HOPFED BANCORP INC (HFBC) Form 10-Q for Period Ending 6/30/2018
: 6.23.6
 
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2018
Aug. 08, 2018
Document And Entity Information [Abstract]
  
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Jun. 30, 2018 
 
Document Fiscal Year Focus
2018 
 
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
 
6,649,493 
Interim Consolidated Condensed Statements of Financial Condition - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Assets
  
Cash and due from banks
$ 16,399 
$ 37,965 
Interest-bearing deposits in banks
2,955 
7,111 
Cash and cash equivalents
19,354 
45,076 
Federal Home Loan Bank stock, at cost
4,428 
4,428 
Securities available for sale
168,983 
184,791 
Loans held for sale
1,126 
1,539 
Loans receivable, net of allowance for loan losses of $4,637 at June 30, 2018 and $4,826 at December 31, 2017
672,254 
637,102 
Accrued interest receivable
3,253 
3,589 
Foreclosed assets
3,427 
3,369 
Bank owned life insurance
10,512 
10,368 
Premises and equipment, net
22,365 
22,700 
Deferred tax assets
2,320 
1,764 
Other assets
4,640 
2,784 
Total assets
912,662 
917,510 
Deposits:
  
Non-interest-bearing accounts
136,004 
136,197 
Interest-bearing accounts
  
Checking accounts
198,691 
208,496 
Savings and money market accounts
97,552 
104,347 
Other time deposits
300,941 
304,969 
Total deposits
733,188 
754,009 
Advances from Federal Home Loan Bank
38,000 
23,000 
Repurchase agreements
39,648 
38,353 
Subordinated debentures
10,310 
10,310 
Advances from borrowers for taxes and insurance
1,256 
808 
Accrued expenses and other liabilities
3,091 
3,618 
Total liabilities
825,493 
830,098 
Stockholders' equity
  
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at June 30, 2018 and December 31, 2017
  
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,989,655 issued and 6,647,675 outstanding at June 30, 2018 and 7,976,131 issued and 6,637,711 outstanding at December 31, 2017
80 
80 
Additional paid-in-capital
58,948 
58,825 
Retained earnings
53,179 
51,162 
Treasury stock, at cost (1,341,980 shares at June 30, 2018 and 1,338,360 shares at December 31, 2017)
(16,706)
(16,655)
Unearned Employee Stock Ownership Plan ("ESOP") shares, at cost (412,091 shares at June 30 2018 and 434,548 share at December 31, 2017)
(5,606)
(5,901)
Accumulated other comprehensive income
(2,726)
(99)
Total stockholders' equity
87,169 
87,412 
Total liabilities and stockholders' equity
$ 912,662 
$ 917,510 
Interim Consolidated Condensed Statements of Financial Condition (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]
  
Loans receivable, allowance for loan losses
$ 4,637 
$ 4,826 
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
7,989,655 
7,976,131 
Common stock, shares outstanding
6,647,675 
6,637,711 
Treasury stock, shares
1,341,980 
1,338,360 
Unearned ESOP shares
412,091 
434,548 
Interim Consolidated Condensed Statements of Income - USD ($)
3 Months Ended6 Months Ended
$ in Thousands
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Interest and dividend income:
    
Loans
$ 7,858 
$ 6,963 
$ 15,335 
$ 13,699 
Investment in securities, taxable
1,033 
1,155 
2,112 
2,273 
Nontaxable securities available for sale
208 
280 
421 
563 
Interest-bearing deposits
16 
21 
45 
44 
Total interest and dividend income
9,115 
8,419 
17,913 
16,579 
Interest expense:
    
Deposits
1,392 
1,197 
2,636 
2,364 
FHLB borrowings
134 
30 
226 
62 
Repurchase agreements
171 
119 
325 
222 
Subordinated debentures
138 
108 
260 
212 
Total interest expense
1,835 
1,454 
3,447 
2,860 
Net interest income
7,280 
6,965 
14,466 
13,719 
Provision for loan losses
62 
59 
130 
350 
Net interest income after provision for loan losses
7,218 
6,906 
14,336 
13,369 
Non-interest income:
    
Merchant card
330 
315 
638 
617 
Mortgage origination revenue
489 
278 
808 
612 
Gain on sale of investments
481 
14 
508 
16 
Income from bank owned life insurance
73 
72 
144 
307 
Income from financial services
177 
145 
315 
285 
Other operating income
87 
212 
262 
691 
Total non-interest income
2,364 
1,836 
4,108 
4,132 
Non-interest expenses:
    
Salaries and benefits
4,116 
3,977 
8,233 
8,213 
Occupancy
747 
729 
1,529 
1,504 
Data processing
765 
546 
1,549 
1,310 
State deposit tax
160 
200 
329 
431 
Professional services
499 
464 
965 
812 
Advertising
338 
368 
646 
749 
Foreclosure, net
21 
15 
114 
Loss on sale of asset
Other
919 
940 
1,839 
1,786 
Total non-interest expense
7,574 
7,233 
15,114 
14,922 
Income before income tax expense
2,008 
1,509 
3,330 
2,579 
Income tax expense
323 
368 
519 
503 
Net income
$ 1,685 
$ 1,141 
$ 2,811 
$ 2,076 
Net income per share:
    
Basic
$ 0.28 
$ 0.18 
$ 0.46 
$ 0.33 
Diluted
0.28 
0.18 
0.46 
0.33 
Dividend per share
$ 0.07 
$ 0.05 
$ 0.12 
$ 0.09 
Deposit Account [Member]
    
Non-interest income:
    
Service charges
$ 727 
$ 800 
$ 1,433 
$ 1,604 
Interim Consolidated Condensed Statements of Comprehensive Income - USD ($)
3 Months Ended6 Months Ended
$ in Thousands
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
    
Net income
$ 1,685 
$ 1,141 
$ 2,811 
$ 2,076 
Other comprehensive income, net of tax:
    
Unrealized gain on non-other than temporary impaired investment securities available for sale, net of taxes of of $168 and ($126) for the three month periods ended June 30, 2018 and June 30, 2017, respectively; and $654 and ($247) for the six month periods ended June 30, 2018 and June 30, 2017, respectively.
(629)
240 
(2,459)
475 
Unrealized gain on OTTI securites, net of taxes of none and ($43) for the three month periods ended June 30, 2018 and June 30, 2017; and ($61) and ($14) for the six month periods ended June 30, 2018 and June 30, 2017, respectively.
 
83 
233 
26 
Reclassification adjustment for gains included in net net income, net of taxes of $100 and $5 for the three month periods ended June 30, 2018 and June 30, 2017, respectively; and $106 and $6 for the six month periods ended June 30, 2018 and June 30, 2017, respectively.
(380)
(9)
(401)
(10)
Total other comprehensive income
(1,009)
314 
(2,627)
491 
Comprehensive income
$ 676 
$ 1,455 
$ 184 
$ 2,567 
Interim Consolidated Condensed Statements of Comprehensive Income (Parenthetical) - USD ($)
3 Months Ended6 Months Ended
$ in Thousands
Jun. 30, 2018
Jun. 30, 2017
Jun. 30, 2018
Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
    
Unrealized gain (loss) on investment securities available for sale, tax effect
$ 168 
$ 126 
$ 654 
$ 247 
Unrealized gain (loss) on OTTI securities, tax effect
43 
61 
14 
Reclassification adjustment for other than temporary impairment included in net income, tax effect
$ 100 
$ 5 
$ 106 
$ 6 
Interim Consolidated Condensed Statement of Stockholders' Equity - 6 months ended Jun. 30, 2018 - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock, Common [Member]
Unearned ESOP Shares [Member]
Accumulated Other Comprehensive Income [Member]
Beginning balance at Dec. 31, 2017
$ 87,412 
$ 80 
$ 58,825 
$ 51,162 
$ (16,655)
$ (5,901)
$ (99)
Beginning balance, Shares at Dec. 31, 2017
 
6,637,771 
     
Restricted stock awards
$ 0 
Restricted stock awards, shares
 
13,524 
     
Net income
2,811 
  
2,811 
   
Repurchase of treasury stock
(51)
   
(51)
  
Repurchase of treasury stock, shares
 
(3,620)
     
ESOP shares committed to be released
295 
    
295 
 
Change in price of ESOP shares
75 
 
75 
    
Compensation expense, restricted stock awards
48 
 
48 
    
Net change in unrealized gain on securities available for sale, net of income taxes of $699
(2,627)
     
(2,627)
Cash dividend declared to common shareholders
(794)
  
(794)
   
Ending balance at Jun. 30, 2018
$ 87,169 
$ 80 
$ 58,948 
$ 53,179 
$ (16,706)
$ (5,606)
$ (2,726)
Ending balance, Shares at Jun. 30, 2018
 
6,647,675 
     
Interim Consolidated Condensed Statement of Stockholders' Equity (Parenthetical)
6 Months Ended
$ in Thousands
Jun. 30, 2018
USD ($)
Net change in unrealized gain (losses) on securities available for sale, taxes
$ 699 
Accumulated Other Comprehensive Income [Member]
 
Net change in unrealized gain (losses) on securities available for sale, taxes
$ 699 
Interim Consolidated Condensed Statements of Cash Flows - USD ($)
6 Months Ended12 Months Ended
$ in Thousands
Jun. 30, 2018
Jun. 30, 2017
Dec. 31, 2017
Cash flows from operating activities:
   
Net cash provided by operating activities
$ 4,660 
$ 4,662 
 
Cash flows from investing activities:
   
Proceeds from sales, calls and maturities of securities available for sale
16,994 
27,362 
 
Purchase of securities available for sale
(7,042)
(23,047)
 
Net increase in loans
(35,207)
(27,474)
 
Proceeds from sale of foreclosed assets
88 
1,136 
$ 3,461 
Proceeds from sale of premises and equipment
 
Purchase of premises and equipment
(292)
(251)
 
Net cash provided by (used in) investing activities
(25,459)
(22,274)
 
Cash flows from financing activities:
   
Net (decrease) increase in demand deposits
(16,793)
7,027 
 
Net (decrease) increase in time and other deposits
(4,028)
6,035 
 
Increase in advances from borrowers for taxes and insurance
448 
218 
 
Advances from Federal Home Loan Bank
45,000 
32,000 
 
Repayment of advances from Federal Home Loan Bank
(30,000)
(22,000)
 
Net increase (decrease) in repurchase agreements
1,295 
(5,835)
 
Cash used to repurchase treasury stock
(51)
(14)
 
Dividends paid on common stock
(794)
(559)
 
Net cash (used in) provided by financing activities
(4,923)
16,872 
 
Increase (decrease) in cash and cash equivalents
(25,772)
(740)
 
Cash and cash equivalents, beginning of period
45,076 
25,749 
25,749 
Cash and cash equivalents, end of period
19,354 
25,009 
$ 45,076 
Supplemental disclosures of cash flow information:
   
Interest paid
$ 3,396 
2,840 
 
Income taxes paid
 
$ 388 
 
Basis of Presentation
6 Months Ended
Jun. 30, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
 
Basis of Presentation
(1)

BASIS OF PRESENTATION

The accompanying unaudited interim consolidated condensed financial statements include the accounts of HopFed Bancorp, Inc. (the “Corporation” or “HopFed”) and its subsidiaries (collectively, the “Company”). The Corporation is a parent holding company of Heritage Bank USA, Inc. (the “Bank”). The Banks owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank also owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers. The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LLLP, a low income senior citizen housing facility in Bowling Green, Kentucky. All significant intercompany accounts have been eliminated.

The Bank is a Kentucky commercial bank regulated by the Kentucky Department of Financial Institutions (“KDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). HopFed Bancorp is regulated by the Federal Reserve Bank of Saint Louis (“FED”).

The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 presentation have been included. The results of operations and other data for the six month period ended June 30, 2018 are not necessarily indicative of results that may be expected the entire fiscal year ending December 31, 2018.

The accompanying unaudited interim consolidated condensed 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 as of and for the year ended December 31, 2017. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2017 Consolidated Financial Statements.

Earnings Per Share
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]
 
Earnings Per Share
(2)

EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common stock shares outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. For the three and six month periods ended June 30, 2018 and June 30, 2017, the Company has excluded all unearned shares held by the ESOP.

 

     For the three month periods
Ended June 30,
 
     2018      2017  

Basic EPS:

     

Net income

   $ 1,685,000      $ 1,141,000  

Average common shares outstanding

     6,142,680        6,228,894  
  

 

 

    

 

 

 

Earnings per share

   $ 0.28      $ 0.18  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 1,685,000      $ 1,141,000  

Average common shares outstanding

     6,142,680        6,228,894  

Dilutive effect of unvested restricted stock

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,142,680        6,228,894  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.28      $ 0.18  
  

 

 

    

 

 

 

 

     For the six month periods
Ended June 30,
 
     2018      2017  

Basic EPS:

     

Net income

   $ 2,811,000      $ 2,076,000  

Average common shares outstanding

     6,165,415        6,223,802  
  

 

 

    

 

 

 

Earnings per share

   $ 0.46      $ 0.33  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 2,811,000      $ 2,076,000  

Average common shares outstanding

     6,165,415        6,223,802  

Dilutive effect of unvested restricted stock

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,165,415        6,223,802  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.46      $ 0.33  
  

 

 

    

 

 

 
Securities
6 Months Ended
Jun. 30, 2018
Cash and Cash Equivalents [Abstract]
 
Securities
(3)

SECURITIES

The carrying amount of securities and their estimated fair values at June 30, 2018 and December 31, 2017 were as follows:

 

     June 30, 2018  
     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. Agency securities

   $ 77,769        141        (1,756     76,154  

Taxable municipal bonds

     962        —          (7     955  

Tax free municipal bonds

     24,555        227        (165     24,617  

Mortgage backed securities

     69,147        80        (1,970     67,257  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 172,433        448        (3,898     168,983  
  

 

 

    

 

 

    

 

 

   

 

 

 
     December 31, 2017  
     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. Agency securities

     84,210        536        (653     84,093  

Taxable municipal bonds

     1,279        5        (1     1,283  

Tax free municipal bonds

     26,412        637        (83     26,966  

Trust preferred securities

     1,650        35        —         1,685  

Mortgage-backed securities

     71,389        201        (826     70,764  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 184,940        1,414        (1,563     184,791  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

The scheduled maturities of debt securities available for sale at June 30, 2018 were as follows:

 

     Amortized
Cost
     Estimated
Fair
Value
 
     (Dollars in Thousands)  

Due within one year

   $ 1,570      $ 1,586  

Due in one to five years

     29,252        28,735  

Due in five to ten years

     13,297        12,995  

Due after ten years

     7,252        7,273  
  

 

 

    

 

 

 
     51,371        50,589  

Amortizing agency bonds

     51,915        51,137  

Mortgage-backed securities

     69,147        67,257  
  

 

 

    

 

 

 

Total securities available for sale

   $ 172,433      $ 168,983  
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of June 30, 2018 were as follows:

 

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

Available for sale

               

U.S. Agency securities

   $ 45,588        (1,219     15,434        (537     61,022        (1,756

Taxable municipal bonds

     955        (7     —          —         955        (7

Tax free municipal bonds

     6,817        (132     732        (33     7,549        (165

Mortgage-backed securities

     41,653        (1,103     20,722        (867     62,375        (1,790
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 95,013        (2,461     36,888        (1,437     131,901        (3,898
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2017 were as follows:

 

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

Available for sale

               

U.S. Agency securities

   $ 41,501        (431     9,846        (222     51,347        (653

Taxable municipal bonds

     521        (1     —          —         521        (1

Tax free municipal bonds

     4,860        (51     913        (32     5,773        (83

Mortgage-backed securities

     40,441        (289     21,566        (537     62,007        (826
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 87,323        (772     32,325        (791     119,648        (1,563
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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, 2018, the Company has 103 securities with unrealized losses. The losses for all securities are considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and are not related to the credit worthiness of the issuers. Furthermore, the Company has the intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did not recognize any other-than-temporary impairments as of June 30, 2018.

At June 30, 2018 and December 31, 2017, securities with a book value of approximately $105.5 million and $119.8 million and a market value of approximately $105.1 million and $118.0 million, respectively, were pledged to various municipalities for deposits in excess of FDIC limits as required by law. At June 30, 2018 and December 31, 2017, securities with a market value of $39.6 million and $38.4 million, respectively, were sold to customers as part of overnight repurchase agreements.

Loans
6 Months Ended
Jun. 30, 2018
Receivables [Abstract]
 
Loans
(4)

LOANS

The Company uses the following loan segments as described below:

 

   

One-to-four family first mortgages are closed-end loans secured by residential housing. Loans may be either owner or non-owner occupied properties. If the loan is owner-occupied, the loan is analyzed and under-written as a consumer loan. Loan terms may be up to 30 years.

 

   

Home equity lines of credit may be first or second mortgages secured by one-to-four family properties. Home equity loans carry a variable rate and typically are open ended for a period not to exceed ten years with a fifteen year final maturity. Loans secured by home equity lines of credit are under-written under the Company’s consumer loan guidelines.

 

   

Junior liens are closed-end loans secured by one-to-four family residences with a fixed or variable rate. Typically, the collateral for these loans are owner occupied units with a subordinate lien. Loans secured by junior liens are under-written under the Company’s consumer loan guidelines.

 

   

Multi-family loans are closed-end loans secured by residential housing with five or more units in a single building. Multi-family loans may carry a variable rate of interest or the interest rate on the loan is a fixed rate (usually five years). After the initial fixed rate period, the loan reverts to a variable rate or has balloon maturity. Multi-family loans have amortization terms of up to twenty years and are under-written under the Company’s commercial loan underwriting guidelines.

 

   

Constructions loans may consist of residential or commercial properties and carry a fixed or variable rate for the term of the construction period. Construction loans have a maturity of between twelve and twenty-four months depending on the type of property. After the construction period, loans are amortized over a twenty-year period. All construction loans are under written under the Company’s commercial loan underwriting guidelines for the type of property being constructed.

 

   

Land loans consist of properties currently under development, land held for future development and land held for recreational purposes. Land loans used for recreational purposes are amortized for twenty years and typically carry a fixed rate of interest for one-to-five years with a balloon maturity or floating rate period to follow and are under-written under the Company’s commercial loan underwriting guidelines.

 

   

Loans classified as farmland by the Company include properties that are used exclusively for the production of grain, livestock, poultry or swine. Loans secured by farmland have a maturity of up to twenty years and carry a fixed rate of interest for five to ten years. Loans secured by farmland are under-written under the Company’s commercial loan underwriting guidelines.

 

   

Non-residential real estate loans are secured by commercial real estate properties and may be either owner or non-owner occupied. The loans typically have a twenty year maturity and may be fixed for a period of five to ten years. After the initial fixed rate period, the note will either revert to a one year adjustable rate loan or have a balloon maturity. Loans secured by non-residential real estate are under-written under the Company’s commercial loan underwriting standards.

 

   

The Company originates secured and unsecured consumer loans. Collateral for consumer loans may include deposits, brokerage accounts, automobiles and other personal items. Consumer loans are typically fixed for a term of one to five years and are under-written using the Company’s consumer loan policy.

 

   

The Company originates unsecured and secured commercial loans. Secured commercial loans may have business inventory, accounts receivable and equipment as collateral. The typical customer may include all forms of manufacturing, retail and wholesale sales, professional services and various forms of agri-business interest. Commercial loans may be fixed or variable rate and typically have terms between one and five years.

 

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at June 30, 2018 and December 31, 2017.

 

     June 30, 2018      December 31, 2017  
     (Dollars in Thousands)  

Real estate loans:

     

One-to-four family first mortgages

   $ 171,725      $ 163,565  

Home equity lines of credit

     34,262        35,697  

Junior liens

     1,109        1,184  

Multi-family

     37,742        37,445  

Construction

     40,759        30,246  

Land

     9,033        14,873  

Non-residential real estate

     244,769        224,952  

Farmland

     33,271        36,851  
  

 

 

    

 

 

 

Total mortgage loans

     572,670        544,813  

Consumer loans

     8,525        8,620  

Commercial loans

     96,214        88,938  
  

 

 

    

 

 

 

Total other loans

     104,739        97,558  
  

 

 

    

 

 

 

Total loans

     677,409        642,371  

Deferred loan fees, net of cost

     (518      (443

Less allowance for loan losses

     (4,637      (4,826
  

 

 

    

 

 

 

Total loans, net

   $ 672,254      $ 637,102  
  

 

 

    

 

 

 

Although the Company has a diversified loan portfolio, 84.5% and 84.8% of the portfolio was concentrated in loans secured by real estate at June 30, 2018 and December 31, 2017, respectively. At June 30, 2018 and December 31, 2017, the majority of these loans are located within the Company’s general operating area.

 

Risk Grade Classifications

The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined risk metrics and categorized into one of the risk grades discussed below. The Company uses the following risk grade definitions for commercial loans:

Excellent - Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by Bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.

Very Good - These are loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification.

Satisfactory - Assets of this grade conform to substantially all the Bank’s underwriting criteria and evidence an average level of credit risk; however, such assets display more susceptibility to economic, technological or political changes since they lack the above average financial strength of credits rated Very Good. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory.

Acceptable - Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk; however, these loans have certain risk characteristics which could adversely affect the borrower’s ability to repay given material adverse trends. Loans in this category require an above average level of servicing and show more reliance on collateral and guaranties to preclude a loss to the Bank should material adverse trends develop. If the borrower is a company, its earnings, liquidity and capitalization are slightly below average when compared to its peers.

Watch - These loans are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited.

 

Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the asset or in the institution’s credit position at some future date. Borrowers may be experiencing adverse operating trends or market conditions. Non-financial reasons for rating a credit exposure Special Mention include, but are not limited to: management problems, pending litigations, ineffective loan agreement and/or inadequate loan documentation, structural weaknesses and/or lack of control over collateral.

Substandard - A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected.

Doubtful - A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in a work-out status and have a defined work-out strategy.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as Bankable assets is not warranted. The Bank takes losses in the period in which they become uncollectible.

The following credit risk standards are assigned to consumer loans:

Satisfactory - All consumer open-end and closed-end retail loans shall have an initial risk grade assigned of 3 - Satisfactory.

Substandard - All consumer open-end and closed-end retail loans past due 90 cumulative days from the contractual date will be classified as 7 - Substandard. If a consumer/retail loan customer files bankruptcy, the loan will be classified as 7 - Substandard regardless of payment history.

Loss - All closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off as loss assets. The charge off will be taken by the end of the month in which the 120-day or 180-day time period elapses. All losses in retail credit will be recognized when the affiliate becomes aware of the loss, but in no case should the charge off exceed the time frames stated within this policy.

 

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, 2018:

 

     Balance
12/31/2017
     Charge offs
2018
    Recoveries
2018
     Provision
2018
    Ending
Balance
6/30/2018
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 747        (6     6        147       894  

Home equity line of credit

     189        —         5        (33     161  

Junior liens

     5        —         —          —         5  

Multi-family

     314        —         —          (26     288  

Construction

     161        —         —          23       184  

Land

     1,223        (40     —          (581     602  

Non-residential real estate

     789        —         9        539       1,337  

Farmland

     367        (2     1        (180     186  

Consumer loans

     184        (137     41        76       164  

Commercial loans

     847        (200     4        165       816  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 4,826        (385     66        130       4,637  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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, 2017:

 

     Balance
12/31/2016
     Charge offs
2017
    Recoveries
2017
     Provision
2017
    Ending
Balance
12/31/2017
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 852        (66     13        (52     747  

Home equity line of credit

     260        —         12        (83     189  

Junior liens

     8        —         4        (7     5  

Multi-family

     412        —         417        (515     314  

Construction

     277        —         —          (116     161  

Land

     1,760        (2,608     559        1,512       1,223  

Non-residential real estate

     964        —         16        (191     789  

Farmland

     778        —         10        (421     367  

Consumer loans

     208        (261     87        150       184  

Commercial loans

     593        (224     278        200       847  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 6,112        (3,159     1,396        477       4,826  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

The table below presents past due and non-accrual balances, excluding loan fees of $518,000, at June 30, 2018 by loan classification allocated between performing and non-performing:

 

     Currently
Performing
     30 - 89
Days
Past Due
     Past due
more than 90
days and
Accruing
     Non-
accrual
Loans
     Special
Mention
     Substandard      Total  

One-to-four family mortgages

   $ 169,579        884        —          367        —          895        171,725  

Home equity line of credit

     33,875        —          —          347        —          40        34,262  

Junior liens

     1,092        13        —          4        —          —          1,109  

Multi-family

     37,742        —          —          —          —          —          37,742  

Construction

     40,759        —          —          —          —          —          40,759  

Land

     8,535        —          —          —          —          498        9,033  

Non-residential real estate

     233,294        366        —          322        5,317        5,470        244,769  

Farmland

     33,271        —          —          —          —          —          33,271  

Consumer loans

     8,252        15        —          6        —          252        8,525  

Commercial loans

     91,790        327        —          556        807        2,734        96,214  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 658,189        1,605        —          1,602        6,124        9,889        677,409  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents past due and non-accrual balances, excluding loan fees of $443,000, at December 31, 2017 by loan classification allocated between performing and non-performing:

 

     Currently
Performing
     30 - 89
Days
Past Due
     Past due
more than
90 days and
Accruing
     Non-accrual
Loans
     Special
Mention
     Substandard      Total  
            (Dollars in Thousands)                              

One-to-four family mortgages

   $ 162,724        181        88        266        —          306        163,565  

Home equity line of credit

     35,285        —          —          402        —          10        35,697  

Junior liens

     1,180        —          —          4        —          —          1,184  

Multi-family

     37,445        —          —          —          —          —          37,445  

Construction

     30,246        —          —          —          —          —          30,246  

Land

     14,322        —          —          40        —          511        14,873  

Non-residential real estate

     216,692        209        —          —          979        7,072        224,952  

Farmland

     35,253        —          —          111        1,147        340        36,851  

Consumer loans

     8,373        3        —          3        —          241        8,620  

Commercial loans

     83,892        —          —          459        3,572        1,015        88,938  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 625,412        393        88        1,285        5,698        9,495        642,371  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of June 30, 2018 and December 31, 2017 by portfolio segment and based on the impairment method.

 

     Commercial      Land
Development /
Construction
     Commercial
Real Estate
     Residential
Real Estate
     Consumer      Total  
     (Dollars in Thousands)  

June 30, 2018:

  

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 162        —          —          —          62      $ 224  

Collectively evaluated for impairment

     654        786        1,811        1,060        102        4,413  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 816        786        1,181        1,060        164      $ 4,637  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 3,019        498        5,394        277        247      $ 9,435  

Loans collectively evaluated for impairment

     93,195        49,294        310,388        206,819        8,278      $ 667,974  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 96,214        49,792        315,782        207,096        8,525      $ 677,409  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Commercial      Land
Development /
Construction
     Commercial
Real Estate
     Residential
Real Estate
     Consumer      Total  
     (Dollars in Thousands)  

December 31, 2017:

  

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 233        —          2        —          54      $ 289  

Collectively evaluated for impairment

     614        1,384        1,468        941        130      $ 4,537  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 847        1,384        1,470        941        184      $ 4,826  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 1,416        515        7,532        257        217      $ 9,937  

Loans collectively evaluated for impairment

     87,522        44,604        291,716        200,189        8,403      $ 632,434  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 88,938        45,119        299,248        200,446        8,620      $ 642,371  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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 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 and the market value of the underlying collateral. 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.

A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments 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.

 

Loans by classification type and credit risk indicator at June 30, 2018 and December 31, 2017 were as follows:

 

June 30, 2018

   Pass      Special
Mention
     Substandard      Doubtful      Total  
            (Dollars in Thousands)                

One-to-four family mortgages

   $ 170,463        —          1,262        —          171,725  

Home equity line of credit

     33,875        —          387        —          34,262  

Junior liens

     1,105        —          4        —          1,109  

Multi-family

     37,742        —          —          —          37,742  

Construction

     40,759        —          —          —          40,759  

Land

     8,535        —          498        —          9,033  

Non-residential real estate

     233,660        5,317        5,792        —          244,769  

Farmland

     33,271        —          —          —          33,271  

Consumer loans

     8,267        —          258        —          8,525  

Commercial loans

     92,117        807        3,290        —          96,214  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 659,794        6,124        11,491        —          677,409  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2017

   Pass      Special
Mention
     Substandard      Doubtful      Total  
            (Dollars in Thousands)                

One-to-four family mortgages

   $ 162,993        —          572        —          163,565  

Home equity line of credit

     35,285        —          412        —          35,697  

Junior liens

     1,184        —          —          —          1,184  

Multi-family

     37,445        —          —          —          37,445  

Construction

     30,246        —          —          —          30,246  

Land

     14,318        —          555        —          14,873  

Non-residential real estate

     216,901        979        7,072        —          224,952  

Farmland

     35,253        1,147        451        —          36,851  

Consumer loans

     8,376        —          244        —          8,620  

Commercial loans

     83,892        3,572        1,474        —          88,938  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 625,893        5,698        10,780        —          642,371  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Impaired loans by classification type and the related valuation allowance amounts at June 30, 2018 were as follows:

 

     At June 30, 2018      For the six month period
ended June 30, 2018
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (Dollars in Thousands)  

Impaired loans with no specific allowance

  

One-to-four family mortgages

   $ 1,262        1,262        —          843        31  

Home equity line of credit

     387        387        —          314        11  

Junior liens

     4        4        —          3        —    

Multi-family

     —          —          —          —          —    

Construction

     —          —          —          —          —    

Land

     498        498        —          519        15  

Non-residential real estate

     5,792        5,792        —          6,722        150  

Farmland

     —          —          —          278        —    

Consumer loans

     11        11        —          5        —    

Commercial loans

     3,079        3,079        —          2,650        86  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,033        11,033        —          11,334        293  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance

              

One-to-four family mortgages

   $ —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —    

Junior liens

     —          —          —          —          —    

Multi-family

     —          —          —          —          —    

Construction

     —          —          —          —          —    

Land

     —          —          —          —          —    

Non-residential real estate

     —          —          —          1        —    

Farmland

     —          —          —          —          —    

Consumer loans

     247        247        62        299        —    

Commercial loans

     211        411        162        297        12  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     458        658        224        597        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,491        11,691        224        11,931        305  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows:

 

     At December 31, 2017      For the year ended
December 31, 2017
 
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
            (Dollars in Thousands)                

Impaired loans with no specific allowance

              

One-to-four family mortgages

   $ 257        257        —          1,235        35  

Home equity line of credit

     —          —          —          447        26  

Junior liens

     —          —          —          6        —    

Multi-family

     —          —          —          1,135        —    

Construction

     —          —          —          —          —    

Land

     515        515        —          837        44  

Non-residential real estate

     7,086        7,086        —          8,979        395  

Farmland

     444        444        —          1,094        35  

Consumer loans

     —          —          —          8        2  

Commercial loans

     875        875        —          1,571        46  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     9,177        9,177        —          15,312        583  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance

              

One-to-four family mortgages

     —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —    

Junior liens

     —          —          —          —          —    

Multi-family

     —          —          —          —          —    

Construction

     —          —          —          —          —    

Land

     —          —          —          4,006        —    

Non-residential real estate

     2        2        2        88        2  

Farmland

     —          —          —          195        —    

Consumer loans

     217        217        54        248        —    

Commercial loans

     541        541        233        479        13  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     760        760        289        5,016        15  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 9,937        9,937        289        20,328        598  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

At June 30, 2018, all non-accrual loans with the exception of $4,000 in junior loans are classified as substandard. At June 30, 2018, the Company is not obligated to lend additional funds to borrowers who have been placed in non-accrual status. There are no loans accruing interest that are past due more than 90 days at June 30, 2018. At December 31, 2017, there was one loan, totaling $88,000 that was past due more than 90 days and accruing interest. At June 30, 2018 and December 31, 2017, the Company’s balances in non-accrual loans by loan type is as follows:

 

     June 30, 2018     December 31, 2017  
     (Dollars in Thousands)  

One-to-four family mortgages

     367       266  

Home equity line of credit

     347       402  

Junior Lien

     4       4  

Land

     —         40  

Non-residential real estate

     322       —    

Farmland

     —         111  

Consumer loans

     6       3  

Commercial loans

     556       459  
  

 

 

   

 

 

 

Total non-accrual loans

     1,602       1,285  
  

 

 

   

 

 

 

Non-accrual loans / Total loans

     0.24     0.20
  

 

 

   

 

 

 

The following table provides the number of loans remaining in each category as of June 30, 2018 and December 31, 2017 that the Company had previously modified in a TDR:

 

     Number of
Loans
     Pre-Modification
Outstanding
Record Investment
     Post Modification
Outstanding Record
Investment, net of
related allowance
 

June 30, 2018

        

Non-residential real estate

     2      $ 3,162,197        3,162,197  

Commercial

     1        90,327        90,327  

December 31, 2017

        

Non-residential real estate

     2        3,163,435        3,163,435  

In the six month period ended June 30, 2018, the Company identified one additional commercial loan as a TDR. The loan is secured by equipment and inventory. The TDR classification is the result of the borrower’s declining financial condition, prompting the Company to lengthen the amortization period of the loan to twelve years. The length of the current amortization period is outside of our loan policy and results in a TDR classification. The loan has a one year balloon feature and the borrower’s financial condition will be re-evaluated at that time. There were no loans as of June 30, 2018 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At June 30, 2018, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.

Foreclosed Assets
6 Months Ended
Jun. 30, 2018
Banking and Thrift [Abstract]
 
Foreclosed Assets
(5)

FORECLOSED ASSETS

The Company’s foreclosed assets have been 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 losses on foreclosed assets 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 foreclosed assets with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense.

For the six month period ended June 30, 2018, the Company’s activity in foreclosed property included the following:

 

            Activity During 2018                      
     Balance
12/31/2017
     Foreclosure      Sales     Reduction
in Values
     Gain (Loss)
on Sale
     Balance
6/30/2018
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 169        130        (88     —          16      $ 227  

Land

     3,200        —          —         —          —          3,200  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 3,369        130        (88     —          16      $ 3,427  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The Company’s activity in foreclosed assets for the twelve month period ended December 31, 2017 is as follows:

 

            Activity During 2017                    
     Balance
12/31/2016
     Foreclosure      Sales     Reduction
in Values
    Gain (Loss)
on Sale
    Balance
12/31/2017
 
            (Dollars in Thousands)                    

One-to-four family mortgages

   $ 135        1,069        (1,182     —         147     $ 169  

HELOC

     28        —          (18     (10     —         —    

Land

     —          3,200        —         —         —         3,200  

Multi-family

     1,775        —          (1,761     —         (14     —    

Non-residential

     459        43        (500     —         (2     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,397        4,312        (3,461     (10     131     $ 3,369
Fair Value of Assets and Liabilities
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]
 
Fair Value of Assets and Liabilities
(6)

FAIR VALUE OF ASSETS AND LIABILITIES

Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

 

   

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

 

   

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

 

   

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

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

Cash and due from banks

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

Interest-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets’ fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns.

Available-for-sale securities

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

FHLB stock

The fair value of FHLB stock is recognized at cost.

Loans held for sale

Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.

 

Loans receivable

The fair values of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans that re-price frequently and have no significant change in credit risk is approximately the carrying value of the loan.

Accrued interest receivable

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

Deposits

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

Advances from borrowers for taxes and insurance

The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.

Advances from the Federal Home Loan Bank (FHLB)

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

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements.

Subordinated debentures

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

Fair Value Measurements on a Recurring Basis

Where quoted prices are available for identical securities in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.

Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis at June 30, 2018 are summarized below:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
6/30/2018
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in Thousands)  

Securities available for sale

           

U.S. Agency securities

   $ 76,154        —          76,154        —    

Taxable municipals

     955        —          954        —    

Tax-free municipals

     24,617        —          24,617        —    

Mortgage backed securities

     67,257        —          67,257        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 168,983        —          168,983        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

The assets and liabilities measured at fair value on a recurring basis at December 31, 2017 are summarized below:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
12/31/2017
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (Dollars in Thousands)  

Securities available for sale

           

U.S. Agency securities

     84,093        —          84,093        —    

Taxable municipals

     1,283        —          1,283        —    

Tax-free municipals

     26,966        —          26,966        —    

Trust preferred securities

     1,685        —          —          1,685  

Mortgage backed securities

     70,764        —          70,764        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 184,791        —          183,106        1,685  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for June 30, 2018:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
June 30, 2018
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
Assets    (Dollars in Thousands)         

Foreclosed assets

   $ 3,427        —          —        $ 3,427  

Impaired loans, net of allowance of $224

   $ 234        —          —        $ 234  

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2017:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
December 31, 2017
     Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
Assets           (Dollars in Thousands)                

Foreclosed assets

   $ 3,369        —          —        $ 3,369  

Impaired loans, net of allowance of $289

   $ 473        —          —        $ 473  

 

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a recurring and non-recurring basis at June 30, 2018 and December 31, 2017:

 

           

Level 3 Significant Unobservable Input
Assumptions

         
     Fair
Value
    

Valuation

Technique

  

Unobservable

Input

  

Quantitative Range
of Unobservable
Inputs

            (Dollars in Thousands)          

June 30, 2018

           

Assets measured on a non-recurring basis

 

        

Foreclosed assets

   $ 3,427      Discount to appraised value of collateral. Auction results    Appraisal comparability adjustments    5% to 10%

Impaired loans

     458      Discount to appraised value of collateral    Appraisal comparability adjustments    10% to 25%

Asset measured on a recurring basis

 

        

December 31, 2017

           

Assets measured on a non-recurring basis

 

        

Foreclosed assets

   $ 3,369      Discount to appraised value of collateral    Appraisal comparability adjustments    30% to 55%

Impaired loans

     760      Discount to appraised value of collateral    Appraisal comparability adjustments    10% to 15%

Asset measured on a recurring basis

 

        

Trust preferred securities

     1,685     

Discounted cash flow

Spread to Libor swap curve

  

Compare to quotes for

sale when available

  

One month libor

4% to 6%

 

The estimated fair values of financial instruments were as follows at June 30, 2018:

 

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

Financial Assets:

              

Cash and due from banks

   $ 16,399        16,399        16,399        —          —    

Interest-bearing deposits

     2,955        2,955        2,955        —          —    

Securities available for sale

     168,983        168,983        —          168,983        —    

Federal Home Loan Bank stock

     4,428        4,428        —          —          4,428  

Loans held for sale

     1,126        1,126        —          1,126        —    

Loans receivable

     676,891        641,814        —          —          641,814  

Accrued interest receivable

     3,253        3,253        —          —          3,253  

Financial liabilities:

              

Deposits

     733,188        733,317        —          733,317        —    

Advances from borrowers for taxes and insurance

     1,256        1,256        —          1,256        —    

Advances from Federal Home Loan Bank

     38,000        37,790        —          37,790        —    

Repurchase agreements

     39,648        39,648        —          39,648        —    

Subordinated debentures

     10,310        10,310        —          —          10,310  

 

The estimated fair values of financial instruments were as follows at December 31, 2017:

 

            Estimated     

Quoted Prices

In Active Markets

for Identical

    

Using

Significant

Other

Observable

    

Significant

Unobservable

 
     Carrying      Fair      Assets      Inputs      Inputs  
     Amount      Value      Level 1      Level 2      Level 3  
     (Dollars in Thousands)  

Financial Assets:

  

Cash and due from banks

   $ 21,779        21,779        21,779        —          —    

Interest-bearing deposits

     3,970        3,970        3,970        —          —    

Securities available for sale

     209,480        209,480        2,001        205,662        1,817  

Federal Home Loan Bank stock

     4,428        4,428        —          —          4,428  

Loans held for sale

     1,094        1,094        —          1,094        —    

Loans receivable

     604,286        593,257        —          —          593,257  

Accrued interest receivable

     3,799        3,799        —          —          3,799  

Financial liabilities:

              

Deposits

     732,882        732,942        —          732,942        —    

Advances from borrowers for taxes and insurance

     766        766        —          766        —    

Advances from Federal Home Loan Bank

     11,000        10,979        —          10,979        —    

Repurchase agreements

     47,655        47,655        —          47,655        —    

Subordinated debentures

     10,310        10,099        —          —          10,099
Effect of New Accounting Pronouncements
6 Months Ended
Jun. 30, 2018
Accounting Changes and Error Corrections [Abstract]
 
Effect of New Accounting Pronouncements
(7)

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. 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 deferred the effective date reporting periods beginning after December 15, 2017. The implementation of ASC Topic 605 did not have a material impact on the Company’s Consolidated Financial Statements.

 

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective on January 1, 2018 and did not have a material effect on the Company’s Consolidated Financial Statements.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements.

ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017. The implementation of ASU 2016-09 did not have a material effect on the Company’s Consolidated Financial Statements.

 

On June 16, 2016, the FASB released its finalized ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables, the FASB said. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified as available-for-sale. The accounting board added that the write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts to improve the loss estimates on financial assets that are losing value. The board also said the techniques that are employed today to write down loans and other instruments can still be used, although it expects the variables for calculating the losses to change. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU 2016-13 in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-13.

ASU 2016-15 “Statement of Cash Flows (Topic 230)” (“ASU 2016-15”) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted with retrospective application. The application of ASU 2016-15 did not have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.

ASU 2017-08, “Receivables – Nonrefundable Fees and Other Cost” (Topic 310) – amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of instrument. ASU 2017-08 premiums on purchased callable debt securities that have an explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.

 

ASU 2017-09 “Compensation – Stock Compensation (Topic 718) – clarifies when changes to the terms or conditions of a share-based payment must be accounted for as modifications. Under AUS 2017-09, an entity should account for changes to the terms or conditions of a share-based payment unless all of the following are met:

 

   

The fair value of the modified award is the same as the fair value of the original award immediately before modification,

 

   

The vesting conditions of the modified award is the same as the vesting conditions value of the original award immediately before modification, and

 

   

The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before modification.

ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a material impact on our consolidated financial statements.

ASU 2017-12 “Derivatives and Hedging (Topic 815) amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information convey to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for the Company on January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. The Company is currently reviewing the impact of the adoption of ASU 2018-02 on its 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, 2018
Income Tax Disclosure [Abstract]
 
Income Taxes
(8)

INCOME TAXES

The Company files consolidated federal income tax returns and Tennessee excise tax returns. The Company files 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 Company’s effective tax rate changed from 34% to 21% effective January 1, 2018 as a result of the Tax Cut and Jobs Act of 2017. The effective tax rate differs from the statutory federal rate of 21% and Tennessee excise rate of 6.5% due to investments in qualified municipal securities, bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses. The Company’s effective federal income tax rate varies significantly from our federal statutory tax rate for a variety of factors, including:

 

   

The Company’s investment in Fort Webb LP, LLC generates tax credits and depreciation expense that the Company can use to offset taxable income. At June 30, 2018, the Company’s balance sheet did not include any equity investment in Fort Webb. The Company has other investments that produce both tax credits and depreciation expense that may be used to offset net income.

 

   

At June 30, 2018, the Company has $10.5 million in Bank owned life insurance policies. The income generated from these policies increase the cash flow of the policies on a tax free basis. Life insurance proceeds are paid upon the death of a covered party. These proceeds, netted against the current cash value of the policy, result in tax free income to the Company. At June 30, 2018, the Company’s investment portfolio includes $24.6 million of tax free municipal securities. Interest income on this portfolio, after netting out a disallowance for interest expense attributable to this portfolio, is tax exempt.

Esop
6 Months Ended
Jun. 30, 2018
Text Block [Abstract]
 
Esop
(9)

ESOP

Substantially all of the Company’s employees who are at least 21 years old and have one year of employment with the Company 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 an open-end line of credit 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 unearned shares held by the ESOP to repay the loan from the Company. When loan payments are made, ESOP shares are released based on reductions in the principal balance of the loan. The shares are allocated to participants based on relative compensation.

Employees who are not employed on 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 provide the shares directly to the employee. At June 30, 2018, a total of 2,033 shares have been withdrawn from the plan as a result of former employees making direct common share withdrawals from the plan.

 

The Company made its third ESOP loan payment in December 2017. At June 30, 2018 and December 31, 2017, shares held by the ESOP were as follows:

 

     June 30, 2018      December 31, 2017  

Accrued for allocation to participants

     22,457        —    

Earned ESOP shares

     165,686        165,686  

Shares withdrawn by former participants

     (2,033      —    

Unearned ESOP shares

     412,091        434,548  
  

 

 

    

 

 

 

Total ESOP shares

     598,201        600,234  
  

 

 

    

 

 

 

Fair value of unearned shares

   $ 6,832,469      $ 6,127,127  
  

 

 

    

 

 

 
Commitments and Contingencies
6 Months Ended
Jun. 30, 2018
Commitments and Contingencies Disclosure [Abstract]
 
Commitments and Contingencies
(10)

COMMITMENTS AND CONTINGENCIES

At June 30, 2018, the Bank had $32.5 million in outstanding commitments on revolving home equity lines of credit, $17.2 million in outstanding commitments on revolving personal lines of credit and $42.3 million in commitments to originate loans and undisbursed commitments on commercial lines of credit of $69.1 million. At June 30, 2018, the Company had $381,000 in standby letters of credit outstanding.

At June 30, 2018, the Company has $36.4 million in times deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $60.4 million in time deposits with balances equal to or greater than $250,000 that are scheduled to mature in one year or less. Management believes that a significant percentage of such deposits will remain with the Bank.

The Bank’s FHLB borrowings are secured by a blanket security agreement pledging the Bank’s 1-4 family first mortgage loans and non-residential real estate loans. At June 30, 2018 and December 31, 2017, the Bank has pledged all eligible 1-4 family first mortgages. At June 30, 2018 and December 31, 2017, the Bank has outstanding borrowings of $38.0 million and $23.0 million from the FHLB. A schedule of FHLB borrowings at June 30, 2018 is provided below:

 

Balance

 

Rate

 

Maturity

$15,000,000

  2.02%   Overnight

6,000,000

  1.18%   7/6/2018

7,000,000

  1.55%   1/10/2019

5,000,000

  1.73%   1/10/2020

5,000,000

  1.92%   10/6/2020

 

 

 

 

$38,000,000

  1.75%  

 

 

 

 

 

A schedule of FHLB borrowings at December 31, 2017 is provided below:

 

Balance

 

Rate

 

Maturity

$6,000,000

  1.18%   7/6/2018

7,000,000

  1.55%   1/10/2019

5,000,000

  1.73%   1/10/2020

5,000,000

  1.92%   10/6/2020

 

 

 

 

$23,000,000

  1.57%  

 

 

 

 

The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $46.9 million secured by the Bank’s loan portfolio to secure additional municipal deposits. At June 30, 2018, securities with a book value of $39.3 million and a fair market value of $38.1 million were sold under agreements to repurchase from various customers.

The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such matters. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations.

Regulatory Matters
6 Months Ended
Jun. 30, 2018
Banking and Thrift [Abstract]
 
Regulatory Matters
(11)

REGULATORY MATTERS

The new minimum capital level requirements applicable to Bank holding companies and Banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a “capital conservation buffer” of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.

The capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. For 2018, the capital conservation buffer is 1.875%. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions.

Cumulative preferred stock and trust preferred securities issued after May 19, 2010 no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0 billion in total assets, trust preferred securities issued prior to that date, continue to count as Tier 1 capital subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain new eligibility criteria.

The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company has made the decision to opt-out of this requirement. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). The minimum required capital amounts presented include the minimum required capital levels as of June 30, 2018 and December 31, 2017 to which it is subject. Management believes, as of June 30, 2018 and December 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject, including the phase–in requirements of Basel III. The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of June 30, 2018 and December 31, 2017 are presented below:

 

     Actual     Minimum Capital
Required
    To be Well
Capitalized for
Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
     (Dollars in Thousands, Except Percentages)  

As of June 30, 2018

  

Tier 1 leverage capital to adjusted total assets

               

Company

   $ 97,574        10.7   $ 36,294        4.0   $ 45,368        5.0

Bank

   $ 95,616        10.5   $ 36,297        4.0   $ 45,371        5.0

Total capital to risk weighted assets

               

Company

   $ 102,211        15.6   $ 52,513        8.0   $ 65,641        10.0

Bank

   $ 100,254        15.3   $ 51,946        8.0   $ 64,933        10.0

Tier 1 capital to risk weighted assets

               

Company

   $ 97,574        14.9   $ 39,384        6.0   $ 52.513        8.0

Bank

   $ 95,616        14.6   $ 38,960        6.0   $ 51,946        8.0

Common equity tier 1 capital to risk weighted assets

               

Company

   $ 97,574        14.9   $ 29,538        4.5     n/a        n/a  

Bank

   $ 95,616        14.6   $ 29,220        4.5   $ 42,207        6.5

As of December 31, 2017

               

Tier 1 leverage capital to adjusted total assets

               

Company

   $ 95,709        10.6   $ 36,137        4.0   $ 45,171        5.0

Bank

   $ 95,123        10.5   $ 36,090        4.0   $ 45,112        5.0

Total capital to risk weighted assets

               

Company

   $ 100,535        16.0   $ 50,352        8.0   $ 62,940        10.0

Bank

   $ 99,949        15.9   $ 50,314        8.0   $ 62,892        10.0

Tier 1 capital to risk weighted assets

               

Company

   $ 95,709        15.2   $ 37,764        6.0   $ 50,352        8.0

Bank

   $ 95,123        15.1   $ 37,735        6.0   $ 50,314        8.0

Common equity tier 1 capital to risk weighted assets

               

Company

   $ 95,709        15.2   $ 28,323        4.5     n/a        n/a  

Bank

   $ 95,123        15.1   $ 28,301        4.5   $ 40,880        6.5
Fair Value of Assets and Liabilities (Policies)
6 Months Ended
Jun. 30, 2018
Accounting Changes and Error Corrections [Abstract]
 
Fair Value Measurement
Revenue from Contracts with Customers
Financial Instruments
Leases
Compensation - Stock Compensation
Receivables - Nonrefundable Fees and Other Cost
Compensation - Stock Compensation
Derivatives and Hedging
Income Statement-Reporting Comprehensive Income

Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

 

   

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

 

   

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

 

   

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

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

Cash and due from banks

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

Interest-bearing deposits in banks

The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets’ fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns.

Available-for-sale securities

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

FHLB stock

The fair value of FHLB stock is recognized at cost.

Loans held for sale

Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.

 

Loans receivable

The fair values of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans that re-price frequently and have no significant change in credit risk is approximately the carrying value of the loan.

Accrued interest receivable

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

Deposits

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

Advances from borrowers for taxes and insurance

The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.

Advances from the Federal Home Loan Bank (FHLB)

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

Repurchase agreements

Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements.

Subordinated debentures

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

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. 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 deferred the effective date reporting periods beginning after December 15, 2017. The implementation of ASC Topic 605 did not have a material impact on the Company’s Consolidated Financial Statements.

ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective on January 1, 2018 and did not have a material effect on the Company’s Consolidated Financial Statements.

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements.

ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017. The implementation of ASU 2016-09 did not have a material effect on the Company’s Consolidated Financial Statements.

 

On June 16, 2016, the FASB released its finalized ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables, the FASB said. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified as available-for-sale. The accounting board added that the write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts to improve the loss estimates on financial assets that are losing value. The board also said the techniques that are employed today to write down loans and other instruments can still be used, although it expects the variables for calculating the losses to change. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU 2016-13 in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-13.

ASU 2017-08, “Receivables – Nonrefundable Fees and Other Cost” (Topic 310) – amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of instrument. ASU 2017-08 premiums on purchased callable debt securities that have an explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s Consolidated Financial Statements.

ASU 2017-09 “Compensation – Stock Compensation (Topic 718) – clarifies when changes to the terms or conditions of a share-based payment must be accounted for as modifications. Under AUS 2017-09, an entity should account for changes to the terms or conditions of a share-based payment unless all of the following are met:

 

   

The fair value of the modified award is the same as the fair value of the original award immediately before modification,

 

   

The vesting conditions of the modified award is the same as the vesting conditions value of the original award immediately before modification, and

 

   

The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before modification.

ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a material impact on our consolidated financial statements.

ASU 2017-12 “Derivatives and Hedging (Topic 815) amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information convey to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for the Company on January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 35.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. The Company is currently reviewing the impact of the adoption of ASU 2018-02 on its Consolidated Financial Statements.

Earnings Per Share (Tables)
6 Months Ended
Jun. 30, 2018
Earnings Per Share [Abstract]
 
Reconciliation of Basic and Diluted Income (Loss) Per Share
Reconciliation of Basic and Diluted Income (Loss) Per Share
     For the three month periods
Ended June 30,
 
     2018      2017  

Basic EPS:

     

Net income

   $ 1,685,000      $ 1,141,000  

Average common shares outstanding

     6,142,680        6,228,894  
  

 

 

    

 

 

 

Earnings per share

   $ 0.28      $ 0.18  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 1,685,000      $ 1,141,000  

Average common shares outstanding

     6,142,680        6,228,894  

Dilutive effect of unvested restricted stock

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,142,680        6,228,894  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.28      $ 0.18  
  

 

 

    

 

 

 

 

     For the six month periods
Ended June 30,
 
     2018      2017  

Basic EPS:

     

Net income

   $ 2,811,000      $ 2,076,000  

Average common shares outstanding

     6,165,415        6,223,802  
  

 

 

    

 

 

 

Earnings per share

   $ 0.46      $ 0.33  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 2,811,000      $ 2,076,000  

Average common shares outstanding

     6,165,415        6,223,802  

Dilutive effect of unvested restricted stock

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,165,415        6,223,802  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.46      $ 0.33  
  

 

 

    

 

 

 
Securities (Tables)
6 Months Ended
Jun. 30, 2018
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, 2018 and December 31, 2017 were as follows:

 

     June 30, 2018  
     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. Agency securities

   $ 77,769        141        (1,756     76,154  

Taxable municipal bonds

     962        —          (7     955  

Tax free municipal bonds

     24,555        227        (165     24,617  

Mortgage backed securities

     69,147        80        (1,970     67,257  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 172,433        448        (3,898     168,983  
  

 

 

    

 

 

    

 

 

   

 

 

 
     December 31, 2017  
     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. Agency securities

     84,210        536        (653     84,093  

Taxable municipal bonds

     1,279        5        (1     1,283  

Tax free municipal bonds

     26,412        637        (83     26,966  

Trust preferred securities

     1,650        35        —         1,685  

Mortgage-backed securities

     71,389        201        (826     70,764  
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 184,940        1,414        (1,563     184,791  
  

 

 

    

 

 

    

 

 

   

 

 

 

The scheduled maturities of debt securities available for sale at June 30, 2018 were as follows:

 

     Amortized
Cost
     Estimated
Fair
Value
 
     (Dollars in Thousands)  

Due within one year

   $ 1,570      $ 1,586  

Due in one to five years

     29,252        28,735  

Due in five to ten years

     13,297        12,995  

Due after ten years

     7,252        7,273  
  

 

 

    

 

 

 
     51,371        50,589  

Amortizing agency bonds

     51,915        51,137  

Mortgage-backed securities

     69,147        67,257  
  

 

 

    

 

 

 

Total securities available for sale

   $ 172,433      $ 168,983  
  

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of June 30, 2018 were as follows:

 

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

Available for sale

               

U.S. Agency securities

   $ 45,588        (1,219     15,434        (537     61,022        (1,756

Taxable municipal bonds

     955        (7     —          —         955        (7

Tax free municipal bonds

     6,817        (132     732        (33     7,549        (165

Mortgage-backed securities

     41,653        (1,103     20,722        (867     62,375        (1,790
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 95,013        (2,461     36,888        (1,437     131,901        (3,898
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2017 were as follows:

 

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

Available for sale

               

U.S. Agency securities

   $ 41,501        (431     9,846        (222     51,347        (653

Taxable municipal bonds

     521        (1     —          —         521        (1

Tax free municipal bonds

     4,860        (51     913        (32     5,773        (83

Mortgage-backed securities

     40,441        (289     21,566        (537     62,007        (826
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 87,323        (772     32,325        (791     119,648        (1,563
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
Loans (Tables)
6 Months Ended
Jun. 30, 2018
Receivables [Abstract]
 
Composition of Loan Portfolio By Type of Loan
Allowance for Loan Loss Account by Loan
Gross Loan Balances Excluding Deferred Loan Fees by Loan Classification Allocated Between Past Due Performing and Non-accrual
Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Impairment Method
Loans by Classification Type and Credit Risk Indicator
Impaired Loans by Classification Type
Summary of Non-accrual Loans by Loan Type
Summary of the Activity in Loans Classified as TDRs

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at June 30, 2018 and December 31, 2017.

 

     June 30, 2018      December 31, 2017  
     (Dollars in Thousands)  

Real estate loans:

     

One-to-four family first mortgages

   $ 171,725      $ 163,565  

Home equity lines of credit

     34,262        35,697  

Junior liens

     1,109        1,184  

Multi-family

     37,742        37,445  

Construction

     40,759        30,246  

Land

     9,033        14,873  

Non-residential real estate

     244,769        224,952  

Farmland

     33,271        36,851  
  

 

 

    

 

 

 

Total mortgage loans

     572,670        544,813  

Consumer loans

     8,525        8,620  

Commercial loans

     96,214        88,938  
  

 

 

    

 

 

 

Total other loans

     104,739        97,558  
  

 

 

    

 

 

 

Total loans

     677,409        642,371  

Deferred loan fees, net of cost

     (518      (443

Less allowance for loan losses

     (4,637      (4,826
  

 

 

    

 

 

 

Total loans, net

   $ 672,254      $ 637,102  
  

 

 

    

 

 

 

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, 2018:

 

     Balance
12/31/2017
     Charge offs
2018
    Recoveries
2018
     Provision
2018
    Ending
Balance
6/30/2018
 
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 747        (6     6 &#x