UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
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 ☒ 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 ☒ 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 | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company filer | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 8, 2018, the Registrant had outstanding 6,648,221 shares of the Registrants Common stock.
HOPFED BANCORP, INC.
PAGE | ||||||
The unaudited consolidated condensed financial statements of the Registrant and its wholly owned subsidiaries are as follows: | ||||||
Item 1. |
||||||
2 | ||||||
4 | ||||||
6 | ||||||
7 | ||||||
8 | ||||||
Notes to Unaudited Interim Consolidated Condensed Financial Statements |
9 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
41 | ||||
Item 3. |
45 | |||||
Item 4. |
46 | |||||
Item 1. |
46 | |||||
Item 1A. |
47 | |||||
Item 2. |
47 | |||||
Item 3. |
47 | |||||
Item 4. |
47 | |||||
Item 5. |
47 | |||||
Item 6. |
48 | |||||
49 |
1
Item 1. | Financial Statements |
Interim Consolidated Condensed Statements of Financial Condition
(Dollars in Thousands)
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Cash and due from banks |
$ | 18,472 | 37,965 | |||||
Interest-bearing deposits in banks |
3,149 | 7,111 | ||||||
|
|
|
|
|||||
Cash and cash equivalents |
21,621 | 45,076 | ||||||
Federal Home Loan Bank stock, at cost |
4,428 | 4,428 | ||||||
Securities available for sale |
180,212 | 184,791 | ||||||
Loans held for sale |
2,706 | 1,539 | ||||||
Loans receivable, net of allowance for loan losses of $4,654 at March 31, 2018 and $4,826 at December 31, 2017 |
660,524 | 637,102 | ||||||
Accrued interest receivable |
3,212 | 3,589 | ||||||
Foreclosed assets, net |
3,329 | 3,369 | ||||||
Bank owned life insurance |
10,439 | 10,368 | ||||||
Premises and equipment, net |
22,619 | 22,700 | ||||||
Deferred tax assets |
2,127 | 1,764 | ||||||
Other assets |
2,748 | 2,784 | ||||||
|
|
|
|
|||||
Total assets |
$ | 913,965 | 917,510 | |||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Liabilities: |
||||||||
Deposits: |
||||||||
Non-interest-bearing accounts |
$ | 139,093 | 136,197 | |||||
Interest-bearing accounts |
||||||||
Checking accounts |
219,483 | 208,496 | ||||||
Savings and money market accounts |
101,153 | 104,347 | ||||||
Other time deposits |
287,077 | 304,969 | ||||||
|
|
|
|
|||||
Total deposits |
746,806 | 754,009 | ||||||
Advances from Federal Home Loan Bank |
25,000 | 23,000 | ||||||
Repurchase agreements |
41,792 | 38,353 | ||||||
Subordinated debentures |
10,310 | 10,310 | ||||||
Advances from borrowers for taxes and insurance |
780 | 808 | ||||||
Accrued expenses and other liabilities |
2,524 | 3,618 | ||||||
|
|
|
|
|||||
Total liabilities |
827,212 | 830,098 | ||||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
2
HOPFED BANCORP, INC.
Interim Consolidated Condensed Statements of Financial Condition, Continued
(Dollars in Thousands)
March 31, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Stockholders equity |
||||||||
Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at March 31, 2018 and December 31, 2017 |
| | ||||||
Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,988,983 issued and 6,648,589 outstanding at March 31, 2018 and 7,976,131 issued and 6,637,711 outstanding at December 31, 2017 |
80 | 80 | ||||||
Additional paid-in-capital |
58,875 | 58,825 | ||||||
Retained earnings |
51,957 | 51,162 | ||||||
Treasury stock, at cost (1,340,394 shares at March 31, 2018 and 1,338,360 shares at December 31, 2017) |
(16,684 | ) | (16,655 | ) | ||||
Unearned Employee Stock Ownership Plan (ESOP) shares, at cost (423,675 shares at March 31, 2018 and 434,548 share at December 31, 2017) |
(5,758 | ) | (5,901 | ) | ||||
Accumulated other comprehensive income |
(1,717 | ) | (99 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
86,753 | 87,412 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 913,965 | 917,510 | |||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
3
Interim Consolidated Condensed Statements of Income
(Dollars in Thousands)
(Unaudited)
For the Three Month Periods Ended March 31, |
||||||||
2018 | 2017 | |||||||
Interest and dividend income: |
||||||||
Loans |
7,477 | 6,736 | ||||||
Investment in securities, taxable |
1,079 | 1,118 | ||||||
Nontaxable securities available for sale |
213 | 283 | ||||||
Interest-bearing deposits |
29 | 23 | ||||||
|
|
|
|
|||||
Total interest and dividend income |
8,798 | 8,160 | ||||||
|
|
|
|
|||||
Interest expense: |
||||||||
Deposits |
1,244 | 1,167 | ||||||
FHLB borrowings |
92 | 32 | ||||||
Repurchase agreements |
154 | 103 | ||||||
Subordinated debentures |
122 | 104 | ||||||
|
|
|
|
|||||
Total interest expense |
1,612 | 1,406 | ||||||
|
|
|
|
|||||
Net interest income |
7,186 | 6,754 | ||||||
Provision for loan losses |
68 | 291 | ||||||
|
|
|
|
|||||
Net interest income after provision for loan losses |
7,118 | 6,463 | ||||||
|
|
|
|
|||||
Non-interest income: |
||||||||
Service charges |
706 | 804 | ||||||
Merchant card |
308 | 302 | ||||||
Mortgage origination revenue |
319 | 334 | ||||||
Gain on sale of securities |
27 | 2 | ||||||
Income from bank owned life insurance |
71 | 235 | ||||||
Income from financial services |
138 | 140 | ||||||
Other operating income |
175 | 479 | ||||||
|
|
|
|
|||||
Total non-interest income |
1,744 | 2,296 | ||||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
4
HOPFED BANCORP, INC.
Interim Consolidated Condensed Statements of Income, Continued
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
For the Three Month Periods Ended March 31, |
||||||||
2018 | 2017 | |||||||
Non-interest expenses: |
||||||||
Salaries and benefits |
4,117 | 4,236 | ||||||
Occupancy |
782 | 775 | ||||||
Data processing |
784 | 764 | ||||||
State deposit tax |
169 | 231 | ||||||
Professional services |
466 | 348 | ||||||
Advertising |
308 | 381 | ||||||
Foreclosure, net |
(6 | ) | 108 | |||||
Other |
920 | 846 | ||||||
|
|
|
|
|||||
Total non-interest expense |
7,540 | 7,689 | ||||||
|
|
|
|
|||||
Income before income tax expense |
1,322 | 1,070 | ||||||
Income tax expense |
196 | 135 | ||||||
|
|
|
|
|||||
Net income |
1,126 | 935 | ||||||
|
|
|
|
|||||
Earnings per share: |
||||||||
Basic |
$ | 0.18 | $ | 0.15 | ||||
|
|
|
|
|||||
Diluted |
$ | 0.18 | $ | 0.15 | ||||
|
|
|
|
|||||
Dividend per share |
$ | 0.05 | $ | 0.04 | ||||
|
|
|
|
|||||
Weighted average shares outstanding - basic |
6,188,413 | 6,218,706 | ||||||
|
|
|
|
|||||
Weighted average shares outstanding - diluted |
6,188,413 | 6,218,706 | ||||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
5
Interim Consolidated Condensed Statements of Comprehensive Income (Loss)
(Dollars in Thousands)
(Unaudited)
For the Three Month Periods Ended March 31, |
||||||||
2018 | 2017 | |||||||
Net income |
$ | 1,126 | 935 | |||||
Other comprehensive income, net of tax: |
||||||||
Unrealized gain (loss) on non-other than temporary impaired investment securities available for sale, net of taxes of $486 and ($121) for the three month periods ended March 31, 2018 and March 31, 2017, respectively. |
(1,830 | ) | 235 | |||||
Unrealized gain (loss) on OTTI securities, net of taxes of ($61) and $29 for the three month periods ended March 31, 2018 and March 31, 2017. |
233 | (57 | ) | |||||
Reclassification adjustment for gains included in net income, net of taxes of $6 and $1 for the three month periods ended March 31, 2018 and March 31, 2017, respectively. |
(21 | ) | (1 | ) | ||||
|
|
|
|
|||||
Total other comprehensive income (loss) |
(1,618 | ) | 177 | |||||
|
|
|
|
|||||
Comprehensive income (loss) |
($ | 492 | ) | 1,112 | ||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
6
Interim Consolidated Condensed Statement of Stockholders Equity
For the Three Month Period Ended March 31, 2018
(Dollars in Thousands, Except Share Amounts)
(Unaudited)
Common Shares |
Common Stock |
Additional Paid in Capital |
Retained Earnings |
Common Treasury Shares |
Unearned ESOP Shares |
Accumulated Other Comprehensive Income |
Total Stockholders Equity |
|||||||||||||||||||||||||
Balance December 31, 2017 |
6,637,771 | $ | 80 | 58,825 | 51,162 | (16,655 | ) | (5,901 | ) | (99 | ) | 87,412 | ||||||||||||||||||||
Restricted stock awards |
12,852 | | | | | | | | ||||||||||||||||||||||||
Net income |
| | | 1,126 | | | | 1,126 | ||||||||||||||||||||||||
Repurchase of treasury stock |
(2,034 | ) | | | | (29 | ) | | | (29 | ) | |||||||||||||||||||||
ESOP shares committed to be released |
| | | | | 143 | | 143 | ||||||||||||||||||||||||
Change in price of ESOP shares |
| | 20 | | | | | 20 | ||||||||||||||||||||||||
Compensation expense, restricted stock awards |
| | 30 | | | | | 30 | ||||||||||||||||||||||||
Net change in unrealized gain on securities available for sale, net of income taxes of $431 |
| | | | | | (1,618 | ) | (1,618 | ) | ||||||||||||||||||||||
Cash dividend declared to common shareholders |
| | | (331 | ) | | | | (331 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance March 31, 2018 |
6,648,589 | $ | 80 | 58,875 | 51,957 | (16,684 | ) | (5,758 | ) | (1,717 | ) | 86,753 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
7
Interim Consolidated Condensed Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
For the Three Month Periods Ended March 31, |
||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: |
||||||||
Net cash provided by operating activities |
$ | 960 | 3,180 | |||||
Cash flows from investing activities: |
||||||||
Proceeds from sales, calls and maturities of securities available for sale |
7,013 | 15,598 | ||||||
Purchase of securities available for sale |
(4,210 | ) | (13,728 | ) | ||||
Net increase in loans |
(24,922 | ) | (11,528 | ) | ||||
Proceeds from sale of foreclosed assets |
78 | 329 | ||||||
Proceeds from sale of premises and equipment |
| | ||||||
Purchase of premises and equipment |
(222 | ) | (70 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(22,263 | ) | (9,399 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Net increase in demand deposits |
10,689 | 14,100 | ||||||
Net (decrease) increase in time and other deposits |
(17,892 | ) | 18,761 | |||||
(Decrease) increase in advances from borrowers for taxes and insurance |
(28 | ) | 101 | |||||
Advances from Federal Home Loan Bank |
12,000 | 22,000 | ||||||
Repayment of advances from Federal Home Loan Bank |
(10,000 | ) | (22,000 | ) | ||||
Net increase (decrease) in repurchase agreements |
3,439 | (2,163 | ) | |||||
Cash used to repurchase treasury stock |
(29 | ) | (9 | ) | ||||
Dividends paid on common stock |
(331 | ) | (249 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(2,152 | ) | 30,541 | |||||
|
|
|
|
|||||
Increase (decrease) in cash and cash equivalents |
(23,455 | ) | 24,322 | |||||
Cash and cash equivalents, beginning of period |
45,076 | 25,749 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 21,621 | $ | 50,071 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Interest paid |
1,640 | 1,396 | ||||||
|
|
|
|
|||||
Income taxes paid |
| | ||||||
|
|
|
|
|||||
Supplemental disclosures of non-cash investing and financing activities: |
||||||||
Loans charged off |
275 | 239 | ||||||
|
|
|
|
|||||
Foreclosures of loans during period |
25 | 43 | ||||||
|
|
|
|
|||||
Net unrealized gains (losses) on investment securities classified as available for sale |
(2,049 | ) | 268 | |||||
|
|
|
|
|||||
Increase (decrease) in deferred tax asset related to unrealized gains losses investments |
431 | (91 | ) | |||||
|
|
|
|
|||||
Dividends declared and payable |
353 | 288 | ||||||
|
|
|
|
|||||
Issuance of restricted common stock |
145 | | ||||||
|
|
|
|
See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.
8
NOTES TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated condensed financial statements include the accounts of HopFed Bancorp, Inc. (the Corporation or HopFed) and its subsidiaries (collectively, the Company). The Corporation is a parent holding company of Heritage Bank USA, Inc. (the Bank). The Banks owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Banks foreclosed assets. The Bank also owns Heritage USA Title, LLC, which sells title insurance to the Banks real estate loan customers. The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LLLP, a low income senior citizen housing facility in Bowling Green, Kentucky. All significant intercompany accounts have been eliminated.
The Bank is a Kentucky commercial bank regulated by the Kentucky Department of Financial Institutions (KDFI) and the Federal Deposit Insurance Corporation (FDIC). HopFed Bancorp is regulated by the Federal Reserve Bank of Saint Louis (FED).
The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair presentation have been included. The results of operations and other data for the three month period ended March 31, 2018 are not necessarily indicative of results that may be expected the entire fiscal year ending December 31, 2018.
The accompanying unaudited interim consolidated condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Companys Annual Report on Form 10-K as of and for the year ended December 31, 2017. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Companys December 31, 2017 Consolidated Financial Statements.
9
(2) EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common stock shares outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. For the three month periods ended March 31, 2018 and March 31, 2017, the Company has excluded all unearned shares held by the ESOP.
For the three month Periods Ended March 31, |
||||||||
2018 | 2017 | |||||||
Basic EPS: |
||||||||
Net income |
$ | 1,126,000 | $ | 935,000 | ||||
Average common shares outstanding |
6,188,413 | 6,218,706 | ||||||
|
|
|
|
|||||
Earnings per share |
$ | 0.18 | $ | 0.15 | ||||
|
|
|
|
|||||
Diluted EPS |
||||||||
Net income |
$ | 1,126,000 | $ | 935,000 | ||||
Average common shares outstanding |
6,188,413 | 6,218,706 | ||||||
Dilutive effect of stock options |
| | ||||||
|
|
|
|
|||||
Average diluted shares outstanding |
6,188,413 | 6,218,706 | ||||||
|
|
|
|
|||||
Earnings per share, diluted |
$ | 0.18 | $ | 0.15 | ||||
|
|
|
|
10
(3) SECURITIES
The carrying amount of securities and their estimated fair values at March 31, 2018 and December 31, 2017 were as follows:
March 31, 2018 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Restricted: |
||||||||||||||||
FHLB stock |
$ | 4,428 | | | 4,428 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available for sale: |
||||||||||||||||
U.S. Agency securities |
$ | 81,263 | 241 | (1,358 | ) | 80,146 | ||||||||||
Taxable municipal bonds |
1,277 | 1 | (5 | ) | 1,273 | |||||||||||
Tax free municipal bonds |
26,412 | 441 | (185 | ) | 26,668 | |||||||||||
Trust preferred securities |
1,655 | 325 | | 1,980 | ||||||||||||
Mortgage backed securities |
71,772 | 113 | (1,740 | ) | 70,145 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 182,379 | 1,121 | (3,288 | ) | 180,212 | |||||||||||
|
|
|
|
|
|
|
|
December 31, 2017 | ||||||||||||||||
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Estimated Fair Value |
|||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Restricted: |
||||||||||||||||
FHLB stock |
$ | 4,428 | | | 4,428 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available for sale: |
||||||||||||||||
U.S. Agency securities |
84,210 | 536 | (653 | ) | 84,093 | |||||||||||
Taxable municipal bonds |
1,279 | 5 | (1 | ) | 1,283 | |||||||||||
Tax free municipal bonds |
26,412 | 637 | (83 | ) | 26,966 | |||||||||||
Trust preferred securities |
1,650 | 35 | | 1,685 | ||||||||||||
Mortgage-backed securities |
71,389 | 201 | (826 | ) | 70,764 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 184,940 | 1,414 | (1,563 | ) | 184,791 | |||||||||||
|
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|
|
|
|
|
11
The scheduled maturities of debt securities available for sale at March 31, 2018 were as follows:
Amortized Cost |
Estimated Fair Value |
|||||||
(Dollars in Thousands) | ||||||||
Due within one year |
$ | 3,103 | $ | 3,123 | ||||
Due in one to five years |
29,802 | 29,394 | ||||||
Due in five to ten years |
16,013 | 15,885 | ||||||
Due after ten years |
7,226 | 7,643 | ||||||
|
|
|
|
|||||
56,144 | 56,045 | |||||||
Amortizing agency bonds |
54,463 | 54,022 | ||||||
Mortgage-backed securities |
71,772 | 70,145 | ||||||
|
|
|
|
|||||
Total securities available for sale |
$ | 182,379 | $ | 180,212 | ||||
|
|
|
|
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2018 were as follows:
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
Estimated Fair Value |
Unrealized Losses |
|||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Available for sale |
||||||||||||||||||||||||
U.S. Agency securities |
$ | 50,671 | (1,046 | ) | 10,343 | (312 | ) | 61,014 | (1,358 | ) | ||||||||||||||
Taxable municipal bonds |
515 | (5 | ) | | | 515 | (5 | ) | ||||||||||||||||
Tax free municipal bonds |
6,810 | (140 | ) | 900 | (45 | ) | |
7,710 |
|
(185 | ) | |||||||||||||
Mortgage-backed securities |
43,853 | (976 | ) | 20,975 | (764 | ) | 64,828 | (1,740 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available for sale |
$ | 101,849 | (2,167 | ) | 32,218 | (1,121 | ) | 134,067 | (3,288 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2017 were as follows:
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
Available for sale |
||||||||||||||||||||||||
U.S. Agency securities |
$ | 41,501 | (431 | ) | 9,846 | (222 | ) | 51,347 | (653 | ) | ||||||||||||||
Taxable municipal bonds |
521 | (1 | ) | | | 521 | (1 | ) | ||||||||||||||||
Tax free municipal bonds |
4,860 | (51 | ) | 913 | (32 | ) | 5,773 | (83 | ) | |||||||||||||||
Mortgage-backed securities |
40,441 | (289 | ) | 21,566 | (537 | ) | 62,007 | (826 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total available for sale |
$ | 87,323 | (772 | ) | 32,325 | (791 | ) | 119,648 | (1,563 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
12
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, 2018, the Company has 98 securities with unrealized losses. The losses for all securities are considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and are not related to the credit worthiness of the issuers. Furthermore, the Company has the intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did not recognize any other-than-temporary impairments as of March 31, 2018.
At March 31, 2018 and December 31, 2017, securities with a book value of approximately $113.3 million and $119.8 million and a market value of approximately $113.8 million and $118.0 million, respectively, were pledged to various municipalities for deposits in excess of FDIC limits as required by law. At March 31, 2018 and December 31, 2017, securities with a market value of $41.8 million and $38.4 million, respectively, were sold to customers as part of overnight repurchase agreements.
(4) LOANS
The Company uses the following loan segments as described below:
| One-to-four family first mortgages are closed-end loans secured by residential housing. Loans may be either owner or non-owner occupied properties. If the loan is owner-occupied, the loan is analyzed and under-written as a consumer loan. Loan terms may be up to 30 years. |
| Home equity lines of credit may be first or second mortgages secured by one-to-four family properties. Home equity loans carry a variable rate and typically are open ended for a period not to exceed ten years with a fifteen year final maturity. Loans secured by home equity lines of credit are under-written under the Companys consumer loan guidelines. |
| Junior liens are closed-end loans secured by one-to-four family residences with a fixed or variable rate. Typically, the collateral for these loans are owner occupied units with a subordinate lien. Loans secured by junior liens are under-written under the Companys consumer loan guidelines. |
| Multi-family loans are closed-end loans secured by residential housing with five or more units in a single building. Multi-family loans may carry a variable rate of interest or the interest rate on the loan is a fixed rate (usually five years). After the initial fixed rate period, the loan reverts to a variable rate or has balloon maturity. Multi-family loans have amortization terms of up to twenty years and are under-written under the Companys commercial loan underwriting guidelines. |
13
| Constructions loans may consist of residential or commercial properties and carry a fixed or variable rate for the term of the construction period. Construction loans have a maturity of between twelve and twenty-four months depending on the type of property. After the construction period, loans are amortized over a twenty-year period. All construction loans are under written under the Companys commercial loan underwriting guidelines for the type of property being constructed. |
| Land loans consist of properties currently under development, land held for future development and land held for recreational purposes. Land loans used for recreational purposes are amortized for twenty years and typically carry a fixed rate of interest for one-to-five years with a balloon maturity or floating rate period to follow and are under-written under the Companys commercial loan underwriting guidelines. |
| Loans classified as farmland by the Company include properties that are used exclusively for the production of grain, livestock, poultry or swine. Loans secured by farmland have a maturity of up to twenty years and carry a fixed rate of interest for five to ten years. Loans secured by farmland are under-written under the Companys commercial loan underwriting guidelines. |
| Non-residential real estate loans are secured by commercial real estate properties and may be either owner or non-owner occupied. The loans typically have a twenty year maturity and may be fixed for a period of five to ten years. After the initial fixed rate period, the note will either revert to a one year adjustable rate loan or have a balloon maturity. Loans secured by non-residential real estate are under-written under the Companys commercial loan underwriting standards. |
| The Company originates secured and unsecured consumer loans. Collateral for consumer loans may include deposits, brokerage accounts, automobiles and other personal items. Consumer loans are typically fixed for a term of one to five years and are under-written using the Companys consumer loan policy. |
| The Company originates unsecured and secured commercial loans. Secured commercial loans may have business inventory, accounts receivable and equipment as collateral. The typical customer may include all forms of manufacturing, retail and wholesale sales, professional services and various forms of agri-business interest. Commercial loans may be fixed or variable rate and typically have terms between one and five years. |
14
Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2018 and December 31, 2017.
March 31, 2018 | December 31, 2017 | |||||||
(Dollars in Thousands) | ||||||||
Real estate loans: |
||||||||
One-to-four family first mortgages |
$ | 167,947 | $ | 163,565 | ||||
Home equity lines of credit |
34,261 | 35,697 | ||||||
Junior liens |
1,181 | 1,184 | ||||||
Multi-family |
37,977 | 37,445 | ||||||
Construction |
40,484 | 30,246 | ||||||
Land |
9,096 | 14,873 | ||||||
Non-residential real estate |
234,900 | 224,952 | ||||||
Farmland |
34,830 | 36,851 | ||||||
|
|
|
|
|||||
Total mortgage loans |
560,676 | 544,813 | ||||||
Consumer loans |
8,514 | 8,620 | ||||||
Commercial loans |
96,527 | 88,938 | ||||||
|
|
|
|
|||||
Total other loans |
105,041 | 97,558 | ||||||
|
|
|
|
|||||
Total loans |
665,717 | 642,371 | ||||||
Deferred loan fees, net of cost |
(539 | ) | (443 | ) | ||||
Less allowance for loan losses |
(4,654 | ) | (4,826 | ) | ||||
|
|
|
|
|||||
Total loans, net |
$ | 660,524 | $ | 637,102 | ||||
|
|
|
|
Although the Company has a diversified loan portfolio, 84.2% and 84.8% of the portfolio was concentrated in loans secured by real estate at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the majority of these loans are located within the Companys general operating area.
15
Risk Grade Classifications
The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined risk metrics and categorized into one of the risk grades discussed below. The Company uses the following risk grade definitions for commercial loans:
Excellent - Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by Bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category.
Very Good - These are loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the 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.
16
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.
Substandard - A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected.
Doubtful - A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the 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 - All consumer open-end and closed-end retail loans past due 90 cumulative days from the contractual date will be classified as 7 - Substandard. If a consumer/retail loan customer files bankruptcy, the loan will be classified as 7 - Substandard regardless of payment history.
Loss - All closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off as loss assets. The charge off will be taken by the end of the month in which the 120-day or 180-day time period elapses. All losses in retail credit will be recognized when the affiliate becomes aware of the loss, but in no case should the charge off exceed the time frames stated within this policy.
17
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, 2018:
Balance 12/31/2017 |
Charge off 2018 |
Recovery 2018 |
Provision 2018 |
Ending Balance 12/31/2017 |
||||||||||||||||
One-to-four family mortgages |
747 | (6 | ) | 3 | 68 | 812 | ||||||||||||||
Home equity line of credit |
189 | | 2 | (2 | ) | 189 | ||||||||||||||
Junior liens |
5 | | | 1 | 6 | |||||||||||||||
Multi-family |
314 | | | 1 | 315 | |||||||||||||||
Construction |
161 | | | 95 | 256 | |||||||||||||||
Land |
1,223 | | | (520 | ) | 703 | ||||||||||||||
Non-residential real estate |
789 | | 4 | 66 | 859 | |||||||||||||||
Farmland |
367 | | 1 | 29 | 397 | |||||||||||||||
Consumer loans |
184 | (69 | ) | 23 | 94 | 232 | ||||||||||||||
Commercial loans |
847 | (200 | ) | 2 | 236 | 885 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
4,826 | (275 | ) | 35 | 68 | 4,654 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
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, 2017:
Balance 12/31/2016 |
Charge offs 2017 |
Recoveries 2017 |
Provision 2017 |
Ending Balance 12/31/2017 |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
One-to-four family mortgages |
$ | 852 | (66 | ) | 13 | (52 | ) | 747 | ||||||||||||
Home equity line of credit |
260 | | 12 | (83 | ) | 189 | ||||||||||||||
Junior liens |
8 | | 4 | (7 | ) | 5 | ||||||||||||||
Multi-family |
412 | | 417 | (515 | ) | 314 | ||||||||||||||
Construction |
277 | | | (116 | ) | 161 | ||||||||||||||
Land |
1,760 | (2,608 | ) | 559 | 1,512 | 1,223 | ||||||||||||||
Farmland |
778 | | 10 | (421 | ) | 367 | ||||||||||||||
Non-residential real estate |
964 | | 16 | (191 | ) | 789 | ||||||||||||||
Consumer loans |
208 | (261 | ) | 87 | 150 | 184 | ||||||||||||||
Commercial loans |
593 | (224 | ) | 278 | 200 | 847 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 6,112 | (3,159 | ) | 1,396 | 477 | 4,826 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
18
The table below presents past due and non-accrual balances, excluding loan fees of $539,000, at March 31, 2018 by loan classification allocated between performing and non-performing:
Currently Performing |
30 - 89 Days Past Due |
Past due more than 90 days and Accruing |
Non-accrual Loans |
Special Mention |
Substandard | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family mortgages |
166,672 | 162 | 521 | 104 | 488 | 167,947 | ||||||||||||||||||||||
Home equity line of credit |
33,706 | | | 530 | | 25 | 34,261 | |||||||||||||||||||||
Junior liens |
1,177 | | | 4 | | | 1,181 | |||||||||||||||||||||
Multi-family |
37,977 | | | | | | 37,977 | |||||||||||||||||||||
Construction |
39,939 | | | | | 545 | 40,484 | |||||||||||||||||||||
Land |
8,659 | | | 40 | 397 | | 9,096 | |||||||||||||||||||||
Non-residential real estate |
226,036 | 206 | | | 1,370 | 7,288 | 234,900 | |||||||||||||||||||||
Farmland |
33,438 | | | 111 | 1,281 | | 34,830 | |||||||||||||||||||||
Consumer loans |
8,038 | 39 | | 2 | 0 | 435 | 8,514 | |||||||||||||||||||||
Commercial loans |
91,025 | 25 | | 796 | 1,339 | 3,342 | 96,527 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
646,667 | 432 | | 2,004 | 4,491 | 12,123 | 665,717 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents past due and non-accrual balances, excluding loan fees of $443,000, at December 31, 2017 by loan classification allocated between performing and non-performing:
Currently Performing |
30 - 89 Days Past Due |
Past due more than 90 days and Accruing |
Non-accrual Loans |
Special Mention |
Substandard | Total | ||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||||||
One-to-four family mortgages |
$ | 162,724 | 181 | 88 | 266 | | 306 | 163,565 | ||||||||||||||||||||
Home equity line of credit |
35,285 | | | 402 | | 10 | 35,697 | |||||||||||||||||||||
Junior liens |
1,180 | | | 4 | | | 1,184 | |||||||||||||||||||||
Multi-family |
37,445 | | | | | | 37,445 | |||||||||||||||||||||
Construction |
30,246 | | | | | | 30,246 | |||||||||||||||||||||
Land |
14,322 | | | 40 | | 511 | 14,873 | |||||||||||||||||||||
Non-residential real estate |
216,692 | 209 | | | 979 | 7,072 | 224,952 | |||||||||||||||||||||
Farmland |
35,253 | | | 111 | 1,147 | 340 | 36,851 | |||||||||||||||||||||
Consumer loans |
8,373 | 3 | | 3 | | 241 | 8,620 | |||||||||||||||||||||
Commercial loans |
83,892 | | | 459 | 3,572 | 1,015 | 88,938 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | 625,412 | 393 | 88 | 1,285 | 5,698 | 9,495 | 642,371 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2018, there were no loans more than 90 days past due and accruing interest. At December 31, 2017, there were $88,000 in loans more than 90 days past due accruing interest.
19
The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2018 and December 31, 2017 by portfolio segment and based on the impairment method.
Commercial | Land Development / Construction |
Commercial Real Estate |
Residential Real Estate |
Consumer | Total | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
March 31, 2018: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 86 | | 1 | | 109 | 196 | |||||||||||||||||
Collectively evaluated for impairment |
799 | 959 | 1,570 | 1,007 | 123 | 4,458 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending allowance balance |
$ | 885 | 959 | 1,571 | 1,007 | 232 | 4,654 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 3,823 | 505 | 5,439 | 252 | 434 | 10,453 | |||||||||||||||||
Loans collectively evaluated for impairment |
92,704 | 49,075 | 302,268 | 203,137 | 8,080 | 655,264 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loans balance |
$ | 96,527 | 49,580 | 307,707 | 203,389 | 8,514 | 665,717 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | Land Development / Construction |
Commercial Real Estate |
Residential Real Estate |
Consumer | Total | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
December 31, 2017: |
||||||||||||||||||||||||
Allowance for loan losses: |
||||||||||||||||||||||||
Ending allowance balance attributable to loans: |
||||||||||||||||||||||||
Individually evaluated for impairment |
$ | 233 | | 2 | | 54 | 289 | |||||||||||||||||
Collectively evaluated for impairment |
614 | 1,384 | 1,468 | 941 | 130 | 4,537 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending allowance balance |
$ | 847 | 1,384 | 1,470 | 941 | 184 | 4,826 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loans: |
||||||||||||||||||||||||
Loans individually evaluated for impairment |
$ | 1,416 | 515 | 7,532 | 257 | 217 | 9,937 | |||||||||||||||||
Loans collectively evaluated for impairment |
87,522 | 44,604 | 291,716 | 200,189 | 8,403 | 632,434 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loans balance |
$ | 88,938 | 45,119 | 299,248 | 200,446 | 8,620 | 642,371 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The determination of the allowance for loan losses is based on managements analysis, performed on a quarterly basis. Various factors are considered, including the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions and the market value of the underlying collateral. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred.
A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is managements practice to classify all substandard or doubtful loans as impaired.
20
Loans by classification type and credit risk indicator at March 31, 2018 and December 31, 2017 were as follows:
March 31, 2018 |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
One-to-four family mortgages |
$ | 166,937 | | 1,010 | | 167,947 | ||||||||||||||
Home equity line of credit |
33,706 | | 555 | | 34,261 | |||||||||||||||
Junior liens |
1,181 | | | | 1,181 | |||||||||||||||
Multi-family |
37,977 | | | | 37,977 | |||||||||||||||
Construction |
40,484 | | | | 40,484 | |||||||||||||||
Land |
8,154 | 397 | 545 | | 9,096 | |||||||||||||||
Non-residential real estate |
226,242 | 1,370 | 7,288 | | 234,900 | |||||||||||||||
Farmland |
33,438 | 1,281 | 111 | | 34,830 | |||||||||||||||
Consumer loans |
8,076 | | 438 | | 8,514 | |||||||||||||||
Commercial loans |
90,949 | 1,443 | 4,135 | | 96,527 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 647,144 | 4,491 | 14,082 | | 665,717 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2017 |
Pass | Special Mention |
Substandard | Doubtful | Total | |||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
One-to-four family mortgages |
$ | 162,993 | | 572 | | 163,565 | ||||||||||||||
Home equity line of credit |
35,285 | | 412 | | 35,697 | |||||||||||||||
Junior liens |
1,184 | | | | 1,184 | |||||||||||||||
Multi-family |
37,445 | | | | 37,445 | |||||||||||||||
Construction |
30,246 | | | | 30,246 | |||||||||||||||
Land |
14,318 | | 555 | | 14,873 | |||||||||||||||
Non-residential real estate |
216,901 | 979 | 7,072 | | 224,952 | |||||||||||||||
Farmland |
35,253 | 1,147 | 451 | | 36,851 | |||||||||||||||
Consumer loans |
8,376 | | 244 | | 8,620 | |||||||||||||||
Commercial loans |
83,892 | 3,572 | 1,474 | | 88,938 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 625,893 | 5,698 | 10,780 | | 642,371 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
21
Impaired loans by classification type and the related valuation allowance amounts at March 31, 2018 were as follows:
At March 31, 2018 | For the three month period ended March 31, 2018 |
|||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Impaired loans with no specific allowance |
||||||||||||||||||||
One-to-four family mortgages |
$ | 1,010 | 1,010 | | 634 | 13 | ||||||||||||||
Home equity line of credit |
555 | 555 | | 278 | 6 | |||||||||||||||
Junior liens |
| | | | | |||||||||||||||
Multi-family |
| | | | | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
545 | 545 | | 530 | 9 | |||||||||||||||
Non-residential real estate |
7,287 | 7,287 | | 7,187 | 77 | |||||||||||||||
Farmland |
111 | 111 | | 278 | | |||||||||||||||
Consumer loans |
4 | 4 | | 2 | | |||||||||||||||
Commercial loans |
3,996 | 4,196 | | 2,436 | 61 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
13,508 | 13,708 | | 11,345 | 166 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with a specific allowance | ||||||||||||||||||||
One-to-four family mortgages |
| | | | | |||||||||||||||
Home equity line of credit |
| | | | | |||||||||||||||
Junior liens |
| | | | | |||||||||||||||
Multi-family |
| | | | | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
| | | | | |||||||||||||||
Non-residential real estate |
1 | 1 | 1 | 2 | | |||||||||||||||
Farmland |
| | | | | |||||||||||||||
Consumer loans |
434 | 434 | 109 | 326 | | |||||||||||||||
Commercial loans |
139 | 139 | 86 | 340 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
574 | 574 | 196 | 668 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 14,082 | 14,282 | 196 | 12,013 | 166 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
22
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows:
At December 31, 2017 | For the year ended December 31, 2017 |
|||||||||||||||||||
Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Impaired loans with no specific allowance |
||||||||||||||||||||
One-to-four family mortgages |
$ | 257 | 257 | | 1,235 | 35 | ||||||||||||||
Home equity line of credit |
| | | 447 | 26 | |||||||||||||||
Junior liens |
| | | 6 | | |||||||||||||||
Multi-family |
| | | 1,135 | | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
515 | 515 | | 837 | 44 | |||||||||||||||
Non-residential real estate |
7,086 | 7,086 | | 8,979 | 395 | |||||||||||||||
Farmland |
444 | 444 | | 1,094 | 35 | |||||||||||||||
Consumer loans |
| | | 8 | 2 | |||||||||||||||
Commercial loans |
875 | 875 | | 1,571 | 46 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
9,177 | 9,177 | | 15,312 | 583 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impaired loans with a specific allowance |
||||||||||||||||||||
One-to-four family mortgages |
| | | | | |||||||||||||||
Home equity line of credit |
| | | | | |||||||||||||||
Junior liens |
| | | | | |||||||||||||||
Multi-family |
| | | | | |||||||||||||||
Construction |
| | | | | |||||||||||||||
Land |
| | | 4,006 | | |||||||||||||||
Non-residential real estate |
2 | 2 | 2 | 88 | 2 | |||||||||||||||
Farmland |
| | | 195 | | |||||||||||||||
Consumer loans |
217 | 217 | 54 | 248 | | |||||||||||||||
Commercial loans |
541 | 541 | 233 | 479 | 13 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
760 | 760 | 289 | 5,016 | 15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total impaired loans |
$ | 9,937 | 9,937 | 289 | 20,328 | 598 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
23
At March 31, 2018 and December 31, 2017, non-accrual loans totaled $2.0 million and $1.3 million, respectively. All non-accrual loans with the exception of one junior lien loan are classified as substandard. At March 31, 2018, the Company is not obligated to lend additional funds to borrowers who have been placed in non-accrual status. There are no loans accruing interest that are past due more than 90 days at March 31, 2018. At December 31, 2017, there was one loan, totaling $88,000 that was past due more than 90 days and accruing interest. At March 31, 2018 and December 31, 2017, the Companys balances in non-accrual loans by loan type is as follows:
March 31, 2018 | December 31, 2017 | |||||||
(Dollars in Thousands) | ||||||||
One-to-four family mortgages |
521 | 266 | ||||||
Home equity line of credit |
530 | 402 | ||||||
Junior Lien |
4 | 4 | ||||||
Land |
40 | 40 | ||||||
Farmland |
111 | 111 | ||||||
Non-residential real estate |
| | ||||||
Consumer loans |
2 | 3 | ||||||
Commercial loans |
796 | 459 | ||||||
|
|
|
|
|||||
Total non-accrual loans |
2,004 | 1,285 | ||||||
|
|
|
|
The following table provides the number of loans remaining in each category as of March 31, 2018 and December 31, 2017 that the Company had previously modified in a TDR:
Number of Loans |
Pre-Modification Outstanding Record Investment |
Post Modification Outstanding Record Investment, net of related allowance |
||||||||||
March 31, 2018 | ||||||||||||
Non-residential real estate |
2 | $ | 3,163,435 | 3,163,435 | ||||||||
Commercial |
1 | 91,683 | 91,683 | |||||||||
December 31, 2017 | ||||||||||||
Non-residential real estate |
2 | 3,163,435 | 3,163,435 |
For the three month period ended March 31, 2018, the Company identified one additional commercial loan as a TDR. The loan is secured by equipment and inventory. The TDR classification is the result of the borrowers declining financial condition, prompting the Company to lengthen the amortization period of the loan to twelve years. The length of the current amortization period is outside of our loan policy and results in a TDR classification. The loan has a one year balloon feature and the borrowers financial condition will be re-evaluated at that time. There were no loans as of March 31, 2018 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At March 31, 2018, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.
24
(5) FORECLOSED ASSETS
The Companys foreclosed assets have been acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional losses on foreclosed assets may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all foreclosed assets with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense.
For the three month period ended March 31, 2018, the Companys activity in foreclosed property included the following:
Balance | Activity During 2018 | Reduction | Gain (Loss) | Balance | ||||||||||||||||||||
12/31/2017 | Foreclosure | Sales | in Values | on Sale | 3/31/2018 | |||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One-to-four family mortgages |
$ | 169 | 25 | (78 | ) | | 13 | $ | 129 | |||||||||||||||
Land |
3,200 | | | | | 3,200 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 3,369 | 25 | (78 | ) | | 13 | $ | 3,329 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Companys activity in foreclosed assets for the twelve month period ended December 31, 2017 is as follows:
Balance 12/31/2016 |
Activity During 2017 | Reduction in Values |
Gain (Loss) on Sale |
Balance 12/31/2017 |
||||||||||||||||||||
Foreclosure | Sales | |||||||||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||||||
One-to-four family mortgages |
$ | 135 | 1,069 | (1,182 | ) | | 147 | $ | 169 | |||||||||||||||
HELOC |
28 | | (18 | ) | (10 | ) | | | ||||||||||||||||
Land |
| 3,200 | | | | 3,200 | ||||||||||||||||||
Multi-family |
1,775 | | (1,761 | ) | | (14 | ) | | ||||||||||||||||
Non-residential |
459 | 43 | (500 | ) | | (2 | ) | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,397 | 4,312 | (3,461 | ) | (10 | ) | 131 | $ | 3,369 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
25
(6) FAIR VALUE OF ASSETS AND LIABILITIES
Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
| Level 1 is for assets and liabilities that management has obtained quoted prices (unadjusted for transaction cost) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. |
| Level 2 is for assets and liabilities in which significant unobservable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| Level 3 is for assets and liabilities in which significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
The following are the significant methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments:
Cash and due from banks
The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets fair values, because they mature within 90 days or less and do not present credit risk concerns.
Interest-bearing deposits in banks
The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns.
Available-for-sale securities
Fair values for investment securities available-for-sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments provided by a third-party pricing service. The Company reviews all securities in which the book value is greater than the market value for impairment that is other than temporary. For securities deemed to be other than temporarily impaired, the Company reduces the book value of the security to its market value by recognizing an impairment charge on its income statement.
FHLB stock
The fair value of FHLB stock is recognized at cost.
Loans held for sale
Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.
26
Loans receivable
The fair values of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans that re-price frequently and have no significant change in credit risk is approximately the carrying value of the loan.
Accrued interest receivable
Fair value is estimated to approximate the carrying amount because such amounts are expected to be received within 90 days or less and any credit concerns have been previously considered in the carrying value.
Deposits
The fair values disclosed for deposits with no stated maturity such as demand deposits, interest-bearing checking accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and other fixed maturity time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on such type accounts or similar accounts to a schedule of aggregated contractual maturities or similar maturities on such time deposits.
Advances from borrowers for taxes and insurance
The carrying amount of advances from borrowers for taxes and insurance approximates its fair value.
Advances from the Federal Home Loan Bank (FHLB)
The fair value of these advances is estimated by discounting the future cash flows of these advances using the current rates at which similar advances or similar financial instruments could be obtained.
Repurchase agreements
Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements.
Subordinated debentures
The book value of subordinated debentures is cost. The subordinated debentures re-price quarterly at a rate equal to three month libor plus 3.10%.
Fair Value Measurements on a Recurring Basis
Where quoted prices are available for identical securities in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
27
Assets and Liabilities Measured on a Recurring Basis
The assets and liabilities measured at fair value on a recurring basis at March 31, 2018 are summarized below:
Description |
Total carrying value in the consolidated balance sheet at 3/31/2018 |
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Agency securities |
$ | 80,146 | | 80,146 | | |||||||||||
Taxable municipals |
26,668 | | 26,668 | | ||||||||||||
Tax-free municipals |
1,273 | | 1,273 | | ||||||||||||
Trust preferred securities |
1,980 | | | 1,980 | ||||||||||||
Mortgage backed securities |
70,145 | | 70,145 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 180,212 | | 178,232 | 1,980 | |||||||||||
|
|
|
|
|
|
|
|
The assets and liabilities measured at fair value on a recurring basis at December 31, 2017 are summarized below:
Description |
Total carrying value in the consolidated balance sheet at 12/31/2017 |
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Securities available for sale |
||||||||||||||||
U.S. Agency securities |
84,093 | | 84,093 | | ||||||||||||
Taxable municipals |
1,283 | | 1,283 | | ||||||||||||
Tax-free municipals |
26,966 | | 26,966 | | ||||||||||||
Trust preferred securities |
1,685 | | | 1,685 | ||||||||||||
Mortgage backed securities |
70,764 | | 70,764 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 184,791 | | 183,106 | 1,685 | |||||||||||
|
|
|
|
|
|
|
|
28
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2018:
Description |
Total carrying value in the consolidated balance sheet at March 31, 2018 |
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Foreclosed assets |
$ | 3,329 | | | $ | 3,329 | ||||||||||
Impaired loans, net of allowance of $196 |
$ | 378 | | | $ | 378 | ||||||||||
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2017: | ||||||||||||||||
Description |
Total carrying value in the consolidated balance sheet at December 31, 2017 |
Quoted Prices In Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Foreclosed assets |
$ | 3,369 | | | $ | 3,369 | ||||||||||
Impaired loans, net of allowance of $289 |
$ | 473 | | | $ | 473 |
29
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a recurring and non-recurring basis at March 31, 2018 and December 31, 2017:
Level 3 Significant Unobservable Input Assumptions |
||||||||||||
Fair Value |
Valuation Technique |
Unobservable Input |
Quantitative Range of Unobservable Inputs |
|||||||||
(Dollars in Thousands) | ||||||||||||
March 31, 2018 |
||||||||||||
Assets measured on a non-recurring basis |
|
|||||||||||
Foreclosed assets |
$ | 3,329 | Discount to appraised value of collateral. Auction results | Appraisal comparability adjustments | 5% to 10% | |||||||
Impaired loans |
574 | Discount to appraised value of collateral | Appraisal comparability adjustments | 10% to 25% | ||||||||
Asset measured on a recurring basis |
|
|||||||||||
Trust preferred securities |
1,980 | Discounted cash flow Spread to Libor swap curve | Compare to quotes for sale when available | |
One month libor 5% to 8% |
| ||||||
December 31, 2017 |
||||||||||||
Assets measured on a non-recurring basis |
|
|||||||||||
Foreclosed assets |
$ | 3,369 | Discount to appraised value of collateral | Appraisal comparability adjustments | 30% to 55% | |||||||
Impaired loans |
760 | Discount to appraised value of collateral | Appraisal comparability adjustments | 10% to 15% | ||||||||
Asset measured on a recurring basis |
|
|||||||||||
Trust preferred securities |
1,685 | Discounted cash flow Spread to Libor swap curve | Compare to quotes for sale when available | |
One month libor 4% to 6% |
|
30
The estimated fair values of financial instruments were as follows at March 31, 2018:
Carrying Amount |
Estimated Fair Value |
In Active Markets for Identical Assets Level 1 |
Other Observable Inputs Level 2 |
Significant Unobservable Inputs Level 3 |
||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 18,472 | 180,472 | 180,472 | | | ||||||||||||||
Interest-bearing deposits |
3,149 | 3,149 | 3,149 | | | |||||||||||||||
Securities available for sale |
180,212 | 180,212 | | 178,232 | 1,980 | |||||||||||||||
Federal Home Loan Bank stock |
4,428 | 4,428 | | | 4,428 | |||||||||||||||
Loans held for sale |
2,706 | 2,706 | | 2,706 | | |||||||||||||||
Loans receivable |
665,178 | 633,671 | | | 633,671 | |||||||||||||||
Accrued interest receivable |
3,212 | 3,212 | | | 3,212 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
746,806 | 745,508 | | 745,508 | | |||||||||||||||
Advances from borrowers for taxes and insurance |
780 | 780 | | 781 | | |||||||||||||||
Advances from Federal Home Loan Bank |
25,000 | 24,795 | | 24,795 | | |||||||||||||||
Repurchase agreements |
41,792 | 41,792 | | 41,792 | | |||||||||||||||
Subordinated debentures |
10,310 | 10,099 | | | 10,099 |
31
The estimated fair values of financial instruments were as follows at December 31, 2017:
Carrying | Estimated Fair |
Quoted Prices In Active Markets for Identical Assets |
Using Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Financial Assets: |
||||||||||||||||||||
Cash and due from banks |
$ | 37,965 | 37,965 | 37,965 | | | ||||||||||||||
Interest-bearing deposits |
7,111 | 7,111 | 7,111 | | | |||||||||||||||
Securities available for sale |
184,791 | 184,791 | | 183,106 | 1,685 | |||||||||||||||
Federal Home Loan Bank stock |
4,428 | 4,428 | | | 4,428 | |||||||||||||||
Loans held for sale |
1,539 | 1,539 | | 1,539 | | |||||||||||||||
Loans receivable |
637,102 | 615,265 | | | | |||||||||||||||
Accrued interest receivable |
3,589 | 3,589 | | | 3,589 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Deposits |
754,009 | 754,510 | | 754,510 | | |||||||||||||||
Advances from borrowers for taxes and insurance |
808 | 808 | | 808 | | |||||||||||||||
Advances from Federal Home Loan Bank |
23,000 | 22,849 | | 22,849 | | |||||||||||||||
Repurchase agreements |
38,353 | 38,353 | | 38,353 | | |||||||||||||||
Subordinated debentures |
10,310 | 10,099 | | | 10,099 |
(7) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB deferred the effective date reporting periods beginning after December 15, 2017. The implementation of ASC Topic 605 did not have a material impact on the Companys Consolidated Financial Statements.
32
ASU 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective on January 1, 2018 and did not have a material effect on the Companys Consolidated Financial Statements.
ASU 2016-02, Leases (Topic 842). ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessees obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, Revenue from Contracts with Customers. ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Companys Consolidated Financial Statements.
ASU 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017. The implementation of ASU 2016-09 did not have a material effect on the Companys Consolidated Financial Statements.
33
On June 16, 2016, the FASB released its finalized ASU 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables, the FASB said. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified as available-for-sale. The accounting board added that the write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts to improve the loss estimates on financial assets that are losing value. The board also said the techniques that are employed today to write down loans and other instruments can still be used, although it expects the variables for calculating the losses to change. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU 2016-13 in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-13.
ASU 2016-15 Statement of Cash Flows (Topic 230) (ASU 2016-15) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted with retrospective application. The application of ASU 2016-15 did not have a material impact on the Companys Consolidated Financial Statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, (ASU 2017-01) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.
ASU 2017-08, Receivables Nonrefundable Fees and Other Cost (Topic 310) amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of instrument. ASU 2017-08 premiums on purchased callable debt securities that have an explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2017-08 is not expected to have a material impact on the Companys Consolidated Financial Statements.
34
ASU 2017-09 Compensation Stock Compensation (Topic 718) clarifies when changes to the terms or conditions of a share-based payment must be accounted for as modifications. Under AUS 2017-09, an entity should account for changes to the terms or conditions of a share-based payment unless all of the following are met:
| The fair value of the modified award is the same as the fair value of the original award immediately before modification, |
| The vesting conditions of the modified award is the same as the vesting conditions value of the original award immediately before modification, and |
| The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before modification. |
ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a material impact on our consolidated financial statements.
ASU 2017-12 Derivatives and Hedging (Topic 815) amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information convey to financial statement users about an entitys risk management activities to better align the entitys financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for the Company on January 1, 2019 and is not expected to have a significant impact on the Companys 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 Companys financial position, results of operations or cash flows.
ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 34.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. The Company is currently reviewing the impact of the adoption of ASU 2018-02 on its Consolidated Financial Statements.
(8) INCOME TAXES
The Company files consolidated federal income tax returns and Tennessee excise tax returns. The Company files consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions. The Companys effective tax rate changed from 34% to 21% effective January 1, 2018 as a result of the Tax Cut and Jobs Act of 2017. The effective tax rate differs from the statutory federal rate of 21% and Tennessee excise rate of 6.5% due to investments in qualified municipal securities, bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses. The Companys effective federal income tax rate varies significantly from our federal statutory tax rate for a variety of factors, including:
| The Companys investment in Fort Webb LP, LLC generates tax credits and depreciation expense that the Company can use to offset taxable income. At March 31, 2018, the Companys balance sheet did not include any equity investment in Fort Webb. The Company has other investments that produce both tax credits and depreciation expense that may be used to offset net income. |
| At March 31, 2018, the Company has $10.4 million in Bank owned life insurance policies. The income generated from these policies increase the cash flow of the policies on a tax free basis. Life insurance proceeds are paid upon the death of a covered party. These proceeds, netted against the current cash value of the policy, result in tax free income to the Company. At March 31, 2018, the Companys investment portfolio includes $26.7 million of tax free municipal securities. Interest income on this portfolio, after netting out a disallowance for interest expense attributable to this portfolio, is tax exempt. |
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(9) ESOP
Substantially all of the Companys employees who are at least 21 years old and have one year of employment with the Company participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (ESOP). The ESOP purchased 600,000 shares of the 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 reductions in the principal balance of the loan. The shares are allocated to participants based on relative compensation.
Employees who are not employed on December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or provide the shares directly to the employee.
The Company made its third ESOP loan payment in December 2017. At March 31, 2018 and December 31, 2017, shares held by the ESOP were as follows:
March 31, 2018 | December 31, 2017 | |||||||
Accrued for allocation to participants |
10,873 | | ||||||
Earned ESOP shares |
165,686 | 165,686 | ||||||
Unearned ESOP shares |
423,675 | 434,548 | ||||||
|
|
|
|
|||||
Total ESOP shares |
600,234 | 600,234 | ||||||
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|
|
|
|||||
Fair value of unearned shares |
$ | 6,164,471 | $ | 6,127,127 | ||||
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(10) COMMITMENTS AND CONTINGENCIES
At March 31, 2018, the Bank had $33.1 million in outstanding commitments on revolving home equity lines of credit, $20.5 million in outstanding commitments on revolving personal lines of credit and $48.4 million in commitments to originate loans and undisbursed commitments on commercial lines of credit of $62.9 million. At March 31, 2018, the Company had $293,000 in standby letters of credit outstanding.
At March 31, 2018, the Company has $40.9 million in times deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $61.9 million in time deposits with balances 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, 2018 and December 31, 2017, the Bank has pledged all eligible 1-4 family first mortgages. At March 31, 2018 and December 31, 2017, the
36
Bank has outstanding borrowings of $25.0 million and $23.0 million, respectively, from the FHLB. A schedule of FHLB borrowings at March 31, 2018 is provided below:
Outstanding Balance |
Rate | Maturity | ||||||||
2,000,000 | 1.82 | % | Overnight | |||||||
6,000,000 | 1.18 | % | 7/6/2018 | |||||||
7,000,000 | 1.55 | % | 1/10/2019 | |||||||
5,000,000 | 1.73 | % | 1/10/2020 | |||||||
5,000,000 | 1.92 | % | 10/6/2020 | |||||||
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|
|
|
|||||||
$25,000,000 | 1.59 | % | ||||||||
|
|
|
|
A schedule of FHLB borrowings at December 31, 2017 is provided below:
Outstanding Balance |
Rate | Maturity | ||||||||
6,000,000 | 1.18 | % | 7/6/2018 | |||||||
7,000,000 | 1.55 | % | 1/10/2019 | |||||||
5,000,000 | 1.73 | % | 1/10/2020 | |||||||
5,000,000 | 1.92 | % | 10/6/2020 | |||||||
|
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|
|
|||||||
$23,000,000 | 1.57 | % | ||||||||
|
|
|
|
The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Banks name totaling $47.6 million secured by the Banks loan portfolio to secure additional municipal deposits. At March 31, 2018, securities with a book value of $39.3 million and a fair market value of $38.1 million were sold under agreements to repurchase from various customers.
The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such matters. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Companys consolidated financial statements or results of operations.
37
(11) REGULATORY MATTERS
The new minimum capital level requirements applicable to Bank holding companies and Banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a capital conservation buffer of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.
The capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. For 2018, the capital conservation buffer is 1.875%. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010 no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0 billion in total assets, trust preferred securities issued prior to that date, continue to count as Tier 1 capital subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain new eligibility criteria.
The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company has made the decision to opt-out of this requirement. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2018 and December 31, 2017 to which it is subject. Management believes, as of March 31, 2018 and December 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject, including the phasein requirements of Basel III.
38
The Companys consolidated capital ratios and the Banks actual capital amounts and ratios as of March 31, 2018 and December 31, 2017 are presented below:
Actual | Minimum Capital Required |
To be Well Capitalized for Prompt Corrective Action Provisions |
||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(Dollars in Thousands, Except Percentages) | ||||||||||||||||||||||||
As of March 31, 2018 |
||||||||||||||||||||||||
Tier 1 leverage capital to adjusted total assets |
||||||||||||||||||||||||
Company |
$ | 96,343 | 10.6 | % | $ | 36,294 | 4.0 | % | $ | 45,368 | 5.0 | % | ||||||||||||
Bank |
$ | 93,775 | 10.3 | % | $ | 36,297 | 4.0 | % | $ | 45,371 | 5.0 | % | ||||||||||||
Total capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 100,997 | 15.5 | % | $ | 52,058 | 8.0 | % | $ | 65,072 | 10.0 | % | ||||||||||||
Bank |
$ | 98,429 | 15.2 | % | $ | 51,946 | 8.0 | % | $ | 64,933 | 10.0 | % | ||||||||||||
Tier 1 capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 96,343 | 14.8 | % | $ | 39,043 | 6.0 | % | $ | 52,058 | 8.0 | % | ||||||||||||
Bank |
$ | 93,775 | 14.4 | % | $ | 38,960 | 6.0 | % | $ | 51,946 | 8.0 | % | ||||||||||||
Common equity tier 1 capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 96,343 | 14.8 | % | $ | 29,283 | 4.5 | % | n/a | n/a | ||||||||||||||
Bank |
$ | 93,775 | 14.4 | % | $ | 29,220 | 4.5 | % | $ | 42,207 | 6.5 | % | ||||||||||||
As of December 31, 2017 |
||||||||||||||||||||||||
Tier 1 leverage capital to adjusted total assets |
||||||||||||||||||||||||
Company |
$ | 95,709 | 10.6 | % | $ | 36,137 | 4.0 | % | $ | 45,171 | 5.0 | % | ||||||||||||
Bank |
$ | 95,123 | 10.5 | % | $ | 36,090 | 4.0 | % | $ | 45,112 | 5.0 | % | ||||||||||||
Total capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 100,535 | 16.0 | % | $ | 50,352 | 8.0 | % | $ | 62,940 | 10.0 | % | ||||||||||||
Bank |
$ | 99,949 | 15.9 | % | $ | 50,314 | 8.0 | % | $ | 62,892 | 10.0 | % | ||||||||||||
Tier 1 capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 95,709 | 15.2 | % | $ | 37,764 | 6.0 | % | $ | 50,352 | 8.0 | % | ||||||||||||
Bank |
$ | 95,123 | 15.1 | % | $ | 37,735 | 6.0 | % | $ | 50,314 | 8.0 | % | ||||||||||||
Common equity tier 1 capital to risk weighted assets |
||||||||||||||||||||||||
Company |
$ | 95,709 | 15.2 | % | $ | 28,323 | 4.5 | % | n/a | n/a | ||||||||||||||
Bank |
$ | 95,123 | 15.1 | % | $ | 28,301 | 4.5 | % | $ | 40,880 | 6.5 | % |
39
(12) SUBSEQUENT EVENTS
On April 10, 2018, HopFed Bancorp, Inc. (the Company) entered into a Standstill Agreement (the Agreement) with Stilwell Activist Fund, L.P., Stilwell Activist Investments, L.P., Stilwell Associates, L.P., Stilwell Value LLC and Joseph Stilwell (collectively, the Stilwell Group) and Mark D. Alcott. The Stilwell Group owns approximately 9.5% of the shares of the Companys outstanding common stock.
The Agreement provides that, effective upon a meeting of the Board of Directors to be held no later than April 30, 2018, the Board will be expanded by one Board seat, and Mr. Alcott will be appointed to serve as a director of the Company in the class of directors with terms expiring at the Companys 2019 Annual Meeting of Stockholders or until his successor is elected and qualified. Mr. Alcott will be nominated at the 2019 Annual Meeting of Stockholders to serve until the 2022 Annual Meeting of Stockholders, or until his successor is elected and qualified. Mr. Alcott also will be nominated and elected to concurrent terms on the Board of Directors of the Bank and Company. The Company appointed Mr. Alcott to its Board of Directors on April 18, 2018.
During the term of the Agreement, which is scheduled to continue through the date of that is 15 business days prior to the deadline for submission of stockholder nominations and proposals for the Companys 2022 Annual Meeting of Stockholders (which may be extended by written agreement of the parties), the Stilwell Group and Mr. Alcott will not, among other things, solicit proxies in opposition to any recommendation or proposal of the Companys Board of Directors, initiate or solicit stockholder proposals or seek to place any additional representatives on the Companys Board of Directors other than Mr. Alcott (or any replacement director selected by the Stilwell Group in the event Mr. Alcotts position as a director of the Company or the Bank is terminated during the term of the Stilwell Agreement due to his resignation, death, permanent disability or otherwise), oppose any proposal or director nomination submitted by the Board of Directors to the Companys stockholders, vote for any nominee to, or proposal by, the Companys Board of Directors other than those nominated, proposed or supported by the Board of Directors, seek removal of any Company or Bank director, seek to exercise any control or influence over the management of the Company or the Boards of Directors of the Company or the Bank, propose or seek to effect a merger or sale of the Company or initiate litigation against the Company (except in connection with enforcement of the Agreement). The Stilwell Group also agreed not to acquire any additional shares of the outstanding Company common stock or, without the Companys prior written consent, sell or otherwise dispose of any interest in the Stilwell Groups shares of Company Common Stock to any person the Stilwell Group believes, after reasonable inquiry, would be a beneficial owner after any such sale or transfer of more than 5% of the outstanding shares of the Company Common Stock.
The parties have also entered into a Non-Disclosure Agreement, in the form attached as an exhibit to the Agreement, providing that the Stilwell Group will maintain the confidentiality of non-public information regarding the Company or the Bank in full compliance with federal and state securities laws, which became effective upon execution of the Agreement, and will remain in effect until the date that is 15 business days prior to the deadline for submission of stockholder nominations and proposal for the Companys 2022 Annual Meeting of Stockholders pursuant to the Companys Certificate of Incorporation; provided, however, that the parties may agree in writing to extend the term of the Non-Disclosure Agreement.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Policies
The preparation of the Companys consolidated financial statements requires management to make subjective judgments associated with estimates. These estimates are necessary to comply with U.S. GAAP and general banking practices. These estimates include accounting for the allowance for loan losses, foreclosed assets, valuation of deferred tax assets and fair value measurements. A description of these estimates, which significantly affect the Companys determination of our consolidated financial position, results of operations and cash flows, is set forth in Note 1, Summary of Significant Accounting Policies of the Notes to the Companys consolidated financial statements in the Companys Annual Report on Form 10-K as of and for the year ended December 31, 2017.
The emphasis of this discussion is a comparison of assets, liabilities and stockholders equity as of March 31, 2018 to December 31, 2017, while comparing income and expenses for the three month periods ended March 31, 2018 and March 31, 2017. All information should be read in conjunction with the Companys unaudited interim consolidated condensed financial statements and related notes appearing elsewhere in this report and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing in the Companys Annual Report on Form 10-K as of and for the year ended December 31, 2017.
Comparison of Financial Condition at March 31, 2018, and December 31, 2018
At March 31, 2018, total assets were $914.0 million, a decline of $3.5 million compared to December 31, 2017. For the three month period ended March 31, 2018, the Companys net loan portfolio has increased $23.4 million to $660.5 million. To fund the Companys loan growth, the Company reduced cash balances by $23.5 million in the three month period ended March 31, 2018 to $21.6 million.
At March 31, 2018, total deposits declined by $7.2 million to $746.8 million. The decline in deposit accounts is the result of lower levels of brokered deposits. At March 31, 2018, brokered deposits totaled $50.5 million, representing a decline of $10.1 million compared to December 31, 2017. At March 31, 2018, interest-bearing checking accounts totaled $219.5 million, an increase of $9.0 million compared to December 31, 2017. At March 31, 2018, non-interest bearing checking accounts totaled $139.1 million, an increase of $2.9 million compared to December 31, 2017.
The Company continues to place an emphasis on core funding while attempting to slow the growth of our deposit cost. However, increased competition and the Companys continued strong loan demand will force management to increase deposit rates to ensure adequate funding levels to meet liquidity needs. Management anticipates that future loan growth will be funded largely by the recruitment of time deposits. The Companys investment portfolio may provide additional liquidity. However, a significant portion of the investment portfolio is pledged to municipalities to secure deposits, limiting the Companys ability to significantly increase our loan to deposit ratio above current levels.
41
Comparison of Operating Results for the Three Month Periods Ended March 31, 2018 and March 31, 2017.
The Companys net income was $1.1 million for the three month period ended March 31, 2018, compared to net income of $935,000 for the three month period ended March 31, 2017. The improved level of net income for the three month period ended March 31, 2018 compared to the three month period ended March 31, 2017 was largely the result of growth in the average balance of loans, a $149,000 reduction in non-interest expenses and a $223,000 decline in the Companys provision for loan loss expense and a reduction in the federal tax rate.
The Companys total interest income for the three month period ended March 31, 2018 was $8.8 million, compared to $8.2 million for the three month period ended March 31, 2017. The increase in net interest income for the three month period ended March 31, 2018 compared to March 31, 2017 was largely due to the $31.8 million increase in the average balance of loans outstanding.
For the three month period ended March 31, 2018, total interest expense was $1.6 million compared to $1.4 million for the three month period ended March 31, 2017. For the three month period ended March 31, 2018, total interest bearing liabilities were $685.1 million, representing a decline of $5.6 million for the three month period ended March 31, 2017. The increase in interest expense is largely the result of increases in short term interest rates spurred by the decision of the Open Market Committee of the Federal Reserve Board of Governors to increase its stated overnight Federal Funds (Fed Funds) rate. For the three month period ended March 31, 2018, the cost of average total deposits was 0.67% compared to 0.62% for the three month period ended March 31, 2017. Based on current fed funds future projections, Management anticipates that the Companys total cost of deposits will increase by an average of three or four basis points per quarter for the remainder of 2018.
For the three month periods ended March 31, 2018 and March 31, 2017, the Companys cost of interest bearing liabilities was 0.94% and 0.81%, respectively. In addition to increases in our cost of deposits, the interest expense on the Companys floating rate subordinated debt has increased from $122,000 for the three month period ended March 31, 2018 from $102,000 for the three month period ended March 31, 2017 due to increases in the three month Libor rate.
For the three month period ended March 31, 2018, the Companys tax equivalent yield on loans was 4.62% compared to 4.38% for the three month period ended March 31, 2017.For the three month period ended March 31, 2018, the Companys tax equivalent yield on tax free municipal securities was 3.96% compared to 5.00% for the three month period ended March 31, 2017. The reduction in Companys stated tax rate from 34% to 21% reduced our tax equivalent yield on tax free securities by 0.80% and our net interest margin by 2 basis points. For the three month periods ended March 31, 2018 and March 31, 2017, the Companys net interest margin was 3.45% and 3.31%, respectively. The increase in net interest margin occurred as result of loan growth and increases in loan yields due to increases in the Prime Rate.
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, 2018 and March 31, 2017. 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. Average balances for loans include loans classified as non-accrual, net of the allowance for loan losses. On January 1, 2018, the Companys stated tax rate decreased from 34.0% to 21.0%, reducing the tax equivalent yield on tax free loans and tax free municipal investments.
The table adjusts tax-free investment income by $53,000 for the three month period ended March 31, 2018 and $141,000 for the three month period ended March 31, 2017, for a tax equivalent rate using a cost of funds rate of 0.94% for the three month period ended March 31, 2018 and 0.81% for the three month period ended March 31, 2017. The table adjusts tax-free loan income by $5,000 for the three month period ended March 31, 2018 and $9,000 for the three month period ended March 31, 2017, for a tax equivalent rate using the same cost of funds rate.
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Average Balance 3/31/2018 |
Income and Expense 3/31/2018 |
Average Rates 3/31/2018 |
Average Balance 3/31/2017 |
Income and Expense 3/31/2017 |
Average Rates 3/31/2017 |
|||||||||||||||||||
(Table Amounts in Thousands, Except Percentages) | ||||||||||||||||||||||||
Loans receivable, net |
$ | 647,204 | 7,482 | 4.62 | % | 615,382 | 6,745 | 4.38 | % | |||||||||||||||
Taxable securities, AFS |
160,582 | 1,079 | 2.69 | % | 176,824 | 1,118 | 2.53 | % | ||||||||||||||||
Non-taxable securities, AFS |
26,856 | 266 | 3.96 | % | 33,868 | 424 | 5.00 | % | ||||||||||||||||
Other interest bearing deposits |
6,030 | 29 | 1.92 | % | 9,260 | 23 | 0.99 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest earning assets |
840,672 | 8,856 | 4.21 | % | 835,334 | 8,310 | 3.98 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
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Other assets |
69,290 | 73,527 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 909,962 | $ | 908,861 | ||||||||||||||||||||
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|
|
|||||||||||||||||||||
Retail time deposits |
240,602 | 674 | 1.12 | % | 259,086 | 664 | 1.03 | % | ||||||||||||||||
Brokered deposits |
53,910 | 188 | 1.39 | % | 46,040 | 135 | 1.17 | % | ||||||||||||||||
Interest bearing checking |
215,352 | 341 | 0.63 | % | 219,696 | 326 | 0.59 | % | ||||||||||||||||
Saving / MMDA |
102,155 | 41 | 0.16 | % | 100,282 | 42 | 0.17 | % | ||||||||||||||||
FHLB borrowings |
23,656 | 92 | 1.56 | % | 13,433 | 32 | 0.95 | % | ||||||||||||||||
Repurchase agreements |
39,072 | 154 | 1.58 | % | 41,840 | 103 | 0.98 | % | ||||||||||||||||
Subordinated debentures |
10,310 | 122 | 4.73 | % | 10,310 | 104 | 4.03 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total interest bearing liabilities |
685,057 | 1,612 | 0.94 | % | 690,687 | 1,406 | 0.81 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Non-interest bearing deposits |
133,412 | 126,809 | ||||||||||||||||||||||
Other liabilities |
3,887 | 3,993 | ||||||||||||||||||||||
Stockholders equity |
87,336 | 87,372 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 909,692 | 908,861 | |||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest income |
7,244 | 6,904 | ||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest spread |
3.27 | % | 3.17 | % | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net interest margin |
3.45 | % | 3.31 | % | ||||||||||||||||||||
|
|
|
|
43
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 $68,000 in provision for loan loss was required for the three month period ended March 31, 2018 compared to a $291,000 provision for loan loss expense for the three month period ended March 31, 2017.
Non-Interest Expenses. For the three month period ended March 31, 2018, non-interest expenses were $7.5 million compared to $7.7 million for the three month period ended March 31, 2017. For the three month period ended March 31, 2018, reduced foreclosure activity resulted in a net gain of $6,000 compared to net expenses of $108,000 for the three month period ended March 31, 2017. For the three month period ended March 31, 2018, total salaries and benefits expense declined $119,000 to $4.1 million compared to the three month period ended March 31, 2017. The Companys non-interest expenses are typically higher in the first quarter of each year and typically are lowest in the fourth quarter of each year largely due to seasonal payroll fluctuations.
Income Taxes. The effective tax rate for the three month periods ending March 31, 2018 was 14.8% due to the reduction in the Companys effective tax rate as a result of the Tax Cuts and Jobs Act of 2017. For the three month period ended March 31, 2017, the Companys effective tax rate was 12.6% due to the receipt of proceeds from a bank owned life insurance policy.
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.
The Bank uses brokered deposits to supplement its asset liability need for longer term deposits 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. At March 31, 2018, the Banks brokered deposits consisted of the following:
Date of Issue |
Coupon | Balance | Maturity | |||||||||
1/12/2017 |
1.10 | % | $ | 5,433,000 | 4/12/2018 | |||||||
2/15/2017 |
1.10 | % | 4,986,000 | 5/15/2018 | ||||||||
10/24/2016 |
1.00 | % | 2,149,000 | 6/24/2018 | ||||||||
2/15/2018 |
1.50 | % | 3,130,000 | 7/16/2018 | ||||||||
8/15/2017 |
1.45 | % | 5,854,000 | 8/15/2018 | ||||||||
1/12/2017 |
1.25 | % | 5,074,000 | 9/12/2018 | ||||||||
7/10/2017 |
1.40 | % | 1,079,000 | 10/10/2018 | ||||||||
7/19/2017 |
1.50 | % | 2,060,000 | 11/19/2018 | ||||||||
2/15/2017 |
1.30 | % | 4,278,000 | 12/15/2018 | ||||||||
10/11/2017 |
1.55 | % | 5,000,000 | 1/11/2019 | ||||||||
8/16/2016 |
1.00 | % | 1,008,000 | 2/16/2019 | ||||||||
7/22/2016 |
1.00 | % | 2,138,000 | 5/22/2019 | ||||||||
7/29/2016 |
1.05 | % | 2,964,000 | 7/29/2019 | ||||||||
8/16/2016 |
1.10 | % | 1,978,000 | 8/16/2019 | ||||||||
2/15/2018 |
2.20 | % | 3,417,000 | 2/15/2020 | ||||||||
|
|
|
|
|||||||||
Totals |
1.33 | % | $ | 50,548,000 | ||||||||
|
|
|
|
44
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.
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, 2017 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, 2018 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, 2018 for the twelve month period ending March 31, 2019 is as follows:
Down 1.00% | No change | Up 1.00% | Up 2.00% | Up 3.00% | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
Net interest income |
$ | 29,474 | $ | 30,844 | $ | 31,676 | $ | 32,265 | $ | 32,994 |
45
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, 2018.
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 nine months ended March 31, 2018 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.
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, 2018 that have materially affected, or are reasonable likely to materially affect, the Companys internal control over financial reporting.
Item 1. | Legal Proceedings |
From time to time, the Company is a party to certain ordinary course litigation. The Company will vigorously defend itself in all such matters when the Company determines that it has meritorious defenses. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Companys consolidated financial statements or results of operations. The Company and its subsidiaries have adopted policies and procedures intended to minimize the impact of adverse litigation and regulatory actions, and has endeavored to secure reasonable insurance coverage.
46
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, 2017.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) | Unregistered Sales of Equity Securities. |
None
(b) | Use of Proceeds. |
Not applicable
(c) | Repurchase of Equity Securities |
Period |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total number of shares Purchased as part of Publically Announced Programs |
Maximum Number of Shares that Yet may be Purchased Under the Program at the end of the period |
||||||||||||
January 1, 2018 to January 31, 2018 |
1,040 | $ | 12.45 | 1,939,400 | 298,960 | |||||||||||
February 1, 2018 to February 28, 2018 |
786 | $ | 14.10 | 1,940,186 | 298,174 | |||||||||||
March 1, 2018 to March 31, 2018 |
208 | $ | 14.10 | 1,940,394 | 297,966 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
2,034 | $ | 14.14 | 1,940,394 | 297,966 | |||||||||||
|
|
|
|
|
|
|
|
Item 3. | Defaults Upon Senior Securities |
None
Item 4. | Mine Safety Disclosures |
Not Applicable
Item 5. | Other Information |
None
47
Item 6. | Exhibits |
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, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Statements of Financial Condition as of March 31, 2018 (unaudited) and December 31, 2017, (ii) Consolidated Condensed Statements of Income for the three period periods ended March 31, 2018 and March 31, 2017 (unaudited), (iii) Consolidated Condensed Statements of Comprehensive Income (Loss) for the three month periods ended March 31, 2018 and March 31, 2017 (unaudited), (iv) Consolidated Condensed Statements of Stockholders Equity for the three month period ended March 31, 2018 (unaudited); and (v) Consolidated Condensed Statements of Cash Flows for the three month periods ended March 31, 2018 and March 31, 2017 (unaudited), and (iv) Notes to Consolidated Condensed Financial Statements (unaudited), tagged as blocks of text. |
48
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 9, 2018 | /s/ John E. Peck | |||||
John E. Peck | ||||||
President and Chief Executive Officer | ||||||
Date: May 9, 2018 | /s/ Billy C. Duvall | |||||
Billy C. Duvall | ||||||
Senior Vice President, Chief Financial | ||||||
Officer and Treasurer |
49
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 |
(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 9, 2018 | /s/ John. E. Peck | |||||
John E. Peck, Chief Executive Officer |
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 |
(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 9, 2018 | /s/ Billy C. Duvall | |||||
Billy C. Duvall, Chief Financial Officer |
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, 2018, 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 9, 2018
/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, 2018, 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 9, 2018
/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 | |
---|---|---|
Mar. 31, 2018 |
May 08, 2018 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2018 | |
Document Fiscal Year Focus | 2018 | |
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 | 6,648,221 |
Interim Consolidated Condensed Statements of Financial Condition (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Loans receivable, allowance for loan losses | $ 4,654 | $ 4,826 |
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 | 7,988,983 | 7,976,131 |
Common stock, shares outstanding | 6,648,589 | 6,637,711 |
Treasury stock, shares | 1,340,394 | 1,338,360 |
Unearned ESOP shares | 423,675 | 434,548 |
Interim Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 1,126 | $ 935 |
Other comprehensive income, net of tax: | ||
Unrealized gain (loss) on non-other than temporary impaired investment securities available for sale, net of taxes of $486 and ($121) for the three month periods ended March 31, 2018 and March 31, 2017, respectively. | (1,830) | 235 |
Unrealized gain (loss) on OTTI securities, net of taxes of ($61) and $29 for the three month periods ended March 31, 2018 and March 31, 2017. | 233 | (57) |
Reclassification adjustment for gains included in net income, net of taxes of $6 and $1 for the three month periods ended March 31, 2018 and March 31, 2017, respectively. | (21) | (1) |
Total other comprehensive income (loss) | (1,618) | 177 |
Comprehensive income (loss) | $ (492) | $ 1,112 |
Interim Consolidated Condensed Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||
Unrealized gain (loss) on investment securities available for sale, tax effect | $ 486 | $ (121) |
Unrealized gain (loss) on OTTI securities, tax effect | (61) | 29 |
Reclassification adjustment for other than temporary impairment included in net income, tax effect | $ 6 | $ 1 |
Interim Consolidated Condensed Statement of Stockholders' Equity - 3 months ended Mar. 31, 2018 - USD ($) $ in Thousands |
Total |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Stock, Common [Member] |
Unearned ESOP Shares [Member] |
Accumulated Other Comprehensive Income [Member] |
---|---|---|---|---|---|---|---|
Beginning balance at Dec. 31, 2017 | $ 87,412 | $ 80 | $ 58,825 | $ 51,162 | $ (16,655) | $ (5,901) | $ (99) |
Beginning balance, Shares at Dec. 31, 2017 | 6,637,771 | ||||||
Restricted stock awards | 0 | $ 0 | 0 | 0 | 0 | 0 | 0 |
Restricted stock awards, shares | 12,852 | ||||||
Net income | 1,126 | 1,126 | |||||
Repurchase of treasury stock | (29) | (29) | |||||
Repurchase of treasury stock, shares | (2,034) | ||||||
ESOP shares committed to be released | 143 | 143 | |||||
Change in price of ESOP shares | 20 | 20 | |||||
Compensation expense, restricted stock awards | 30 | 30 | |||||
Net change in unrealized gain on securities available for sale, net of income taxes of $431 | (1,618) | (1,618) | |||||
Cash dividend declared to common shareholders | (331) | (331) | |||||
Ending balance at Mar. 31, 2018 | $ 86,753 | $ 80 | $ 58,875 | $ 51,957 | $ (16,684) | $ (5,758) | $ (1,717) |
Ending balance, Shares at Mar. 31, 2018 | 6,648,589 |
Interim Consolidated Condensed Statement of Stockholders' Equity (Parenthetical) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Net change in unrealized gain (losses) on securities available for sale, taxes | $ 431 |
Accumulated Other Comprehensive Income [Member] | |
Net change in unrealized gain (losses) on securities available for sale, taxes | $ 431 |
Basis of Presentation |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | (1) BASIS OF PRESENTATION The accompanying unaudited interim consolidated condensed financial statements include the accounts of HopFed Bancorp, Inc. (the “Corporation” or “HopFed”) and its subsidiaries (collectively, the “Company”). The Corporation is a parent holding company of Heritage Bank USA, Inc. (the “Bank”). The Banks owns JBMM, LLC, a wholly owned, limited liability company, which owns and manages the Bank’s foreclosed assets. The Bank also owns Heritage USA Title, LLC, which sells title insurance to the Bank’s real estate loan customers. The Bank owns Fort Webb LP, LLC, which owns a limited partnership interest in Fort Webb Elderly Housing LLLP, a low income senior citizen housing facility in Bowling Green, Kentucky. All significant intercompany accounts have been eliminated. The Bank is a Kentucky commercial bank regulated by the Kentucky Department of Financial Institutions (“KDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). HopFed Bancorp is regulated by the Federal Reserve Bank of Saint Louis (“FED”). The accompanying unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for fair presentation have been included. The results of operations and other data for the three month period ended March 31, 2018 are not necessarily indicative of results that may be expected the entire fiscal year ending December 31, 2018. The accompanying unaudited interim consolidated condensed financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2017. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2017 Consolidated Financial Statements. |
Earnings Per Share |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | (2) EARNINGS PER SHARE Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common stock shares outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. For the three month periods ended March 31, 2018 and March 31, 2017, the Company has excluded all unearned shares held by the ESOP.
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Securities |
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Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities | (3) SECURITIES The carrying amount of securities and their estimated fair values at March 31, 2018 and December 31, 2017 were as follows:
The scheduled maturities of debt securities available for sale at March 31, 2018 were as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of March 31, 2018 were as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2017 were as follows:
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, 2018, the Company has 98 securities with unrealized losses. The losses for all securities are considered to be a direct result of the effect that the prevailing interest rate environment had on the value of debt securities and are not related to the credit worthiness of the issuers. Furthermore, the Company has the intent and ability to retain its investments in the issuers for a period of time that management believes to be sufficient to allow for any anticipated recovery in fair value. Therefore, the Company did not recognize any other-than-temporary impairments as of March 31, 2018. At March 31, 2018 and December 31, 2017, securities with a book value of approximately $113.3 million and $119.8 million and a market value of approximately $113.8 million and $118.0 million, respectively, were pledged to various municipalities for deposits in excess of FDIC limits as required by law. At March 31, 2018 and December 31, 2017, securities with a market value of $41.8 million and $38.4 million, respectively, were sold to customers as part of overnight repurchase agreements. |
Loans |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | (4) LOANS The Company uses the following loan segments as described below:
Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2018 and December 31, 2017.
Although the Company has a diversified loan portfolio, 84.2% and 84.8% of the portfolio was concentrated in loans secured by real estate at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the majority of these loans are located within the Company’s general operating area.
Risk Grade Classifications The Company utilizes a credit grading system that provides a uniform framework for establishing and monitoring credit risk in the loan portfolio. Under this system, each loan is graded based on pre-determined risk metrics and categorized into one of the risk grades discussed below. The Company uses the following risk grade definitions for commercial loans: Excellent - Loans in this category are to persons or entities of unquestioned financial strength, a highly liquid financial position, with collateral that is liquid and well margined. These borrowers have performed without question on past obligations, and the Bank expects their performance to continue. Internally generated cash flow covers current maturities of long-term debt by a substantial margin. Loans secured by Bank certificates of deposit and savings accounts, with appropriate holds placed on the accounts, are to be rated in this category. Very Good - These are loans to persons or entities with strong financial condition and above-average liquidity who have previously satisfactorily handled their obligations with the Bank. Collateral securing the Bank’s debt is margined in accordance with policy guidelines. Internally generated cash flow covers current maturities of long-term debt more than adequately. Unsecured loans to individuals supported by strong financial statements and on which repayment is satisfactory may be included in this classification. Satisfactory - Assets of this grade conform to substantially all the Bank’s underwriting criteria and evidence an average level of credit risk; however, such assets display more susceptibility to economic, technological or political changes since they lack the above average financial strength of credits rated Very Good. Borrower’s repayment capacity is considered to be adequate. Credit is appropriately structured and serviced; payment history is satisfactory. Acceptable - Assets of this grade conform to most of the Bank’s underwriting criteria and evidence an acceptable, though higher than average, level of credit risk; however, these loans have certain risk characteristics which could adversely affect the borrower’s ability to repay given material adverse trends. Loans in this category require an above average level of servicing and show more reliance on collateral and guaranties to preclude a loss to the Bank should material adverse trends develop. If the borrower is a company, its earnings, liquidity and capitalization are slightly below average when compared to its peers. Watch - These loans are characterized by borrowers who have marginal cash flow, marginal profitability, or have experienced an unprofitable year and a declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. Other characteristics of borrowers in this class include inadequate credit information, weakness of financial statement and repayment capacity, but with collateral that appears to limit exposure. This classification includes loans to established borrowers that are reasonably margined by collateral, but where potential for improvement in financial capacity appears limited.
Special Mention - Loans in this category have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deteriorating prospects for the asset or in the institution’s credit position at some future date. Borrowers may be experiencing adverse operating trends or market conditions. Non-financial reasons for rating a credit exposure Special Mention include, but are not limited to: management problems, pending litigations, ineffective loan agreement and/or inadequate loan documentation, structural weaknesses and/or lack of control over collateral. Substandard - A substandard asset is inadequately protected by the current sound worth or paying capacity of the debtor or the collateral pledged. There exists one or more well defined weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility the Bank will experience some loss if the deficiencies are not corrected. Doubtful - A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. These are poor quality loans in which neither the collateral, if any, nor the financial condition of the borrower presently ensure collectability in full in a reasonable period of time; in fact, there is permanent impairment in the collateral securing the Bank’s loan. These loans are in a work-out status and have a defined work-out strategy. Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as Bankable assets is not warranted. The Bank takes losses in the period in which they become uncollectible. The following credit risk standards are assigned to consumer loans: Satisfactory - All consumer open-end and closed-end retail loans shall have an initial risk grade assigned of 3 - Satisfactory. Substandard - All consumer open-end and closed-end retail loans past due 90 cumulative days from the contractual date will be classified as 7 - Substandard. If a consumer/retail loan customer files bankruptcy, the loan will be classified as 7 - Substandard regardless of payment history. Loss - All closed-end retail loans that become past due 120 cumulative days and open-end retail loans that become past due 180 cumulative days from the contractual due date will be charged off as loss assets. The charge off will be taken by the end of the month in which the 120-day or 180-day time period elapses. All losses in retail credit will be recognized when the affiliate becomes aware of the loss, but in no case should the charge off exceed the time frames stated within this policy.
The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the three month period ended March 31, 2018:
The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2017:
The table below presents past due and non-accrual balances, excluding loan fees of $539,000, at March 31, 2018 by loan classification allocated between performing and non-performing:
The table below presents past due and non-accrual balances, excluding loan fees of $443,000, at December 31, 2017 by loan classification allocated between performing and non-performing:
At March 31, 2018, there were no loans more than 90 days past due and accruing interest. At December 31, 2017, there were $88,000 in loans more than 90 days past due accruing interest. The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of March 31, 2018 and December 31, 2017 by portfolio segment and based on the impairment method.
The determination of the allowance for loan losses is based on management’s analysis, performed on a quarterly basis. Various factors are considered, including the growth and composition of the loan portfolio, the relationship of the allowance for loan losses to outstanding loans, historical loss experience, delinquency trends and prevailing economic conditions and the market value of the underlying collateral. Although management believes its allowance for loan losses is adequate, there can be no assurance that additional allowances will not be required or that losses on loans will not be incurred. A loan is considered to be impaired when management determines that it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. The value of individually impaired loans is measured based on the present value of expected payments or using the fair value of the collateral less cost to sell if the loan is collateral dependent. Currently, it is management’s practice to classify all substandard or doubtful loans as impaired.
Loans by classification type and credit risk indicator at March 31, 2018 and December 31, 2017 were as follows:
Impaired loans by classification type and the related valuation allowance amounts at March 31, 2018 were as follows:
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows:
At March 31, 2018 and December 31, 2017, non-accrual loans totaled $2.0 million and $1.3 million, respectively. All non-accrual loans with the exception of one junior lien loan are classified as substandard. At March 31, 2018, the Company is not obligated to lend additional funds to borrowers who have been placed in non-accrual status. There are no loans accruing interest that are past due more than 90 days at March 31, 2018. At December 31, 2017, there was one loan, totaling $88,000 that was past due more than 90 days and accruing interest. At March 31, 2018 and December 31, 2017, the Company’s balances in non-accrual loans by loan type is as follows:
The following table provides the number of loans remaining in each category as of March 31, 2018 and December 31, 2017 that the Company had previously modified in a TDR:
For the three month period ended March 31, 2018, the Company identified one additional commercial loan as a TDR. The loan is secured by equipment and inventory. The TDR classification is the result of the borrower’s declining financial condition, prompting the Company to lengthen the amortization period of the loan to twelve years. The length of the current amortization period is outside of our loan policy and results in a TDR classification. The loan has a one year balloon feature and the borrower’s financial condition will be re-evaluated at that time. There were no loans as of March 31, 2018 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At March 31, 2018, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR. |
Foreclosed Assets |
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Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreclosed Assets | (5) FORECLOSED ASSETS The Company’s foreclosed assets have been acquired through customer loan defaults. The property is recorded at the lower of cost or fair value less estimated cost to sell and carrying cost at the date acquired. Any difference between the book value and estimated market value is recognized as a charge off through the allowance for loan loss account. Additional losses on foreclosed assets may be determined on individual properties at specific intervals or at the time of disposal. In general, the Company will obtain a new appraisal on all foreclosed assets with a book balance in excess of $250,000 on an annual basis. Additional losses are recognized as a non-interest expense. For the three month period ended March 31, 2018, the Company’s activity in foreclosed property included the following:
The Company’s activity in foreclosed assets for the twelve month period ended December 31, 2017 is as follows:
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Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | (6) FAIR VALUE OF ASSETS AND LIABILITIES Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The following are the significant methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments: Cash and due from banks The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets’ fair values, because they mature within 90 days or less and do not present credit risk concerns. Interest-bearing deposits in banks The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets’ fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns. Available-for-sale securities Fair values for investment securities available-for-sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments provided by a third-party pricing service. The Company reviews all securities in which the book value is greater than the market value for impairment that is other than temporary. For securities deemed to be other than temporarily impaired, the Company reduces the book value of the security to its market value by recognizing an impairment charge on its income statement. FHLB stock The fair value of FHLB stock is recognized at cost. Loans held for sale Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.
Loans receivable The fair values of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans that re-price frequently and have no significant change in credit risk is approximately the carrying value of the loan. Accrued interest receivable Fair value is estimated to approximate the carrying amount because such amounts are expected to be received within 90 days or less and any credit concerns have been previously considered in the carrying value. Deposits The fair values disclosed for deposits with no stated maturity such as demand deposits, interest-bearing checking accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and other fixed maturity time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on such type accounts or similar accounts to a schedule of aggregated contractual maturities or similar maturities on such time deposits. Advances from borrowers for taxes and insurance The carrying amount of advances from borrowers for taxes and insurance approximates its fair value. Advances from the Federal Home Loan Bank (FHLB) The fair value of these advances is estimated by discounting the future cash flows of these advances using the current rates at which similar advances or similar financial instruments could be obtained. Repurchase agreements Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements. Subordinated debentures The book value of subordinated debentures is cost. The subordinated debentures re-price quarterly at a rate equal to three month libor plus 3.10%. Fair Value Measurements on a Recurring Basis Where quoted prices are available for identical securities in an active market, securities available for sale are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
Assets and Liabilities Measured on a Recurring Basis The assets and liabilities measured at fair value on a recurring basis at March 31, 2018 are summarized below:
The assets and liabilities measured at fair value on a recurring basis at December 31, 2017 are summarized below:
The assets and liabilities measured at fair value on a non-recurring basis are summarized below for March 31, 2018:
The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a recurring and non-recurring basis at March 31, 2018 and December 31, 2017:
The estimated fair values of financial instruments were as follows at March 31, 2018:
The estimated fair values of financial instruments were as follows at December 31, 2017:
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Effect of New Accounting Pronouncements |
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Mar. 31, 2018 | |||||||||||||
Accounting Changes and Error Corrections [Abstract] | |||||||||||||
Effect of New Accounting Pronouncements | (7) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB deferred the effective date reporting periods beginning after December 15, 2017. The implementation of ASC Topic 605 did not have a material impact on the Company’s Consolidated Financial Statements.
ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective on January 1, 2018 and did not have a material effect on the Company’s Consolidated Financial Statements. ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements. ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017. The implementation of ASU 2016-09 did not have a material effect on the Company’s Consolidated Financial Statements.
On June 16, 2016, the FASB released its finalized ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables, the FASB said. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified as available-for-sale. The accounting board added that the write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts to improve the loss estimates on financial assets that are losing value. The board also said the techniques that are employed today to write down loans and other instruments can still be used, although it expects the variables for calculating the losses to change. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU 2016-13 in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-13. ASU 2016-15 “Statement of Cash Flows (Topic 230)” (“ASU 2016-15”) is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those fiscal years. Early adoption is permitted with retrospective application. The application of ASU 2016-15 did not have a material impact on the Company’s Consolidated Financial Statements. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations. ASU 2017-08, “Receivables – Nonrefundable Fees and Other Cost” (Topic 310) – amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of instrument. ASU 2017-08 premiums on purchased callable debt securities that have an explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
ASU 2017-09 “Compensation – Stock Compensation (Topic 718) – clarifies when changes to the terms or conditions of a share-based payment must be accounted for as modifications. Under AUS 2017-09, an entity should account for changes to the terms or conditions of a share-based payment unless all of the following are met:
ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a material impact on our consolidated financial statements. ASU 2017-12 “Derivatives and Hedging (Topic 815) amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information convey to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for the Company on January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements. 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. ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 34.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. The Company is currently reviewing the impact of the adoption of ASU 2018-02 on its Consolidated Financial Statements. |
INCOME TAXES |
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Mar. 31, 2018 | |||||||||
Income Tax Disclosure [Abstract] | |||||||||
INCOME TAXES | (8) INCOME TAXES The Company files consolidated federal income tax returns and Tennessee excise tax returns. The Company files consolidated Kentucky income tax returns. The Bank is exempt from Kentucky corporate income tax. The Company has no unrecognized tax benefits and has accrued any interest or penalties for uncertain tax positions. The Company’s effective tax rate changed from 34% to 21% effective January 1, 2018 as a result of the Tax Cut and Jobs Act of 2017. The effective tax rate differs from the statutory federal rate of 21% and Tennessee excise rate of 6.5% due to investments in qualified municipal securities, bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses. The Company’s effective federal income tax rate varies significantly from our federal statutory tax rate for a variety of factors, including:
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Esop |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Esop | (9) ESOP Substantially all of the Company’s employees who are at least 21 years old and have one year of employment with the Company participate in the 2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan (“ESOP”). The ESOP purchased 600,000 shares of the Company’s common stock from the Company on March 2, 2015 at $13.14 per share. The ESOP borrowed $7.9 million from an open-end line of credit from the Company for the purchase of the stock, using the 600,000 shares of common stock as collateral. The Company makes discretionary contributions to the ESOP. The ESOP utilizes these contributions along with the dividends on 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 reductions in the principal balance of the loan. The shares are allocated to participants based on relative compensation. Employees who are not employed on December 31st of each year are not eligible for participation in the ESOP. The Company anticipates that loan payments will be made at the end of each year. Participants receive shares at the end of employment. The Company has the option to repurchase the shares or provide the shares directly to the employee. The Company made its third ESOP loan payment in December 2017. At March 31, 2018 and December 31, 2017, 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 | (10) COMMITMENTS AND CONTINGENCIES At March 31, 2018, the Bank had $33.1 million in outstanding commitments on revolving home equity lines of credit, $20.5 million in outstanding commitments on revolving personal lines of credit and $48.4 million in commitments to originate loans and undisbursed commitments on commercial lines of credit of $62.9 million. At March 31, 2018, the Company had $293,000 in standby letters of credit outstanding. At March 31, 2018, the Company has $40.9 million in times deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $61.9 million in time deposits with balances 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, 2018 and December 31, 2017, the Bank has pledged all eligible 1-4 family first mortgages. At March 31, 2018 and December 31, 2017, the Bank has outstanding borrowings of $25.0 million and $23.0 million, respectively, from the FHLB. A schedule of FHLB borrowings at March 31, 2018 is provided below:
A schedule of FHLB borrowings at December 31, 2017 is provided below:
The Federal Home Loan Bank of Cincinnati has issued letters of credit in the Bank’s name totaling $47.6 million secured by the Bank’s loan portfolio to secure additional municipal deposits. At March 31, 2018, securities with a book value of $39.3 million and a fair market value of $38.1 million were sold under agreements to repurchase from various customers. The Company is a party to certain ordinary course litigation, and the Company intends to vigorously defend itself in all such matters. In the opinion of the Company, based on review and consultation with legal counsel, the outcome of such ordinary course litigation should not have a material adverse effect on the Company’s consolidated financial statements or results of operations. |
Regulatory Matters |
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Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Matters | (11) REGULATORY MATTERS The new minimum capital level requirements applicable to Bank holding companies and Banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a “capital conservation buffer” of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. For 2018, the capital conservation buffer is 1.875%. An institution is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions. Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010 no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0 billion in total assets, trust preferred securities issued prior to that date, continue to count as Tier 1 capital subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain new eligibility criteria. The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. The Company has made the decision to opt-out of this requirement. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted total assets (as defined), and of total capital (as defined) and Tier 1 to risk weighted assets (as defined). The minimum required capital amounts presented include the minimum required capital levels as of March 31, 2018 and December 31, 2017 to which it is subject. Management believes, as of March 31, 2018 and December 31, 2017, that the Bank meets all capital adequacy requirements to which it is subject, including the phase–in requirements of Basel III.
The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of March 31, 2018 and December 31, 2017 are presented below:
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Subsequent Events |
3 Months Ended |
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Mar. 31, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | (12) SUBSEQUENT EVENTS On April 10, 2018, HopFed Bancorp, Inc. (the “Company”) entered into a Standstill Agreement (the “Agreement”) with Stilwell Activist Fund, L.P., Stilwell Activist Investments, L.P., Stilwell Associates, L.P., Stilwell Value LLC and Joseph Stilwell (collectively, the “Stilwell Group”) and Mark D. Alcott. The Stilwell Group owns approximately 9.5% of the shares of the Company’s outstanding common stock. The Agreement provides that, effective upon a meeting of the Board of Directors to be held no later than April 30, 2018, the Board will be expanded by one Board seat, and Mr. Alcott will be appointed to serve as a director of the Company in the class of directors with terms expiring at the Company’s 2019 Annual Meeting of Stockholders or until his successor is elected and qualified. Mr. Alcott will be nominated at the 2019 Annual Meeting of Stockholders to serve until the 2022 Annual Meeting of Stockholders, or until his successor is elected and qualified. Mr. Alcott also will be nominated and elected to concurrent terms on the Board of Directors of the Bank and Company. The Company appointed Mr. Alcott to its Board of Directors on April 18, 2018. During the term of the Agreement, which is scheduled to continue through the date of that is 15 business days prior to the deadline for submission of stockholder nominations and proposals for the Company’s 2022 Annual Meeting of Stockholders (which may be extended by written agreement of the parties), the Stilwell Group and Mr. Alcott will not, among other things, solicit proxies in opposition to any recommendation or proposal of the Company’s Board of Directors, initiate or solicit stockholder proposals or seek to place any additional representatives on the Company’s Board of Directors other than Mr. Alcott (or any replacement director selected by the Stilwell Group in the event Mr. Alcott’s position as a director of the Company or the Bank is terminated during the term of the Stilwell Agreement due to his resignation, death, permanent disability or otherwise), oppose any proposal or director nomination submitted by the Board of Directors to the Company’s stockholders, vote for any nominee to, or proposal by, the Company’s Board of Directors other than those nominated, proposed or supported by the Board of Directors, seek removal of any Company or Bank director, seek to exercise any control or influence over the management of the Company or the Boards of Directors of the Company or the Bank, propose or seek to effect a merger or sale of the Company or initiate litigation against the Company (except in connection with enforcement of the Agreement). The Stilwell Group also agreed not to acquire any additional shares of the outstanding Company common stock or, without the Company’s prior written consent, sell or otherwise dispose of any interest in the Stilwell Group’s shares of Company Common Stock to any person the Stilwell Group believes, after reasonable inquiry, would be a beneficial owner after any such sale or transfer of more than 5% of the outstanding shares of the Company Common Stock. The parties have also entered into a Non-Disclosure Agreement, in the form attached as an exhibit to the Agreement, providing that the Stilwell Group will maintain the confidentiality of non-public information regarding the Company or the Bank in full compliance with federal and state securities laws, which became effective upon execution of the Agreement, and will remain in effect until the date that is 15 business days prior to the deadline for submission of stockholder nominations and proposal for the Company’s 2022 Annual Meeting of Stockholders pursuant to the Company’s Certificate of Incorporation; provided, however, that the parties may agree in writing to extend the term of the Non-Disclosure Agreement. |
Fair Value of Assets and Liabilities (Policies) |
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Mar. 31, 2018 | |||||||||||||
Accounting Changes and Error Corrections [Abstract] | |||||||||||||
Fair Value Measurement | Accounting Standards Codification Topic (ASC) 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value. The statement establishes a fair value hierarchy which requires an entity to maximize the use of observable input and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
The following are the significant methods and assumptions used by the Company in estimating its fair value disclosures for financial instruments: Cash and due from banks The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents approximate those assets’ fair values, because they mature within 90 days or less and do not present credit risk concerns. Interest-bearing deposits in banks The carrying amounts reported in the consolidated balance sheets for interest earning deposits approximate those assets’ fair values, because they are considered overnight deposits and may be withdrawn at any time without penalty and do not present credit risk concerns. Available-for-sale securities Fair values for investment securities available-for-sale are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments provided by a third-party pricing service. The Company reviews all securities in which the book value is greater than the market value for impairment that is other than temporary. For securities deemed to be other than temporarily impaired, the Company reduces the book value of the security to its market value by recognizing an impairment charge on its income statement. FHLB stock The fair value of FHLB stock is recognized at cost. Loans held for sale Mortgage loans originated and intended to be sold are carried at the lower of cost or estimated fair value as determined on a loan by loan basis. Gains or losses are recognized at the time of ownership transfer. Net unrealized losses, if any, are recognized through a valuation allowance and charged to income.
Loans receivable The fair values of fixed-rate loans and variable rate loans that re-price on an infrequent basis is estimated using discounted cash flow analysis which considers future re-pricing dates and estimated repayment dates, and further using interest rates currently being offered for loans of similar type, terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The estimated fair value of variable-rate loans that re-price frequently and have no significant change in credit risk is approximately the carrying value of the loan. Accrued interest receivable Fair value is estimated to approximate the carrying amount because such amounts are expected to be received within 90 days or less and any credit concerns have been previously considered in the carrying value. Deposits The fair values disclosed for deposits with no stated maturity such as demand deposits, interest-bearing checking accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The fair values for certificates of deposit and other fixed maturity time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on such type accounts or similar accounts to a schedule of aggregated contractual maturities or similar maturities on such time deposits. Advances from borrowers for taxes and insurance The carrying amount of advances from borrowers for taxes and insurance approximates its fair value. Advances from the Federal Home Loan Bank (FHLB) The fair value of these advances is estimated by discounting the future cash flows of these advances using the current rates at which similar advances or similar financial instruments could be obtained. Repurchase agreements Overnight repurchase agreements have a fair value at book, given that they mature overnight. The fair values of longer date repurchase agreements is estimated using discounted cash flow analysis which considers the current market pricing for repurchase agreements of similar final maturities and collateral requirements. Subordinated debentures The book value of subordinated debentures is cost. The subordinated debentures re-price quarterly at a rate equal to three month libor plus 3.10%. |
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Revenue from Contracts with Customers | In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” This guidance supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the ASC. The guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016; however, the FASB deferred the effective date reporting periods beginning after December 15, 2017. The implementation of ASC Topic 605 did not have a material impact on the Company’s Consolidated Financial Statements. |
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Financial Instruments | ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements and (vii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 was effective on January 1, 2018 and did not have a material effect on the Company’s Consolidated Financial Statements. |
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Leases | ASU 2016-02, “Leases (Topic 842).” ASU 2016-02 will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019, and will require transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the potential impact of ASU 2016-02 on the Company’s Consolidated Financial Statements. |
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Compensation - Stock Compensation | ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under ASU 2016-09 all excess tax benefits and tax deficiencies related to share-based payment awards should be recognized as income tax expense or benefit in the income statement during the period in which they occur. Previously, such amounts were recorded in the pool of excess tax benefits included in additional paid-in capital, if such pool was available. Because excess tax benefits are no longer recognized in additional paid-in capital, the assumed proceeds from applying the treasury stock method when computing earnings per share should exclude the amount of excess tax benefits that would have previously been recognized in additional paid-in capital. Additionally, excess tax benefits should be classified along with other income tax cash flows as an operating activity rather than a financing activity, as was previously the case. ASU 2016-09 also provides that an entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. ASU 2016-09 changes the threshold to qualify for equity classification (rather than as a liability) to permit withholding up to the maximum statutory tax rates (rather than the minimum as was previously the case) in the applicable jurisdictions. ASU 2016-09 was effective on January 1, 2017. The implementation of ASU 2016-09 did not have a material effect on the Company’s Consolidated Financial Statements.
On June 16, 2016, the FASB released its finalized ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments to U.S. GAAP require businesses and other organization to measure the expected credit losses on financial assets, such as loans, securities, bond insurance, and many receivables, the FASB said. The accounting changes apply to instruments recorded on balance sheets at their historical cost, although there are some limited changes to the accounting for debt instruments classified as available-for-sale. The accounting board added that the write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts to improve the loss estimates on financial assets that are losing value. The board also said the techniques that are employed today to write down loans and other instruments can still be used, although it expects the variables for calculating the losses to change. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Companies are permitted to adopt ASU 2016-13 in fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of ASU 2016-13. |
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Receivables - Nonrefundable Fees and Other Cost | ASU 2017-08, “Receivables – Nonrefundable Fees and Other Cost” (Topic 310) – amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of instrument. ASU 2017-08 premiums on purchased callable debt securities that have an explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018 and early adoption is permitted. The adoption of ASU 2017-08 is not expected to have a material impact on the Company’s Consolidated Financial Statements. |
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Compensation - Stock Compensation | ASU 2017-09 “Compensation – Stock Compensation (Topic 718) – clarifies when changes to the terms or conditions of a share-based payment must be accounted for as modifications. Under AUS 2017-09, an entity should account for changes to the terms or conditions of a share-based payment unless all of the following are met:
ASU 2017-09 was effective for the Company on January 1, 2018 and did not have a material impact on our consolidated financial statements. |
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Derivatives and Hedging | ASU 2017-12 “Derivatives and Hedging (Topic 815) amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information convey to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. ASU 2017-12 will be effective for the Company on January 1, 2019 and is not expected to have a significant impact on the Company’s Consolidated Financial Statements. 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. |
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Income Statement-Reporting Comprehensive Income | ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” Issued in February 2018, ASU 2018-02 seeks to help entities reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (Tax Reform Act), enacted on December 22, 2017. ASU 2018-02 was issued in response to concerns regarding current guidance in GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date, even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income, rather than net income, and as a result the stranded tax effects would not reflect the appropriate tax rate. The amendments of ASU 2018-02 allow an entity to make a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects, which is the difference between the historical corporate income tax rate of 34.0% and the newly enacted corporate income tax rate of 21.0%. ASU 2018-02 is effective for fiscal years, and interim periods within those years, beginning after December 31, 2018; however, public business entities are allowed to early adopt the amendments of ASU 2018-02 in any interim period for which the financial statements have not yet been issued. The amendments of ASU 2018-02 may be applied either at the beginning of the period (annual or interim) of adoption or retrospectively to each of the period(s) in which the effect of the change in the U.S. federal corporate tax rate in the Tax Reform Act is recognized. The Company is currently reviewing the impact of the adoption of ASU 2018-02 on its Consolidated Financial Statements. |
Earnings Per Share (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Basic and Diluted Income (Loss) Per Share |
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Securities (Tables) |
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2018 and December 31, 2017 were 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, 2018 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, 2018 were as follows:
The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2017 were as follows:
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Loans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Composition of Loan Portfolio By Type of Loan | Set forth below is selected data relating to the composition of the loan portfolio by type of loan at March 31, 2018 and December 31, 2017.
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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, 2018:
The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the year ended December 31, 2017:
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Gross Loan Balances Excluding Deferred Loan Fees by Loan Classification Allocated Between Past Due Performing and Non-accrual | The table below presents past due and non-accrual balances, excluding loan fees of $539,000, at March 31, 2018 by loan classification allocated between performing and non-performing:
The table below presents past due and non-accrual balances, excluding loan fees of $443,000, at December 31, 2017 by loan classification allocated between performing and non-performing:
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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, 2018 and December 31, 2017 by portfolio segment and based on the impairment method.
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Loans by Classification Type and Credit Risk Indicator | Loans by classification type and credit risk indicator at March 31, 2018 and December 31, 2017 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, 2018 were as follows:
Impaired loans by classification type and the related valuation allowance amounts at December 31, 2017 were as follows:
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Summary of Non-accrual Loans by Loan Type | At March 31, 2018 and December 31, 2017, the
Company’s balances in non-accrual loans by loan type is as
follows:
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Summary of the Activity in Loans Classified as TDRs | The following table provides the number of loans remaining in each category as of March 31, 2018 and December 31, 2017 that the Company had previously modified in a TDR:
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Foreclosed Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Foreclosed Properties Activity | For the three month period ended March 31, 2018, the Company’s activity in foreclosed property included the following:
The Company’s activity in foreclosed assets for the twelve month period ended December 31, 2017 is as follows:
|
Fair Value of Assets and Liabilities (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Measured at Fair Value on a Recurring Basis | The assets and liabilities measured at fair value on a recurring basis at March 31, 2018 are summarized below:
The assets and liabilities measured at fair value on a recurring basis at December 31, 2017 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, 2018:
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Quantitative Information about Level 3 Fair Value Measurements for Assets Measured at Fair Value on Recurring and Non-recurring Basis | The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a recurring and non-recurring basis at March 31, 2018 and December 31, 2017:
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Estimated Fair Values of Financial Instruments | The estimated fair values of financial instruments were as follows at March 31, 2018:
The estimated fair values of financial instruments were as follows at December 31, 2017:
|
Esop (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Text Block [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Shares Held by Employee Stock Ownership Plan (ESOP) | At March 31, 2018 and December 31, 2017, shares held by the ESOP were as follows:
|
Commitments and Contingencies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of FHLB Borrowings | A schedule of FHLB borrowings at March 31, 2018 is provided below:
A schedule of FHLB borrowings at December 31, 2017 is provided below:
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Regulatory Matters (Tables) |
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking and Thrift [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company's Consolidated Capital Ratios and the Bank's Actual Capital Amounts and Ratios | The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of March 31, 2018 and December 31, 2017 are presented below:
|
Earnings Per Share - Reconciliation of Basic and Diluted Income (Loss) Per Share (Detail) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Basic EPS: | ||
Net income | $ 1,126,000 | $ 935,000 |
Average common shares outstanding | 6,188,413 | 6,218,706 |
Earnings per share | $ 0.18 | $ 0.15 |
Diluted EPS | ||
Net income | $ 1,126,000 | $ 935,000 |
Average common shares outstanding | 6,188,413 | 6,218,706 |
Dilutive effect of stock options | 0 | 0 |
Average diluted shares outstanding | 6,188,413 | 6,218,706 |
Earnings per share, diluted | $ 0.18 | $ 0.15 |
Securities - Additional Information (Detail) $ in Millions |
Mar. 31, 2018
USD ($)
Securities
|
Dec. 31, 2017
USD ($)
|
---|---|---|
Schedule of Available-for-sale Securities [Line Items] | ||
Number of securities with unrealized losses | Securities | 98 | |
Securities pledged to municipalities for deposits in excess of FDIC limits, book value | $ 113.3 | $ 119.8 |
Securities pledged to municipalities for deposits in excess of FDIC limits, market value | 113.8 | 118.0 |
Overnight [Member] | ||
Schedule of Available-for-sale Securities [Line Items] | ||
Securities with a fair market value sold under agreements | $ 41.8 | $ 38.4 |
Loans - Summary of the Activity in Loans Classified as TDRs (Detail) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018
USD ($)
Contracts
|
Dec. 31, 2017
USD ($)
Contracts
|
|
Non-Residential Real Estate [Member] | ||
Financing Receivable, Modifications [Line Items] | ||
Number of Loans | Contracts | 2 | 2 |
Pre-Modification Outstanding Record Investment | $ 3,163,435 | $ 3,163,435 |
Post Modification Outstanding Record Investment, net of related allowance | $ 3,163,435 | $ 3,163,435 |
Commercial Loans [Member] | ||
Financing Receivable, Modifications [Line Items] | ||
Number of Loans | Contracts | 1 | |
Pre-Modification Outstanding Record Investment | $ 91,683 | |
Post Modification Outstanding Record Investment, net of related allowance | $ 91,683 |
Foreclosed Assets - Additional Information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Banking and Thrift, Interest [Abstract] | |
Minimum book balance for appraisal on all foreclosed assets | $ 250,000 |
Fair Value of Assets and Liabilities - Additional information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract] | |
Maturity period of cash and cash equivalents | 90 days |
Interest rate to be received under swap agreement adjusted quarterly | Three month libor plus 3.10% |
Percentage above LIBOR | 3.10% |
Fair Value of Assets and Liabilities - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Detail) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
Dec. 31, 2016 |
---|---|---|---|
Assets | |||
Foreclosed assets | $ 3,329 | $ 3,369 | $ 2,397 |
Fair Value, Measurements, Nonrecurring [Member] | |||
Assets | |||
Foreclosed assets | 3,329 | 3,369 | |
Impaired loans, net of allowance | 378 | 473 | |
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | |||
Assets | |||
Foreclosed assets | 3,329 | 3,369 | |
Impaired loans, net of allowance | $ 378 | $ 473 |
Fair Value of Assets and Liabilities - Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis (Parenthetical) (Detail) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items] | ||
Allowance for impaired loans | $ 196 | $ 289 |
Fair Value, Measurements, Nonrecurring [Member] | ||
Fair Value Assets And Liabilities Measured On Nonrecurring Basis [Line Items] | ||
Allowance for impaired loans | $ 196 | $ 289 |
Effect of New Accounting Pronouncements - Additional Information (Detail) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Corporate income tax rate | 21.00% | |
ASU 2018-02 [Member] | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Corporate income tax rate | 21.00% | 34.00% |
Income Taxes - Additional Information (Detail) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Income Tax Benefit [Line Items] | ||
Unrecognized tax benefits | $ 0 | |
Effective tax rate | 21.00% | 34.00% |
Effective tax rate | 21.00% | |
Bank owned life insurance | $ 10,439,000 | $ 10,368,000 |
Tennessee [Member] | ||
Income Tax Benefit [Line Items] | ||
Effective tax rate | 6.50% | |
Tax Free Municipal Bonds [Member] | ||
Income Tax Benefit [Line Items] | ||
Securities available for sale | $ 26,700,000 |
Esop - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
Total ESOP shares | 600,234 | 600,234 |
ESOP common stock, per share | $ 13.14 | |
ESOP borrowed | $ 7.9 | |
2015 HopFed Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") [Member] | ||
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items] | ||
Employee stock ownership plan employee minimum service period | 1 year | |
Minimum age eligibility of employee | 21 years |
Esop - Summary of Shares Held by Employee Stock Ownership Plan (ESOP) (Detail) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Accrued for allocation to participants | 10,873 | |
Earned ESOP shares | 165,686 | 165,686 |
Unearned ESOP shares | 423,675 | 434,548 |
Total ESOP shares | 600,234 | 600,234 |
Fair value of unearned shares | $ 6,164,471 | $ 6,127,127 |
Subsequent Events - Additional Information (Detail) - Subsequent Event [Member] - Stilwell Group [Member] |
Apr. 10, 2018 |
---|---|
Subsequent Event [Line Items] | |
Ownership percentage | 9.50% |
Beneficial ownership threshold percentage | 5.00% |
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