SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-23667
HOPFED BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware | 61-1322555 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4155 Lafayette Road, Hopkinsville, Kentucky | 42240 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code: (270) 885-1171
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required and posted pursuant to Rule 405 of Regulation S-T (subsection 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated file or a non-accelerated filer. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule12b-2 of the Exchange Act: (Check one)
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company filer | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x.
As of May 6, 2016, the Registrant had outstanding 6,775,640 shares of the Registrants Common stock.
HOPFED BANCORP, INC.
1
Consolidated Condensed Statements of Financial Condition
(Dollars in Thousands)
March 31, 2016 | December 31, 2015 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Cash and due from banks |
$ | 27,393 | 46,926 | |||||
Interest-earning deposits |
14,798 | 7,772 | ||||||
|
|
|
|
|||||
Cash and cash equivalents |
42,191 | 54,698 | ||||||
Federal Home Loan Bank stock, at cost |
4,428 | 4,428 | ||||||
Securities available for sale |
237,829 | 237,177 | ||||||
Loans held for sale |
1,339 | 2,792 | ||||||
Loans receivable, net of allowance for loan losses of $6,163 at March 31, 2016, and $5,700 at December 31, 2015 |
554,727 | 556,349 | ||||||
Accrued interest receivable |
3,871 | 4,139 | ||||||
Real estate and other assets owned |
1,457 | 1,736 | ||||||
Bank owned life insurance |
10,403 | 10,319 | ||||||
Premises and equipment, net |
23,975 | 24,034 | ||||||
Deferred tax assets |
1,857 | 2,642 | ||||||
Other assets |
3,753 | 4,840 | ||||||
|
|
|
|
|||||
Total assets |
$ | 885,830 | 903,154 | |||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Non-interest-bearing accounts |
$ | 127,067 | 125,070 | |||||
Interest-bearing accounts |
||||||||
Interest bearing checking accounts |
216,817 | 203,779 | ||||||
Savings and money market accounts |
95,906 | 95,893 | ||||||
Other time deposits |
285,163 | 314,664 | ||||||
|
|
|
|
|||||
Total deposits |
724,953 | 739,406 | ||||||
Advances from Federal Home Loan Bank |
11,000 | 15,000 | ||||||
Repurchase agreements |
46,940 | 45,770 | ||||||
Subordinated debentures |
10,310 | 10,310 | ||||||
Advances from borrowers for taxes and insurance |
754 | 614 | ||||||
Dividends payable |
286 | 287 | ||||||
Accrued expenses and other liabilities |
2,819 | 4,137 | ||||||
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|
|
|
|||||
Total liabilities |
797,062 | 815,524 | ||||||
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|
|
|
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
2
HOPFED BANCORP, INC.
Consolidated Condensed Statements of Financial Condition, Continued
(Dollars in Thousands)
March 31, 2016 | December 31, 2015 | |||||||
(Unaudited) | ||||||||
Stockholders equity |
||||||||
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at March 31, 2016, and December 31, 2015. |
| | ||||||
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,962,308 issued and 6,800,763 outstanding at March 31, 2016, and 7,951,699 issued and 6,865,811 outstanding at December 31, 2015 |
80 | 79 | ||||||
Additional paid-in-capital |
58,618 | 58,604 | ||||||
Retained earnings |
47,382 | 47,124 | ||||||
Treasury stock- common (at cost, 1,161,545 shares at March 31, 2016, and 1,085,888 shares at December 31, 2015) |
(14,372 | ) | (13,471 | ) | ||||
Unallocated ESOP shares (at cost, 535,671 shares at March 31, 2016, and 546,413 shares at December 31, 2015) |
(7,039 | ) | (7,180 | ) | ||||
Accumulated other comprehensive Income, net of taxes |
4,099 | 2,474 | ||||||
|
|
|
|
|||||
Total stockholders equity |
88,768 | 87,630 | ||||||
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|
|
|
|||||
Total liabilities and stockholders equity |
$ | 885,830 | 903,154 | |||||
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|
|
The consolidated condensed statement of financial condition at December 31, 2015, has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
3
Consolidated Condensed Statements of Income
(Dollars in Thousands)
(Unaudited)
For the Three Month Periods | ||||||||
Ended March 31, | ||||||||
2016 | 2015 | |||||||
Interest and dividend income: |
||||||||
Loans receivable |
$ | 6,465 | 6,290 | |||||
Investment in securities, taxable |
1,247 | 2,448 | ||||||
Investment in securities, non-taxable |
353 | 453 | ||||||
Interest-earning deposits |
16 | 4 | ||||||
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|
|
|
|||||
Total interest and dividend income |
8,081 | 9,195 | ||||||
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|
|
|
|||||
Interest expense: |
||||||||
Deposits |
1,095 | 1,260 | ||||||
Advances from Federal Home Loan Bank |
73 | 69 | ||||||
Repurchase agreements |
143 | 120 | ||||||
Subordinated debentures |
94 | 184 | ||||||
|
|
|
|
|||||
Total interest expense |
1,405 | 1,633 | ||||||
|
|
|
|
|||||
Net interest income |
6,676 | 7,562 | ||||||
|
|
|
|
|||||
Provision for loan losses |
458 | 215 | ||||||
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|
|
|
|||||
Net interest income after provision for loan losses |
6,218 | 7,347 | ||||||
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|
|
|
|||||
Non-interest income: |
||||||||
Service charges |
677 | 714 | ||||||
Merchant card income |
291 | 270 | ||||||
Mortgage origination revenue |
368 | 177 | ||||||
Gain on sale of securities |
291 | 366 | ||||||
Income from bank owned life insurance |
84 | 71 | ||||||
Financial services commission |
133 | 159 | ||||||
Other operating income |
176 | 156 | ||||||
|
|
|
|
|||||
Total non-interest income |
2,020 | 1,913 | ||||||
|
|
|
|
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
4
HOPFED BANCORP, INC.
Consolidated Condensed Statements of Income, Continued
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
For the Three Month Periods | ||||||||
Ended March 31, | ||||||||
2016 | 2015 | |||||||
Non-interest expenses: |
||||||||
Salaries and benefits |
3,988 | 4,184 | ||||||
Occupancy expense |
787 | 738 | ||||||
Data processing expense |
727 | 692 | ||||||
Other state taxes |
248 | 248 | ||||||
Intangible amortization expense |
| 16 | ||||||
Professional services expense |
335 | 329 | ||||||
Deposit insurance and examination expense |
173 | 117 | ||||||
Advertising expense |
320 | 306 | ||||||
Postage and communications expense |
155 | 132 | ||||||
Supplies expense |
149 | 146 | ||||||
Loss (Gain) on sale of real estate owned |
9 | (7 | ) | |||||
Real estate owned expenses |
59 | 137 | ||||||
Other operating expenses |
733 | 432 | ||||||
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|
|
|
|||||
Total non-interest expense |
7,683 | 7,470 | ||||||
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|
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|
|||||
Income before income tax expense |
555 | 1,790 | ||||||
Income tax expense |
46 | 435 | ||||||
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|
|
|
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Net income |
$ | 509 | $ | 1,355 | ||||
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|
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Net income per share |
||||||||
Basic |
$ | 0.08 | $ | 0.20 | ||||
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Fully diluted |
$ | 0.08 | $ | 0.20 | ||||
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Dividend per share |
$ | 0.04 | $ | 0.04 | ||||
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|
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Weighted average shares outstanding - basic |
6,297,755 | 6,732,456 | ||||||
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|
|
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Weighted average shares outstanding - diluted |
6,297,755 | 6,732,456 | ||||||
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|
|
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
5
Consolidated Condensed Statements of Comprehensive Income
(Dollars in Thousands)
(Unaudited)
For the Three Month | ||||||||
Periods Ended March 31, | ||||||||
2016 | 2015 | |||||||
Net income |
509 | 1,355 | ||||||
Other comprehensive income, net of tax: |
||||||||
Unrealized gain (loss) on non other than temporary impaired investment securities available for sale, net of taxes of ($897) and ($632) for the three month periods ended March 31, 2016 and March 31, 2015, respectively. |
1,745 | 1,227 | ||||||
Unrealized gain on OTTI securities, net of taxes of ($37) for the three month period ended March 31, 2016 |
72 | | ||||||
Unrealized gain on derivatives, net of taxes of ($32) for the three month period ended March 31, 2015. |
| 64 | ||||||
Reclassification adjustment for gains and accretion included in net income, net of taxes |
(192 | ) | (242 | ) | ||||
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|
|
|
|||||
Total other comprehensive income |
1,625 | 1,049 | ||||||
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|
|
|
|||||
Comprehensive income |
2,134 | 2,404 | ||||||
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|
|
|
See accompanying Notes to Unaudited Consolidated Condensed Financial Statements.
6
Consolidated Condensed Statement of Stockholders Equity
For the Three Month Period Ended March 31, 2015
(Dollars in Thousands, Except Share Amounts)
(Unaudited)
Shares Common Stock |
Common Stock |
Additional Capital Surplus |
Retained Earnings |
Treasury Stock Common |
Unearned ESOP Shares |
Accumulated Other Comprehensive Stockholders Income |
Total Equity |
|||||||||||||||||||||||||
Balance at December 31, 2014 |
7,171,282 | $ | 79 | 58,466 | 45,729 | (9,429 | ) | | 3,557 | 98,402 | ||||||||||||||||||||||
Consolidated net income |
| | | 1,355 | | | | 1,355 | ||||||||||||||||||||||||
Treasury stock reissued |
600,000 | 7,884 | (7,884 | ) | | | ||||||||||||||||||||||||||
Repurchase of treasury stock |
(725,341 | ) | | | | (9,722 | ) | | | (9,722 | ) | |||||||||||||||||||||
Compensation expense, restricted stock awards |
| | 49 | | | | | 49 | ||||||||||||||||||||||||
Net change in unrealized gain on securities available for sale, net of income taxes of ($508) |
| | | | | | 985 | 985 | ||||||||||||||||||||||||
Net change in unrealized loss on derivatives, net of income taxes of $32 |
| | | | | | 64 | 64 | ||||||||||||||||||||||||
Cash dividend to common stockholders |
| | | (257 | ) | | | | (257 | ) | ||||||||||||||||||||||
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|
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Balance March 31, 2015 |
7,045,941 | $ | 79 | 58,515 | 46,827 | (11,267 | ) | (7,884 | ) | 4,606 | 90,876 | |||||||||||||||||||||
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See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
7
HOPFED BANCORP, INC.
Consolidated Condensed Statement of Stockholders Equity
For the Three Month Period Ended March 31, 2016
(Dollars in Thousands, Except Share Amounts)
(Unaudited)
Shares Common Stock |
Common Stock |
Additional Capital Surplus |
Retained Earnings |
Treasury Stock Common |
Unearned ESOP Shares |
Accumulated Other Comprehensive Income |
Total Stockholders Equity |
|||||||||||||||||||||||||
Balance at December 31, 2015 |
6,865,811 | $ | 79 | 58,604 | 47,124 | (13,471 | ) | (7,180 | ) | 2,474 | 87,630 | |||||||||||||||||||||
Consolidated net income |
| | | 509 | | | | 509 | ||||||||||||||||||||||||
Issue of restricted stock |
10,609 | 1 | | | | | | 1 | ||||||||||||||||||||||||
Repurchase of treasury stock |
(75,657 | ) | | | | (901 | ) | | | (901 | ) | |||||||||||||||||||||
ESOP Shares earned |
| | (16 | ) | | | 141 | | 125 | |||||||||||||||||||||||
Compensation expense, restricted stock awards |
| | 30 | | | | | 30 | ||||||||||||||||||||||||
Net change in unrealized gain on securities available for sale, net of income taxes of ($838) |
| | | | | | 1,625 | 1,625 | ||||||||||||||||||||||||
Cash dividend to common stockholders |
| | | (251 | ) | | | | (251 | ) | ||||||||||||||||||||||
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|||||||||||||||||
Balance March 31, 2016 |
6,800,763 | $ | 80 | 58,618 | 47,382 | (14,372 | ) | (7,039 | ) | 4,099 | 88,768 | |||||||||||||||||||||
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See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
8
Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
For the Three Month Periods | ||||||||
Ended March 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: |
||||||||
Net cash provided by operating activities |
$ | 817 | $ | 1,673 | ||||
Cash flows from investing activities |
||||||||
Proceeds from sales, calls and maturities of securities available for sale |
16,764 | 59,190 | ||||||
Purchase of securities available for sale |
(15,021 | ) | (14,075 | ) | ||||
Net (increase) decrease in loans |
3,259 | (10,155 | ) | |||||
Proceeds from sale of foreclosed assets |
282 | 46 | ||||||
Purchase of premises and equipment |
(313 | ) | (655 | ) | ||||
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|
|||||
Net cash used in investing activities |
4,971 | 34,351 | ||||||
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|
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Cash flows from financing activities: |
||||||||
Net increase (decrease) in demand deposits |
15,048 | (4,223 | ) | |||||
Net increase (decrease) in time and other deposits |
(29,501 | ) | 124 | |||||
Increase (decrease) in advances from borrowers for taxes and insurance |
140 | 280 | ||||||
Repayment of advances from Federal Home Loan Bank |
(4,000 | ) | (15,000 | ) | ||||
Net increase (decrease) in repurchase agreements |
1,170 | (11,892 | ) | |||||
Cash used to repurchase treasury stock |
(901 | ) | (9,722 | ) | ||||
Dividends paid on common stock |
(251 | ) | (281 | ) | ||||
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|
|||||
Net cash provided by financing activities |
(18,295 | ) | (40,714 | ) | ||||
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|
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Increase (decrease) in cash and cash equivalents |
(12,507 | ) | (4,690 | ) | ||||
Cash and cash equivalents, beginning of period |
54,698 | 40,439 | ||||||
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Cash and cash equivalents, end of period |
$ | 42,191 | $ | 35,749 | ||||
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Supplemental disclosures of cash flow information: |
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Interest paid |
$ | 1,509 | $ | 1,662 | ||||
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Income taxes paid |
| | ||||||
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Supplemental disclosures of non-cash investing and financing activities: |
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Loans charged off |
$ | 83 | $ | 403 | ||||
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Foreclosures and in substance foreclosures of loans during period |
$ | | $ | 464 | ||||
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Net unrealized gains (losses) on investment securities classified as available for sale |
$ | 2,460 | $ | 1,493 | ||||
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Increase (decrease) in deferred tax asset related to unrealized gains on investments |
($ | 838 | ) | ($ | 508 | ) | ||
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Dividends declared and payable |
$ | 286 | $ | 272 | ||||
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Issue of common stock to ESOP |
$ | | $ | 7,884 | ||||
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Issue of restricted common stock |
$ | 125 | | |||||
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See accompanying Notes to Unaudited Consolidated Condensed Financial Statements
9
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) | BASIS OF PRESENTATION |
HopFed Bancorp, Inc. (the Company) was formed at the direction of Heritage Bank USA Inc., formerly Hopkinsville Federal Savings Bank (the Bank), to become the holding company of the Bank upon the conversion of the Bank from a federally chartered mutual savings bank to a federally chartered stock savings bank. The conversion was consummated on February 6, 1998. The Companys primary assets are the outstanding capital stock of the converted Bank, and its sole business is that of the converted Bank.
On June 5, 2013, the Banks legal name became Heritage Bank USA Inc. and the Bank was granted a commercial bank charter by the Kentucky Department of Financial Institutions (KDFI). On June 5, 2013, the Bank became subject to regulation by the KDFI and the Federal Deposit Insurance Corporation (FDIC). On the same day, HopFed Bancorp was granted a bank holding company charter by the Federal Reserve Bank of Saint Louis (FED) and as such regulated by the FED.
The Bank operates a mortgage division, Heritage Mortgage Services, in Clarksville, Tennessee with agents located in several of its markets. The Bank has a financial services division, Heritage Solutions, with offices in Murray, Kentucky, Kingston Springs, Tennessee, and Pleasant View, Tennessee. Heritage Solutions agents travel throughout western Kentucky and middle Tennessee offering fixed and variable annuities, mutual funds and brokerage services. In October of 2014, the Bank opened a loan production office in Nashville, Tennessee.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted (GAAP) in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair representation have been included. The results of operations and other data for the three month period ended March 31, 2016, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2016.
The accompanying unaudited financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2015. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Companys December 31, 2015, Consolidated Financial Statements.
10
(2) | INCOME PER SHARE |
The following schedule reconciles the numerators and denominators of the basic and diluted income per share (IPS) computations for the three month periods ended March 31, 2016, and March 31, 2015. Diluted common shares arise from the potentially dilutive effect of the Companys stock options and warrants outstanding. For the three month periods ended March 31, 2016, and March 31, 2015, the Company has excluded all unearned shares held by the ESOP.
March 31, | ||||||||
2016 | 2015 | |||||||
Basic IPS: |
||||||||
Net income |
$ | 509,000 | $ | 1,355,000 | ||||
Average common shares outstanding |
6,297,755 | 6,732,456 | ||||||
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Net income per share |
$ | 0.08 | $ | 0.20 | ||||
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Diluted IPS: |
||||||||
Net Income |
$ | 509,000 | $ | 1,355,000 | ||||
Average common shares outstanding |
6,297,755 | 6,732,456 | ||||||
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Dilutive effect of stock options |
| | ||||||
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Average diluted shares outstanding |
6,297,755 | 6,732,456 | ||||||
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Net income per share, diluted |
$ | 0.08 | $ | 0.20 | ||||
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(3) | STOCK COMPENSATION |
The Company incurred compensation cost related to the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan of $30,000 for the three month period ended March 31, 2016, and $49,000 for the three month period ended March 31, 2015, respectively. The Company issued 10,609 shares of restricted stock in the three month period ended March 31, 2016. The Company did not issue any shares of restricted stock during the three month periods ended March 31, 2015. The table below provides a detail of the Companys future compensation expense related to restricted stock vesting at March 31, 2016:
Year Ending | Future | |||
December 31, |
Expense | |||
2016 |
$ | 123,788 | ||
2017 |
86,323 | |||
2018 |
50,939 | |||
2019 |
4,975 | |||
|
|
|||
Total |
$ | 266,025 | ||
|
|
The compensation committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. In addition, award vesting may be accelerated due to certain events as outlined in the restricted stock award agreement. Any acceleration of vesting will change the timing of, but not the aggregate amount of, compensation expense incurred.
11
(4) | SECURITIES |
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluations. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At March 31, 2016, the Company has 27 securities with unrealized losses. The carrying amount of securities and their estimated fair values at March 31, 2016, were as follows:
March 31, 2016 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Restricted: |
||||||||||||||||
FHLB stock |
$ | 4,428 | | | 4,428 | |||||||||||
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Available for sale: |
||||||||||||||||
U.S. Treasury securities |
$ | 2,001 | 4 | | 2,005 | |||||||||||
U.S. Agency securities |
89,094 | 2,714 | (46 | ) | 91,762 | |||||||||||
Taxable municipal bonds |
6,174 | 99 | (7 | ) | 6,266 | |||||||||||
Tax free municipal bonds |
38,573 | 2,271 | (15 | ) | 40,829 | |||||||||||
Trust preferred securities |
1,621 | 353 | | 1,974 | ||||||||||||
Mortgage-backed securities: |
||||||||||||||||
GNMA |
28,305 | 318 | (111 | ) | 28,512 | |||||||||||
FNMA |
32,510 | 571 | (35 | ) | 33,046 | |||||||||||
FHLMC |
10,711 | 74 | (7 | ) | 10,778 | |||||||||||
NON-AGENCY CMO |
3,757 | | (237 | ) | 3,520 | |||||||||||
AGENCY CMO |
18,872 | 265 | | 19,137 | ||||||||||||
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|||||||||
$ | 231,618 | 6,669 | (458 | ) | 237,829 | |||||||||||
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|
12
The carrying amount of securities and their estimated fair values at December 31, 2015, was as follows:
December 31, 2015 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Restricted: |
||||||||||||||||
FHLB stock |
$ | 4,428 | | | 4,428 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available for sale: |
||||||||||||||||
U.S. Treasury securities |
$ | 2,001 | | (1 | ) | 2,000 | ||||||||||
U.S. Agency securities |
91,694 | 1,727 | (488 | ) | 92,933 | |||||||||||
Tax free municipal bonds |
42,237 | 2,481 | (59 | ) | 44,659 | |||||||||||
Taxable municipal bonds |
6,190 | 52 | (65 | ) | 6,177 | |||||||||||
Trust preferred securities |
1,617 | 248 | | 1,865 | ||||||||||||
Mortgage-backed securities: |
||||||||||||||||
GNMA |
29,990 | 239 | (239 | ) | 29,990 | |||||||||||
FNMA |
28,189 | 266 | (152 | ) | 28,303 | |||||||||||
FHLMC |
8,113 | 24 | (51 | ) | 8,086 | |||||||||||
Non-Agency CMO |
3,828 | | (174 | ) | 3,654 | |||||||||||
AGENCY CMO |
19,570 | 71 | (131 | ) | 19,510 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 233,429 | 5,108 | (1,360 | ) | 237,177 | |||||||||||
|
|
|
|
|
|
|
|
The scheduled maturities of debt securities available for sale at March 31, 2016, were as follows:
Estimated | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due within one year |
$ | | $ | | ||||
Due in one to five years |
21,013 | 21,525 | ||||||
Due in five to ten years |
42,557 | 43,739 | ||||||
Due after ten years |
16,294 | 17,671 | ||||||
|
|
|
|
|||||
79,864 | 82,935 | |||||||
Amortizing agency bonds |
57,599 | 59,900 | ||||||
Mortgage-backed securities |
94,155 | 94,994 | ||||||
|
|
|
|
|||||
Total unrestricted securities available for sale |
$ | 231,618 | $ | 237,829 | ||||
|
|
|
|
13
The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:
Estimated | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Due within one year |
$ | | $ | | ||||
Due in one to five years |
17,939 | 18,304 | ||||||
Due in five to ten years |
42,151 | 42,793 | ||||||
Due after ten years |
22,702 | 24,088 | ||||||
|
|
|
|
|||||
82,792 | 85,185 | |||||||
Amortizing agency bonds |
60,947 | 62,449 | ||||||
Mortgage-backed securities |
89,690 | 89,543 | ||||||
|
|
|
|
|||||
Total unrestricted securities available for sale |
$ | 233,429 | $ | 237,177 | ||||
|
|
|
|
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2016, are as follows:
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Available for sale |
||||||||||||||||||||||||
U.S. Agency securities |
$ | 6,091 | (10 | ) | 2,956 | (36 | ) | 9,047 | (46 | ) | ||||||||||||||
Taxable municipals |
561 | (7 | ) | | | 561 | (7 | ) | ||||||||||||||||
Tax free municipals |
1,326 | (3 | ) | 1,313 | (12 | ) | 2,639 | (15 | ) | |||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||
GNMA |
1,688 | (24 | ) | 5,771 | (87 | ) | 7,459 | (111 | ) | |||||||||||||||
FNMA |
5,763 | (21 | ) | 3,079 | (14 | ) | 8,842 | (35 | ) | |||||||||||||||
FHLMC |
2,966 | (7 | ) | | | 2,966 | (7 | ) | ||||||||||||||||
NON-AGENCY CMOs |
| | 3,520 | (237 | ) | 3,520 | (237 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available for sale |
$ | 18,395 | (72 | ) | 16,639 | (386 | ) | 35,034 | (458 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
14
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, 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 | |||||||||||||||||||
Available for sale |
||||||||||||||||||||||||
U.S. Treasury securities |
$ | 2,000 | (1 | ) | | | 2,000 | (1 | ) | |||||||||||||||
U.S. Agency securities |
26,499 | (203 | ) | 16,224 | (285 | ) | 42,723 | (488 | ) | |||||||||||||||
Taxable municipals |
2,159 | (32 | ) | 1,887 | (33 | ) | 4,046 | (65 | ) | |||||||||||||||
Tax free municipals |
| | 3,878 | (59 | ) | 3,878 | (59 | ) | ||||||||||||||||
Mortgage-backed securities: |
||||||||||||||||||||||||
GNMA |
10,840 | (105 | ) | 11,508 | (134 | ) | 22,348 | (239 | ) | |||||||||||||||
FNMA |
11,484 | (87 | ) | 3,036 | (65 | ) | 14,520 | (152 | ) | |||||||||||||||
FHLMC |
7,336 | (51 | ) | | | 7,336 | (51 | ) | ||||||||||||||||
Non-Agency CMOs |
| | 3,654 | (174 | ) | 3,654 | (174 | ) | ||||||||||||||||
AGENCY CMOs |
9,781 | (90 | ) | 1,991 | (41 | ) | 11,772 | (131 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Available for Sale |
$ | 70,099 | (569 | ) | 42,178 | (791 | ) | 112,277 | (1,360 | ) | ||||||||||||||
|
|
|
|
|
|
|
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|
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|
|
At March 31, 2016, securities with a book value of approximately $125.2 million and a market value of approximately $130.5 million were pledged to various municipalities for deposits in excess of FDIC limits as required by law. The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Banks name totaling $32.5 million secured by the Banks loan portfolio to secure additional municipal deposits.
At March 31, 2016, securities with a book and market value of $40.9 million were sold under agreements to repurchase from various customers. Furthermore, the Company has a wholesale repurchase agreement with third party secured by investments with a combined book value of $6.4 million and a market value of $6.5 million. The repurchase agreement is in the amount of $6.0 million and has a maturity of September 18, 2016, and is currently callable on a quarterly basis by the issuer and has a fixed rate of interest of 4.36%.
15
(5) | LOANS |
Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2016, and December 31, 2015. At March 31, 2016, and December 31, 2015, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:
March 31, 2016 | March 31, 2016 | December 31, 2015 | December 31, 2015 | |||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
(Dollars in thousands, except percentages) | ||||||||||||||||
Real estate loans: |
||||||||||||||||
One-to-four family (closed end) first mortgages |
$ | 145,936 | 26.0 | % | $ | 145,999 | 26.0 | % | ||||||||
Second mortgages (closed end) |
1,623 | 0.3 | % | 1,771 | 0.3 | % | ||||||||||
Home equity lines of credit |
32,269 | 5.8 | % | 33,644 | 6.0 | % | ||||||||||
Multi-family |
29,311 | 5.2 | % | 24,725 | 4.4 | % | ||||||||||
Construction |
36,074 | 6.4 | % | 34,878 | 6.2 | % | ||||||||||
Land |
22,138 | 3.9 | % | 22,453 | 4.0 | % | ||||||||||
Farmland |
41,521 | 7.4 | % | 42,246 | 7.5 | % | ||||||||||
Non-residential real estate |
148,292 | 26.4 | % | 149,711 | 26.6 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total mortgage loans |
457,164 | 81.4 | % | 455,427 | 81.0 | % | ||||||||||
Consumer loans |
20,764 | 3.7 | % | 20,324 | 3.6 | % | ||||||||||
Commercial loans |
83,355 | 14.9 | % | 86,743 | 15.4 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other loans |
104,119 | 18.6 | % | 107,067 | 19.0 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans, gross |
561,283 | 100.0 | % | 562,494 | 100.0 | % | ||||||||||
|
|
|
|
|||||||||||||
Deferred loan cost, net of income |
(393 | ) | (445 | ) | ||||||||||||
Less allowance for loan losses |
(6,163 | ) | (5,700 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Total loans |
$ | 554,727 | $ | 556,349 | ||||||||||||
|
|
|
|
The allowance for loan losses totaled $6.2 million at March 31, 2016, $5.7 million at December 31, 2015, and $6.2 million at March 31, 2015, respectively. The ratio of the allowance for loan losses to total loans was 1.10% at March 31, 2016, 1.01% at December 31, 2015, and 1.11% at March 31, 2015. The following table indicates the type and level of non-accrual loans at the periods indicated below:
March 31, 2016 | December 31, 2015 | March 31, 2015 | ||||||||||
(Dollars in Thousands) |
||||||||||||
One-to-four family mortgages |
$ | 198 | 2,234 | 1,235 | ||||||||
Home equity line of credit |
74 | 48 | | |||||||||
Junior lien |
| | | |||||||||
Multi-family |
1,926 | 1,968 | | |||||||||
Land |
1,515 | 1,553 | | |||||||||
Non-residential real estate |
28 | 247 | 542 | |||||||||
Farmland |
166 | 166 | | |||||||||
Consumer loans |
| 8 | | |||||||||
Commercial loans |
1,122 | 1,198 | 347 | |||||||||
|
|
|
|
|
|
|||||||
Total non-accrual loans |
$ | 5,029 | 7,422 | 2,124 | ||||||||
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|
|
|
|
|
16
The following table provides a detail of the Companys activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2016:
General | Specific | Ending | ||||||||||||||||||||||
Balance | Charge off | Recovery | Provision | Provision | Balance | |||||||||||||||||||
12/31/2015 | 2015 | 2015 | 2015 | 2015 | 3/31/2016 | |||||||||||||||||||
One-to-four family mortgages |
$ | 1,030 | | 8 | (6 | ) | 187 | 1,219 | ||||||||||||||||
Home equity line of credit |
201 | | 4 | 37 | (4 | ) | 238 | |||||||||||||||||
Junior liens |
8 | | 1 | | (1 | ) | 8 | |||||||||||||||||
Multi-family |
227 | | | 27 | 64 | 318 | ||||||||||||||||||
Construction |
377 | | | 74 | | 451 | ||||||||||||||||||
Land |
1,379 | | | (106 | ) | 40 | 1,313 | |||||||||||||||||
Non-residential real estate |
1,139 | | | (55 | ) | (17 | ) | 1,067 | ||||||||||||||||
Farmland |
358 | | | 205 | | 563 | ||||||||||||||||||
Consumer loans |
358 | (83 | ) | 51 | (38 | ) | 52 | 340 | ||||||||||||||||
Commercial loans |
623 | | 24 | 190 | (191 | ) | 646 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 5,700 | (83 | ) | 88 | 328 | 130 | 6,163 | |||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|
The following table provides a detail of the Companys activity in the allowance for loan loss account by loan type for the year ended December 31, 2015:
General | Specific | Ending | ||||||||||||||||||||||
Balance | Charge off | Recovery | Provision | Provision | Balance | |||||||||||||||||||
12/31/2014 | 2015 | 2015 | 2015 | 2015 | 12/31/2015 | |||||||||||||||||||
One-to-four family mortgages |
$ | 1,198 | (143 | ) | 39 | (176 | ) | 112 | 1,030 | |||||||||||||||
Home equity line of credit |
181 | (92 | ) | 10 | 20 | 82 | 201 | |||||||||||||||||
Junior liens |
14 | | 4 | (6 | ) | (4 | ) | 8 | ||||||||||||||||
Multi-family |
85 | | | 4 | 138 | 227 | ||||||||||||||||||
Construction |
146 | | | 231 | | 377 | ||||||||||||||||||
Land |
1,123 | (911 | ) | | 850 | 317 | 1,379 | |||||||||||||||||
Non-residential real estate |
2,083 | (222 | ) | 2 | (944 | ) | 220 | 1,139 | ||||||||||||||||
Farmland |
461 | | | 500 | (603 | ) | 358 | |||||||||||||||||
Consumer loans |
494 | (298 | ) | 118 | (123 | ) | 167 | 358 | ||||||||||||||||
Commercial loans |
504 | (201 | ) | 54 | (61 | ) | 327 | 623 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 6,289 | (1,867 | ) | 227 | 295 | 756 | 5,700 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
17
The table below presents past due and non-accrual balances at March 31, 2016, by loan classification allocated between performing and non-performing:
30 - 89 | Impaired Loans | |||||||||||||||||||||||||||
Currently | Days | Non-accrual | Special | Currently Performing | ||||||||||||||||||||||||
Performing | Past Due | Loans | Mention | Substandard | Doubtful | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family mortgages |
$ | 142,092 | 928 | 198 | 102 | 2,616 | | $ | 145,936 | |||||||||||||||||||
Home equity line of credit |
32,002 | 24 | 74 | 23 | 146 | | 32,269 | |||||||||||||||||||||
Junior liens |
1,573 | | | 34 | 16 | | 1,623 | |||||||||||||||||||||
Multi-family |
26,278 | | 1,926 | | 1,107 | | 29,311 | |||||||||||||||||||||
Construction |
36,074 | | | | | | 36,074 | |||||||||||||||||||||
Land |
11,440 | 7,248 | 1,515 | 40 | 1,895 | | 22,138 | |||||||||||||||||||||
Farmland |
40,901 | 48 | 166 | | 406 | | 41,521 | |||||||||||||||||||||
Non-residential real estate |
137,334 | 137 | 28 | 2,737 | 8,056 | | 148,292 | |||||||||||||||||||||
Consumer loans |
20,457 | 23 | | | 284 | | 20,764 | |||||||||||||||||||||
Commercial loans |
80,843 | 333 | 1,122 | 311 | 746 | | 83,355 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 528,994 | 8,741 | 5,029 | 3,247 | 15,272 | | $ | 561,283 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents past due and non-accrual balances at December 31, 2015, by loan classification allocated between performing and non-performing:
30 - 89 | Impaired Loans | |||||||||||||||||||||||||||
Currently | Days | Non-accrual | Special | Currently Performing | ||||||||||||||||||||||||
Performing | Past Due | Loans | Mention | Substandard | Doubtful | Total | ||||||||||||||||||||||
One-to-four family mortgages |
$ | 142,058 | 671 | 2,234 | 41 | 995 | | $ | 145,999 | |||||||||||||||||||
Home equity line of credit |
33,396 | 79 | 48 | | 121 | | 33,644 | |||||||||||||||||||||
Junior liens |
1,720 | | | 35 | 16 | | 1,771 | |||||||||||||||||||||
Multi-family |
21,638 | 6 | 1,968 | | 1,113 | | 24,725 | |||||||||||||||||||||
Construction |
34,878 | | | | | | 34,878 | |||||||||||||||||||||
Land |
11,047 | 747 | 1,553 | 41 | 9,065 | | 22,453 | |||||||||||||||||||||
Non-residential real estate |
138,637 | 228 | 247 | 2,489 | 8,110 | | 149,711 | |||||||||||||||||||||
Farmland |
41,853 | 64 | 166 | | 163 | | 42,246 | |||||||||||||||||||||
Consumer loans |
20,108 | 15 | 8 | | 193 | | 20,324 | |||||||||||||||||||||
Commercial loans |
84,272 | 45 | 1,198 | 352 | 876 | | 86,743 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 529,607 | 1,855 | 7,422 | 2,958 | 20,652 | | 562,494 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of March 31, 2016, and December 31, 2015.
Land | ||||||||||||||||||||||||
Development / | Commercial | Residential | ||||||||||||||||||||||
Commercial | Construction | Real Estate | Real Estate | Consumer | Total | |||||||||||||||||||
March 31, 2016: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 14 | 108 | 319 | 255 | 69 | $ | 765 | ||||||||||||||||
Collectively evaluated for impairment |
632 | 1,656 | 1,629 | 1,210 | 271 | 5,398 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending allowance balance |
$ | 646 | 1,764 | 1,948 | 1,465 | 340 | $ | 6,163 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 1,868 | 10,571 | 11,689 | 3,050 | 284 | $ | 27,462 | ||||||||||||||||
Loans collectively evaluated for impairment |
81,487 | 47,641 | 207,435 | 176,778 | 20,480 | 533,821 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loans balance |
$ | 83,355 | 58,212 | 219,124 | 179,828 | 20,764 | $ | 561,283 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Land | ||||||||||||||||||||||||
Development / | Commercial | Residential | ||||||||||||||||||||||
Commercial | Construction | Real Estate | Real Estate | Consumer | Total | |||||||||||||||||||
December 31, 2015: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 180 | 69 | 272 | 60 | 49 | $ | 630 | ||||||||||||||||
Collectively evaluated for impairment |
443 | 1,687 | 1,452 | 1,179 | 309 | 5,070 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending allowance balance |
$ | 623 | 1,756 | 1,724 | 1,239 | 358 | $ | 5,700 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 2,074 | 10,618 | 11,767 | 3,414 | 201 | $ | 28,074 | ||||||||||||||||
Loans collectively evaluated for impairment |
84,669 | 46,713 | 204,915 | 178,000 | 20,123 | 534,420 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loans balance |
$ | 86,743 | 57,331 | 216,682 | 181,414 | 20,324 | $ | 562,494 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
19
All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mentioned, substandard and doubtful are paying as agreed. However, the customers financial statements may indicate weaknesses in their current cash flow, the customers industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customers future business prospects.
The Company does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Companys loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Companys Board of Directors on the status of the Companys specific construction and development loans as well as the market trends in those markets in which the Company actively participates.
The Companys annualized net charge off ratios for three month periods ended March 31, 2016, March 31, 2015, and the year ended December 31, 2015, was 0.00%, 0.24% and 0.29%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2016, March 31, 2015, and December 31, 2015, were 122.54%, 290.51%, and 76.80%, respectively.
The determination of the allowance for loan losses is based on managements analysis, performed on a quarterly basis. Various factors are considered, including the market value of the underlying collateral, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.
The Company conducts annual reviews on all loan relationships above one million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrowers credit history with the Company and other creditors, and current income tax information.
As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than ninety days. The Company uses the following risk definitions for commercial loan risk grades:
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.
20
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 banks 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 Banks 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. Borrowers 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 Banks 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 borrowers 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 borrowers 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 managements close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the asset or in the institutions 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.
21
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. Generally, the asset is considered collectible as to both principal and interest primarily because of collateral coverage or enterprise value. Generally, the asset is current and marginally secured.
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 banks 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 Assets -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 Assets - 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.
A loan is considered to be impaired when management determines that it is possible that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is managements practice to classify all substandard or doubtful loans as impaired.
22
At March 31, 2016, December 31, 2015, and March 31, 2015, the Companys impaired loans totaled $27.5 million, $28.1 million and $31.9 million, respectively. At March 31, 2016, December 31, 2015 and March 31, 2015, the Companys specific reserve for impaired loans totaled $765,000, $630,000 and $1.8 million respectively. At March 31, 2016, one land loan 30-89 days past due in the amount $7,121 is classified as substandard. A summary of the Companys impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2016, and December 31, 2015, were as follows:
Specific | Allowance |
|||||||||||||||||||||||||||
allowance |
for | |||||||||||||||||||||||||||
March 31, 2016 |
Special | Impaired Loans | for | Performing | ||||||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | Impairment | Loans | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family mortgages |
143,020 | 102 | 2,814 | | 145,936 | 255 | 964 | |||||||||||||||||||||
Home equity line of credit |
32,026 | 23 | 220 | | 32,269 | | 238 | |||||||||||||||||||||
Junior liens |
1,573 | 34 | 16 | | 1,623 | | 8 | |||||||||||||||||||||
Multi-family |
26,278 | | 3,033 | | 29,311 | 201 | 116 | |||||||||||||||||||||
Construction |
36,074 | | | | 36,074 | | 451 | |||||||||||||||||||||
Land |
11,527 | 40 | 10,571 | | 22,138 | 108 | 1,205 | |||||||||||||||||||||
Non-residential real estate |
137,471 | 2,737 | 8,084 | | 148,292 | 118 | 949 | |||||||||||||||||||||
Farmland |
40,949 | | 572 | | 41,521 | | 564 | |||||||||||||||||||||
Consumer loans |
20,480 | | 284 | | 20,764 | 69 | 271 | |||||||||||||||||||||
Commercial loans |
81,176 | 311 | 1,868 | | 83,355 | 14 | 632 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
530,574 | 3,247 | 27,462 | | 561,283 | 765 | 5,398 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
December 31, 2015 |
Special | Impaired Loans | Specific Allowance for |
Allowance for Loans not |
||||||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | Impairment | Impaired | ||||||||||||||||||||||
One-to-four family mortgages |
$ | 142,729 | 41 | 3,229 | | 145,999 | 60 | 970 | ||||||||||||||||||||
Home equity line of credit |
33,475 | | 169 | | 33,644 | | 201 | |||||||||||||||||||||
Junior lien |
1,720 | 35 | 16 | | 1,771 | | 8 | |||||||||||||||||||||
Multi-family |
21,644 | | 3,081 | | 24,725 | 138 | 89 | |||||||||||||||||||||
Construction |
34,878 | | | | 34,878 | | 377 | |||||||||||||||||||||
Land |
11,794 | 41 | 10,618 | | 22,453 | 69 | 1,310 | |||||||||||||||||||||
Non-residential real estate |
138,865 | 2,489 | 8,357 | | 149,711 | 134 | 1,005 | |||||||||||||||||||||
Farmland |
41,917 | | 329 | | 42,246 | | 358 | |||||||||||||||||||||
Consumer loans |
20,123 | | 201 | | 20,324 | 49 | 309 | |||||||||||||||||||||
Commercial loans |
84,317 | 352 | 2,074 | | 86,743 | 180 | 443 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 531,462 | 2,958 | 28,074 | | 562,494 | 630 | 5,070 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Impaired loans by classification type and the related valuation allowance amounts at March 31, 2016, were as follows:
For the three month period ended | ||||||||||||||||||||
At March 31, 2016 | March 31, 2016 | |||||||||||||||||||
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
Impaired loans with no recorded reserve |
||||||||||||||||||||
One-to-four family mortgages |
$ | 1,561 | 1,561 | | 2,526 | 20 | ||||||||||||||
Home equity line of credit |
220 | 220 | | 169 | 2 | |||||||||||||||
Junior liens |
16 | 16 | | 16 | | |||||||||||||||
Multi-family |
2,102 | 2,102 | | 2,128 | 27 | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
9,999 | 10,956 | | 9,995 | 1 | |||||||||||||||
Farmland |
572 | 572 | | 3,985 | | |||||||||||||||
Non-residential real estate |
7,371 | 7,371 | | 3,850 | 110 | |||||||||||||||
Consumer loans |
8 | 8 | | 7 | | |||||||||||||||
Commercial loans |
1,084 | 1,084 | | 1,179 | 15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
22,933 | 23,890 | | 23,855 | 175 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with a specific allowance: | ||||||||||||||||||||
One-to-four family mortgages |
1,253 | 1,253 | 255 | 978 | 20 | |||||||||||||||
Home equity line of credit |
| | | | | |||||||||||||||
Junior liens |
| | | | | |||||||||||||||
Multi-family |
931 | 931 | 201 | 942 | 19 | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
572 | 572 | 108 | 640 | 10 | |||||||||||||||
Farmland |
| | | | | |||||||||||||||
Non-residential real estate |
713 | 713 | 118 | 715 | 8 | |||||||||||||||
Consumer loans |
276 | 276 | 69 | 236 | | |||||||||||||||
Commercial loans |
784 | 784 | 14 | 792 | 8 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
4,529 | 4,529 | 765 | 4,303 | 65 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans |
$ | 27,462 | 28,419 | 765 | 28,158 | 240 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
24
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015, were as follows:
For the year ended | ||||||||||||||||||||
At December 31, 2015 | December 31, 2015 | |||||||||||||||||||
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | ||||||||||||||||
Impaired loans with no specific allowance |
||||||||||||||||||||
One-to-four family mortgages |
$ | 2,526 | 2,526 | | 2,389 | 80 | ||||||||||||||
Home equity line of credit |
169 | 169 | | 457 | 7 | |||||||||||||||
Junior liens |
16 | 16 | | 17 | 1 | |||||||||||||||
Multi-family |
2,128 | 2,128 | | 2,797 | 126 | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
10,038 | 10,998 | | 8,520 | 671 | |||||||||||||||
Non-residential real estate |
7,640 | 7,640 | | 283 | 404 | |||||||||||||||
Farmland |
329 | 329 | | 7,774 | 19 | |||||||||||||||
Consumer loans |
5 | 5 | | 3 | | |||||||||||||||
Commercial loans |
1,274 | 1,274 | | 1,599 | 73 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
24,125 | 25,085 | | 23,839 | 1,381 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with a specific allowance |
||||||||||||||||||||
One-to-four family mortgages |
$ | 703 | 703 | 60 | 709 | 40 | ||||||||||||||
Home equity line of credit |
| | | | | |||||||||||||||
Junior liens |
| | | | | |||||||||||||||
Multi-family |
953 | 953 | 138 | 318 | 17 | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
580 | 580 | 69 | 1,707 | 46 | |||||||||||||||
Non-residential real estate |
717 | 717 | 134 | 836 | 28 | |||||||||||||||
Farmland |
| | | | | |||||||||||||||
Consumer loans |
196 | 196 | 49 | 194 | | |||||||||||||||
Commercial loans |
800 | 800 | 180 | 514 | 15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
3,949 | 3,949 | 630 | 4,278 | 146 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans |
$ | 28,074 | 29,034 | 630 | 28,117 | 1,527 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
25
On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:
| The restructuring constitutes a concession |
| The debtor is experiencing financial difficulties |
ASU 310 provides the following guidance for the Banks evaluation of whether it has granted a concession as follows:
1. | If a debtor does not otherwise have access to funds at a market interest rate for debt with similar risk characteristics as the restructured debt, the restructured debt would be considered a below market rate, which may indicate that the Bank may have granted a concession. In that circumstance, the Bank should consider all aspects of the restructuring in determining whether it has granted a concession, the creditor must make a separate assessment about whether the debtor is experiencing financial difficulties to determine whether the restructuring constitutes a TDR. |
2. | A temporary or permanent increase in the interest rate on a loan as a result of a restructuring does not eliminate the possibility of the restructuring from being considered a concession if the new interest rate on the loan is below the market interest rate for loans of similar risk characteristics. |
3. | A restructuring that results in a delay in payment that is insignificant is not a concession. However, the Bank must consider a variety of factors in assessing whether a restructuring resulting in a delay in payment is insignificant. |
At December 31, 2015, the Company had eight loans, representing two lending relationships, classified as performing TDRs. During the three month period ended March 31, 2016, the Company added four loans to TDR status, representing one additional lending relationship, as a performing TDR. The loans added to TDR classification are paying interest only for one year while the customer markets the collateral for sale. A summary of the activity in loans classified as TDRs for the three month period ended March 31, 2016, is as follows:
Balance at 12/31/15 |
New TDR |
Loss or Foreclosure |
Loan Amortization |
Removed from (Taken to) Non-accrual |
Balance at 3/31/16 |
|||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Multi-family real estate |
| 816 | | | | 816 | ||||||||||||||||||
Non-residential real estate |
$ | 5,536 | 228 | | (36 | ) | | $ | 5,728 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total performing TDR |
$ | 5,536 | 1,044 | | (36 | ) | | $ | 6,544 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
26
A summary of the activity in loans classified as TDRs for the twelve month period ended December 31, 2015, is as follows:
Balance at 12/31/14 |
New TDR |
Loss or Foreclosure |
Loan Amortization |
Removed from (Taken to) Non-accrual |
Balance at 12/31/15 |
|||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Non-residential real estate |
$ | 3,284 | 2,265 | | (13 | ) | | $ | 5,536 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total performing TDR |
$ | 3,284 | 2,265 | | (13 | ) | | $ | 5,536 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(6) | REAL ESTATE AND OTHER ASSETS OWNED |
The Companys real estate and other assets owned represent properties and personal collateral acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional real estate owned and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all real estate owned with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense.
At March 31, 2016, December 31, 2015, and March 31, 2015, the Company had balances in other real estate and assets owned and non-accrual loans consisting of the following:
March 31, 2016 | December 31, 2015 | March 31, 2015 | ||||||||||
(Dollars in Thousands) | ||||||||||||
One-to-four family mortgages |
$ | 55 | 55 | 175 | ||||||||
Land |
943 | 943 | 1,768 | |||||||||
Non-residential real estate |
459 | 738 | 409 | |||||||||
|
|
|
|
|
|
|||||||
Total other assets owned |
$ | 1,457 | 1,736 | 2,352 | ||||||||
|
|
|
|
|
|
|||||||
Total non-accrual loans |
$ | 5,029 | 7,422 | 2,124 | ||||||||
|
|
|
|
|
|
|||||||
Total non-performing assets |
$ | 6,486 | 9,158 | 4,476 | ||||||||
|
|
|
|
|
|
|||||||
Non-performing assets /Average assets |
0.73 | % | 1.02 | % | 0.50 | % | ||||||
|
|
|
|
|
|
27
The following is a summary of the activity in the Companys real estate and other assets owned for the three month period ending March 31, 2016:
Activity During 2016 | ||||||||||||||||||||||||
Balance | Reduction | Gain (Loss) | Balance | |||||||||||||||||||||
12/31/2015 | Foreclosures | Proceeds | in Values | on Sale | 3/31/2016 | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One-to-four family mortgages |
$ | 55 | | | | | $ | 55 | ||||||||||||||||
Land |
943 | | | | | 943 | ||||||||||||||||||
Non-residential real estate |
738 | | (270 | ) | | (9 | ) | 459 | ||||||||||||||||
Consumer |
| 12 | (12 | ) | | | | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,736 | 12 | (282 | ) | | (9 | ) | $ | 1,457 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the activity in the Companys real estate and other assets owned for the year ended December 31, 2015:
Activity During 2015 | ||||||||||||||||||||||||
Balance | Reduction | Gain (Loss) | Balance | |||||||||||||||||||||
12/31/2014 | Foreclosures | Proceeds | in Values | on Sale | 12/31/2015 | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One-to-four family mortgages |
$ | 159 | 105 | (194 | ) | | (15 | ) | $ | 55 | ||||||||||||||
Land |
1,768 | | (124 | ) | | (701 | ) | 943 | ||||||||||||||||
Non-residential real estate |
| 738 | | | | 738 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 1,927 | 843 | (318 | ) | | (716 | ) | $ | 1,736 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
28
(7) | INVESTMENTS IN AFFILIATED COMPANIES |
Investments in affiliated companies accounted for under the equity method consist of 100% of the common stock of HopFed Capital Trust 1 (Trust), a wholly-owned statutory business trust. The Trust was formed on September 25, 2003. Summary financial information for the Trust follows (dollars in thousands):
Summary Statements of Financial Condition
At | At | |||||||
March 31, 2016 | December 31, 2015 | |||||||
Assets - investment in subordinated debentures issued by HopFed Bancorp, Inc. |
$ | 10,310 | 10,310 | |||||
|
|
|
|
|||||
Liabilities |
| | ||||||
Stockholders equity trust preferred securities |
10,000 | 10,000 | ||||||
Common stock (100% Owned by HopFed Bancorp, Inc.) |
310 | 310 | ||||||
|
|
|
|
|||||
Total stockholders equity |
$ | 10,310 | 10,310 | |||||
|
|
|
|
Summary Statements of Income
Three Month Periods | ||||||||
Ended March 31, | ||||||||
2016 | 2015 | |||||||
Income interest income from subordinated debentures issued by HopFed Bancorp, Inc. |
$ | 97 | 85 | |||||
|
|
|
|
|||||
Net income |
$ | 97 | 85 | |||||
|
|
|
|
Summary Statement of Stockholders Equity
Trust | Total | |||||||||||||||
Preferred | Common | Retained | Stockholders | |||||||||||||
Securities | Stock | Earnings | Equity | |||||||||||||
Beginning balances, December 31, 2015 |
$ | 10,000 | 310 | | 10,310 | |||||||||||
Net income |
| | 97 | 97 | ||||||||||||
Dividends: |
||||||||||||||||
Trust preferred securities |
| | (94 | ) | (94 | ) | ||||||||||
Common paid to HopFed Bancorp, Inc. |
| | (3 | ) | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending balances, March 31, 2016 |
$ | 10,000 | 310 | | 10,310 | |||||||||||
|
|
|
|
|
|
|
|
29
(8) | FAIR VALUE OF ASSETS AND LIABILITIES |
In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
| Level 1 is for assets and liabilities that management has obtained quoted prices (unadjusted for transaction cost) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. |
| Level 2 is for assets and liabilities in which significant unobservable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 is for assets and liabilities in which significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Companys portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral. The values for bank owned life insurance are obtained from stated values from the respective insurance companies. The liability associated with the Companys derivative is obtained from a quoted value supplied by our correspondent banker. The value of real estate owned is obtained from appraisals completed on properties at the time of acquisition and annually thereafter.
30
Assets and Liabilities Measured on a Recurring Basis
The assets and liabilities measured at fair value on a recurring basis at March 31, 2016, are summarized below:
Total carrying | Quoted Prices | Significant | ||||||||||||||
value in the | In Active | Other | Significant | |||||||||||||
consolidated | Markets for | Observable | Unobservable | |||||||||||||
balance sheet at | Identical Assets | Inputs | Inputs | |||||||||||||
Description |
March 31, 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Available for sale securities |
$ | 237,829 | 2,005 | 233,850 | 1,974 |
The assets and liabilities measured at fair value on a recurring basis at December 31, 2015, are summarized below
Total carrying | Quoted Prices | Significant | ||||||||||||||
value in the | In Active | Other | Significant | |||||||||||||
consolidated | Markets for | Observable | Unobservable | |||||||||||||
balance sheet at | Identical Assets | Inputs | Inputs | |||||||||||||
Description |
December 31, 2015 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets | ||||||||||||||||
Available for sale securities |
$ | 237,177 | 2,000 | 233,312 | 1,865 |
31
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2016:
Total carrying | Quoted Prices | Significant | ||||||||||||||
value in the | In Active | Other | Significant | |||||||||||||
consolidated | Markets for | Observable | Unobservable | |||||||||||||
balance sheet at | Identical Assets | Inputs | Inputs | |||||||||||||
Description |
3/ 31/ 2016 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Other real estate and other assets owned |
$ | 1,457 | | | $ | 1,457 | ||||||||||
Impaired loans, net of reserve of $765 |
$ | 3,764 | | | $ | 3,764 |
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2015:
Total carrying | Quoted Prices | Significant | ||||||||||||||
value in the | In Active | Other | Significant | |||||||||||||
consolidated | Markets for | Observable | Unobservable | |||||||||||||
balance sheet at | Identical Assets | Inputs | Inputs | |||||||||||||
Description |
12/31/2015 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Other real estate and other assets owned |
$ | 1,736 | | | $ | 1,736 | ||||||||||
Impaired loans, net of reserve of $630 |
$ | 3,319 | | | $ | 3,319 |
32
The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2016, and March 31, 2015, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.
2016 | 2015 | |||||||||||||||
Three month period ended March 31, |
Other Assets | Other Liabilities | Other Assets | Other Liabilities | ||||||||||||
(Dollars in Thousands) |
||||||||||||||||
Fair value, January 1, |
$ | 1,865 | | 1,489 | | |||||||||||
Change in unrealized losses included in other comprehensive income for assets and liabilities still held at March 31, |
105 | | 306 | | ||||||||||||
Accretion of previous discounted amounts |
4 | 4 | ||||||||||||||
Purchases, issuances and settlements, net |
| | | | ||||||||||||
Transfers in and/or out of Level 3 |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair value, March 31, |
$ | 1,974 | | 1,799 | | |||||||||||
|
|
|
|
|
|
|
|
33
The estimated fair values of financial instruments were as follows at March 31, 2016:
Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
In Active Markets | Other | Significant | ||||||||||||||||||
Estimated | for Identical | Observable | Unobservable | |||||||||||||||||
Carrying | Fair | Assets | Inputs | Inputs | ||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 27,393 | 27,393 | $ | 27,393 | | | |||||||||||||
Interest-earning deposits |
14,798 | 14,798 | 14,798 | | | |||||||||||||||
Securities available for sale |
237,829 | 237,829 | 2,005 | 233,850 | 1,974 | |||||||||||||||
Federal Home Loan Bank stock |
4,428 | 4,428 | | 4,428 | | |||||||||||||||
Loans held for sale |
1,339 | 1,339 | | 1,339 | | |||||||||||||||
Loans receivable |
554,727 | 550,201 | | | 550,201 | |||||||||||||||
Accrued interest receivable |
3,871 | 3,871 | | 3,871 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
724,953 | 711,263 | | 711,263 | | |||||||||||||||
Advances from borrowers for taxes and insurance |
754 | 754 | | 754 | | |||||||||||||||
Advances from Federal Home Loan Bank |
11,000 | 10,976 | | 10,976 | | |||||||||||||||
Repurchase agreements |
46,940 | 47,043 | | 47,043 | | |||||||||||||||
Subordinated debentures |
10,310 | 10,099 | | | 10,099 |
34
The estimated fair values of financial instruments were as follows at December 31, 2015:
Using | ||||||||||||||||||||
Quoted Prices | Significant | |||||||||||||||||||
In Active Markets | Other | Significant | ||||||||||||||||||
Estimated | for Identical | Observable | Unobservable | |||||||||||||||||
Carrying | Fair | Assets | Inputs | Inputs | ||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and due from banks |
$ | 46,926 | 46,926 | $ | 46,926 | | | |||||||||||||
Interest-earning deposits |
7,772 | 7,772 | 7,772 | | | |||||||||||||||
Securities available for sale |
237,177 | 237,177 | 2,000 | 233,312 | 1,865 | |||||||||||||||
Federal Home Loan Bank stock |
4,428 | 4,428 | | 4,428 | | |||||||||||||||
Loans held for sale |
2,792 | 2,792 | | 2,792 | | |||||||||||||||
Loans receivable |
556,349 | 552,981 | | | 552,981 | |||||||||||||||
Accrued interest receivable |
4,139 | 4,139 | | 4,139 | | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
739,406 | 724,877 | | 724,877 | | |||||||||||||||
Advances from borrowers for taxes and insurance |
614 | 614 | | 614 | | |||||||||||||||
Advances from Federal Home Loan Bank |
15,000 | 14,985 | | 14,985 | | |||||||||||||||
Repurchase agreements |
45,770 | 45,931 | | 45,931 | | |||||||||||||||
Subordinated debentures |
10,310 | 10,099 | | | 10,099 |
(9) | EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS |
ASU 2015-01, Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 was effective for the Company beginning January 1, 2016, though early adoption is permitted. The implementation of ASU 2015-01 did not have a significant impact on the Companys Consolidated Financial Statements.
35
ASU No. 2015-02, Amendments to the Consolidation Analysis.This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The provisions of ASU No. 2015-02 did not have a material impact on the Companys Consolidated Financial Statements.
In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one year deferral of the effective date to December 15, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements.
On June 12, 2014, the FASB issued ASU 2014-11, which makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (repos). ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. ASU 2014-11 also amends ASC 860 to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in ASC 860-10-40-5 should be accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. For public business entities, the accounting changes were effective beginning after January 1, 2015. The implementation of ASU 2014-11 did not have a material impact on the Companys Consolidated Financial Statements.
36
In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted for financial statements that have not been issued. The implementation of ASU 2015-16 did not have a material impact on the Companys Consolidated Financial Statements.
In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. These amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of residential foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures about such activities are required by these amendments. The amendments in this ASU became effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014. The Companys implementation of ASU 2014-04 did not have a material impact on the Companys Consolidated Financial Statements.
ASU 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis.ASU 2015-02 implements changes to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 (i) eliminates certain criteria that must be met when determining when fees paid to a decision maker or service provider do not represent a variable interest, (ii) amends the criteria for determining whether a limited partnership is a variable interest entity and (iii) eliminates the presumption that a general partner controls a limited partnership in the voting model. ASU 2015-02 was effective on January 1, 2016, and did not have a significant impact on the Companys Consolidated Financial Statements.
37
ASU 2015-15, Interest Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 did not have a significant impact on the Companys Consolidated Financial Statements.
ASU 2016-1, No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, 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 (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective on January 1, 2018, and is not expected to have a significant impact on the Companys financial statements.
ASU 2015-05, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40) Customers Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective on January 1, 2016, and did not have a material impact on the Companys Consolidated Financial Statements.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. The Company is evaluating the impact of this ASU on its financial statements and disclosures.
In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements.
In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which will eliminate the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements.
38
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 Companys financial position, results of operations or cash flows.
(10) | INCOME TAXES |
The Company and its subsidiaries file consolidated federal income tax returns and Tennessee excise tax returns. The Company and its non-bank subsidiaries filed consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions. The effective tax rate differs from the statutory federal rate of 35% and Tennessee excise rate of 6.50% due to investments in qualified municipal securities; bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses.
39
(11) | OTHER ASSETS |
The Company has invested in two flow-through limited liability entities that manage and invest in affordable housing projects that qualify for historic, low-income and elderly housing tax credits. At March 31, 2016, the Companys total investment in each entity was $118,000 and $923,000, respectively. The Company has no future capital commitments to either entity. The expenses recognized in net income for these investments for the three-month periods below include:
For the Three Months Ended March 31, |
||||||
2016 | 2015 | |||||
$ | 55 | $ | 55 | |||
| $ | 24 |
(12) | ESOP |
All Company employees participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (ESOP). The ESOP purchased 600,000 shares of the Companys 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 the 600,000 held by the ESOP to repay the loan from the Company. When loan payments are made, ESOP shares are released based on reduction in the principal balance of the loan. The shares are allocated to participants based on relative compensation. Employees who are not employed at the December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or provide the shares directly to the employee.
The Company made its first ESOP loan payment in December 2015. In January 2016, the ESOP and Company revised the loan to the ESOP converting the loan to a closed end note with total payments of approximately $780,000 per year for a term of eleven year. At March 31, 2016, the Companys accrued liability for the loan payment is $195,000. At March 31, 2016, shares held by the ESOP were as follows:
40
Accrued to allocation to participants |
10,742 | |||
Earned ESOP shares |
53,587 | |||
Unearned ESOP shares |
535,671 | |||
|
|
|||
Total ESOP shares |
600,000 | |||
|
|
|||
Fair value of unearned shares |
$ | 6,256,637 | ||
|
|
(13) | COMMITMENTS AND CONTINGENCIES |
At March 31, 2016, the Bank had $22.4 million in outstanding commitments to originate loans and undisbursed commitments on loans outstanding of $114.2 million. Management believes that the Banks sources of funds are sufficient to fund all of its outstanding commitments. Certificates of deposits scheduled to mature in one year or less from March 31, 2016, totaled $133.2 million. At March 31, 2016, the Company has $28.3 million in times deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $44.4 million in time deposits 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 Banks FHLB borrowings are secured by a blanket security agreement pledging the Banks 1-4 family first mortgage loans and non-residential real estate loans. At March 31, 2016, the Bank has pledged all eligible 1-4 family first mortgages.
At March 31, 2016, the Company had the following off-balance sheet commitments (in thousands):
Standby letters of credit |
$ | 69 | ||
Unused home equity lines of credit |
$ | 30,307 | ||
Unused commercial lines of credit |
$ | 55,315 | ||
Unused unsecured personal lines of credit |
$ | 28,537 | ||
Unfunded commitments on commercial loans |
$ | 22,439 |
41
At March 31, 2016, the Bank had $53.1 million in additional borrowing capacity with the FHLB which includes an overnight line of credit of $30.0 million. The Bank has an $8 million unsecured overnight borrowing capacity from a correspondent bank.
Outstanding Balance |
Rate | Maturity | ||||||||
(Dollars in Thousands) | ||||||||||
$ | 5,000 | 0.88 | % | 10/06/2017 | ||||||
6,000 | 1.18 | % | 07/06/2018 | |||||||
|
|
|
|
|
|
|||||
$ | 11,000 | 1.04 | % | |||||||
|
|
|
|
(14) | REGULATORY MATTERS |
In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory capital rules applicable to Heritage Bank USA, Inc. and HopFed Bancorp, Inc. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems (Basel III) and changes required by the Dodd-Frank Act.
Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms became effective for the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. Moreover, these rules
42
refine the definition of what constitutes capital for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. 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 is being phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. 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 consist 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, will 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, will 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.
Common equity Tier 1 capital generally consist of common stock (plus related surplus) and retained earnings plus limited amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other regulatory deductions. 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.
The Federal Reserve has adopted regulations applicable to bank holding companies with assets over $10 billion that require such holding companies and banks to conduct annual stress tests and report the results to the applicable regulators and publicly disclose a summary of certain capital information and results including pro forma changes in regulatory capital ratios. The Board of Directors and senior management are required to consider the results of the stress test in the normal course of business, including but not limited to capital planning and an assessment of capital adequacy in accordance with managements policies. The FDIC has adopted all guidelines applicable to state nonmember banks in each case. At March 31, 2016, the Bank exceeded all regulatory capital requirements. The table below presents certain information relating to the Companys and Banks capital compliance at March 31, 2016:
43
Company | Bank | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Common Equity Tier 1 Ratio |
$ | 94,670 | 16.76 | % | $ | 91,913 | 16.36 | % | ||||||||
Tier 1 leverage ratio |
$ | 94,670 | 10.75 | % | $ | 91,913 | 10.46 | % | ||||||||
Tier 1 risk-based capital ratio |
$ | 94,670 | 16.76 | % | $ | 91,913 | 16.36 | % | ||||||||
Total risk based capital ratio |
$ | 100,832 | 17.85 | % | $ | 98,076 | 17.45 | % |
(15) | SUBSEQUENT EVENT |
On May 3, 2016, Your Community Bankshares, Inc. (Nasdaq YCB) announced an agreement to be purchased by WesBanco, Inc. (Nasdaq WSBC). At March 31, 2016, the Company owns a trust preferred security with a market value of $2.0 million that was originally issued to First Financial Services Corporation (FFKY). FFKY was acquired by YCB in January 2015 and YCB assumed the liability of the trust preferred, bring all past due interest payments current. The Company has not yet determined how the proposed transaction of YCB and WSBC will affect the value of our trust preferred investment.
44
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
The consolidated condensed financial statements as of March 31, 2016, and December 31, 2015, and for the three month periods ended March 31, 2016, and March 31, 2015, included herein have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in interim financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the financial statements and notes thereon included in the Companys 2015 Annual Report to Stockholders on Form 10-K.
Certain of the Companys accounting policies are important to the portrayal of the Companys financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances, which could affect these material judgments, include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses, determining the fair value of securities and other financial instruments, and assessing other than temporary impairments of securities.
45
Comparison of Financial Condition at March 31, 2016, and December 31, 2015
At March 31, 2016, total assets declined $17.4 million, to $885.8 million as compared to $903.2 million at December 31, 2015, largely due to lower levels of time deposits and cash on hand. Securities available for sale increased from $237.2 million at December 31, 2015, to $237.8 million at March 31, 2016. At March 31, 2016, and December 31, 2015, securities classified as available for sale had an amortized cost of $231.6 million and $233.4 million, respectively.
The Companys holdings of Federal Home Loan Bank of Cincinnati (FHLB) stock, at cost were $4.4 million at December 31, 2015, and March 31, 2016. Total FHLB borrowings were $11.0 million at March 31, 2016, as compared to $15.0 million at December 31, 2015. Total repurchase balances increased from $45.8 million at December 31, 2015, to $46.9 million at March 31, 2016. Net loans totaled $554.7 million and $556.3 million at March 31, 2016, and December 31, 2015, respectively.
At March 31, 2016, deposits declined to $14.4 million from $739.4 million at December 31, 2015, to $725.0 million at March 31, 2016. At March 31, 2016, non-interest checking account balances are $127.1 million, or 17.5% of total deposits as compared to $125.1 million, or 16.9% of total deposits at December 31, 2015. For the period ended March 31, 2016, interest bearing checking accounts increased by $13.0 million as compared to December 31, 2015. At March 31, 2016, time deposits were $285.2 million, representing a $29.5 million decline as compared to December 31, 2015. The average cost of all deposits during the three month periods ended March 31, 2016, December 31, 2015, and March 31, 2015, was 0.60%, 0.69% and 0.69%, respectively. Management continually evaluates the investment alternatives available to customers and adjusts the pricing on its deposit products to more actively manage its funding costs while remaining competitive in its market area.
46
Comparison of Operating Results for the Three Month Periods Ended March 31, 2016 and 2015.
Net Income. The Companys net income was $509,000 for the three month period ended March 31, 2016, as compared to net income of $1.4 million for the three month period ended March 31, 2015. For the three month period ended March 31, 2015, net income was largely influenced by a $830,000 recovery on a previously non-accrual investment in First Financial Services Corporation (FFKY) upon its sale in January 2015 to Your Community Bank of Indiana (YCB).
Net Interest Income. Net interest income for the three month period ended March 31, 2016, was $6.7 million, compared to $7.6 million for the three month period ended March 31, 2015. The decrease in net interest income for the three months ended March 31, 2016, as compared to March 31, 2015, was largely due to the collection of past due investment income.
For the three months ended March 31, 2016, the average yield on loans was 4.62%, as compared to 4.65% for the three month period ended March 31, 2015. For the three month period ended March 31, 2016, and March 31, 2015, income on taxable securities was $1.2 million and $2.4 million, respectively. For the three month period ending March 31, 2016, the tax equivalent yield on taxable and tax free securities were 2.52% and 5.01%, respectively, as compared to 4.44% and 4.70% for the three-month period ended March 31, 2015, respectively. Excluding the recovery of past due in interest in the three month period ended March 31, 2015, the Companys yield on taxable investment securities would have been 2.94% for the three month period ended March 31, 2015.
For the three month periods ended March 31, 2016, and March 31, 2015, the Companys cost of interest bearing liabilities was 0.83% and 0.94%, respectively. The lower cost of interest bearing liabilities was largely the result of the maturity of $64.4 million in long term retail time deposits bearing an annualized cost of 2.52%. As a result of these maturities, the average cost of retail time deposits declined from 1.16% for the three month period ended March 31, 2015, to 0.97% for the three month period ended March 31, 2106. At March 31, 2016, and March 31, 2015, the Companys net interest margin was 3.39% and 3.78%, respectively. For the three month period ended March 31, 2015, the receipt of past due interest added 0.40% to the Companys net interest margin.
Average Balances, Yields and Interest Expenses. The table on the next page summarizes the overall effect of changes in both interest rates and the average balances of interest earning assets and liabilities for the three-month periods ended March 31, 2016, and March 31, 2015. Yields on assets and cost of liabilities are derived by dividing income or expense by the average daily balances of interest earning assets and liabilities for the appropriate three-month periods.
47
Average balances for loans include loans classified as non-accrual, net of the allowance for loan losses. The table adjusts tax-free investment income by $174,000 for March 31, 2016, and $224,000 for March 31, 2015, for a tax equivalent rate using a cost of funds rate of 0.83% for March 31, 2016, and 0.95% for March 31, 2015. The table adjusts tax-free loan income by $5,000 for March 31, 2016, and $1,000 for March 31, 2015, respectively, for a tax equivalent rate using the same cost of funds rate (Table Amounts in Thousands, Except Percentages):
Average | Income & | Average | Average | Income & | Average | |||||||||||||||||||
Balance | Expense | Rates | Balance | Expense | Rates | |||||||||||||||||||
03/31/2016 | 03/31/2016 | 03/31/2016 | 03/31/2015 | 03/31/2015 | 03/31/2015 | |||||||||||||||||||
Loans |
$ | 560,544 | $ | 6,470 | 4.62 | % | $ | 541,097 | $ | 6,291 | 4.65 | % | ||||||||||||
Investments AFS taxable |
197,761 | 1,247 | 2.52 | % | 220,302 | 2,448 | 4.44 | % | ||||||||||||||||
Investments AFS tax free |
42,098 | 527 | 5.01 | % | 57,628 | 677 | 4.70 | % | ||||||||||||||||
Interest earning deposits |
9,491 | 16 | 0.67 | % | 5,984 | 4 | 0.27 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest earning assets |
809,894 | 8,260 | 4.08 | % | 825,011 | 9,420 | 4.57 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Other assets |
85,874 | 77,419 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 895,768 | $ | 902,430 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Retail time deposits |
$ | 264,308 | 640 | 0.97 | % | $ | 292,401 | 845 | 1.16 | % | ||||||||||||||
Brokered deposits |
35,986 | 99 | 1.10 | % | 35,358 | 96 | 1.09 | % | ||||||||||||||||
Interest bearing checking accounts |
213,336 | 311 | 0.58 | % | 191,604 | 269 | 0.56 | % | ||||||||||||||||
MMDA and savings accounts |
97,391 | 45 | 0.18 | % | 99,701 | 50 | 0.20 | % | ||||||||||||||||
FHLB borrowings |
13,593 | 73 | 2.15 | % | 23,167 | 69 | 1.19 | % | ||||||||||||||||
Repurchase agreements |
43,744 | 143 | 1.31 | % | 42,525 | 120 | 1.13 | % | ||||||||||||||||
Subordinated debentures |
10,310 | 94 | 3.65 | % | 10,310 | 184 | 7.14 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest bearing liabilities |
678,668 | 1,405 | 0.83 | % | 695,066 | 1,633 | 0.94 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-interest bearing deposits |
122,926 | 111,869 | ||||||||||||||||||||||
Other non-interest bearing liabilities |
4,706 | 2,778 | ||||||||||||||||||||||
Stockholders equity |
89,468 | 92,717 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 895,768 | $ | 902,430 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net change in interest earning assets and interest bearing liabilities |
$ | 6,855 | $ | 7,787 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Interest rate spread |
3.25 | % | 3.63 | % | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest margin |
3.39 | % | 3.78 | % | ||||||||||||||||||||
|
|
|
|
48
Interest Income. For the three month periods ended March 31, 2016, and March 31, 2015, the Companys total interest income was $8.1 million and $9.2 million, respectively. For the three month period ended March 31, 2016, and March 31, 2015, interest income on loans was $6.5 million and $6.3 million, respectively. The average balance of loans receivable increased from $541.1 million for the three month period ended March 31, 2015, to $560.5 million for the three month period ended March 31, 2016. The ratio of average interest-earning assets to average interest-bearing liabilities increased from 118.70% for the three months ended March 31, 2015, to 119.34% for the three months ended March 31, 2016.
Interest Expense. Interest expense declined $228,000 for the three month period ended March 31, 2016, as compared to the three month period ended March 31, 2015. For the three month period ending March 31, 2016, the Companys interest expense on FHLB advances was $73,000, compared to $69,000 for the three month period ended March 31, 2015. The average cost of FHLB borrowings were 1.19% for the three months ended March 31, 2015, and 2.15% for the three months ended March 31, 2016.
For the three month period ended March 31, 2016, the average balance of interest bearing retail time deposits declined $28.1 million to $264.3 million, as compared to $292.4 million for the three month period ended March 31, 2015. The average cost of retail time deposits for the three month periods ended March 31, 2016, and March 31, 2015, was 0.97% and 1.16%, respectively.
The average balance cost of brokered deposits increased from 1.09% for the three months ended March 31, 2015, to 1.10% for the three months ended March 31, 2016. Over the same period, the average balance of brokered deposits increased $628,000, to $36.0 million, for the three month period ended March 31, 2016, as compared to the three month period ended March 31, 2015. For the three month period ended March 31, 2016, the Companys total cost of deposits was 0.60% as compared to 0.69% for the three month period ended March 31, 2015.
The average balance of repurchase agreements increased from $42.5 million for the three months ended March 31, 2015, to $43.7 million for the three month period ended March 31, 2016. The average cost of repurchase agreements was 1.13% for the three months ended March 31, 2015, and 1.31% for the three month period ended March 31, 2016. The increase in the cost of repurchase agreements is due to the fact that many are indexed to the Federal Funds rate.
49
Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on managements evaluation of the risk inherent in its loan portfolio and the general economy. Such evaluation considers numerous factors including general economic conditions, loan portfolio composition and prior loss experience, the estimated fair value of the underlying collateral and other factors that warrant recognition in providing for an adequate loan loss allowance. The Company determined that an additional $458,000 in provision for loan loss was required for the three month period ended March 31, 2016, compared to a $215,000 provision for loan loss expense for the three month period ended March 31, 2015.
Non-Interest Income. There was a $107,000 increase in non-interest income in the three month period ended March 31, 2016, as compared to the three month period ended March 31, 2015. For the three month period ended March 31, 2016, the Company earned $368,000 in mortgage origination income as compared to $177,000 during the three month period ended March 31, 2015. The Companys income for services charges was $677,000 for the three month period ended March 31, 2016, compared to $714,000 for the same period in 2015. Likewise, the Companys financial services commission declined from $159,000 for the three month period ended March 31, 2015, to $133,000 for the three month period ended March 31, 2016. For the three month period ended March 31, 2016, gains on the sale of securities were $291,000, as compared to $366,000 for the three month period ended March 31, 2015.
Non-Interest Expenses. There was a $213,000 increase in total non-interest expenses in the three-month period ended March 31, 2016, as compared to the three month period ended March 31, 2015. The most significant change in non-interest expenses was a $301,000 increase in other operating expenses. For the three month period ended March 31, 2016, salaries and benefit expenses were $4.0 million, a reduction of $196,000 as compared to the three month period ended March 31, 2015.
Income Taxes. The effective tax rate for the three-month periods ending March 31, 2016, was 8.3% due to the lower level of taxable net interest income. For the three month period ended March 31, 2015, the Companys taxable net income effective rate was 24.3% due to higher levels of taxable gross income resulting from the recovery of non-accrual taxable interest on securities.
Liquidity and Capital Resources. The Company has no business other than that of the Bank. Management believes that dividends that may be paid by the Bank to the Company will provide sufficient funds for its current needs. However, no assurance can be given that the Company will not have a need for additional funds in the future. The Bank is subject to certain regulatory limitations with respect to the payment of dividends to the Company.
50
The Bank uses brokered deposits to supplement its asset liability need for longer term deposits at reasonable prices. In addition to the coupon rate listed below, brokered deposits carry an additional fee of approximately 0.25% that includes the cost of selling and servicing the deposits. The Company includes this cost as interest expense on its income statement and on its table on page 48 that provides the yields and cost of assets and liabilities.
At March 31, 2016, the Banks brokered deposits consisted of the following:
Issue Date |
Interest Rate | Balance | Maturity Date | |||||||||
7/22/2013 |
0.80 | % | 2,000,000 | 7/22/2016 | ||||||||
10/16/2015 |
0.40 | % | 3,795,000 | 8/16/2016 | ||||||||
8/6/2014 |
0.75 | % | 2,842,000 | 10/06/2016 | ||||||||
10/13/2011 |
1.35 | % | 2,086,000 | 10/13/2016 | (1) | |||||||
3/9/2012 |
1.00 | % | 3,044,000 | 12/9/2016 | (1) | |||||||
1/15/2016 |
0.75 | % | 3,077,000 | 12/15/2016 | ||||||||
7/9/2012 |
1.05 | % | 1,446,000 | 1/9/2017 | (1) | |||||||
1/9/2015 |
1.00 | % | 2,077,000 | 4/9/2017 | ||||||||
1/15/2016 |
1.00 | % | 2,028,000 | 5/15/2017 | ||||||||
10/16/2015 |
0.85 | % | 4,042,000 | 7/16/2017 | ||||||||
7/27/2015 |
1.00 | % | 1,500,000 | 7/27/2017 | (1) | |||||||
1/3/2013 |
1.00 | % | 3,030,000 | 1/3/2018 | ||||||||
1/9/2015 |
1.20 | % | 2,004,000 | 1/9/2018 | ||||||||
|
|
|||||||||||
Total |
$ | 32,971,000 | ||||||||||
|
|
(1) | Denotes brokered deposit with rising rate feature in which the Bank has a call option. |
51
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. The words believe, expect, seek, and intend and similar expressions identify forward-looking statements, which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of income or loss, expenditures, acquisitions, plans for future operations, financing needs or plans relating to services of the Company, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of revisions, which may be made to forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
52
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The actual results of the Companys asset liability management analysis are highly dependent on the prepayment speed of mortgage backed securities and collateralized mortgage obligations. The United States Treasurys policy of purchasing longer dated Treasury bonds has the result of lowering mortgage loan rates, allowing more consumers to refinance their mortgages and pay-off their current mortgage, resulting in higher prepayment speeds on mortgage investment products.
The effects of rising interest rates are discussed throughout Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations. Actual results for the year ending December 31, 2016, will differ from simulations due to timing, magnitude, and the frequency or interest rate changes, market conditions, management strategies, and the timing of the Companys cash receipts and disbursements.
The Companys analysis at March 31, 2016, indicates that changes in interest rates are less likely to result in significant changes in the Companys annual net interest income. A summary of the Companys analysis at March 31, 2016 for the twelve month period ending March 31, 2017, is as follows:
Down 1.00% | No change | Up 1.00% | Up 2.00% | Up 3.00% | ||||||||||||||||
(Dollars In Thousands) | ||||||||||||||||||||
Net interest income |
$ | 26,019 | $ | 27,709 | $ | 28,911 | $ | 29,996 | $ | 30,689 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act), an evaluation was carried out with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended March 31, 2016.
Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the three months ended March 31, 2016, to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared.
53
Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud will be detected.
The Company is subject to Section 404 of The Sarbanes-Oxley Act of 2002. Section 404 requires management to assess and report on the effectiveness of the Companys internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting during the Companys fiscal quarter ended March 31, 2016, that have materially affected, or are reasonable likely to materially affect, the Companys internal control over financial reporting.
Item 1. | Legal Proceedings |
The Company currently has no material pending legal proceedings
Item 1A. | Risk Factors |
There have been no material changes to our risk factors as previously disclosed in Part 1, Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2015.
54
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) | Unregistered Sales of Equity Securities. |
N/A
(b) | Use of Proceeds. Not applicable |
(c) | Repurchase of Equity Securities |
Total number | Maximum | |||||||||||||||
of shares | Number of | |||||||||||||||
Purchased | Shares that | |||||||||||||||
Total | as part of | Yet may be | ||||||||||||||
Number of | Average | Publically | Purchased Under | |||||||||||||
Shares | Price Paid | Announced | the Program at | |||||||||||||
Period |
Purchased | Per Share | Programs | the end of the period | ||||||||||||
January 1, 2016, to January 31, 2016 |
33,397 | $ | 12.16 | 1,719,285 | 219,401 | |||||||||||
February 1, 2016, to February 29, 2016 |
238 | $ | 11.28 | 1,719,523 | 219,163 | |||||||||||
March 1, 2016, to March 31, 2016 |
42,022 | $ | 11.73 | 1,761,545 | 177,141 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
75,657 | $ | 11.92 | 1,761,545 | 177,141 | |||||||||||
|
|
|
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
None
55
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for John E. Peck, Chief Executive Officer. | |
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Billy C. Duvall, Chief Financial Officer. | |
32.1 | Certification Pursuant to Section 18 U.S.C. Section 1350 for John E. Peck, Chief Executive Officer. | |
32.2 | Certification Pursuant to Section 18 U.S.C. Section 1350 for Billy C. Duvall, Chief Financial Officer. | |
101 | The following materials from the Companys quarterly report on Form 10-Q for the three month period ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Financial Condition as of March 31, 2016 (unaudited) and December 31, 2015, (ii) Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2016 and March 31, 2015 (unaudited), (iii) Consolidated Condensed Statement of Comprehensive Income for the three-month periods ended March 31, 2016, and March 31, 2015 (unaudited), (iv) Consolidated Condensed Statement of Stockholders Equity, for the three-month periods ended March 31, 2016, and March 31, 2015 (unaudited); and (v) Condensed Consolidated Statements of Cash Flows, for the three-month periods ended March 31, 2016 and March 31, 2015 (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged as blocks of text. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HOPFED BANCORP, INC. | ||||||
Date: May 10, 2016 | /s/ John E. Peck | |||||
John E. Peck | ||||||
President and Chief Executive Officer | ||||||
Date: May 10, 2016 | /s/ Billy C. Duvall | |||||
Billy C. Duvall | ||||||
Senior Vice President, Chief Financial | ||||||
Officer and Treasurer |
56
Exhibit 31.1
CERTIFICATION
I, John E. Peck, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of HopFed Bancorp, Inc.; |
(2) | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and |
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
1
(5) | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant roles in the registrants internal control over financial reporting. |
Date: May 10, 2016 | /s/ John. E. Peck | |||||
John E. Peck, Chief Executive Officer |
2
Exhibit 31.2
CERTIFICATION
I, Billy C. Duvall, certify that:
(1) | I have reviewed this quarterly report on Form 10-Q of HopFed Bancorp, Inc.; |
(2) | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
(3) | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
(4) | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
(c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and |
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrants internal control over financial reporting; and |
1
(5) | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant roles in the registrants internal control over financial reporting. |
Date: May 10, 2016 | /s/ Billy C. Duvall | |||||
Billy C. Duvall, Chief Financial Officer |
2
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HopFed Bancorp, Inc. (the Company) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John E. Peck, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and the result of operations of the Company. |
Date: May 10, 2016
/s/ John E. Peck |
John E. Peck, Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to HopFed Bancorp, Inc. and will be retained by HopFed Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HopFed Bancorp, Inc. (the Company) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Billy C. Duvall, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and the result of operations of the Company. |
Date: May 10, 2016
/s/ Billy C. Duvall |
Billy C. Duvall, Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to HopFed Bancorp, Inc. and will be retained by HopFed Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. The information furnished herein shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
Document and Entity Information - shares |
3 Months Ended | |
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Mar. 31, 2016 |
May. 06, 2016 |
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Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | HFBC | |
Entity Registrant Name | HOPFED BANCORP INC | |
Entity Central Index Key | 0001041550 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 6,775,640 |
Consolidated Condensed Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
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Statement of Financial Position [Abstract] | ||
Loans receivable, allowance for loan losses | $ 6,163 | $ 5,700 |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 500,000 | 500,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 15,000,000 | 15,000,000 |
Common stock, shares issued | 7,962,308 | 7,951,699 |
Common stock, shares outstanding | 6,800,763 | 6,865,811 |
Treasury stock, shares | 1,161,545 | 1,085,888 |
Unallocated ESOP shares | 535,671 | 546,413 |
Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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Statement of Comprehensive Income [Abstract] | ||
Net income | $ 509 | $ 1,355 |
Other comprehensive income, net of tax: | ||
Unrealized gain (loss) on non other than temporary impaired investment securities available for sale, net of taxes of ($897) and ($632) for the three month periods ended March 31, 2016 and March 31, 2015, respectively. | 1,745 | 1,227 |
Unrealized gain on OTTI securities, net of taxes of ($37) for the three month period ended March 31, 2016 | 72 | |
Unrealized gain on derivatives, net of taxes of ($32) for the three month period ended March 31, 2015. | 64 | |
Reclassification adjustment for gains and accretion included in net income, net of taxes | (192) | (242) |
Total other comprehensive income | 1,625 | 1,049 |
Comprehensive income | $ 2,134 | $ 2,404 |
Consolidated Condensed Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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Statement of Comprehensive Income [Abstract] | ||
Unrealized gain on investment securities available for sale, tax effect | $ (897) | $ (632) |
Unrealized gain on OTTI securities, tax effect | $ (37) | |
Unrealized gain on derivatives, tax effect | $ (32) |
Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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Net change in unrealized gain on securities available for sale, net of income taxes | $ (838) | $ (508) |
Net change in unrealized loss on derivatives, net of income taxes benefit | 32 | |
Accumulated Other Comprehensive Income [Member] | ||
Net change in unrealized gain on securities available for sale, net of income taxes | $ (838) | (508) |
Net change in unrealized loss on derivatives, net of income taxes benefit | $ 32 |
Basis of Presentation |
3 Months Ended | ||
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Mar. 31, 2016 | |||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Basis of Presentation |
HopFed Bancorp, Inc. (the “Company”) was formed at the direction of Heritage Bank USA Inc., formerly Hopkinsville Federal Savings Bank (the “Bank”), to become the holding company of the Bank upon the conversion of the Bank from a federally chartered mutual savings bank to a federally chartered stock savings bank. The conversion was consummated on February 6, 1998. The Company’s primary assets are the outstanding capital stock of the converted Bank, and its sole business is that of the converted Bank. On June 5, 2013, the Bank’s legal name became Heritage Bank USA Inc. and the Bank was granted a commercial bank charter by the Kentucky Department of Financial Institutions (“KDFI”). On June 5, 2013, the Bank became subject to regulation by the KDFI and the Federal Deposit Insurance Corporation (“FDIC”). On the same day, HopFed Bancorp was granted a bank holding company charter by the Federal Reserve Bank of Saint Louis (“FED”) and as such regulated by the FED. The Bank operates a mortgage division, Heritage Mortgage Services, in Clarksville, Tennessee with agents located in several of its markets. The Bank has a financial services division, Heritage Solutions, with offices in Murray, Kentucky, Kingston Springs, Tennessee, and Pleasant View, Tennessee. Heritage Solutions agents travel throughout western Kentucky and middle Tennessee offering fixed and variable annuities, mutual funds and brokerage services. In October of 2014, the Bank opened a loan production office in Nashville, Tennessee. The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair representation have been included. The results of operations and other data for the three month period ended March 31, 2016, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2016. The accompanying unaudited financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2015, Consolidated Financial Statements. |
Income Per Share |
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Income Per Share |
The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2016, and March 31, 2015. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding. For the three month periods ended March 31, 2016, and March 31, 2015, the Company has excluded all unearned shares held by the ESOP.
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Stock Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation |
The Company incurred compensation cost related to the HopFed Bancorp, Inc. 2004 Long Term Incentive Plan of $30,000 for the three month period ended March 31, 2016, and $49,000 for the three month period ended March 31, 2015, respectively. The Company issued 10,609 shares of restricted stock in the three month period ended March 31, 2016. The Company did not issue any shares of restricted stock during the three month periods ended March 31, 2015. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2016:
The compensation committee may make additional awards of restricted stock, thereby increasing the future expense related to this plan. In addition, award vesting may be accelerated due to certain events as outlined in the restricted stock award agreement. Any acceleration of vesting will change the timing of, but not the aggregate amount of, compensation expense incurred. |
Securities |
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Securities |
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluations. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At March 31, 2016, the Company has 27 securities with unrealized losses. The carrying amount of securities and their estimated fair values at March 31, 2016, were as follows:
The carrying amount of securities and their estimated fair values at December 31, 2015, was as follows:
The scheduled maturities of debt securities available for sale at March 31, 2016, were as follows:
The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2016, are as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, were as follows:
At March 31, 2016, securities with a book value of approximately $125.2 million and a market value of approximately $130.5 million were pledged to various municipalities for deposits in excess of FDIC limits as required by law. The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $32.5 million secured by the Bank’s loan portfolio to secure additional municipal deposits. At March 31, 2016, securities with a book and market value of $40.9 million were sold under agreements to repurchase from various customers. Furthermore, the Company has a wholesale repurchase agreement with third party secured by investments with a combined book value of $6.4 million and a market value of $6.5 million. The repurchase agreement is in the amount of $6.0 million and has a maturity of September 18, 2016, and is currently callable on a quarterly basis by the issuer and has a fixed rate of interest of 4.36%. |
Loans |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans |
Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2016, and December 31, 2015. At March 31, 2016, and December 31, 2015, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:
The allowance for loan losses totaled $6.2 million at March 31, 2016, $5.7 million at December 31, 2015, and $6.2 million at March 31, 2015, respectively. The ratio of the allowance for loan losses to total loans was 1.10% at March 31, 2016, 1.01% at December 31, 2015, and 1.11% at March 31, 2015. The following table indicates the type and level of non-accrual loans at the periods indicated below:
The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2016:
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, 2015:
The table below presents past due and non-accrual balances at March 31, 2016, by loan classification allocated between performing and non-performing:
The table below presents past due and non-accrual balances at December 31, 2015, by loan classification allocated between performing and non-performing:
The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of March 31, 2016, and December 31, 2015.
All loans listed as 30-89 days past due and non-accrual are not performing as agreed. Loans listed as special mentioned, substandard and doubtful are paying as agreed. However, the customer’s financial statements may indicate weaknesses in their current cash flow, the customer’s industry may be in decline due to current economic conditions, collateral values used to secure the loan may be declining, or the Company may be concerned about the customer’s future business prospects. The Company does not originate loans it considers sub-prime and is not aware of any exposure to the additional credit concerns associated with sub-prime lending in either the Company’s loan or investment portfolios. The Company does have a significant amount of construction and land development loans. Management reports to the Company’s Board of Directors on the status of the Company’s specific construction and development loans as well as the market trends in those markets in which the Company actively participates. The Company’s annualized net charge off ratios for three month periods ended March 31, 2016, March 31, 2015, and the year ended December 31, 2015, was 0.00%, 0.24% and 0.29%, respectively. The ratios of allowance for loan losses to non-accrual loans at March 31, 2016, March 31, 2015, and December 31, 2015, were 122.54%, 290.51%, and 76.80%, respectively. The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the market value of the underlying collateral, growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred. The Company conducts annual reviews on all loan relationships above one million to ascertain the borrowers continued ability to service their debt as agreed. In addition to the credit relationships mentioned above, management may classify any credit relationship once it becomes aware of adverse credit trends for that customer. Typically, the annual review consists of updated financial statements for borrowers and any guarantors, a review of the borrower’s credit history with the Company and other creditors, and current income tax information. As a result of this review, management will classify loans based on their credit risk. Additionally, the Company provides a risk grade for all loans past due more than ninety days. The Company uses the following risk definitions for commercial loan risk grades: 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. Generally, the asset is considered collectible as to both principal and interest primarily because of collateral coverage or enterprise value. Generally, the asset is current and marginally secured. 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 Assets -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 Assets - 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. A loan is considered to be impaired when management determines that it is possible that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired.
At March 31, 2016, December 31, 2015, and March 31, 2015, the Company’s impaired loans totaled $27.5 million, $28.1 million and $31.9 million, respectively. At March 31, 2016, December 31, 2015 and March 31, 2015, the Company’s specific reserve for impaired loans totaled $765,000, $630,000 and $1.8 million respectively. At March 31, 2016, one land loan 30-89 days past due in the amount $7,121 is classified as substandard. A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2016, and December 31, 2015, were as follows:
Impaired loans by classification type and the related valuation allowance amounts at March 31, 2016, were as follows:
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015, were as follows:
On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:
ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:
At December 31, 2015, the Company had eight loans, representing two lending relationships, classified as performing TDR’s. During the three month period ended March 31, 2016, the Company added four loans to TDR status, representing one additional lending relationship, as a performing TDR. The loans added to TDR classification are paying interest only for one year while the customer markets the collateral for sale. A summary of the activity in loans classified as TDRs for the three month period ended March 31, 2016, is as follows:
A summary of the activity in loans classified as TDRs for the twelve month period ended December 31, 2015, is as follows:
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Real Estate and Other Assets Owned |
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Real Estate and Other Assets Owned |
The Company’s real estate and other assets owned represent properties and personal collateral acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional real estate owned and other asset losses may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all real estate owned with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense. At March 31, 2016, December 31, 2015, and March 31, 2015, the Company had balances in other real estate and assets owned and non-accrual loans consisting of the following:
The following is a summary of the activity in the Company’s real estate and other assets owned for the three month period ending March 31, 2016:
The following is a summary of the activity in the Company’s real estate and other assets owned for the year ended December 31, 2015:
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Investments in Affiliated Companies |
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Investments in Affiliated Companies |
Investments in affiliated companies accounted for under the equity method consist of 100% of the common stock of HopFed Capital Trust 1 (“Trust”), a wholly-owned statutory business trust. The Trust was formed on September 25, 2003. Summary financial information for the Trust follows (dollars in thousands): Summary Statements of Financial Condition
Summary Statements of Income
Summary Statement of Stockholders’ Equity
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Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities |
In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Company’s portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral. The values for bank owned life insurance are obtained from stated values from the respective insurance companies. The liability associated with the Company’s derivative is obtained from a quoted value supplied by our correspondent banker. The value of real estate owned is obtained from appraisals completed on properties at the time of acquisition and annually thereafter.
Assets and Liabilities Measured on a Recurring Basis The assets and liabilities measured at fair value on a recurring basis at March 31, 2016, are summarized below:
The assets and liabilities measured at fair value on a recurring basis at December 31, 2015, are summarized below
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2016:
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2015:
The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2016, and March 31, 2015, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.
The estimated fair values of financial instruments were as follows at March 31, 2016:
The estimated fair values of financial instruments were as follows at December 31, 2015:
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Effect of New Accounting Pronouncements |
3 Months Ended | ||
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Mar. 31, 2016 | |||
Accounting Changes and Error Corrections [Abstract] | |||
Effect of New Accounting Pronouncements |
ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 was effective for the Company beginning January 1, 2016, though early adoption is permitted. The implementation of ASU 2015-01 did not have a significant impact on the Company’s Consolidated Financial Statements.
ASU No. 2015-02, “Amendments to the Consolidation Analysis.”This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The provisions of ASU No. 2015-02 did not have a material impact on the Company’s Consolidated Financial Statements. In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one year deferral of the effective date to December 15, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements. On June 12, 2014, the FASB issued ASU 2014-11, which makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (“repos”). ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. ASU 2014-11 also amends ASC 860 to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in ASC 860-10-40-5 should be accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. For public business entities, the accounting changes were effective beginning after January 1, 2015. The implementation of ASU 2014-11 did not have a material impact on the Company’s Consolidated Financial Statements.
In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted for financial statements that have not been issued. The implementation of ASU 2015-16 did not have a material impact on the Company’s Consolidated Financial Statements. In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. These amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of residential foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures about such activities are required by these amendments. The amendments in this ASU became effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014. The Company’s implementation of ASU 2014-04 did not have a material impact on the Company’s Consolidated Financial Statements. ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.”ASU 2015-02 implements changes to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 (i) eliminates certain criteria that must be met when determining when fees paid to a decision maker or service provider do not represent a variable interest, (ii) amends the criteria for determining whether a limited partnership is a variable interest entity and (iii) eliminates the presumption that a general partner controls a limited partnership in the voting model. ASU 2015-02 was effective on January 1, 2016, and did not have a significant impact on the Company’s Consolidated Financial Statements.
ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 did not have a significant impact on the Company’s Consolidated Financial Statements. ASU 2016-1, “No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, 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 (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective on January 1, 2018, and is not expected to have a significant impact on the Company’s financial statements. ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective on January 1, 2016, and did not have a material impact on the Company’s Consolidated Financial Statements. ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, this ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. The Company is evaluating the impact of this ASU on its financial statements and disclosures. In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements. In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which will eliminate the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact 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 |
3 Months Ended | ||
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Mar. 31, 2016 | |||
Income Tax Disclosure [Abstract] | |||
Income Taxes |
The Company and its subsidiaries file consolidated federal income tax returns and Tennessee excise tax returns. The Company and its non-bank subsidiaries filed consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions. The effective tax rate differs from the statutory federal rate of 35% and Tennessee excise rate of 6.50% due to investments in qualified municipal securities; bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses. |
Other Assets |
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||
Other Assets |
The Company has invested in two flow-through limited liability entities that manage and invest in affordable housing projects that qualify for historic, low-income and elderly housing tax credits. At March 31, 2016, the Company’s total investment in each entity was $118,000 and $923,000, respectively. The Company has no future capital commitments to either entity. The expenses recognized in net income for these investments for the three-month periods below include:
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Esop |
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
Esop |
All Company employees participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (“ESOP”). The ESOP purchased 600,000 shares of the Company’s common stock from the Company on March 2, 2015, at $13.14 per share. The ESOP borrowed $7.9 million from 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 the 600,000 held by the ESOP to repay the loan from the Company. When loan payments are made, ESOP shares are released based on reduction in the principal balance of the loan. The shares are allocated to participants based on relative compensation. Employees who are not employed at the December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or provide the shares directly to the employee. The Company made its first ESOP loan payment in December 2015. In January 2016, the ESOP and Company revised the loan to the ESOP converting the loan to a closed end note with total payments of approximately $780,000 per year for a term of eleven year. At March 31, 2016, the Company’s accrued liability for the loan payment is $195,000. At March 31, 2016, shares held by the ESOP were as follows:
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
At March 31, 2016, the Bank had $22.4 million in outstanding commitments to originate loans and undisbursed commitments on loans outstanding of $114.2 million. Management believes that the Bank’s sources of funds are sufficient to fund all of its outstanding commitments. Certificates of deposits scheduled to mature in one year or less from March 31, 2016, totaled $133.2 million. At March 31, 2016, the Company has $28.3 million in times deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $44.4 million in time deposits 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 March 31, 2016, the Bank has pledged all eligible 1-4 family first mortgages. At March 31, 2016, the Company had the following off-balance sheet commitments (in thousands):
At March 31, 2016, the Bank had $53.1 million in additional borrowing capacity with the FHLB which includes an overnight line of credit of $30.0 million. The Bank has an $8 million unsecured overnight borrowing capacity from a correspondent bank.
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Regulatory Matters |
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Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Matters |
In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory capital rules applicable to Heritage Bank USA, Inc. and HopFed Bancorp, Inc. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (Basel III) and changes required by the Dodd-Frank Act. Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms became effective for the Company and Bank on January 1, 2015, and include new minimum risk-based capital and leverage ratios. Moreover, these rules refine the definition of what constitutes “capital” for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital. 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 is being phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. 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 consist 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, will 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, will 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. Common equity Tier 1 capital generally consist of common stock (plus related surplus) and retained earnings plus limited amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other regulatory deductions. 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. The Federal Reserve has adopted regulations applicable to bank holding companies with assets over $10 billion that require such holding companies and banks to conduct annual stress tests and report the results to the applicable regulators and publicly disclose a summary of certain capital information and results including pro forma changes in regulatory capital ratios. The Board of Directors and senior management are required to consider the results of the stress test in the normal course of business, including but not limited to capital planning and an assessment of capital adequacy in accordance with management’s policies. The FDIC has adopted all guidelines applicable to state nonmember banks in each case. At March 31, 2016, the Bank exceeded all regulatory capital requirements. The table below presents certain information relating to the Company’s and Bank’s capital compliance at March 31, 2016:
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Subsequent Event |
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Mar. 31, 2016 | |||
Subsequent Events [Abstract] | |||
Subsequent Event |
On May 3, 2016, Your Community Bankshares, Inc. (Nasdaq “YCB”) announced an agreement to be purchased by WesBanco, Inc. (Nasdaq “WSBC”). At March 31, 2016, the Company owns a trust preferred security with a market value of $2.0 million that was originally issued to First Financial Services Corporation (“FFKY”). FFKY was acquired by YCB in January 2015 and YCB assumed the liability of the trust preferred, bring all past due interest payments current. The Company has not yet determined how the proposed transaction of YCB and WSBC will affect the value of our trust preferred investment. |
Loans (Policies) |
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Mar. 31, 2016 | ||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||
Troubled Debt Restructuring | On a periodic basis, the Bank may modify the terms of certain loans. In evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), Financial Accounting Standards Board has issued Accounting Standards Update 310 (ASU 310), A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. In evaluating whether a restructuring constitutes a TDR, the Bank must separately conclude that both of the following exist:
ASU 310 provides the following guidance for the Bank’s evaluation of whether it has granted a concession as follows:
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Fair Value Measurement | In September 2006, the FASB issued ASC 820-10, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The fair values of securities available for sale are determined by a matrix pricing, which is a mathematical technique that is widely used in the industry to value debt securities without exclusively using quoted prices for the individual securities in the Company’s portfolio but rather by relying on the securities relationship to other benchmark quoted securities. Impaired loans are valued at the net present value of expected payments using the fair value of any assigned collateral. The values for bank owned life insurance are obtained from stated values from the respective insurance companies. The liability associated with the Company’s derivative is obtained from a quoted value supplied by our correspondent banker. The value of real estate owned is obtained from appraisals completed on properties at the time of acquisition and annually thereafter. |
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Income Statement - Extraordinary and Unusual Items | ASU 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20) – Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.”ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items, which, among other things, required an entity to segregate extraordinary items considered to be unusual and infrequent from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. ASU 2015-01 was effective for the Company beginning January 1, 2016, though early adoption is permitted. The implementation of ASU 2015-01 did not have a significant impact on the Company’s Consolidated Financial Statements. |
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Amendments to the Consolidation Analysis | ASU No. 2015-02, “Amendments to the Consolidation Analysis.”This ASU affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. ASU No. 2015-02 was effective for interim and annual reporting periods beginning after December 15, 2015. The provisions of ASU No. 2015-02 did not have a material impact on the Company’s Consolidated Financial Statements. ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.”ASU 2015-02 implements changes to both the variable interest consolidation model and the voting interest consolidation model. ASU 2015-02 (i) eliminates certain criteria that must be met when determining when fees paid to a decision maker or service provider do not represent a variable interest, (ii) amends the criteria for determining whether a limited partnership is a variable interest entity and (iii) eliminates the presumption that a general partner controls a limited partnership in the voting model. ASU 2015-02 was effective on January 1, 2016, and did not have a significant impact on the Company’s Consolidated Financial Statements. |
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Revenue from Contracts with Customers | In May 2014, the FASB issued new guidance related to Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Accounting Standards Codification. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB has agreed to a one year deferral of the effective date to December 15, 2017. The Company is currently evaluating this guidance to determine the impact on its consolidated financial statements. |
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Repurchase Agreements | On June 12, 2014, the FASB issued ASU 2014-11, which makes limited amendments to the guidance in ASC 860 on accounting for certain repurchase agreements (“repos”). ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings (rather than as sales with forward repurchase agreements), (2) eliminates accounting guidance on linked repurchase financing transactions, and (3) expands disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers (specifically, repos, securities lending transactions, and repurchase-to-maturity transactions) accounted for as secured borrowings. ASU 2014-11 also amends ASC 860 to clarify that repos and securities lending transactions that do not meet all of the de-recognition criteria in ASC 860-10-40-5 should be accounted for as secured borrowings. In addition, the ASU provides examples of repurchase and securities lending arrangements that illustrate whether a transferor has maintained effective control over the transferred financial assets. For public business entities, the accounting changes were effective beginning after January 1, 2015. The implementation of ASU 2014-11 did not have a material impact on the Company’s Consolidated Financial Statements. |
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Simplifying Accounting for Measurement-Period Adjustments | In September 2015, the FASB issued Accounting Standards Update No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. The guidance in this update eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new guidance is intended to reduce complexity in financial reporting. The elimination of the restatement requirement should simplify financial reporting for many entities. However, recognizing the entire impact of a measurement period adjustment in a single reporting period may introduce earnings volatility and reduce comparability between periods when the adjustments are material. The accounting changes in this update are effective for public companies for annual periods, and the interim periods within those annual periods, beginning after December 15, 2015. Early application is permitted for financial statements that have not been issued. The implementation of ASU 2015-16 did not have a material impact on the Company’s Consolidated Financial Statements. |
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Receivables-Troubled Debt Restructurings by Creditors | In January 2014, the FASB issued ASU No. 2014-04, Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. These amendments are intended to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. The amendments clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of residential foreclosure, or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additional disclosures about such activities are required by these amendments. The amendments in this ASU became effective for public companies for annual periods and interim periods within those annual periods beginning after December 15, 2014. The Company’s implementation of ASU 2014-04 did not have a material impact on the Company’s Consolidated Financial Statements. |
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Interest - Imputation of Interest - Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements | ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting.” ASU 2015-15 adds SEC paragraphs pursuant to an SEC Staff Announcement that given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-15 did not have a significant impact on the Company’s Consolidated Financial Statements. |
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Financial Instruments | ASU 2016-1, “No. 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-1, 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 (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-1 will be effective on January 1, 2018, and is not expected to have a significant impact on the Company’s financial statements. |
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Intangibles - Goodwill and Other | ASU 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”ASU 2015-05 addresses accounting for fees paid by a customer in cloud computing arrangements such as (i) software as a service, (ii) platform as a service, (iii) infrastructure as a service and (iv) other similar hosting arrangements. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective on January 1, 2016, and did not have a material impact on the Company’s Consolidated Financial Statements. |
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Improvements to Employee Share-Based Payment Accounting | ASU 2016-09, “Improvements to
Employee Share-Based Payment
Accounting.” This
ASU simplifies several aspects of the accounting for employee
share-based payment transactions, including the income tax
consequences, classification of awards as either equity or
liabilities, and classification on the statement of cash flows. For
public business entities, this ASU is effective for financial
statements issued for fiscal years beginning after December
15, 2016, and interim periods therein. The Company is evaluating
the impact of this ASU on its financial statements and
disclosures.
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Derivatives and Hedging | In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements. | |||||||||||||||||
Investments-Equity Method and Joint Ventures | In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which will eliminate the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not anticipate this update will have a material impact on its Consolidated Financial Statements. |
Income Per Share (Tables) |
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Reconciliation of Basic and Diluted Income Per Share | The following schedule reconciles the numerators and denominators of the basic and diluted income per share (“IPS”) computations for the three month periods ended March 31, 2016, and March 31, 2015. Diluted common shares arise from the potentially dilutive effect of the Company’s stock options and warrants outstanding. For the three month periods ended March 31, 2016, and March 31, 2015, the Company has excluded all unearned shares held by the ESOP.
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Company's Future Compensation Expense Related to Restricted Stock Vesting | during the three month periods ended March 31, 2015. The table below provides a detail of the Company’s future compensation expense related to restricted stock vesting at March 31, 2016:
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Securities (Tables) |
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Cash and Cash Equivalents [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortized Cost of Securities and their Estimated Fair Values | The carrying amount of securities and their estimated fair values at March 31, 2016, were as follows:
The carrying amount of securities and their estimated fair values at December 31, 2015, was as follows:
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Maturities of Debt Securities Available for Sale | The scheduled maturities of debt securities available for sale at March 31, 2016, were as follows:
The scheduled maturities of debt securities available for sale at December 31, 2015, were as follows:
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Estimated Fair Value and Unrealized Loss Amounts of Impaired Investments | The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2016, are as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2015, were as follows:
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Loans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Composition of Loan Portfolio By Type of Loan | At March 31, 2016, and December 31, 2015, there were no concentrations of loans exceeding 10% of total loans other than as disclosed below:
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Non-accrual Loans | The following table indicates the type and level of non-accrual loans at the periods indicated below:
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Allowance for Loan Loss Account by Loan | The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2016:
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, 2015:
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Loan Balances by Loan Classification Allocated Between Past Due Performing and Non-performing | The table below presents past due and non-accrual balances at March 31, 2016, by loan classification allocated between performing and non-performing:
The table below presents past due and non-accrual balances at December 31, 2015, by loan classification allocated between performing and non-performing:
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Allowance for Loan Losses and Recorded Investment in Loans by Portfolio Segment and Impairment Method | The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2016, and December 31, 2015, by portfolio segment and based on the impairment method as of March 31, 2016, and December 31, 2015.
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Summary of Company's Impaired Loans, Including Respective Regulatory Classification and Respective Specific Reserve | A summary of the Company’s impaired loans, including their respective regulatory classification and their respective specific reserve at March 31, 2016, and December 31, 2015, were as follows:
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Impaired Loans by Classification Type | Impaired loans by classification type and the related valuation allowance amounts at March 31, 2016, were as follows:
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2015, were as follows:
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Summary of the Activity in Loans Classified as TDRs | A summary of the activity in loans classified as TDRs for the three month period ended March 31, 2016, is as follows:
A summary of the activity in loans classified as TDRs for the twelve month period ended December 31, 2015, is as follows:
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Real Estate and Other Assets Owned (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Presentation of Balances in Other Real Estate and Assets Owned and Non-Accrual Loans Consisting Other Non-Performing Loan | At March 31, 2016, December 31, 2015, and March 31, 2015, the Company had balances in other real estate and assets owned and non-accrual loans consisting of the following:
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Summary of Activity in Company's Real Estate and Other Assets Owned | The following is a summary of the activity in the Company’s real estate and other assets owned for the three month period ending March 31, 2016:
The following is a summary of the activity in the Company’s real estate and other assets owned for the year ended December 31, 2015:
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Investments in Affiliated Companies (Tables) - Equity Method Investments [Member] |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Statements of Financial Condition | Summary Statements of Financial Condition
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Summary Statements of Income | Summary Statements of Income
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Summary Statement of Stockholders' Equity | Summary Statement of Stockholders’ Equity
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Fair Value of Assets and Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Measured at Fair Value on a Recurring Basis | Assets and Liabilities Measured on a Recurring Basis The assets and liabilities measured at fair value on a recurring basis at March 31, 2016, are summarized below:
The assets and liabilities measured at fair value on a recurring basis at December 31, 2015, are summarized below
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis | The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2016:
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2015:
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Roll-Forward of the Consolidated Condensed Statement of Financial Condition Items | The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the three month periods ended March 31, 2016, and March 31, 2015, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.
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Estimated Fair Values of Financial Instruments | The estimated fair values of financial instruments were as follows at March 31, 2016:
The estimated fair values of financial instruments were as follows at December 31, 2015:
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Other Assets (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||
Schedule of Investments Recognized in Net Income | The expenses recognized in net income for these investments for the three-month periods below include:
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Esop (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Summary of Shares Held by Employee Stock Ownership Plan (ESOP) | At March 31, 2016, shares held by the ESOP were as follows:
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Off-balance Sheet Commitments | At March 31, 2016, the Company had the following off-balance sheet commitments (in thousands):
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Schedule of FHLB Borrowings |
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Regulatory Matters (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Company's and Bank's Capital Compliance | The table below presents certain information relating to the Company’s and Bank’s capital compliance at March 31, 2016:
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Income Per Share - Reconciliation of Basic and Diluted Income Per Share (Detail) - USD ($) |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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Basic IPS: | ||
Net income | $ 509,000 | $ 1,355,000 |
Average common shares outstanding | 6,297,755 | 6,732,456 |
Net income per share | $ 0.08 | $ 0.20 |
Diluted IPS: | ||
Net Income | $ 509,000 | $ 1,355,000 |
Average common shares outstanding | 6,297,755 | 6,732,456 |
Dilutive effect of stock options | 0 | 0 |
Average diluted shares outstanding | 6,297,755 | 6,732,456 |
Net income per share, diluted | $ 0.08 | $ 0.20 |
Stock Compensation - Additional Information (Detail) - USD ($) |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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2004 Long Term Incentive Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Compensation cost related to the HopFed Bancorp, Inc | $ 30,000 | $ 49,000 |
Restricted Stock [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares of restricted stock issued | 10,609 | 0 |
Stock Compensation - Company's Future Compensation Expense Related to Restricted Stock Vesting (Detail) |
Mar. 31, 2016
USD ($)
|
---|---|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
2016 | $ 123,788 |
2017 | 86,323 |
2018 | 50,939 |
2019 | 4,975 |
Total | $ 266,025 |
Loans - Summary of the Activity in Loans Classified as TDRs (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Financing Receivable, Modifications [Line Items] | ||
Beginning Balance | $ 5,536 | $ 3,284 |
New TDR | 1,044 | 2,265 |
Loss or Foreclosure | 0 | 0 |
Loan Amortization | (36) | (13) |
Removed from (Taken to) Non-accrual | 0 | 0 |
Ending Balance | 6,544 | 5,536 |
Multi-Family [Member] | ||
Financing Receivable, Modifications [Line Items] | ||
New TDR | 816 | |
Loss or Foreclosure | 0 | |
Removed from (Taken to) Non-accrual | 0 | |
Ending Balance | 816 | |
Non-Residential Real Estate [Member] | ||
Financing Receivable, Modifications [Line Items] | ||
Beginning Balance | 5,536 | 3,284 |
New TDR | 228 | 2,265 |
Loss or Foreclosure | 0 | 0 |
Loan Amortization | (36) | (13) |
Removed from (Taken to) Non-accrual | 0 | 0 |
Ending Balance | $ 5,728 | $ 5,536 |
Real Estate and Other Assets Owned - Additional Information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Banking and Thrift, Interest [Abstract] | |
Minimum book balance for appraisal on all real estate owned | $ 250,000 |
Investments in Affiliated Companies - Additional Information (Detail) |
Mar. 31, 2016 |
---|---|
HopFed Capital Trust [Member] | Majority-Owned Subsidiary, Unconsolidated [Member] | |
Percent of common stock of HopFed Bancorp, Inc. | 100.00% |
Investments in Affiliated Companies - Summary Balance Sheets (Detail) - Majority-Owned Subsidiary, Unconsolidated [Member] - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Assets - investment in subordinated debentures issued by HopFed Bancorp, Inc. | $ 10,310 | $ 10,310 |
Liabilities | 0 | 0 |
Total stockholders' equity | 10,310 | 10,310 |
Trust Preferred Securities [Member] | ||
Total stockholders' equity | 10,000 | 10,000 |
Common Stock [Member] | ||
Total stockholders' equity | $ 310 | $ 310 |
Investments in Affiliated Companies - Summary Balance Sheets (Parenthetical) (Detail) |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Majority-Owned Subsidiary, Unconsolidated [Member] | Common Stock [Member] | ||
Percent of common stock of HopFed Bancorp, Inc. | 100.00% | 100.00% |
Investments in Affiliated Companies - Summary Statements of Income (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Schedule of Equity Method Investments [Line Items] | ||
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc. | $ 8,081 | $ 9,195 |
Majority-Owned Subsidiary, Unconsolidated [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Income - interest income from subordinated debentures issued by HopFed Bancorp, Inc. | 97 | 85 |
Net income | $ 97 | $ 85 |
Investments in Affiliated Companies - Summary Statements of Stockholders' Equity (Detail) - Majority-Owned Subsidiary, Unconsolidated [Member] - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Schedule of Equity Method Investments [Line Items] | ||
Beginning balances | $ 10,310 | |
Net income | 97 | $ 85 |
Dividends: | ||
Trust preferred securities | (94) | |
Common paid to HopFed Bancorp, Inc. | (3) | |
Ending balances | 10,310 | |
Trust Preferred Securities [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Beginning balances | 10,000 | |
Dividends: | ||
Ending balances | 10,000 | |
Common Stock [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Beginning balances | 310 | |
Dividends: | ||
Ending balances | 310 | |
Retained Earnings [Member] | ||
Schedule of Equity Method Investments [Line Items] | ||
Net income | 97 | |
Dividends: | ||
Trust preferred securities | (94) | |
Common paid to HopFed Bancorp, Inc. | $ (3) |
Fair Value of Assets and Liabilities - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Detail) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
Assets | ||
Other real estate and other assets owned | $ 1,457 | $ 1,736 |
Fair Value, Measurements, Nonrecurring [Member] | ||
Assets | ||
Other real estate and other assets owned | 1,457 | 1,736 |
Impaired loans, net of reserve | 3,764 | 3,319 |
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | ||
Assets | ||
Other real estate and other assets owned | 1,457 | 1,736 |
Impaired loans, net of reserve | $ 3,764 | $ 3,319 |
Fair Value of Assets and Liabilities - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Parenthetical) (Detail) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2015 |
---|---|---|---|
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items] | |||
Reserve on impaired loans | $ 765,000 | $ 630,000 | $ 1,800,000 |
Fair Value, Measurements, Nonrecurring [Member] | |||
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items] | |||
Reserve on impaired loans | $ 765,000 | $ 630,000 |
Fair Value of Assets and Liabilities - Roll-Forward of the Consolidated Condensed Statement of Financial Condition Items (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Other Assets [Member] | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Fair value, Beginning balance | $ 1,865 | $ 1,489 |
Change in unrealized losses included in other comprehensive income for assets and liabilities still held at March 31, | 105 | 306 |
Accretion of previous discounted amounts | 4 | 4 |
Purchases, issuances and settlements, net | 0 | 0 |
Transfers in and/or out of Level 3 | 0 | 0 |
Fair value, Ending balance | 1,974 | 1,799 |
Other Liabilities [Member] | ||
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | ||
Purchases, issuances and settlements, net | 0 | 0 |
Transfers in and/or out of Level 3 | $ 0 | $ 0 |
Income Taxes - Additional Information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Income Tax Benefit [Line Items] | |
Unrecognized tax benefits | $ 0 |
Effective tax rate | 35.00% |
Tennessee [Member] | |
Income Tax Benefit [Line Items] | |
Effective tax rate | 6.50% |
Other Assets - Additional Information (Detail) |
Mar. 31, 2016
USD ($)
Investment
|
---|---|
Net Investment Income [Line Items] | |
Number of investments | Investment | 2 |
Investment One [Member] | |
Net Investment Income [Line Items] | |
Future capital commitments | $ 0 |
Investment Two [Member] | |
Net Investment Income [Line Items] | |
Future capital commitments | 0 |
Other Assets [Member] | Investment One [Member] | |
Net Investment Income [Line Items] | |
Investment in each entity | 118,000 |
Other Assets [Member] | Investment Two [Member] | |
Net Investment Income [Line Items] | |
Investment in each entity | $ 923,000 |
Other Assets - Schedule of Investments Recognized in Net Income (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Investment Income, Net [Abstract] | ||
Investment loss included in pre-tax income | $ 55 | $ 55 |
Tax credits recognized in provision for income taxes | $ 24 |
Esop - Additional Information (Detail) - USD ($) |
1 Months Ended | 3 Months Ended |
---|---|---|
Jan. 31, 2016 |
Mar. 31, 2016 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
ESOP shares | 600,000 | |
ESOP common stock, per share | $ 13.14 | |
ESOP borrowed | $ 7,900,000 | |
ESOP payment amount | $ 780,000 | |
ESOP term of loan | 11 years | |
Accrued ESOP contribution liability | $ 195,000 |
Esop - Summary of Shares Held by Employee Stock Ownership Plan (ESOP) (Detail) |
Mar. 31, 2016
USD ($)
shares
|
---|---|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Accrued to allocation to participants | 10,742 |
Earned ESOP shares | 53,587 |
Unearned ESOP shares | 535,671 |
Total ESOP shares | 600,000 |
Fair value of unearned shares | $ | $ 6,256,637 |
Commitments and contingencies - Summary of Off-balance Sheet Commitments (Detail) $ in Thousands |
Mar. 31, 2016
USD ($)
|
---|---|
Standby Letters of Credit [Member] | |
Loss Contingencies [Line Items] | |
Line of credit | $ 69 |
Unused Home Equity Lines of Credit [Member] | |
Loss Contingencies [Line Items] | |
Line of credit | 30,307 |
Unused Commercial Lines of Credit [Member] | |
Loss Contingencies [Line Items] | |
Line of credit | 55,315 |
Unused Unsecured Personal Lines of Credit [Member] | |
Loss Contingencies [Line Items] | |
Line of credit | 28,537 |
Unfunded Commitments on Commercial Loans [Member] | |
Loss Contingencies [Line Items] | |
Line of credit | $ 22,439 |
Commitments and contingencies - Schedule of FHLB Borrowings (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items] | ||
Outstanding Balance | $ 11,000 | $ 15,000 |
Rate | 1.04% | |
October 6, 2017 [Member] | ||
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items] | ||
Outstanding Balance | $ 5,000 | |
Rate | 0.88% | |
Maturity | Oct. 06, 2017 | |
July 6, 2018 [Member] | ||
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items] | ||
Outstanding Balance | $ 6,000 | |
Rate | 1.18% | |
Maturity | Jul. 06, 2018 |
Regulatory Matters - Additional Information (Detail) - USD ($) |
1 Months Ended | 3 Months Ended | |
---|---|---|---|
Jan. 31, 2016 |
Mar. 31, 2016 |
Dec. 31, 2014 |
|
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |||
Common equity tier one capital ratio | 4.50% | ||
Tier 1 risk based capital ratios | 8.50% | 6.00% | 4.00% |
Total risk based capital ratio | 10.50% | 8.00% | |
Tier 1 leverage ratio | 4.00% | ||
Capital conservation buffer ratio | 2.50% | ||
Common equity Tier 1 risk-based capital ratio | 7.00% | ||
Minimum capital conservation buffer | 0.625% | ||
Total assets | $ 15,000,000,000 | ||
Common equity tier 1 capital assets | 250,000,000,000 | ||
Bank [Member] | |||
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |||
Total assets | $ 10,000,000,000 |
Regulatory Matters - Schedule of Company's and Bank's Capital Compliance (Detail) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
| |
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |
Common Equity Tier 1 Ratio | $ 94,670 |
Tier 1 leverage ratio | 94,670 |
Tier 1 risk-based capital ratio | 94,670 |
Total risk based capital ratio | $ 100,832 |
Common Equity Tier 1 Ratio | 16.76% |
Tier 1 leverage ratio | 10.75% |
Tier 1 risk-based capital ratio | 16.76% |
Total risk based capital ratio | 17.85% |
Bank [Member] | |
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items] | |
Common Equity Tier 1 Ratio | $ 91,913 |
Tier 1 leverage ratio | 91,913 |
Tier 1 risk-based capital ratio | 91,913 |
Total risk based capital ratio | $ 98,076 |
Common Equity Tier 1 Ratio | 16.36% |
Tier 1 leverage ratio | 10.46% |
Tier 1 risk-based capital ratio | 16.36% |
Total risk based capital ratio | 17.45% |
Subsequent Event - Additional Information (Detail) $ in Millions |
Mar. 31, 2016
USD ($)
|
---|---|
Trust Preferred Security [Member] | |
Subsequent Event [Line Items] | |
Market value of trust preferred securities | $ 2.0 |
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