [Member]
Capital Surplus [Member]
Unearned Esop Shares [Member]
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 
        
Consolidated net income
354 
 
   
 
354 
     
Repurchase of treasury stock
(120)
    
(120)
    
Repurchase of treasury stock, shares
 
(10,386)
        
Compensation expense, restricted stock awards
31 
 
   
31 
      
Net change in unrealized gain on securities available for sale, net of income taxes
1,777 
 
   
   
1,777 
   
Net change in unrealized loss on derivatives, net of income tax benefit
49 
 
   
   
49 
   
Cash dividend to common stockholders
(295)
 
   
 
(295)
     
Ending balance at Mar. 31, 2014
97,513 
79 
   
58,333 
44,753 
(6,049)
397 
   
Ending balance, shares at Mar. 31, 2014
 
7,437,517 
        
Beginning balance at Dec. 31, 2014
98,402 
(9,429)
  
45,729 
 
3,557 
79 
58,466 
 
Beginning balance, shares at Dec. 31, 2014
 
7,171,282 
        
Consolidated net income
1,355 
   
1,355 
     
Treasury stock reissued
 
7,884 
       
(7,884)
Treasury stock reissued,shares
 
600,000 
        
Repurchase of treasury stock
(9,722)
(9,722)
        
Repurchase of treasury stock, shares
 
(725,341)
        
Compensation expense, restricted stock awards
49 
       
49 
 
Net change in unrealized gain on securities available for sale, net of income taxes
985 
     
985 
   
Net change in unrealized loss on derivatives, net of income tax benefit
64 
     
64 
   
Cash dividend to common stockholders
(257)
   
(257)
     
Ending balance at Mar. 31, 2015
$ 90,876 
$ (11,267)
  
$ 46,827 
 
$ 4,606 
$ 79 
$ 58,515 
$ (7,884)
Ending balance, shares at Mar. 31, 2015
 
7,045,941 
        
Consolidated Condensed Statement of Stockholders Equity (Parenthetical) (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2015
Mar. 31, 2014
Net change in unrealized gain on securities available for sale, income taxes
$ (508)
$ (916)
Net change in unrealized loss on derivatives, income tax benefit
(32)
25 
Accumulated Other Comprehensive Income [Member]
  
Net change in unrealized gain on securities available for sale, income taxes
(508)
(916)
Net change in unrealized loss on derivatives, income tax benefit
$ (32)
$ 25 
Consolidated Condensed Statements of Cash Flows (USD $)
3 Months Ended
In Thousands, unless otherwise specified
Mar. 31, 2015
Mar. 31, 2014
Cash flows from operating activities:
  
Net cash provided by operating activities
$ 1,673 
$ 1,864 
Cash flows from investing activities
  
Proceeds from sales, calls and maturities of securities available for sale
59,190 
16,463 
Purchase of securities available for sale
(14,075)
(36,904)
Net (increase) decrease in loans
(10,155)
7,068 
Proceeds from sale of foreclosed assets
46 
137 
Purchase of premises and equipment
(655)
(332)
Net cash provided by (used in) investing activities
34,351 
(13,568)
Cash flows from financing activities:
  
Net increase (decrease) in demand deposits
(4,223)
596 
Net increase (decrease) in time and other deposits
124 
(2,067)
Increase (decrease) in advances from borrowers for taxes and insurance
280 
51 
Repayment of advances from Federal Home Loan Bank
(15,000)
(5,500)
Net increase (decrease) in repurchase agreements
(11,892)
(2,630)
Cash used to repurchase treasury stock
(9,722)
(120)
Dividends paid on common stock
(281)
(295)
Net cash used in financing activities
(40,714)
(9,965)
Decrease in cash and cash equivalents
(4,690)
(21,669)
Cash and cash equivalents, beginning of period
40,439 
55,848 
Cash and cash equivalents, end of period
35,749 
34,179 
Supplemental disclosures of cash flow information:
  
Interest paid
1,662 
2,380 
Income taxes paid
Supplemental disclosures of non-cash investing and financing activities:
  
Loans charged off
403 
196 
Foreclosures and in substance foreclosures of loans during period
464 
166 
Net unrealized gains on investment securities classified as available for sale
1,493 
2,688 
Decrease in deferred tax asset related to unrealized gains on investments
(508)
(916)
Dividends declared and payable
272 
324 
Issue of common stock to ESOP
$ 7,884 
 
Basis of Presentation
3 Months Ended
Mar. 31, 2015
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. In October of 2014, the Bank opened a loan production office in Nashville, Tennessee.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair representation have been included. The results of operations and other data for the three month period ended March 31, 2015, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2015.

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, 2014. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2014, Consolidated Financial Statements.

Income Per Share
3 Months Ended
Mar. 31, 2015
Earnings Per Share [Abstract]
 
Income Per Share
(2)   INCOME PER SHARE

The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2015, and March 31, 2014. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding. For the three month period ended March 31, 2015, the Company has excluded all unearned shares purchased by the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan (the “ESOP”) from the Company on March 2, 2015, due to the fact that, at March 31, 2015, the Company has made no legal commitment to make a principal payment on the loan, which is required to release shares.

 

     March 31,  
     2015      2014  

Basic IPS:

     

Net income

   $ 1,355,000       $ 354,000   

Average common shares outstanding

     6,732,456         7,416,716   
  

 

 

    

 

 

 

Net income per share

$ 0.20    $ 0.05   
  

 

 

    

 

 

 

Diluted IPS:

Net income

$ 1,355,000    $ 354,000   

Average common shares outstanding

  6,732,456      7,416,716   

Dilutive effect of stock options

  —        —     
  

 

 

    

 

 

 

Average diluted shares outstanding

  6,732,456      7,416,716   
  

 

 

    

 

 

 

Net income per share, diluted

$ 0.20    $ 0.05   
  

 

 

    

 

 

 
Stock Compensation
3 Months Ended
Mar. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
Stock Compensation
(3)   STOCK COMPENSATION

The Company incurred compensation cost related to the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan of $49,000 for the three month period ended March 31, 2015, and $31,000 for the three month period ended March 31, 2014, respectively. The Company did not issue any shares of restricted stock during the three month periods ended March 31, 2015 and March 31, 2014, respectively. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2015:

 

Year Ending December 31,

   Future
Expense
 

2015

   $ 136,818   

2016

     132,780   

2017

     45,954   

2018

     3,127   
  

 

 

 

Total

$ 318,679   
  

 

 

 

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

Securities
3 Months Ended
Mar. 31, 2015
Cash and Cash Equivalents [Abstract]
 
Securities
(4)   SECURITIES

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

At March 31, 2015, the Company has 41 securities with unrealized losses. The carrying amount of securities and their estimated fair values at March 31, 2015, were as follows:

 

     March 31, 2015  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

Restricted

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

U.S. Treasury securities

$ 2,002      10      —        2,012   

U.S. Agency securities

  102,125      2,654      (151   104,628   

Taxable municipal bonds

  10,080      265      (24   10,321   

Tax free municipal bonds

  50,646      3,219      (118   53,747   

Trust preferred securities

  1,604      195      —        1,799   

Mortgage-backed securities:

GNMA

  21,500      317      (61   21,756   

FNMA

  33,732      796      (38   34,490   

FHLMC

  933      32      —        965   

SLMA CMO

  5,743      —        (52   5,691   

AGENCY CMO

  24,230      271      (43   24,458   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 252,595      7,759      (487   259,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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

Restricted

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

U.S. Treasury securities

$ 3,977      3      —        3,980   

U.S. Agency securities

  101,654      2,125      (527   103,252   

Tax free municipal bonds

  57,399      3,814      (166   61,047   

Taxable municipal bonds

  11,871      235      (63   12,043   

Trust preferred securities

  1,600      —        (111   1,489   

Commercial bonds

  2,000      7      —        2,007   

Mortgage-backed securities:

GNMA

  27,535      670      (122   28,083   

FNMA

  50,617      694      (536   50,775   

FHLMC

  3,276      38      —        3,314   

SLMA CMO

  9,895      —        (252   9,643   

AGENCY CMO

  28,024      176      (205   27,995   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 297,848      7,762      (1,982   303,628   
  

 

 

    

 

 

    

 

 

    

 

 

 

The scheduled maturities of debt securities available for sale at March 31, 2015, were as follows:

 

            Estimated  
     Amortized      Fair  

March 31, 2015

   Cost      Value  

Due within one year

   $ 4,830       $ 4,927   

Due in one to five years

     19,749         20,064   

Due in five to ten years

     41,165         42,393   

Due after ten years

     27,961         29,925   
  

 

 

    

 

 

 
  93,705      97,309   

Amortizing agency bonds

  72,752      75,198   

Mortgage-backed securities

  86,138      87,360   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

$ 252,595    $ 259,867   
  

 

 

    

 

 

 

 

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

 

            Estimated  
     Amortized      Fair  

December 31, 2014

   Cost      Value  

Due within one year

   $ 4,830       $ 4,927   

Due in one to five years

     21,564         21,818   

Due in five to ten years

     41,683         42,613   

Due after ten years

     33,119         35,380   
  

 

 

    

 

 

 
  101,196      104,738   

Amortizing agency bonds

  77,305      79,080   

Mortgage-backed securities

  119,347      119,810   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

$ 297,848    $ 303,628   
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2015, are as follows:

 

     Less than 12 months     12 months or longer     Total  
     Estimated      Unrealized     Estimated      Unrealized     Estimated      Unrealized  
     Fair Value      Losses     Fair Value      Losses     Fair Value      Losses  
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities

               

Agency debt securities

   $ 9,130         (47     12,911         (104     22,041         (151

Taxable municipals

     —           —          3,049         (24     3,049         (24

Tax free municipals

     —           —          6,476         (118     6,476         (118

Mortgage-backed securities

               

GNMA

     9,464         (49     5,265         (12     14,729         (61

FNMA

     —           —          3,087         (38     3,087         (38

SLMA CMOs

     —           —          5,691         (52     5,691         (52

AGENCY CMOs

     5,562         (12     3,593         (31     9,155         (43
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

$ 24,156      (108   40,072      (379   64,228      (487
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2014, were as follows:

 

     Less than 12 months     12 months or longer     Total  

December 31, 2014

   Estimated      Unrealized     Estimated      Unrealized     Estimated      Unrealized  
   Fair Value      Losses     Fair Value      Losses     Fair Value      Losses  

Available for sale

               

U.S. government and agency securities

               

Agency debt securities

   $ 14,021         (20     29,156         (507     43,177         (527

Taxable municipals

     —           —          4,785         (63     4,785         (63

Tax free municipals

     —           —          6,647         (166     6,647         (166

Trust preferred securities

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

Mortgage-backed securities

               

GNMA

     12,568         (108     2,895         (14     15,463         (122

FNMA

     —           —          18,927         (536     18,927         (536

SLMA CMOs

     1,923         (14     7,720         (238     9,643         (252

AGENCY CMOs

     9,545         (91     7,685         (114     17,230         (205
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

$ 38,057      (233   79,304      (1,749   117,361      (1,982
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

At March 31, 2015, securities with a book value of approximately $162.4 million and a market value of approximately $169.3 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 $11.0 million secured by the Bank’s loan portfolio to secure additional municipal deposits.

At March 31, 2015, securities with a book and market value of $39.5 million were sold under agreements to repurchase from various customers. Furthermore, the Company has a wholesale repurchase agreement with third party secured by investments with a combined book value of $6.5 million and a market value of $6.6 million. The 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%.

Loans
3 Months Ended
Mar. 31, 2015
Receivables [Abstract]
 
Loans
(5)   LOANS

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2015, and December 31, 2014. At March 31, 2015, and December 31, 2014, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:

 

     March 31, 2015      March 31, 2015     December 31, 2014      December 31, 2014  
     Amount      Percent     Amount      Percent  
     (Dollars in thousands, except percentages)  

Real estate loans

  

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

   $ 147,835         26.6   $ 150,551         27.6

Second mortgages (closed end)

     2,050         0.4     2,102         0.4

Home equity lines of credit

     34,107         6.1     34,238         6.3

Multi-family

     22,069         4.0     25,991         4.8

Construction

     26,736         4.8     24,241         4.4

Land

     26,214         4.7     26,654         4.9

Farmland

     42,283         7.6     42,874         7.8

Non-residential real estate

     159,995         28.8     150,596         27.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans

  461,289      83.0   457,247      83.8

Consumer loans

  14,814      2.7   14,438      2.6

Commercial loans

  79,155      14.3   74,154      13.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other loans

  93,969      17.0   88,592      16.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans, gross

  555,258      100.0   545,839      100.0
     

 

 

      

 

 

 

Deferred loan cost, net of income

  (348   (286

Less allowance for loan losses

  (6,170   (6,289
  

 

 

      

 

 

    

Total loans

$ 548,740    $ 539,264   
  

 

 

      

 

 

    

The allowance for loan losses totaled $6.2 million at March 31, 2015, $6.3 million at December 31, 2014, and $8.9 million at March 31, 2014, respectively. The ratio of the allowance for loan losses to total loans was 1.11% at March 31, 2015, 1.15% at December 31, 2014, and 1.63% at March 31, 2014. The following table indicates the type and level of non-accrual loans at the periods indicated below:

 

     March 31, 2015      December 31, 2014      March 31, 2014  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 1,235         1,501         1,056   

Home equity line of credit

     —           —           49   

Junior lien

     —           —           1   

Multi-family

     —           95         —     

Land

     —           215         1,217   

Non-residential real estate

     542         1,159         6,585   

Farmland

     —           115         669   

Consumer loans

     —           —           2   

Commercial loans

     347         90         453   
  

 

 

    

 

 

    

 

 

 

Total non-accrual loans

$ 2,124      3,175      10,032   
  

 

 

    

 

 

    

 

 

 

 

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2015:

 

                         General     Specific     Ending  
     Balance      Charge off     Recovery      Provision     Provision     Balance  

Three month period ended March 31, 2015

   12/31/2014      2015     2015      2015     2015     3/31/2015  

One-to-four family mortgages

   $ 1,198         (64     10         (124     138        1,158   

Home equity line of credit

     181         —          1         (19     —          163   

Junior liens

     14         —          1         (4     —          11   

Multi-family

     85         —          —           —          (16     69   

Construction

     146         —          —           (36     —          110   

Land

     1,123         —          —           4        103        1,230   

Non-residential real estate

     2,083         (208     —           (57     193        2,011   

Farmland

     461         —          —           54        (78     437   

Consumer loans

     494         (97     47         (120     67        391   

Commercial loans

     504         (34     10         (6     116        590   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
$ 6,289      (403   69      (308   523      6,170   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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, 2014:

 

                         General     Specific     Ending  
     Balance      Charge off     Recovery      Provision     Provision     Balance  

Year ended December 31, 2014

   12/31/2013      2014     2014      2014     2014     12/31/2014  

One-to-four family mortgages

   $ 2,048         (233     24         (304     (337     1,198   

Home equity line of credit

     218         (83     3         (37     80        181   

Junior liens

     39         —          9         (25     (9     14   

Multi-family

     466         —          —           (381     —          85   

Construction

     88         (139     9         58        130        146   

Land

     1,305         —          —           (74     (108     1,123   

Non-residential real estate

     2,719         (66     864         (1,368     (66     2,083   

Farmland

     510         —          —           542        (591     461   

Consumer loans

     541         (415     109         (13     272        494   

Commercial loans

     748         (296     94         (244     202        504   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
$ 8,682      (1,232   1,112      (1,846   (427   6,289   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

The table below presents past due and non-accrual balances at March 31, 2015, by loan classification allocated between performing and non-performing loan. At March 31, 2015, the Company had $3.3 million in loans past due 30 – 89 days that were risk graded as substandard:

 

            30 - 89                    Impaired Loans         
     Currently      Days      Non-accrual      Special      Currently Performing         

March 31, 2015

   Performing      Past Due      Loans      Mention      Substandard      Doubtful      Total  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 143,690         885         1,235         —           2,025         —           147,835   

Home equity line of credit

     33,075         24         —           243         765         —           34,107   

Junior liens

     1,992         —           —           39         19         —           2,050   

Multi-family

     17,128         —           —           1,944         2,997         —           22,069   

Construction

     26,736         —           —           —           —           —           26,736   

Land

     15,444         2,643         —           45         8,082         —           26,214   

Non-residential real estate

     148,306         330         542         297         10,520         —           159,995   

Farmland

     41,317         242         —           692         32         —           42,283   

Consumer loans

     14,611         17         —           —           186         —           14,814   

Commercial loans

     76,709         113         347         143         1,843         —           79,155   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  519,008      4,254      2,124      3,403      26,469      —        555,258   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

            30 - 89                    Impaired Loans         
     Currently      Days      Non-accrual      Special      Currently Performing         

December 31 2014

   Performing      Past Due      Loans      Mention      Substandard      Doubtful      Total  

One-to-four family mortgages

   $ 145,372         757         1,501         203         2,718         —           150,551   

Home equity line of credit

     33,338         143         —           —           757         —           34,238   

Junior liens

     2,025         —           —           40         37         —           2,102   

Multi-family

     20,066         —           95         2,904         2,926         —           25,991   

Construction

     24,241         —           —           —           —           —           24,241   

Land

     14,674         654         215         362         10,749         —           26,654   

Non-residential real estate

     131,854         —           1,159         5,492         12,091         —           150,596   

Farmland

     40,057         64         115         516         2,122         —           42,874   

Consumer loans

     14,104         14         —           21         299         —           14,438   

Commercial loans

     71,191         55         90         325         2,493         —           74,154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 496,922      1,687      3,175      9,863      34,192      —        545,839   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2015, and December 31, 2014, by portfolio segment and based on the impairment method as of March 31, 2015, and December 31, 2014.

 

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

March 31, 2015:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 140         766         703         136         45       $ 1,790   

Collectively evaluated for impairment

     498         574         1,766         1,196         346         4,380   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

$ 638      1,340      2,469      1,332      391    $ 6,170   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

Loans individually evaluated for impairment

$ 2,190      8,082      17,386      4,044      186    $ 31,888   

Loans collectively evaluated for impairment

  76,965      44,868      206,961      179,948      14,628      523,370   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

$ 79,155      52,950      224,347      183,992      14,814    $ 555,258   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

December 31, 2014:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ —           663         738         51         62       $ 1,514   

Collectively evaluated for impairment

     504         606         1,891         1,342         432         4,775   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

$ 504      1,269      2,629      1,393      494    $ 6,289   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

Loans individually evaluated for impairment

$ 2,583      10,964      18,508      5,013      299    $ 37,367   

Loans collectively evaluated for impairment

  71,571      39,931      200,953      181,878      14,139      508,472   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

$ 74,154      50,895      219,461      186,891      14,438    $ 545,839   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

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

The Company’s annualized net charge off ratios for three month periods ended March 31, 2015, March 31, 2014, and the year ended December 31, 2014, was 0.24%, 0.11% and 0.02%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2015, March 31, 2014, and December 31, 2014, were 290.51%, 88.85%, and 198.08%, respectively.

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

The Company conducts annual reviews on all loan relationships above one million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information.

As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than sixty days. The Company uses the following risk definitions for risk grades:

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

 

Watch loans are acceptable credits: (1) that need continual monitoring, such as out-of territory or asset-based loans (since the Bank does not have an asset-based lending department), or (2) with a marginal risk level to business concerns and individuals that; (a) have exhibited favorable performance in the past, though currently experiencing negative trends; (b) are in an industry that is experiencing volatility or is declining, and their performance is less than industry norms; and (c) are experiencing unfavorable trends in their financial position, such as one-time net losses or declines in asset values. These marginal borrowers may have early warning signs of problems such as occasional overdrafts and minor delinquency. If considered marginal, a loan would be a “watch” until financial data demonstrated improved performance or further deterioration to a “substandard” grade usually within a 12-month period. In the table on page 22, Watch loans are included with satisfactory loans and classified as Pass.

Special Mention loans are currently protected but are potentially weak. These loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan. These credit weaknesses, if not checked or corrected, will weaken the loan or inadequately protect the Bank’s credit position at some future date.

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

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

A loan is considered to be impaired when management determines that it is possible that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired. At March 31, 2015, December 31, 2014, and March 31, 2014, the Company’s impaired loans totaled $31.9 million, $37.4 million and $42.6 million, respectively.

 

At March 31, 2015, December 31, 2014 and March 31, 2014, the Company’s specific reserve for impaired loans totaled $1.8 million, $1.5 million and $1.9 million respectively. A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2015, and December 31, 2014, were as follows:

 

March 31, 2015

          Special      Impaired Loans            

Specific
Reserve

for

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

One-to-four family mortgages

   $ 144,453         —           3,382         —           147,835         136         1,022   

Home equity line of credit

     33,099         243         765         —           34,107         —           163   

Junior liens

     1,992         39         19         —           2,050         —           11   

Multi-family

     17,128         1,944         2,997         —           22,069         —           69   

Construction

     26,736         —           —           —           26,736         —           110   

Land

     15,453         45         10,716         —           26,214         766         464   

Non-residential real estate

     148,306         297         11,392         —           159,995         703         1,308   

Farmland

     41,350         692         241         —           42,283         —           389   

Consumer loans

     14,628         —           186         —           14,814         45         346   

Commercial loans

     76,822         143         2,190         —           79,155         140         498   
  

 

 

    

 

 

    

 

 

       

 

 

    

 

 

    

 

 

 

Total

$ 519,967      3,403      31,888      —        555,258      1,790      4,380   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
            Special      Impaired Loans             Specific
Allowance
for
    

Allowance

For Loans

 
     Pass      Mention      Substandard      Doubtful      Total      Impairment      Not Impaired  
December 31, 2014                            

One-to-four family mortgages

   $ 146,129         203         4,219         —           150,551         51         1,147   

Home equity line of credit

     33,481         —           757         —           34,238         —           181   

Junior lien

     2,025         40         37         —           2,102         —           14   

Multi-family

     20,066         2,904         3,021         —           25,991         —           85   

Construction

     24,241         —           —           —           24,241         —           146   

Land

     15,328         362         10,964         —           26,654         663         460   

Non-residential real estate

     131,854         5,492         13,250         —           150,596         738         1,345   

Farmland

     40,121         516         2,237         —           42,874         —           461   

Consumer loans

     14,118         21         299         —           14,438         62         432   

Commercial loans

     71,246         325         2,583         —           74,154         —           504   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 498,609      9,863      37,367      —        545,839      1,514      4,775   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Impaired loans by classification type and the related valuation allowance amounts at March 31, 2015, were as follows:

 

     At March 31, 2015      For the three month period ended
March 31, 2015
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Impaired loans with no recorded reserve

              

One-to-four family mortgages

   $ 2,668         2,668         —           2,668         18   

Home equity line of credit

     765         765         —           765         9   

Junior liens

     19         19         —           19         —     

Multi-family

     2,997         2,997         —           2,997         51   

Construction

     —           —           —           —           —     

Land

     7,295         7,295         —           7,295         146   

Farmland

     241         241         —           241         —     

Non-residential real estate

     10,211         10,211         —           10,211         137   

Consumer loans

     7         7         —           7         —     

Commercial loans

     1,487         1,487         —           1,487         31   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  25,690      25,690      —        25,690      392   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance

One-to-four family mortgages

  714      714      136      714      10   

Home equity line of credit

  —        —        —        —        —     

Junior liens

  —        —        —        —        —     

Multi-family

  —        —        —        —        —     

Construction

  —        —        —        —        —     

Land

  3,421      3,421      766      3,421      32   

Farmland

  —        —        —        —        —     

Non-residential real estate

  1,181      1,181      703      1,181      10   

Consumer loans

  179      179      45      179      —     

Commercial loans

  703      703      140      703      19   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  6,198      6,198      1,790      6,198      71   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

$ 31,888      31,888      1,790      31,888      463   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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

 

     At December 31, 2014      For the year ended
December 31, 2014
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 

Impaired loans with no specific allowance

              

One-to-four family mortgages

   $ 3,501         3,501         —           2,972         176   

Home equity line of credit

     757         757         —           690         35   

Junior liens

     37         37         —           39         2   

Multi-family

     3,021         3,021         —           1,342         190   

Construction

     —           —           —           29         —     

Land

     7,740         7,740         —           8,978         339   

Non-residential real estate

     12,057         12,057         —           8,672         669   

Farmland

     2,237         2,237            3,968         125   

Consumer loans

     51         51         —           36         3   

Commercial loans

     2,583         2,583         —           2,246         154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  31,984      31,984      —        28,972      1,693   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance

One-to-four family mortgages

$ 718      718      51      1,434      44   

Home equity line of credit

  —        —        —        —        —     

Junior liens

  —        —        —        —        —     

Multi-family

  —        —        —        —        —     

Construction

  —        —        —        —        —     

Land

  3,224      4,737      663      3,418      160   

Non-residential real estate

  1,193      1,258      738      3,617      69   

Farmland

  —        —        —        619      —     

Consumer loans

  248      248      62      355      —     

Commercial loans

  —        —        —        100      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  5,383      6,961      1,514      9,543      273   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

$ 37,367      38,945      1,514      38,515      1,966   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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 December 31, 2014, and March 31, 2015, the Company had two loans classified as performing TDRs. There was no activity in loans classified as TDRs for the three month ended March 31, 2015.

 

     Balance at
12/31/14
     New
TDR
     Loss or
Foreclosure
     Transferred to
Held For Sale
     Removed
from
(Taken to)
Non-accrual
     Balance at
3/31/15
 
     (Dollars in Thousands)  

Non-residential real estate

   $ 3,284         —           —           —           —           3,284   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total performing TDR

$ 3,284      —        —        —        —        3,284   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

A summary of the activity in loans classified as TDRs for the year ended December 31, 2014, is as follows

 

     Balance at
12/31/13
     New
TDR
     Loss or
Foreclosure
     Transferred to
Held For Sale
    Removed
from
(Taken to)
Non-accrual
     Balance at
12/31/14
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ —           —           —           —          —           —     

Non-residential real estate

     —           10,271         —           (6,987     —           3,284   

Commercial loans

     —           —           —           —          —           —     
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total performing TDR

$ —        10,271      —        (6,987   —        3,284   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
Real Estate and Other Assets Owned
3 Months Ended
Mar. 31, 2015
Text Block [Abstract]
 
Real Estate and Other Assets Owned
(6)   REAL ESTATE AND OTHER ASSETS OWNED

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

At March 31, 2015, December 31, 2014, and March 31, 2014, the Company had balances in other real estate and assets owned and non-accrual loans consisting of the following:

 

     March 31, 2015     December 31, 2014     March 31, 2014  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 175        159        446   

Land

     1,768        1,768        1,034   

Non-residential real estate

     409        —          200   
  

 

 

   

 

 

   

 

 

 

Total other assets owned

$ 2,352      1,927      1,680   
  

 

 

   

 

 

   

 

 

 

Total non-accrual loans

$ 2,124      3,175      10,032   
  

 

 

   

 

 

   

 

 

 

Total non-performing assets

$ 4,476      5,102      11,712   
  

 

 

   

 

 

   

 

 

 

Non-performing assets / Total assets

  0.50   0.55   1.21
  

 

 

   

 

 

   

 

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the three month period ending March 31, 2015:

 

            Activity During 2015                      
     Balance
12/31/2014
     Foreclosures      Proceeds     Reduction
in Values
     Gain (Loss)
on Sale
     Balance
3/31/2015
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 159         55         (46     —           7       $ 175   

Land

     1,768         —           —          —           —           1,768   

Non-residential real estate

     —           409         —          —           —           409   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

$ 1,927      464      (46   —        7    $ 2,352   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the year ended December 31, 2014:

 

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

One-to-four family mortgages

   $ 350         461         (667     (5     20      $ 159   

Land

     1,124         943         (123     (157     (19     1,768   

Non-residential real estate

     200         175         (328     —          (47     —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

$ 1,674      1,579      (1,118   (162   (46 $ 1,927   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
Investments in Affiliated Companies
3 Months Ended
Mar. 31, 2015
Investments in and Advances to Affiliates, Schedule of Investments [Abstract]
 
Investments in Affiliated Companies
(7)   INVESTMENTS IN AFFILIATED COMPANIES

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

Summary Statements of Financial Condition

 

     At
March 31, 2015
     At
December 31, 2014
 

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

   $ 10,310         10,310   
  

 

 

    

 

 

 

Liabilities

  —        —     

Stockholder’s equity – trust preferred securities

  10,000      10,000   

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

  310      310   
  

 

 

    

 

 

 

Total stockholders’ equity

$ 10,310      10,310   
  

 

 

    

 

 

 

Summary Statements of Income

 

     Three Month Periods
Ended March 31,
 
     2015      2014  

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

   $ 85         86   
  

 

 

    

 

 

 

Net income

$ 85      86   
  

 

 

    

 

 

 

Summary Statement of Stockholders’ Equity

 

     Trust
Preferred
Securities
     Common
Stock
     Retained
Earnings
     Total
Stockholders’
Equity
 

Beginning balances, December 31, 2014

   $ 10,000         310         —           10,310   

Net income

     —           —           85         85   

Dividends:

           

Trust preferred securities

     —           —           (82      (82

Common paid to HopFed Bancorp, Inc.

     —           —           (3      (3
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balances, March 31, 2015

$ 10,000      310      —        10,310   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value of Assets and Liabilities
3 Months Ended
Mar. 31, 2015
Fair Value Disclosures [Abstract]
 
Fair Value of Assets and Liabilities
(8)   FAIR VALUE OF ASSETS AND LIABILITIES

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

 

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

 

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

 

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

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

 

Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis at March 31, 2015, are summarized below:

 

March 31, 2015

  

Total carrying
value in the

consolidated

balance sheet at

    

Quoted Prices
In Active

Markets for

Identical Assets

    

Significant
Other

Observable
Inputs

     Significant
Unobservable
Inputs
 

Description

   March 31, 2015      (Level 1)      (Level 2)      (Level 3)  

Assets

           

Available for sale securities

   $ 259,867         —           258,068         1,799   

Liabilities

           

Interest rate swap

   $ 294         —           294         —     

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

 

December 31, 2014

  

Total carrying
value in the

consolidated

balance sheet at

    

Quoted Prices
In Active

Markets for

Identical Assets

    

Significant
Other

Observable
Inputs

     Significant
Unobservable
Inputs
 

Description

   December 31, 2014      (Level 1)      (Level 2)      (Level 3)  

Assets

           

Available for sale securities

   $ 303,628         —           302,139         1,489   

Liabilities

           

Interest rate swap

   $ 390         —           390         —     

 

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2015:

 

March 31, 2015

  

Total carrying
value in the

consolidated

balance sheet at

    

Quoted Prices
In Active

Markets for

Identical Assets

    

Significant
Other

Observable
Inputs

     Significant
Unobservable
Inputs
 

Description

   3/31/2015      (Level 1)      (Level 2)      (Level 3)  
     (Dollars in Thousands)  

Assets

           

Other real estate and other assets owned

   $ 2,352         —           —         $ 2,352   

Impaired loans, net of reserve of $1,790

   $ 30,098         —           —         $ 30,098   

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

 

December 31, 2014

  

Total carrying
value in the

consolidated

balance sheet at

    

Quoted Prices
In Active

Markets for

Identical Assets

    

Significant
Other

Observable
Inputs

     Significant
Unobservable
Inputs
 

Description

   12/31/2014      (Level 1)      (Level 2)      (Level 3)  

Assets

           

Other real estate and other assets owned

   $ 1,927         —           —         $ 1,927   

Impaired loans, net of reserve of $1,514

   $ 35,853         —           —         $ 35,853   

 

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2015, and March 31, 2014, (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.

 

     2015      2014  

Three month period ended March 31,

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

Fair value, January 1,

   $ 1,489         —           1,489         —     

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

     306         —           —           —     

Accretion of previous discounted amounts

     4            

Purchases, issuances and settlements, net

     —           —           —           —     

Transfers in and/or out of Level 3

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value, March 31,

$ 1,799      —        1,489      —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The estimated fair values of financial instruments were as follows at March 31, 2015:

 

     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
 

Financial Assets:

  

Cash and due from banks

   $ 26,150         26,150         26,150         —           —     

Interest-earning deposits

     9,599         9,599         9,599         —           —     

Securities available for sale

     259,867         259,867         —           258,068         1,799   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans held for sale

     2,051         2,051         —           2,051         —     

Loans receivable

     548,740         546,293         —           —           546,293   

Accrued interest receivable

     4,228         4,228         —           4,228         —     

Financial liabilities:

              

Deposits

     727,209         710,167         —           710,167         —     

Advances from borrowers for taxes and insurance

     793         793         —           793         —     

Advances from Federal Home Loan Bank

     19,000         19,179         —           19,179         —     

Repurchase agreements

     45,466         45,766         —           45,766         —     

Subordinated debentures

     10,310         10,099         —           —           10,099   

Off-balance-sheet liabilities:

              

Market value of interest rate swap

     294         294         —           294         —     

 

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

Financial Assets:

  

Cash and due from banks

   $ 34,389         34,389         34,389         —           —     

Interest-earning deposits

     6,050         6,050         6,050         —           —     

Securities available for sale

     303,628         303,628         —           302,139         1,489   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans held for sale

     1,444         1,444         —           1,444         —     

Loans receivable

     539,264         537,493         —           —           537,493   

Accrued interest receivable

     4,576         4,576         —           4,576         —     

Financial liabilities:

              

Deposits

     731,308         714,750         —           714,750         —     

Advances from borrowers for taxes and insurance

     513         513         —           513         —     

Advances from Federal Home Loan Bank

     34,000         34,217         —           34,217         —     

Repurchase agreements

     57,358         57,688         —           57,688         —     

Subordinated debentures

     10,310         10,099         —           —           10,099   

Off-balance-sheet liabilities:

              

Market value of interest rate swap

     390         390         —           390         —     

 

Derivative Instruments
3 Months Ended
Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]
 
Derivative Instruments
(9)   DERIVATIVE INSTRUMENTS

Under guidelines of Financial Accounting Standards Board (“FASB”) ASC 815, Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated statement of financial position. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated statement of financial position with corresponding offsets recorded in the consolidated statement of financial position.

 

The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the three month period ended March 31, 2015, or the year ended December 31, 2014.

In October of 2008, the Bank entered into an interest rate swap agreement for a term of seven years and an amount of $10.0 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (LIBOR) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At March 31, 2015, and December 31, 2014, the cost of the Bank to terminate the cash flow hedge was approximately $294,000 and $390,000, respectively.

Effect of New Accounting Pronouncements
3 Months Ended
Mar. 31, 2015
Accounting Changes and Error Corrections [Abstract]
 
Effect of New Accounting Pronouncements
(10)   EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

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 this ASU became effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption of ASU 2014-04 did not have a material impact on the Company’s financial position or results of operations.

 

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 were effective for the first interim or annual period beginning after December 15, 2014. The adoption of ASU 2014-11 did not have a material impact on the Company’s financial position or results of operations.

ASU 2014-1, which amends FASB ASC Topic 323, Investments – Equity Method and Joint Ventures. The ASU impacts the Company’s accounting for investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in the update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. The Company has chosen to continue to utilize the equity method for reporting under this topic. The Company’s adoption of ASU 2014-1 did not have a material impact on the Company’s financial position or results of operations.

 

ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. However, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The Company adopted ASU No. 2014-12 effective January 1, 2015. Entities may apply the amendments in this ASU either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As of March 31, 2015, the Company did not have any share-based payment awards that included performance targets that could be achieved after the requisite service period. As such, the adoption of ASU No. 2014-12 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 is effective for the Corporation beginning January 1, 2016, though early adoption is permitted. ASU 2015-01 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

 

ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the provisions of ASU No. 2015-02 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Income Taxes
3 Months Ended
Mar. 31, 2015
Income Tax Disclosure [Abstract]
 
Income Taxes
  (11)   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 34% 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.


 

Other Assets
3 Months Ended
Mar. 31, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
 
Other Assets
(12)   OTHER ASSETS

The Company has invested in two flow-through limited liability entities that manage and invest in affordable housing projects that qualify for historic, low-income and elderly housing tax credits. At March 31, 2015, the Company’s total investment in each entity was $422,000 and $1.0 million, respectively. The Company has no future capital commitments to either entity.

The amounts recognized in net income for these investments include:

 

     For the three months ended
March 31,
 
     2015      2014  

Investment loss included in pre-tax income

   $ 55       $ 51   

Tax credits recognized in provision for income taxes

     24         20   

Loans (Policies)
3 Months Ended
Mar. 31, 2015
Accounting Changes and Error Corrections [Abstract]
 
Troubled Debt Restructuring
Fair Value Measurement
Derivative Instruments and Hedging Activities
Receivables-Troubled Debt Restructurings by Creditors
Repurchase Agreements
Investments - Equity Method and Joint Ventures
Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
Income Statement - Extraordinary and Unusual Items
Amendments to the Consolidation Analysis

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.

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

 

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

 

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

 

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

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

Under guidelines of Financial Accounting Standards Board (“FASB”) ASC 815, Derivative Instruments and Hedging Activities, as amended, all derivative instruments are required to be carried at fair value on the consolidated statement of financial position. ASC 815 provides special hedge accounting provisions, which permit the change in fair value of the hedge item related to the risk being hedged to be recognized in earnings in the same period and in the same income statement line as the change in the fair value of the derivative.

A derivative instrument designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges under ASC 815. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Cash value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the risk being hedged of the hedged asset or liability on the consolidated statement of financial position with corresponding offsets recorded in the consolidated statement of financial position.

 

The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives included in a fair value hedge relationship are recorded as adjustments to the income or expense recorded on the hedged asset or liability.

Under both the fair value and cash flow hedge methods, derivative gains and losses not effective in hedging the change in fair value or expected cash flows of the hedged item are recognized immediately in the income statement. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the fair values or cash flows of the derivative instrument has been highly effective in offsetting changes in the fair values or cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been, or will not continue to be highly effective as a hedge, hedged accounting is discontinued. ASC 815 basis adjustments recorded on hedged assets and liabilities are amortized over the remaining life of the hedged item beginning no later than when hedge accounting ceases. There were no fair value hedging gains or losses, as a result of hedge ineffectiveness, recognized for the three month period ended March 31, 2015, or the year ended December 31, 2014.

In October of 2008, the Bank entered into an interest rate swap agreement for a term of seven years and an amount of $10.0 million. The Bank will pay a fixed rate of 7.27% for seven years and receive an amount equal to the three-month London Interbank Lending Rate (LIBOR) plus 3.10%. The interest rate swap is classified as a cash flow hedge by the Bank and will be tested quarterly for effectiveness. At March 31, 2015, and December 31, 2014, the cost of the Bank to terminate the cash flow hedge was approximately $294,000 and $390,000, respectively.

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 this ASU became effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014. The adoption of ASU 2014-04 did not have a material impact on the Company’s financial position or results of operations.

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 were effective for the first interim or annual period beginning after December 15, 2014. The adoption of ASU 2014-11 did not have a material impact on the Company’s financial position or results of operations.

ASU 2014-1, which amends FASB ASC Topic 323, Investments – Equity Method and Joint Ventures. The ASU impacts the Company’s accounting for investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments in the update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the income statement as a component of income tax expense. The Company has chosen to continue to utilize the equity method for reporting under this topic. The Company’s adoption of ASU 2014-1 did not have a material impact on the Company’s financial position or results of operations.

ASU No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.” The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. However, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The Company adopted ASU No. 2014-12 effective January 1, 2015. Entities may apply the amendments in this ASU either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As of March 31, 2015, the Company did not have any share-based payment awards that included performance targets that could be achieved after the requisite service period. As such, the adoption of ASU No. 2014-12 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 is effective for the Corporation beginning January 1, 2016, though early adoption is permitted. ASU 2015-01 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

ASU No. 2015-02, “Amendments to the Consolidation Analysis.” This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

 

ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the provisions of ASU No. 2015-02 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.

Income Per Share (Tables)
3 Months Ended
Mar. 31, 2015
Earnings Per Share [Abstract]
 
Reconciliation of Basic and Diluted Income Per Share
Reconciliation of Basic and Diluted Income Per Share

The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2015, and March 31, 2014. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding. For the three month period ended March 31, 2015, the Company has excluded all unearned shares purchased by the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan (the “ESOP”) from the Company on March 2, 2015, due to the fact that, at March 31, 2015, the Company has made no legal commitment to make a principal payment on the loan, which is required to release shares.

 

     March 31,  
     2015      2014  

Basic IPS:

     

Net income

   $ 1,355,000       $ 354,000   

Average common shares outstanding

     6,732,456         7,416,716   
  

 

 

    

 

 

 

Net income per share

$ 0.20    $ 0.05   
  

 

 

    

 

 

 

Diluted IPS:

Net income

$ 1,355,000    $ 354,000   

Average common shares outstanding

  6,732,456      7,416,716   

Dilutive effect of stock options

  —        —     
  

 

 

    

 

 

 

Average diluted shares outstanding

  6,732,456      7,416,716   
  

 

 

    

 

 

 

Net income per share, diluted

$ 0.20    $ 0.05   
  

 

 

    

 

 

 
Stock Compensation (Tables)
3 Months Ended
Mar. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
 
Company's Future Compensation Expense Related to Restricted Stock Vesting
Company's Future Compensation Expense Related to Restricted Stock Vesting

The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2015:

 

Year Ending December 31,

   Future
Expense
 

2015

   $ 136,818   

2016

     132,780   

2017

     45,954   

2018

     3,127   
  

 

 

 

Total

$ 318,679   
  

 

 

 
Securities (Tables)
3 Months Ended
Mar. 31, 2015
Cash and Cash Equivalents [Abstract]
 
Amortized Cost of Securities and their Estimated Fair Values
Maturities of Debt Securities Available for Sale
Estimated Fair Value and Unrealized Loss Amounts of Impaired Investments

The carrying amount of securities and their estimated fair values at March 31, 2015, were as follows:

 

     March 31, 2015  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

Restricted

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

U.S. Treasury securities

$ 2,002      10      —        2,012   

U.S. Agency securities

  102,125      2,654      (151   104,628   

Taxable municipal bonds

  10,080      265      (24   10,321   

Tax free municipal bonds

  50,646      3,219      (118   53,747   

Trust preferred securities

  1,604      195      —        1,799   

Mortgage-backed securities:

GNMA

  21,500      317      (61   21,756   

FNMA

  33,732      796      (38   34,490   

FHLMC

  933      32      —        965   

SLMA CMO

  5,743      —        (52   5,691   

AGENCY CMO

  24,230      271      (43   24,458   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 252,595      7,759      (487   259,867   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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

Restricted

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

U.S. Treasury securities

$ 3,977      3      —        3,980   

U.S. Agency securities

  101,654      2,125      (527   103,252   

Tax free municipal bonds

  57,399      3,814      (166   61,047   

Taxable municipal bonds

  11,871      235      (63   12,043   

Trust preferred securities

  1,600      —        (111   1,489   

Commercial bonds

  2,000      7      —        2,007   

Mortgage-backed securities:

GNMA

  27,535      670      (122   28,083   

FNMA

  50,617      694      (536   50,775   

FHLMC

  3,276      38      —        3,314   

SLMA CMO

  9,895      —        (252   9,643   

AGENCY CMO

  28,024      176      (205   27,995   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 297,848      7,762      (1,982   303,628   
  

 

 

    

 

 

    

 

 

    

 

 

 

The scheduled maturities of debt securities available for sale at March 31, 2015, were as follows:

 

            Estimated  
     Amortized      Fair  

March 31, 2015

   Cost      Value  

Due within one year

   $ 4,830       $ 4,927   

Due in one to five years

     19,749         20,064   

Due in five to ten years

     41,165         42,393   

Due after ten years

     27,961         29,925   
  

 

 

    

 

 

 
  93,705      97,309   

Amortizing agency bonds

  72,752      75,198   

Mortgage-backed securities

  86,138      87,360   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

$ 252,595    $ 259,867   
  

 

 

    

 

 

 

 

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

 

            Estimated  
     Amortized      Fair  

December 31, 2014

   Cost      Value  

Due within one year

   $ 4,830       $ 4,927   

Due in one to five years

     21,564         21,818   

Due in five to ten years

     41,683         42,613   

Due after ten years

     33,119         35,380   
  

 

 

    

 

 

 
  101,196      104,738   

Amortizing agency bonds

  77,305      79,080   

Mortgage-backed securities

  119,347      119,810   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

$ 297,848    $ 303,628   
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2015, are as follows:

 

     Less than 12 months     12 months or longer     Total  
     Estimated      Unrealized     Estimated      Unrealized     Estimated      Unrealized  
     Fair Value      Losses     Fair Value      Losses     Fair Value      Losses  
     (Dollars in Thousands)  

Available for sale

               

U.S. government and agency securities

               

Agency debt securities

   $ 9,130         (47     12,911         (104     22,041         (151

Taxable municipals

     —           —          3,049         (24     3,049         (24

Tax free municipals

     —           —          6,476         (118     6,476         (118

Mortgage-backed securities

               

GNMA

     9,464         (49     5,265         (12     14,729         (61

FNMA

     —           —          3,087         (38     3,087         (38

SLMA CMOs

     —           —          5,691         (52     5,691         (52

AGENCY CMOs

     5,562         (12     3,593         (31     9,155         (43
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

$ 24,156      (108   40,072      (379   64,228      (487
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2014, were as follows:

 

     Less than 12 months     12 months or longer     Total  

December 31, 2014

   Estimated      Unrealized     Estimated      Unrealized     Estimated      Unrealized  
   Fair Value      Losses     Fair Value      Losses     Fair Value      Losses  

Available for sale

               

U.S. government and agency securities

               

Agency debt securities

   $ 14,021         (20     29,156         (507     43,177         (527

Taxable municipals

     —           —          4,785         (63     4,785         (63

Tax free municipals

     —           —          6,647         (166     6,647         (166

Trust preferred securities

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

Mortgage-backed securities

               

GNMA