HOPFED BANCORP INC (HFBC) Form 10-Q for Period Ending 6/30/2015
: 6.22.4
 
Document and Entity Information
6 Months Ended
Jun. 30, 2015
Aug. 5, 2015
Document And Entity Information [Abstract]
  
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2015 
 
Document Fiscal Year Focus
2015 
 
Document Fiscal Period Focus
Q2 
 
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
 
6,975,308 
Consolidated Condensed Statements of Financial Condition (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Assets
  
Cash and due from banks
$ 16,538 
$ 34,389 
Interest-earning deposits
3,145 
6,050 
Cash and cash equivalents
19,683 
40,439 
Federal Home Loan Bank stock, at cost
4,428 
4,428 
Securities available for sale
247,673 
303,628 
Loans held for sale
2,470 
1,444 
Loans receivable, net of allowance for loan losses of $5,534 at June 30, 2015, and $6,289 at December 31, 2014
554,806 
539,264 
Accrued interest receivable
3,873 
4,576 
Real estate and other assets owned
1,795 
1,927 
Bank owned life insurance
10,128 
9,984 
Premises and equipment, net
24,171 
22,940 
Deferred tax assets
1,668 
2,261 
Intangible asset
 
33 
Other assets
6,918 
4,861 
Total assets
877,613 
935,785 
Deposits:
  
Non-interest-bearing accounts
112,396 
115,051 
Interest-bearing accounts
  
Interest bearing checking accounts
185,642 
186,616 
Savings and money market accounts
99,020 
97,726 
Other time deposits
320,461 
331,915 
Total deposits
717,519 
731,308 
Advances from Federal Home Loan Bank
9,000 
34,000 
Repurchase agreements
48,224 
57,358 
Subordinated debentures
10,310 
10,310 
Advances from borrowers for taxes and insurance
792 
513 
Dividends payable
296 
301 
Accrued expenses and other liabilities
3,216 
3,593 
Total liabilities
789,357 
837,383 
Stockholders' equity
  
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at June 30, 2015, and December 31, 2014.
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,950,436 issued and 6,977,245 outstanding at June 30, 2015, and 7,949,665 issued and 7,171,282 outstanding at December 31, 2014
79 
79 
Additional paid-in-capital
58,552 
58,466 
Retained earnings
46,455 
45,729 
Treasury stock
(12,159)
(9,429)
Unallocated ESOP shares (at cost, 570,830 shares at June 30, 2015, and no shares at December 31, 2014)
(7,525)
 
Accumulated other comprehensive income, net of taxes
2,854 
3,557 
Total stockholders' equity
88,256 
98,402 
Total liabilities and stockholders' equity
$ 877,613 
$ 935,785 
Consolidated Condensed Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2015
Dec. 31, 2014
Statement of Financial Position [Abstract]
  
Loans receivable, allowance for loan losses
$ 5,534 
$ 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
7,950,436 
7,949,665 
Common stock, shares outstanding
6,977,245 
7,171,282 
Treasury stock, shares
973,191 
778,383 
Unallocated ESOP shares
570,830 
570,830 
Consolidated Condensed Statements of Income (Loss) (USD $)
3 Months Ended6 Months Ended
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Interest income:
    
Loans receivable
$ 6,231 
$ 6,503 
$ 12,521 
$ 12,830 
Securities available for sale - taxable
1,268 
1,694 
3,716 
3,473 
Securities available for sale - nontaxable
416 
531 
869 
1,075 
Interest-earning deposits
14 
Total interest income
7,919 
8,734 
17,114 
17,392 
Interest expense:
    
Deposits
1,245 
1,488 
2,505 
2,959 
Advances from Federal Home Loan Bank
66 
428 
135 
862 
Repurchase agreements
118 
245 
238 
494 
Subordinated debentures
183 
193 
367 
377 
Total interest expense
1,612 
2,354 
3,245 
4,692 
Net interest income
6,307 
6,380 
13,869 
12,700 
Provision for loan losses
270 
(261)
485 
119 
Net interest income after provision for loan losses
6,037 
6,641 
13,384 
12,581 
Non-interest income:
    
Service charges
720 
848 
1,434 
1,626 
Merchant card income
286 
276 
556 
535 
Mortgage origination revenue
343 
133 
520 
191 
Gain on sale of securities
83 
241 
449 
254 
Income from bank owned life insurance
73 
66 
144 
161 
Financial services commission
194 
168 
353 
374 
Other operating income
169 
213 
325 
402 
Total non-interest income
1,868 
1,945 
3,781 
3,543 
Non-interest expenses:
    
Salaries and benefits
4,004 
3,692 
8,188 
7,487 
Occupancy
752 
808 
1,490 
1,717 
Data processing
701 
736 
1,393 
1,464 
Bank franchise tax
251 
398 
499 
644 
Intangible amortization
16 
33 
32 
65 
Professional services
468 
341 
797 
628 
Deposit insurance and examination
151 
183 
268 
380 
Advertising
340 
341 
646 
655 
Postage and communications
134 
140 
266 
283 
Supplies
111 
158 
257 
303 
Loss on real estate owned
741 
102 
734 
125 
Real estate owned
67 
92 
204 
222 
Other operating
498 
423 
930 
798 
Total non-interest expense
8,234 
7,447 
15,704 
14,771 
Income (loss) before income tax
(329)
1,139 
1,461 
1,353 
Income tax expense (benefit)
(212)
214 
223 
74 
Net income (loss)
$ (117)
$ 925 
$ 1,238 
$ 1,279 
Net income (loss) per share:
    
Basic
$ (0.02)
$ 0.13 
$ 0.19 
$ 0.17 
Diluted
$ (0.02)
$ 0.13 
$ 0.19 
$ 0.17 
Dividend per share
$ 0.04 
$ 0.04 
$ 0.08 
$ 0.08 
Weighted average shares outstanding - basic
6,425,687 
7,376,726 
6,588,845 
7,396,627 
Weighted average shares outstanding - diluted
6,425,687 
7,376,726 
6,588,845 
7,396,627 
Consolidated Condensed Statements of Comprehensive Income (Loss) (USD $)
3 Months Ended6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
    
Net income (loss)
$ (117)
$ 925 
$ 1,238 
$ 1,279 
Unrealized gains on securities for which a portion of an other than temporary impairment has been recorded in earnings:
    
Unrealized holding gains arising during the period
  
306 
 
Income tax expense
  
(104)
 
Other comprehensive income on available for sale for sale securities with other than temporary impairment
  
202 
 
Unrealized gain (loss) on investment securities available for sale, net of tax effect of $907 and ($1,340) for the three month periods ended June 30, 2015, and June 30, 2014, respectively; and $379 and ($2,260) for the six month periods ended June 30, 2015, and June 30, 2014, respectively;
(1,761)
2,601 
(736)
4,387 
Unrealized gain on derivatives, net of tax effect of ($32) and ($31) for the three month periods ended June 30, 2015, and June 30, 2014, respectively; and of ($65) and ($56) for the six month periods ending June 30, 2015, and June 30, 2014, respectively;
63 
60 
127 
109 
Reclassification adjustment for gains included in net income, net of tax effect of $28 and $82 for the three month periods ended June 30, 2015, and June 30, 2014, respectively; and $153 and $86 the six month periods ended June 30, 2015, and June 30, 2014, respectively;
(54)
(159)
(296)
(168)
Other comprehensive income (loss) on available for sale without other than temporary impairment
(1,752)
2,502 
(905)
4,328 
Total other comprehensive income (loss)
(1,752)
2,502 
(703)
4,328 
Comprehensive income (loss)
$ (1,869)
$ 3,427 
$ 535 
$ 5,607 
Consolidated Condensed Statements of Comprehensive Income (Loss) (Parenthetical) (USD $)
3 Months Ended6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
    
Unrealized gain (loss) on investment securities available for sale, tax effect
$ 907 
$ (1,340)
$ 379 
$ (2,260)
Unrealized gain on derivatives, tax effect
(32)
(31)
(65)
(56)
Reclassification adjustment for other than temporary impairment included in net income, tax effect
$ 28 
$ 82 
$ 153 
$ 86 
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
1,279 
   
1,279 
     
Restricted stock awards/issued
   
Restricted stock awards/issued, shares
 
20,238 
        
Repurchase of treasury stock
(838)
    
(838)
    
Repurchase of treasury stock, shares
 
(72,856)
        
Compensation expense, restricted stock awards
65 
  
65 
      
Net change in unrealized gain on securities available for sale, net of income taxes
4,219 
     
4,219 
   
Net change in unrealized loss on derivatives, net of income tax benefit
109 
     
109 
   
Cash dividend to common stockholders
(591)
   
(591)
     
Ending balance at Jun. 30, 2014
99,960 
79 
 
58,367 
45,382 
(6,767)
2,899 
   
Ending balance, shares at Jun. 30, 2014
 
7,395,285 
        
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
1,238 
   
1,238 
     
Treasury stock reissued
 
7,884 
       
(7,884)
Treasury stock reissued, shares
 
600,000 
        
Restricted stock awards/issued
  
 
Restricted stock awards/issued, shares
 
771 
        
Repurchase of treasury stock
(10,614)
(10,614)
        
Repurchase of treasury stock, shares
 
(794,808)
        
ESOP shares committed to release
359 
        
359 
Change in price of ESOP shares
(12)
       
(12)
 
Compensation expense, restricted stock awards
98 
       
98 
 
Net change in unrealized gain on securities available for sale, net of income taxes
(830)
     
(830)
   
Net change in unrealized loss on derivatives, net of income tax benefit
127 
     
127 
   
Cash dividend to common stockholders
(512)
   
(512)
     
Ending balance at Jun. 30, 2015
$ 88,256 
$ (12,159)
  
$ 46,455 
 
$ 2,854 
$ 79 
$ 58,552 
$ (7,525)
Ending balance, shares at Jun. 30, 2015
 
6,977,245 
        
Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) (USD $)
6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2015
Jun. 30, 2014
Net change in unrealized gain on securities available for sale, income taxes
$ 428 
$ 2,173 
Net change in unrealized loss on derivatives, income tax benefit
(65)
56 
Accumulated Other Comprehensive Income [Member]
  
Net change in unrealized gain on securities available for sale, income taxes
428 
2,173 
Net change in unrealized loss on derivatives, income tax benefit
$ (65)
$ 56 
Consolidated Condensed Statements of Cash Flows (USD $)
6 Months Ended
In Thousands, unless otherwise specified
Jun. 30, 2015
Jun. 30, 2014
Cash flows from operating activities:
  
Net cash provided by operating activities
$ 2,306 
$ 4,477 
Cash flows from investing activities
  
Proceeds from sales, calls and maturities of securities available for sale
80,197 
52,414 
Purchase of securities available for sale
(25,989)
(59,556)
Net (increase) decrease in loans
(16,874)
5,560 
Proceeds from sale of foreclosed assets
240 
249 
Purchase of premises and equipment
(1,842)
(508)
Net cash provided by (used in) investing activities
35,732 
(1,841)
Cash flows from financing activities:
  
Net decrease in demand deposits
(2,655)
(1,702)
Net decrease in time and other deposits
(11,134)
(18,026)
Increase in advances from borrowers for taxes and insurance
279 
202 
Advances from Federal Home Loan Bank
15,000 
15,000 
Repayment of advances from Federal Home Loan Bank
(40,000)
(21,004)
Net decrease in repurchase agreements
(9,134)
(1,634)
Cash used to repurchase treasury stock
(10,614)
(838)
Dividends paid on common stock
(536)
(591)
Net cash used in financing activities
(58,794)
(28,593)
Decrease in cash and cash equivalents
(20,756)
(25,957)
Cash and cash equivalents, beginning of period
40,439 
55,848 
Cash and cash equivalents, end of period
19,683 
29,891 
Supplemental disclosures of cash flow information:
  
Interest paid
3,279 
4,752 
Income taxes paid
55 
 
Supplemental disclosures of non-cash investing and financing activities:
  
Loans charged off
1,357 
588 
Foreclosures and in substance foreclosures of loans during period
842 
190 
Net unrealized gains (losses) on investment securities classified as available for sale
(1,258)
6,392 
Increase (decrease) in deferred tax asset related to unrealized gains on investments
428 
(2,173)
Dividends declared and payable
296 
308 
Issue of treasury stock to ESOP
$ 7,884 
 
Basis of Presentation
6 Months Ended
Jun. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [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 Wealth Management 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 June 30, 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 (Loss) Per Share
6 Months Ended
Jun. 30, 2015
Earnings Per Share [Abstract]
 
Income (Loss) Per Share
(2) INCOME (LOSS) PER SHARE

The following schedule reconciles the numerators and denominators of the basic and diluted income (loss) per share (“IPS”) computations for the three and six month periods ended June 30, 2015, and June 30, 2014. For the three and six month periods ended June 30, 2015, the Company’s financial statements reflect a liability adequate to release of 29,170 shares from the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan (the “ESOP”). Therefore, the Company has included 29,170 shares held by the ESOP in the IPS calculation. The Company has excluded 570,830 unearned shares purchased and owned by the ESOP from our IPS computations. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding.

 

     Three Month Period Ended
June 30,
 
     2015      2014  
  

 

 

    

 

 

 

Basic IPS:

     

Net income (loss)

   ($ 117,000    $ 925,000   

Average common shares outstanding

     6,425,687         7,376,726   
  

 

 

    

 

 

 

Net income (loss) per share

   ($ 0.02    $ 0.13   
  

 

 

    

 

 

 

Diluted IPS

     

Net income (loss)

   ($ 117,000    $ 925,000   

Average common shares outstanding

     6,425,687         7,376,726   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,425,687         7,376,726   
  

 

 

    

 

 

 

Net income (loss) per share, diluted

   ($ 0.02    $ 0.13   
  

 

 

    

 

 

 
     Six Month Period Ended
June 30,
 
     2015      2014  
  

 

 

    

 

 

 

Basic IPS:

     

Net income

   $ 1,238,000       $ 1,279,000   

Average common shares outstanding

     6,588,845         7,396,627   
  

 

 

    

 

 

 

Net income per share

   $ 0.19       $ 0.17   
  

 

 

    

 

 

 

Diluted IPS

     

Net income

   $ 1,238,000       $ 1,279,000   

Average common shares outstanding

     6,588,845         7,396,627   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,588,845         7,396,627   
  

 

 

    

 

 

 

Net income per share, diluted

   $ 0.19       $ 0.17   
  

 

 

    

 

 

 

Stock Compensation
6 Months Ended
Jun. 30, 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 and $98,000 for the three and six month periods ended June 30, 2015, and $35,000 and $65,000 for the three and six month periods ended June 30, 2014, respectively. The Company issued 771 shares during the three and six month periods ended June 30, 2015. The Company issued 20,238 shares of restricted stock during the three and six month periods ended June 30, 2014. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at June 30, 2015:

 

Year Ending December 31,

   Future
Expense
 

2015

   $ 89,875   

2016

     135,283   

2017

     48,459   

2018

     5,630   

2019

     725   
  

 

 

 

Total

   $ 279,972   
  

 

 

 

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

Securities
6 Months Ended
Jun. 30, 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 June 30, 2015, the Company has 61 securities with unrealized losses. The carrying amount of securities and their estimated fair values at June 30, 2015, were as follows:

 

     June 30, 2015  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

           

U.S. Treasury securities

   $ 2,001         10         —           2,011   

Agency debt securities

     92,585         1,971         (539      94,017   

Taxable municipal bonds

     8,428         150         (78      8,500   

Tax free municipal bonds

     49,143         2,511         (202      51,452   

Trust preferred securities

     1,608         195         —           1,803   

Mortgage-backed securities:

           

GNMA

     21,874         252         (124      22,002   

FNMA

     32,733         423         (112      33,044   

FHLMC

     5,657         30         (34      5,653   

SLMA CMO

     3,806         —           (23      3,783   

AGENCY CMO

     25,316         186         (94      25,408   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 243,151         5,728         (1,206      247,673   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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

Restricted:

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

           

U.S. Treasury securities

   $ 3,977         3         —           3,980   

Agency debt 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 June 30, 2015, were as follows:

 

June 30, 2015

   Amortized
Cost
     Estimated
Fair
Value
 

Due within one year

   $ 4,830       $ 4,927   

Due in one to five years

     16,675         16,972   

Due in five to ten years

     40,668         41,210   

Due after ten years

     26,089         27,452   
  

 

 

    

 

 

 
     88,262         90,561   

Amortizing agency bonds

     65,503         67,222   

Mortgage-backed securities

     89,386         89,890   
  

 

 

    

 

 

 

Total unrestricted securities available for sale

   $ 243,151       $ 247,673   
  

 

 

    

 

 

 

 

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

 

December 31, 2014

   Amortized
Cost
     Estimated
Fair
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 June 30, 2015, are as follows:

 

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

Available for sale

               

U.S. Agency debt securities

   $ 20,573         (172     14,473         (367     35,046         (539

Taxable municipals

     2,043         (15     2,994         (63     5,037         (78

Tax free municipals

     1,475         (3     6,209         (199     7,684         (202

Mortgage-backed securities:

               

GNMA

     4,954         (38     11,177         (86     16,131         (124

FNMA

     7,338         (62     3,068         (50     10,406         (112

FHLMC

     2,663         (34     —           —          2,663         (34

SLMA CMOs

     183         (2     3,600         (21     3,783         (23

AGENCY CMOs

     8,245         (29     1,970         (65     10,215         (94
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 47,474         (355     43,491         (851     90,965         (1,206
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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

Available for sale

               

U.S. 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 June 30, 2015, securities with a book value of approximately $162.8 million and a market value of approximately $168.2 million were pledged to various municipalities for deposits in excess of FDIC limits as required by law.

At June 30, 2015, securities with a book and market value of $42.2 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 $6.9 million and a market value of $7.1 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
6 Months Ended
Jun. 30, 2015
Receivables [Abstract]
 
Loans
(5) LOANS

The components of loans receivable in the consolidated balance sheets as of June 30, 2015, and December 31, 2014, were as follows:

 

     June 30, 2015      June 30, 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

   $ 146,285         26.1   $ 150,551         27.6

Second mortgages (closed end)

     2,046         0.4     2,102         0.4

Home equity lines of credit

     33,803         6.0     34,238         6.3

Multi-family

     22,580         4.0     25,991         4.8

Construction

     27,072         4.8     24,241         4.4

Land

     24,521         4.4     26,654         4.9

Farmland

     41,224         7.4     42,874         7.8

Non-residential real estate

     160,039         28.5     150,596         27.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage loans

     457,570         81.6     457,247         83.8

Consumer loans

     16,011         2.9     14,438         2.6

Commercial loans

     87,148         15.5     74,154         13.6
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other loans

     103,159         18.4     88,592         16.2
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans, gross

     560,729         100.0     545,839         100.0
     

 

 

      

 

 

 

Deferred loan cost, net of income

     (389        (286   

Less allowance for loan losses

     (5,534        (6,289   
  

 

 

      

 

 

    

Total loans

   $ 554,806         $ 539,264      
  

 

 

      

 

 

    

The allowance for loan losses totaled $5.5 million at June 30, 2015, $6.3 million at December 31, 2014, and $8.4 million at June 30, 2014, respectively. The ratio of the allowance for loan losses to total loans was 0.99% at June 30, 2015, 1.15% at December 31, 2014, and 1.53% at June 30, 2014. The following table indicates the type and level of non-accrual loans at the periods indicated below:

 

     June 30, 2015      December 31, 2014      June 30, 2014  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 1,456         1,501         524   

Home equity line of credit

     48         —           29   

Multi-family

     1,827         95         —     

Land

     1,982         215         1,217   

Non-residential real estate

     520         1,159         6,520   

Farmland

     209         115         13   

Consumer loans

     —           —           1   

Commercial loans

     1,014         90         431   
  

 

 

    

 

 

    

 

 

 

Total non-accrual loans

   $ 7,056         3,175         8,735   
  

 

 

    

 

 

    

 

 

 

 

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the six month period ended June 30, 2015:

 

Six month period ended June 30, 2015

   Balance
12/31/2014
     Charge off
2015
    Recovery
2015
     General
Provision
2015
    Specific
Provision
2015
    Ending
Balance
6/30/2015
 

One-to-four family mortgages

   $ 1,198         (88     21         61        (194     998   

Home equity line of credit

     181         (92     3         89        15        196   

Junior liens

     14         —          2         (2     (4     10   

Multi-family

     85         —          —           —          (12     73   

Construction

     146         —          —           —          20        166   

Land

     1,123         (631     —           84        597        1,173   

Non-residential real estate

     2,083         (222     2         (73     (150     1,640   

Farmland

     461         —          —           —          (94     367   

Consumer loans

     494         (177     73         91        (134     347   

Commercial loans

     504         (147     16         222        (31     564   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
   $ 6,289         (1,357     117         472        13        5,534   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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:

 

Year ended December 31, 2014

   Balance
12/31/2013
     Charge off
2014
    Recovery
2014
     General
Provision
2014
    Specific
Provision
2014
    Ending
Balance
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 loan balances at June 30, 2015, by loan classification allocated between past due, performing and non-performing:

 

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

June 30, 2015

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

One-to-four family mortgages

   $ 142,987         398         1,456         42         1,402         —           146,285   

Home equity line of credit

     33,113         69         48         —           573         —           33,803   

Junior liens

     1,992         —           —           38         16         —           2,046   

Multi-family

     17,818         140         1,827         1,655         1,140         —           22,580   

Construction

     26,972         100         —           —           —           —           27,072   

Land

     14,425         —           1,982         44         8,070         —           24,521   

Non-residential real estate

     149,565         162         520         640         9,152         —           160,039   

Farmland

     40,143         168         209         681         23         —           41,224   

Consumer loans

     15,790         13         —           14         194         —           16,011   

Commercial loans

     84,772         126         1,014         169         1,067         —           87,148   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 527,577         1,176         7,056         3,283         21,637         —           560,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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

 

            30 - 89                    Impaired Loans         
     Currently      Days      Non-accrual      Special      Currently Performing         
     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 June 30, 2015, and December 31, 2014, by portfolio segment and based on the impairment method as of June 30, 2015, and December 31, 2014.

 

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

June 30, 2015:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 91         116         445         46         48       $ 746   

Collectively evaluated for impairment

     473         1,223         1,635         1,158         299         4,788   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 564         1,339         2,080         1,204         347       $ 5,534   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 2,081         10,052         12,871         3,495         194       $ 28,693   

Loans collectively evaluated for impairment

     85,067         41,541         210,972         178,639         15,817         532,036   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 87,148         51,593         223,843         182,134         16,011       $ 560,729   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Commercial      Land
Development /
Construction
     Commercial
Real Estate
     Residential
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 six month periods ended June 30, 2015, June 30, 2014, and the year ended December 31, 2014, was 0.45%, 0.16% and 0.02%, respectively. The ratios of allowance for loan losses to non-accrual loans at June 30, 2015, June 30, 2014, and December 31, 2014, were 78.4%, 95.6%, 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 23, 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 June 30, 2015, December 31, 2014, and June 30, 2014, the Company’s impaired loans totaled $28.7 million, $37.4 million and $37.7 million, respectively.

 

At June 30, 2015, December 31, 2014 and June 30, 2014, the Company’s specific reserve for impaired loans totaled $746,000, $1.5 million and $1.5 million respectively. Loans by classification type and the related allowance amounts at June 30, 2015, are as follows:

 

                                        Specific      Reserve  
                                        Reserve      for  
            Special      Impaired Loans             for      Performing  

June 30, 2015

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

One-to-four family mortgages

   $ 143,385         42         2,858         —           146,285         46         952   

Home equity line of credit

     33,182         —           621         —           33,803         —           196   

Junior liens

     1,992         38         16         —           2,046         —           10   

Multi-family

     17,958         1,655         2,967         —           22,580         —           73   

Construction

     27,072         —           —           —           27,072         —           166   

Land

     14,425         44         10,052         —           24,521         116         1,057   

Non-residential real estate

     149,727         640         9,672         —           160,039         445         1,195   

Farmland

     40,311         681         232         —           41,224         —           367   

Consumer loans

     15,803         14         194         —           16,011         48         299   

Commercial loans

     84,898         169         2,081         —           87,148         91         473   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 528,753         3,283         28,693         —           560,729         746         4,788   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans by classification type and the related valuation allowance amounts at December 31, 2014, are as follows:

  

            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 June 30, 2015, were as follows:

 

                          For the three month period ended  
     At June 30, 2015      June 30, 2015  
            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      Recognized  

Impaired loans with no recorded reserve

              

One-to-four family mortgages

   $ 2,148         2,175         —           2,408         11   

Home equity line of credit

     621         621         —           693         —     

Junior liens

     16         16         —           18         —     

Multi-family

     2,967         2,967         —           2,982         34   

Construction

     —           —           —           —           —     

Land

     9,456         10,087         —           8,376         20   

Farmland

     232         232         —           237         —     

Non-residential real estate

     8,949         8,949         —           9,580         18   

Consumer loans

     3         3         —           5         —     

Commercial loans

     1,727         1,727         —           1,607         21   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     26,119         26,777         —           25,906         104   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance:

              

One-to-four family mortgages

     710         710         46         712         —     

Home equity line of credit

     —           —           —           —           —     

Junior liens

     —           —           —           —           —     

Multi-family

     —           —           —           —           —     

Construction

     —           —           —           —           —     

Land

     596         596         116         2,009         —     

Farmland

     —           —           —           —           —     

Non-residential real estate

     723         723         445         952         —     

Consumer loans

     191         191         48         185         —     

Commercial loans

     354         354         91         529         16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,574         2,574         746         4,387         16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 28,693         29,351         746         30,293         120   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

                          For the year ended  
     At December 31, 2014      December 31, 2014  
            Unpaid             Average      Interest  
     Recorded      Principal      Related      Recorded      Income  
     Investment      Balance      Allowance      Investment      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 June 30, 2015, the Company had two loans classified as performing TDRs. At June 30, 2015, the terms of both loans are interest only and are paying as agreed. There was no activity in loans classified as TDRs for the six month ended June 30, 2015. A summary of the activity in loans classified as TDRs for the six month period ended June 30, 2015, is as follows:

 

     Balance at
12/31/14
     New
TDR
     Loss or
Foreclosure
     Transferred to
Held For Sale
     Removed
from
(Taken to)
Non-accrual
     Balance at
6/30/15
 
     (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 twelve month period 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
6 Months Ended
Jun. 30, 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 June 30, 2015, December 31, 2014, and June 30, 2014, the composition of the Company’s balances in both real estate and assets owned and non-accrual loans are as follows:

 

     June 30, 2015     December 31, 2014     June 30, 2014  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 115        159        356   

Land

     943        1,768        934   

Non-residential real estate

     737        —          200   
  

 

 

   

 

 

   

 

 

 

Total other assets owned

   $ 1,795        1,927        1,490   
  

 

 

   

 

 

   

 

 

 

Total non-accrual loans

   $ 7,056        3,175        8,735   
  

 

 

   

 

 

   

 

 

 

Total non-performing assets

   $ 8,851        5,102        10,225   
  

 

 

   

 

 

   

 

 

 

Non-performing assets / Total assets

     1.01     0.55     1.08
  

 

 

   

 

 

   

 

 

 

 

The following is a summary of the activity in the Company’s real estate and other assets owned for the six month period ending June 30, 2015:

 

     Balance      Activity During 2015     Reduction      Gain (Loss)     Balance  
     12/31/2014      Foreclosures      Proceeds     in Values      on Sale     6/30/2015  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 159         105         (116     —           (33     115   

Land

     1,768         —           (124     —           (701     943   

Non-residential real estate

     —           737         —          —           —          737   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 1,927         842         (240     —           (734     1,795   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

 

     Three Month Periods
Ended June 30,
     Six Month Period
Ended June 30,
 
     2015      2014      2015      2014  

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

   $ 89         87       $ 174         173   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 89         87       $ 174         173   
  

 

 

    

 

 

    

 

 

    

 

 

 

Summary Statement of Stockholders’ Equity

(For the six month period ended June 30, 2015)

 

     Trust
Preferred
Securities
     Common
Stock
     Retained
Earnings
     Total
Stockholders’
Equity
 

Beginning balances, December 31, 2014

   $ 10,000         310         —           10,310   

Net income

     —           —           174         174   

Dividends:

           

Trust preferred securities

     —           —           (169      (169

Common paid to HopFed Bancorp, Inc.

     —           —           (5      (5
  

 

 

    

 

 

    

 

 

    

 

 

 

Ending balances, June 30, 2015

   $ 10,000         310         —           10,310   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair Value of Assets and Liabilities
6 Months Ended
Jun. 30, 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 Company’s $1.8 million trust preferred is the only investment instrument classified as a Level 3 asset. The Company determines the value of the instrument by using the present value of scheduled future cash flows and discount accretion to determine an estimated market value for the security.

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 June 30, 2015, are summarized below:

 

June 30, 2015

Description

   Total carrying
value in the
consolidated
balance sheet at
June 30, 2015
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
Assets            

Available for sale securities

   $ 247,673         2,010         243,860         1,803   
Liabilities            

Interest rate swap

   $ 198         —           198         —     

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

 

December 31, 2014

Description

   Total carrying
value in the
consolidated
balance sheet at
December 31, 2014
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(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 June 30, 2015:

 

June 30, 2015

Description

   Total carrying
value in the
consolidated
balance sheet at
6/ 30/ 2015
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in Thousands)  
Assets            

Other real estate and other assets owned

   $ 1,795         —           —         $ 1,795   

Impaired loans, net of reserve of $746

   $ 1,828         —           —         $ 1,828   

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

 

December 31, 2014

Description

   Total carrying
value in the
consolidated
balance sheet at
12/31/2014
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
Assets            

Other real estate and other assets owned

   $ 1,927         —           —         $ 1,927   

Impaired loans, net of reserve of $1,514

   $ 3,869         —           —         $ 3,869   

 

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the six month periods ended June 30, 2015, and June 30, 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  

Six month period ended June 30,

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

Fair value, January 1,

  $ 1,489        —          1,489        —     

Change in unrealized losses included in other comprehensive income for assets and liabilities still held at June 30,

    306        —          —          —     

Accretion of previous discounted amounts

    8         

Purchases, issuances and settlements, net

    —          —          —          —     

Transfers in and/or out of Level 3

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Fair value, June 30,

  $ 1,803        —          1,489        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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

   $ 16,538         16,538         16,538         —           —     

Interest-earning deposits

     3,145         3,145         3,145         —           —     

Securities available for sale

     247,673         247,673         2,010         243,860         1,803   

Federal Home Loan Bank stock

     4,428         4,428         —           4,428         —     

Loans held for sale

     2,470         2,470         —           2,470         —     

Loans receivable

     554,806         554,193         —           —           554,193   

Accrued interest receivable

     3,873         3,873         —           3,873         —     

Financial liabilities:

              

Deposits

     717,519         700,283         —           700,283         —     

Advances from borrowers for taxes and insurance

     792         792         —           792         —     

Advances from Federal Home Loan Bank

     9,000         9,136         —           9,136         —     

Repurchase agreements

     48,224         48,485         —           48,485         —     

Subordinated debentures

     10,310         10,099         —           —           10,099   

Off-balance-sheet liabilities:

              

Market value of interest rate swap

     198         198         —           198         —     

 

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
6 Months Ended
Jun. 30, 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 six month period ended June 30, 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 June 30, 2015, and December 31, 2014, the cost of the Bank to terminate the cash flow hedge was approximately $198,000 and $390,000, respectively. The interest rate swap agreement expires October 8, 2015.

Effect of New Accounting Pronouncements
6 Months Ended
Jun. 30, 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 become effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014, and early adoption is permitted. The 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 are 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. The entity recognizes 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. For public business entities, the accounting changes are effective for annual periods and interim reporting periods beginning after December 15, 2014. The adoption of ASU 2014-01 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. In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has proposed a one year deferral of the effective date. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

Effective January 1, 2015, the Company adopted new guidance related to Receivables. The new guidance requires that a government guaranteed mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. The adoption of this guidance was not material to the 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
6 Months Ended
Jun. 30, 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
6 Months Ended
Jun. 30, 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 June 30, 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 for the three and six month periods below include:

 

     For the three months ended      For the six months ended  
     June 30,      June 30,  
     2015      2014      2015      2014  

Investment loss included in pre-tax income

   $ 55         51       $ 110         102   

Tax credits recognized in provision for income taxes

   $ 24         20       $ 48         40   
Esop Plan
6 Months Ended
Jun. 30, 2015
Text Block [Abstract]
 
Esop Plan
(13) ESOP PLAN

All Company employees participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (ESOP). The ESOP purchased 600,000 shares of the Company’s common stock from the Company on March 2, 2015, at $13.14 per share. The ESOP borrowed $7.9 million from the Company for the purchase of the stock, using the 600,000 shares of common stock as collateral. The Company makes discretionary contributions to the ESOP. The ESOP utilizes these contributions along with the dividends on the 600,000 held by the ESOP to repay the loan from the Company. When loan payments are made, ESOP shares are released based on reduction in the principal balance of the loan.

The shares are allocated to participants based on relative compensation. Employees who are not employed at the December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or to provide the shares directly to the employee.

At June 30, 2015, the ESOP has not made a loan payment to the Company. At June 30, 2015, the Company has an accrued ESOP contribution liability of approximately $437,000. At June 30, 2015, the Company has calculated that our current accrual would be sufficient to release 29,170 shares of ESOP shares to participants. At June 30, 2015, shares held by the ESOP were as follows:

 

Accrued to allocate to Participants

     29,170   

Unearned ESOP shares

     570,830   
  

 

 

 

Total ESOP shares

     600,000   
  

 

 

 

Fair value of unearned shares

   $ 6,450,375   
  

 

 

 

Loans (Policies)
6 Months Ended
Jun. 30, 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 Company’s $1.8 million trust preferred is the only investment instrument classified as a Level 3 asset. The Company determines the value of the instrument by using the present value of scheduled future cash flows and discount accretion to determine an estimated market value for the security.

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 six month period ended June 30, 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 June 30, 2015, and December 31, 2014, the cost of the Bank to terminate the cash flow hedge was approximately $198,000 and $390,000, respectively. The interest rate swap agreement expires October 8, 2015.

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 become effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014, and early adoption is permitted. The 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 are 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. The entity recognizes 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. For public business entities, the accounting changes are effective for annual periods and interim reporting periods beginning after December 15, 2014. The adoption of ASU 2014-01 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. In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has proposed a one year deferral of the effective date. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.

Effective January 1, 2015, the Company adopted new guidance related to Receivables. The new guidance requires that a government guaranteed mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if certain conditions are met. The adoption of this guidance was not material to the consolidated financial statements.

Income (Loss) Per Share (Tables)
6 Months Ended
Jun. 30, 2015
Earnings Per Share [Abstract]
 
Reconciliation of Basic and Diluted Income (Loss) Per Share
Reconciliation of Basic and Diluted Income (Loss) Per Share

The following schedule reconciles the numerators and denominators of the basic and diluted income (loss) per share (“IPS”) computations for the three and six month periods ended June 30, 2015, and June 30, 2014. For the three and six month periods ended June 30, 2015, the Company’s financial statements reflect a liability adequate to release of 29,170 shares from the HopFed Bancorp, Inc. 2015 Employee Stock Ownership Plan (the “ESOP”). Therefore, the Company has included 29,170 shares held by the ESOP in the IPS calculation. The Company has excluded 570,830 unearned shares purchased and owned by the ESOP from our IPS computations. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding.

 

     Three Month Period Ended
June 30,
 
     2015      2014  
  

 

 

    

 

 

 

Basic IPS:

     

Net income (loss)

   ($ 117,000    $ 925,000   

Average common shares outstanding

     6,425,687         7,376,726   
  

 

 

    

 

 

 

Net income (loss) per share

   ($ 0.02    $ 0.13   
  

 

 

    

 

 

 

Diluted IPS

     

Net income (loss)

   ($ 117,000    $ 925,000   

Average common shares outstanding

     6,425,687         7,376,726   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,425,687         7,376,726   
  

 

 

    

 

 

 

Net income (loss) per share, diluted

   ($ 0.02    $ 0.13   
  

 

 

    

 

 

 
     Six Month Period Ended
June 30,
 
     2015      2014  
  

 

 

    

 

 

 

Basic IPS:

     

Net income

   $ 1,238,000       $ 1,279,000   

Average common shares outstanding

     6,588,845         7,396,627   
  

 

 

    

 

 

 

Net income per share

   $ 0.19       $ 0.17   
  

 

 

    

 

 

 

Diluted IPS

     

Net income

   $ 1,238,000       $ 1,279,000   

Average common shares outstanding

     6,588,845         7,396,627   

Dilutive effect of stock options

     —           —     
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,588,845         7,396,627   
  

 

 

    

 

 

 

Net income per share, diluted

   $ 0.19       $ 0.17   
  

 

 

    

 

 

 

Stock Compensation (Tables)
6 Months Ended
Jun. 30, 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 June 30, 2015:

 

Year Ending December 31,

   Future
Expense
 

2015

   $ 89,875   

2016

     135,283   

2017

     48,459   

2018

     5,630   

2019

     725   
  

 

 

 

Total

   $ 279,972   
  

 

 

 
Securities (Tables)
6 Months Ended
Jun. 30, 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 June 30, 2015, were as follows:

 

     June 30, 2015  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Estimated
Fair
Value
 
     (Dollars in Thousands)  

Restricted:

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

           

U.S. Treasury securities

   $ 2,001         10         —           2,011   

Agency debt securities

     92,585         1,971         (539      94,017   

Taxable municipal bonds

     8,428         150         (78      8,500   

Tax free municipal bonds

     49,143         2,511         (202      51,452   

Trust preferred securities

     1,608         195         —           1,803   

Mortgage-backed securities:

           

GNMA

     21,874         252         (124      22,002   

FNMA

     32,733         423         (112      33,044   

FHLMC

     5,657         30         (34      5,653   

SLMA CMO

     3,806         —           (23      3,783   

AGENCY CMO

     25,316         186         (94      25,408   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 243,151         5,728         (1,206      247,673   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

 

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

Restricted:

           

FHLB stock

   $ 4,428         —           —           4,428   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale

           

U.S. Treasury securities

   $ 3,977         3