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  • 10-Q (Nov 8, 2017)
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HopFed Bancorp 10-Q 2017

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
Form 10-Q
Table of Contents

 

 

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 September 30, 2017

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)

Registrant’s 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 November 6, 2017, the Registrant had outstanding 6,672,771 shares of the Registrant’s Common stock.

 

 

 


Table of Contents

CONTENTS

HOPFED BANCORP, INC.

 

     PAGE  
PART I. FINANCIAL INFORMATION   
The unaudited consolidated condensed financial statements of the Registrant and its wholly owned subsidiaries are as follows:   
Item 1.    Financial Statements   
  

Interim Consolidated Condensed Statements of Financial Condition as of September 30, 2017 (unaudited) and December 31, 2016

     1  
  

Interim Consolidated Condensed Statements of Income for the Three and Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)

     3  
  

Interim Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)

     5  
  

Interim Consolidated Condensed Statement of Stockholders’ Equity for the Nine Month Period Ended September 30, 2017 (unaudited)

     6  
  

Interim Consolidated Condensed Statements of Cash Flows for the Nine Month Periods Ended September 30, 2017 and September 30, 2016 (unaudited)

     7  
  

Notes to Unaudited Interim Consolidated Condensed Financial Statements

     8  
Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     40  
Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     49  
Item 4.   

Controls and Procedures.

     49  
PART II OTHER INFORMATION   
Item 1.    Legal Proceedings      50  
Item 1A.    Risk Factors      51  
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      51  
Item 3.    Defaults Upon Senior Securities      51  
Item 4.    Mine Safety Disclosures      51  
Item 5.    Other Information      51  
Item 6.    Exhibits      52  
SIGNATURES      52  

 

1


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Financial Condition

(Dollars in Thousands)

 

     September 30, 2017      December 31, 2016  
     (unaudited)         
Assets      

Cash and due from banks

   $ 23,469        21,779  

Interest-bearing deposits in banks

     9,842        3,970  
  

 

 

    

 

 

 

Cash and cash equivalents

     33,311        25,749  

Federal Home Loan Bank stock, at cost

     4,428        4,428  

Securities available for sale

     192,287        209,480  

Loans held for sale

     1,749        1,094  

Loans receivable, net of allowance for loan losses of $4,799 at September 30, 2017 and $6,112 at December 31, 2016

     625,403        604,286  

Accrued interest receivable

     3,414        3,799  

Foreclosed assets, net

     4,975        2,397  

Bank owned life insurance

     10,287        10,662  

Premises and equipment, net

     22,945        23,461  

Deferred tax assets

     2,292        3,052  

Other assets

     2,973        3,078  
  

 

 

    

 

 

 

Total assets

   $ 904,064        891,486  
  

 

 

    

 

 

 
Liabilities and Stockholders’ Equity      

Liabilities:

     

Deposits:

     

Non-interest-bearing accounts

   $ 128,184        131,145  

Interest-bearing accounts

     

Checking accounts

     196,315        209,347  

Savings and money market accounts

     97,929        99,312  

Other time deposits

     308,801        293,078  
  

 

 

    

 

 

 

Total deposits

     731,229        732,882  

Advances from Federal Home Loan Bank

     31,000        11,000  

Repurchase agreements

     37,829        47,655  

Subordinated debentures

     10,310        10,310  

Advances from borrowers for taxes and insurance

     1,188        766  

Accrued expenses and other liabilities

     3,273        2,445  
  

 

 

    

 

 

 

Total liabilities

     814,829        805,058  
  

 

 

    

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Financial Condition, Continued

(Dollars in Thousands)

 

     September 30, 2017     December 31, 2016  
     (unaudited)        

Stockholders’ equity

    

Preferred stock, par value $0.01 per share; authorized - 500,000 shares; no shares issued and outstanding at September 30, 2017 and December 31, 2016

     —         —    

Common stock, par value $.01 per share; authorized 15,000,000 shares; 7,976,131 issued and 6,688,674 outstanding at September 30, 2017 and 7,963,378 issued and 6,717,242 outstanding at December 31, 2016

     80       80  

Additional paid-in-capital

     58,777       58,660  

Retained earnings

     51,646       49,035  

Treasury stock, at cost (1,287,457 shares at September 30, 2017 and 1,246,136 shares at December 31, 2016)

     (15,931     (15,347

Unearned Employee Stock Ownership Plan (“ESOP”) shares, at cost (465,881 shares at September 30, 2017 and 498,346 shares at December 31, 2016)

     (6,125     (6,548

Accumulated other comprehensive income

     788       548  
  

 

 

   

 

 

 

Total stockholders’ equity

     89,235       86,428  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 904,064       891,486  
  

 

 

   

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Income

(Dollars in Thousands)

(Unaudited)

 

     For the Three Month Periods
Ended September 30,
     For the Nine Month Periods
Ended September 30,
 
     2017      2016      2017      2016  

Interest and dividend income:

           

Loans

     7,260        6,569        20,959        19,175  

Investment in securities, taxable

     1,124        1,099        3,397        3,544  

Nontaxable securities available for sale

     233        326        796        1,019  

Interest-bearing deposits

     18        10        62        38  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest and dividend income

     8,635        8,004        25,214        23,776  
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense:

           

Deposits

     1,206        1,044        3,570        3,146  

FHLB borrowings

     89        33        151        134  

Repurchase agreements

     130        139        352        421  

Subordinated debentures

     112        99        324        287  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense

     1,537        1,315        4,397        3,988  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income

     7,098        6,689        20,817        19,788  

Provision for loan losses

     71        255        421        1,178  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net interest income after provision for loan losses

     7,027        6,434        20,396        18,610  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-interest income:

           

Service charges

     819        719        2,423        2,094  

Merchant card

     299        308        916        913  

Mortgage origination revenue

     335        415        947        1,218  

Gain on sale of securities

     162        79        178        422  

Income from bank owned life insurance

     95        104        402        265  

Income from financial services

     134        131        419        455  

Other operating income

     186        189        877        568  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-interest income

     2,030        1,945        6,162        5,935  
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Income, Continued

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

 

     For the Three Month Periods     For the Nine Month Periods  
     Ended September 30,     Ended September 30,  
     2017     2016     2017      2016  

Non-interest expenses:

         

Salaries and benefits

     3,919       3,757       12,132        11,646  

Occupancy

     716       810       2,220        2,398  

Data processing

     795       744       2,105        2,175  

State deposit tax

     169       248       600        743  

Professional services

     409       368       1,221        1,008  

Advertising

     240       376       989        1,067  

Foreclosure, net

     (25     204       89        473  

(Gain) Loss on sale of asset

     —         (72     3        (72

Other

     945       918       2,731        3,207  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total non-interest expense

     7,168       7,353       22,090        22,645  
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax expense

     1,889       1,026       4,468        1,900  

Income tax expense

     486       41       989        102  
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

     1,403       985       3,479        1,798  
  

 

 

   

 

 

   

 

 

    

 

 

 

Earnings per share:

         

Basic

   $ 0.22     $ 0.16     $ 0.56      $ 0.29  
  

 

 

   

 

 

   

 

 

    

 

 

 

Diluted

   $ 0.22     $ 0.16     $ 0.56      $ 0.29  
  

 

 

   

 

 

   

 

 

    

 

 

 

Dividend per share

   $ 0.05     $ 0.04     $ 0.14      $ 0.12  
  

 

 

   

 

 

   

 

 

    

 

 

 

Weighted average shares outstanding - basic

     6,236,075       6,212,231       6,227,955        6,247,536  
  

 

 

   

 

 

   

 

 

    

 

 

 

Weighted average shares outstanding - diluted

     6,236,075       6,212,231       6,227,955        6,247,536  
  

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Comprehensive Income

(Dollars in Thousands)

(Unaudited)

 

     For the Three Month     For the Nine Month  
     Periods Ended September 30,     Periods Ended September 30,  
     2017     2016     2017     2016  

Net income

   $ 1,403       985       3,479       1,798  

Other comprehensive income, net of tax:

        

Unrealized gain on non-other than temporary impaired investment securities available for sale, net of taxes of of $24 and $384 for the three month periods ended September 30, 2017 and September 30, 2016, respectively; and ($223) and ($883) for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.

     (44     (744     431       1,715  

Unrealized gain on OTTI securities, net of taxes of $52 and none for the three month periods ended September 30, 2017 and September 30, 2016, respectively; and $38 and ($37) for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.

     (100     —         (74     72  

Reclassification adjustment for gains included in net income, September 30, 2017 and September 30, 2016, respectively; and $61 and $144 for the nine month periods ended September 30, 2017 and September 30, 2016, respectively.

     (107     (52     (117     (278
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

     (251     (796     240       1,509  
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 1,152       189       3,719       3,307  
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statement of Stockholders’ Equity

For the Nine Month Period Ended September 30, 2017

(Dollars in Thousands, Except Share Amounts)

(Unaudited)

 

                                           Accumulated         
                  Additional            Common     Unearned     Other      Total  
     Common     Common      Paid in      Retained     Treasury     ESOP     Comprehensive      Stockholders’  
     Shares     Stock      Capital      Earnings     Shares     Shares     Income      Equity  

Balance December 31, 2016

     6,717,242     $ 80        58,660        49,035       (15,347     (6,548     548        86,428  

Restricted stock awards

     12,753       —          —          —         —         —         —          —    

Net income

     —         —          —          3,479       —         —         —          3,479  

Repurchase of treasury stock

     (41,321     —          —          —         (584     —         —          (584

ESOP shares committed to be released

     —         —          —          —         —         423       —          423  

Change in price of ESOP shares

     —         —          40        —         —         —         —          40  

Compensation expense, restricted stock awards

     —         —          77        —         —         —         —          77  

Net change in unrealized gain on securities available for sale, net of income taxes of ($124)

     —         —          —          —         —         —         240        240  

Cash dividend declared to common shareholders

     —         —          —          (868     —         —         —          (868
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Balance September 30, 2017

     6,688,674     $ 80        58,777        51,646       (15,931     (6,125     788        89,235  
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

HOPFED BANCORP, INC.

Interim Consolidated Condensed Statements of Cash Flows

(Dollars in Thousands)

(Unaudited)

 

     For the Nine Month Periods
Ended September 30,
 
     2017     2016  

Cash flows from operating activities:

    

Net cash provided by operating activities

   $ 7,702       7,098  

Cash flows from investing activities:

    

Proceeds from sales, calls and maturities of securities available for sale

     40,480       54,274  

Purchase of securities available for sale

     (23,572     (28,805

Net increase in loans

     (25,806     (24,246

Proceeds from sale of foreclosed assets

     1,666       1,319  

Proceeds from sale of premises and equipment

     —         100  

Purchase of premises and equipment

     (399     (551
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (7,631     2,091  
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net decrease in demand deposits

     (17,376     (13,126

Net increase (decrease) in time and other deposits

     15,723       (13,963

Increase in advances from borrowers for taxes and insurance

     422       497  

Advances from Federal Home Loan Bank

     58,000       23,000  

Repayment of advances from Federal Home Loan Bank

     (38,000     (27,000

Net decrease in repurchase agreements

     (9,826     (1,305

Cash used to repurchase treasury stock

     (584     (1,808

Dividends paid on common stock

     (868     (746
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     7,491       (34,451
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     7,562       (25,262

Cash and cash equivalents, beginning of period

     25,749       54,698  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 33,311     $ 29,436  
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Interest paid

     4,374       4,060  
  

 

 

   

 

 

 

Income taxes paid

   $ 421     ($ 700
  

 

 

   

 

 

 

Supplemental disclosures of non-cash investing and financing activities:

    

Loans charged off

     3,081       674  
  

 

 

   

 

 

 

Foreclosures of loans during period

     4,268       354  
  

 

 

   

 

 

 

Net unrealized gains on investment securities classified as available for sale

     364       2,286  
  

 

 

   

 

 

 

Decrease in deferred tax asset related to unrealized gains on investments

     (124     (777
  

 

 

   

 

 

 

Dividends declared and payable

     355       289  
  

 

 

   

 

 

 

Issuance of restricted common stock

     176       145  
  

 

 

   

 

 

 

See accompanying Notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

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Table of Contents

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. (“HopFed” or the “Corporation”) 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 nine month period ended September 30, 2017 are not necessarily indicative of results that may be expected the entire fiscal year ending December 31, 2017.

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, 2016. The accounting policies followed by the Company are set forth in the Summary of Significant Accounting Policies in the Company’s December 31, 2016 Consolidated Financial Statements.

 

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Table of Contents
(2) EARNINGS PER SHARE

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common stock shares outstanding. Diluted EPS is computed by dividing net income by the weighted average number of common stock shares outstanding, adjusted for the effect of potentially dilutive stock awards outstanding during the period. For the three and nine month periods ended September 30, 2017 and September 30, 2016, the Company has excluded all unearned shares held by the ESOP.

 

     For the Three Month Periods
Ended September 30,
 
     2017      2016  

Basic EPS:

     

Net income

   $ 1,403,000      $ 985,000  

Average common shares outstanding

     6,236,075        6,212,231  
  

 

 

    

 

 

 

Earnings per share

   $ 0.22      $ 0.16  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 1,403,000      $ 985,000  

Average common shares outstanding

     6,236,075        6,212,231  

Dilutive effect of stock options

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,236,075        6,212,231  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.22      $ 0.16  
  

 

 

    

 

 

 
     For the nine month Periods  
     Ended September 30,  
     2017      2016  

Basic EPS:

     

Net income

   $ 3,479,000      $ 1,798,000  

Average common shares outstanding

     6,227,955        6,247,536  
  

 

 

    

 

 

 

Earnings per share

   $ 0.56      $ 0.29  
  

 

 

    

 

 

 

Diluted EPS

     

Net income

   $ 3,479,000      $ 1,798,000  

Average common shares outstanding

     6,227,955        6,247,536  

Dilutive effect of stock options

     —          —    
  

 

 

    

 

 

 

Average diluted shares outstanding

     6,227,955        6,247,536  
  

 

 

    

 

 

 

Earnings per share, diluted

   $ 0.56      $ 0.29  
  

 

 

    

 

 

 

 

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(3) SECURITIES

The carrying amount of securities and their estimated fair values at September 30, 2017 were as follows:

 

     September 30, 2017  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

Restricted:

           

FHLB stock

   $ 4,428        —          —          4,428  
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale:

           

U.S. Agency securities

   $ 89,419        766        (356      89,829  

Taxable municipal bonds

     1,281        10        (6      1,285  

Tax free municipal bonds

     27,349        903        (21      28,231  

Trust preferred securities

     1,646        71        —          1,717  

Mortgage backed securities

     71,399        378        (552      71,225  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 191,094        2,128        (935      192,287  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The carrying amount of securities and their estimated fair values at December 31, 2016 were as follows:

 

     December 31, 2016  
            Gross      Gross      Estimated  
     Amortized      Unrealized      Unrealized      Fair  
     Cost      Gains      Losses      Value  
     (Dollars in Thousands)  

Restricted:

           

FHLB stock

   $ 4,428        —          —          4,428  
  

 

 

    

 

 

    

 

 

    

 

 

 

Available for sale:

           

U.S. Treasury securities

     2,000        1        —          2,001  

U.S. Agency securities

     83,667        983        (638      84,012  

Taxable municipal bonds

     2,720        17        (10      2,727  

Tax free municipal bonds

     33,004        1,081        (174      33,911  

Trust preferred securities

     1,634        183        —          1,817  

Mortgage-backed securities

     85,626        437        (1,051      85,012  
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 208,651        2,702        (1,873      209,480  
  

 

 

    

 

 

    

 

 

    

 

 

 

The scheduled maturities of debt securities available for sale at September 30, 2017 were as follows:

 

            Estimated  
     Amortized      Fair  
     Cost      Value  
     (Dollars in Thousands)  

Due within one year

   $ 3,830      $ 3,850  

Due in one to five years

     23,534        23,745  

Due in five to ten years

     25,505        25,847  

Due after ten years

     7,230        7,558  
  

 

 

    

 

 

 
     60,099        61,000  

Amortizing agency bonds

     59,596        60,062  

Mortgage-backed securities

     71,399        71,225  
  

 

 

    

 

 

 

Total securities available for sale

   $ 191,094      $ 192,287  
  

 

 

    

 

 

 

 

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The estimated fair value and unrealized loss amounts of temporarily impaired investments as of September 30, 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

   $ 31,029        (212     8,217        (144     39,246        (356

Taxable municipal bonds

     519        (6     —          —         519        (6

Tax free municipal bonds

     1,666        (4     928        (17     2,594        (21

Mortgage-backed securities

     25,788        (171     17,353        (381     43,141        (552
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 59,002        (393     26,498        (542     85,500        (935
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The estimated fair value and unrealized loss amounts of temporarily impaired investments as of December 31, 2016 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

   $ 41,963        (597     3,459        (41     45,422        (638

Taxable municipal bonds

     1,347        (10     —          —         1,347        (10

Tax free municipal bonds

     7,369        (174     —          —         7,369        (174

Mortgage-backed securities

     48,462        (796     7,439        (255     55,901        (1,051
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total available for sale

   $ 99,141        (1,577     10,898        (296     110,039        (1,873
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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 September 30, 2017, the Company has 60 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 September 30, 2017.

At September 30, 2017 and December 31, 2016, securities with a book value of approximately $117.4 million and $125.6 million and a market value of approximately $120.1 million and $128.4 million, respectively, were pledged to various municipalities for deposits in excess of FDIC limits as required by law.

 

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(4) LOANS

The Company uses the following loan segments as described below:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

Set forth below is selected data relating to the composition of the loan portfolio by type of loan at September 30, 2017 and December 31, 2016.

 

     September 30, 2017      December 31, 2016  
     (Dollars in Thousands)  

Real estate loans:

     

One-to-four family first mortgages

   $ 165,926      $ 147,962  

Home equity lines of credit

     34,995        35,684  

Junior liens

     1,402        1,452  

Multi-family

     37,321        34,284  

Construction

     25,594        39,255  

Land

     14,289        23,840  

Farmland

     37,262        47,796  

Non-residential real estate

     216,056        182,940  
  

 

 

    

 

 

 

Total mortgage loans

     532,845        513,213  

Consumer loans

     9,222        8,717  

Commercial loans

     88,515        88,907  
  

 

 

    

 

 

 

Total other loans

     97,737        97,624  
  

 

 

    

 

 

 

Total loans

     630,582        610,837  

Deferred loan fees, net of cost

     (380      (439

Less allowance for loan losses

     (4,799      (6,112
  

 

 

    

 

 

 

Total loans, net

   $ 625,403      $ 604,286  
  

 

 

    

 

 

 

 

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Although the Company has a diversified loan portfolio, 84.5% and 84.0% of the portfolio was concentrated in loans secured by real estate at September 30, 2017 and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016, the majority of these loans are located within the Company’s general operating area of the United States.

The following table provides a detail of the Company’s activity in the allowance for loan loss account by loan type for the nine month period ended September 30, 2017:

 

                               Ending  
     Balance      Charge offs     Recoveries      Provision     Balance  
     12/31/2016      2017     2017      2017     9/30/2017  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 852        (49     9        (79     733  

Home equity line of credit

     260        —         10        (86     184  

Junior liens

     8        —         2        (4     6  

Multi-family

     412        —         417        (506     323  

Construction

     277        —         —          (146     131  

Land

     1,760        (2,608     559        1,535       1,246  

Farmland

     778        —         —          (409     369  

Non-residential real estate

     964        —         13        (215     762  

Consumer loans

     208        (200     70        68       146  

Commercial loans

     593        (224     267        263       899  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 6,112        (3,081     1,347        421       4,799  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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, 2016:

 

                               Ending  
     Balance      Charge offs     Recoveries      Provision     Balance  
     12/31/2015      2016     2016      2016     12/31/2016  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 1,030        —         167        (345     852  

Home equity line of credit

     201        (30     14        75       260  

Junior liens

     8        —         14        (14     8  

Multi-family

     227        (421     —          606       412  

Construction

     377        —         —          (100     277  

Land

     1,379        —         —          381       1,760  

Farmland

     358        —         —          420       778  

Non-residential real estate

     1,139        —         10        (185     964  

Consumer loans

     358        (422     293        (21     208  

Commercial loans

     623        (595     141        424       593  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 5,700        (1,468     639        1,241       6,112  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

The table below presents past due and non-accrual balances at September 30, 2017 by loan classification allocated between performing and non-performing:

 

            30 - 89                    Impaired Loans         
     Currently      Days      Non-accrual      Special      Currently Performing         
     Performing      Past Due      Loans      Mention      Substandard      Doubtful      Total  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 164,817        582        333        51        143        —        $ 165,926  

Home equity line of credit

     34,433        —          401        —          161        —          34,995  

Junior liens

     1,398        4        —          —          —          —          1,402  

Multi-family

     37,321        —          —          —          —          —          37,321  

Construction

     25,594        —          —          —          —          —          25,594  

Land

     13,724        —          40        —          525        —          14,289  

Farmland

     35,626        —          455        1,147        34        —          37,262  

Non-residential real estate

     207,765        165        —          778        7,348        —          216,056  

Consumer loans

     9,066        3        5        —          148        —          9,222  

Commercial loans

     83,246        —          505        3,645        1,119        —          88,515  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 612,990        754        1,739        5,621        9,478        —        $ 630,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The table below presents past due and non-accrual balances at December 31, 2016 by loan classification allocated between performing and non-performing:

 

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

 

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

One-to-four family mortgages

     145,069        896        270        744        983        —          147,962  

Home equity line of credit

     35,087        22        402        25        148        —          35,684  

Junior liens

     1,407        4        —          30        11        —          1,452  

Multi-family

     31,280        —          —          —          3,004        —          34,284  

Construction

     39,255        —          —          —          —          —          39,255  

Land

     15,581        —          7,675        35        549        —          23,840  

Farmland

     44,832        —          —          674        2,290        —          47,796  

Non-residential real estate

     172,395        —          208        3        10,334        —          182,940  

Consumer loans

     8,354        28        3        —          332        —          8,717  

Commercial loans

     84,913        261        516        603        2,614        —          88,907  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     578,173        1,211        9,074        2,114        20,265        —          610,837  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2017 and December 31, 2016, there were no loans more than 90 days past due accruing interest.

 

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Table of Contents

The following table presents the balance in the allowance for loan losses and the recorded investment in loans as of September 30, 2017 and December 31, 2016, by portfolio segment and based on the impairment method.

 

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

September 30, 2017:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 267        —          19        —          36        322  

Collectively evaluated for impairment

     632        1,377        1,435        923        110        4,477  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 899        1,377        1,454        923        146        4,799  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 1,624        565        7,837        1,038        153        11,217  

Loans collectively evaluated for impairment

     86,891        39,318        282,802        201,285        9,069        619,365  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 88,515        39,883        290,639        202,323        9,222        630,582  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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

December 31, 2016:

                 

Allowance for loan losses:

                 

Ending allowance balance attributable to loans:

                 

Individually evaluated for impairment

   $ 28        1,036        —          —          84        1,148  

Collectively evaluated for impairment

     565        1,001        2,154        1,120        124        4,964  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending allowance balance

   $ 593        2,037        2,154        1,120        208        6,112  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                 

Loans individually evaluated for impairment

   $ 3,130        8,224        15,836        1,814        335        29,339  

Loans collectively evaluated for impairment

     85,777        54,871        249,184        183,284        8,382        581,498  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total ending loans balance

   $ 88,907        63,095        265,020        185,098        8,717        610,837  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

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:

 

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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.

 

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Table of Contents

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.

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.

 

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A summary of the Company’s loans by credit risk indicator and the related allowance at September 30, 2017 and December 31, 2016 were as follows:

 

                   Impaired Loans                       

September 30, 2017

   Pass      Special
Mention
     Substandard      Doubtful      Total      Specific
Allowance for
Impairment
     Allowance for
Loans not
Impaired
 
     (Dollars in Thousands)  
                    

One-to-four family mortgages

   $ 165,399        51        476        —          165,926        —          733  

Home equity line of credit

     34,433        —          562        —          34,995        —          184  

Junior liens

     1,402        —          —          —          1,402        —          6  

Multi-family

     37,321        —          —          —          37,321        —          323  

Construction

     25,594        —          —          —          25,594        —          131  

Land

     13,724        —          565        —          14,289        —          1,246  

Farmland

     35,626        1,147        489        —          37,262        17        352  

Non-residential real estate

     207,930        778        7,348        —          216,056        2        760  

Consumer loans

     9,069        —          153        —          9,222        36        110  

Commercial loans

     83,246        3,645        1,624        —          88,515        267        632  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 613,744        5,621        11,217        —          630,582        322        4,477  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                   Impaired Loans                       

December 31, 2016

   Pass      Special
Mention
     Substandard      Doubtful      Total      Specific
Allowance for
Impairment
     Allowance for
Loans not
Impaired
 
     (Dollars in Thousands)  
                    

One-to-four family mortgages

   $ 145,965        744        1,253        —          147,962        —          852  

Home equity line of credit

     35,109        25        550        —          35,684        —          260  

Junior liens

     1,411        30        11        —          1,452        —          8  

Multi-family

     31,280        —          3,004        —          34,284        —          412  

Construction

     39,255        —          —          —          39,255        —          277  

Land

     15,581        35        8,224        —          23,840        1,036        724  

Farmland

     44,832        674        2,290        —          47,796        —          778  

Non-residential real estate

     172,395        3        10,542        —          182,940        —          964  

Consumer loans

     8,382        —          335        —          8,717        84        124  

Commercial loans

     85,174        603        3,130        —          88,907        28        565  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 579,384        2,114        29,339        —          610,837        1,148        4,964  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Impaired loans by classification type and the related valuation allowance amounts at September 30, 2017 were as follows:

 

     At September 30, 2017      For the nine month period
ended September 30, 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

   $ 476        476        —          1,480        26  

Home equity line of credit

     562        562        —          559        25  

Junior liens

     —          —          —          8        —    

Multi-family

     —          —          —          1,419        —    

Construction

     —          —          —          —          —    

Land

     565        565        —          918        35  

Farmland

     164        164        —          1,257        2  

Non-residential real estate

     7,328        7,328        —          9,452        312  

Consumer loans

     9        9        —          10        —    

Commercial loans

     1,125        1,125        —          1,745        35  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     10,229        10,229        —          16,848        435  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Impaired loans with a specific allowance               

One-to-four family mortgages

     —          —          —          —          —    

Home equity line of credit

     —          —          —          —          —    

Junior liens

     —          —          —          —          —    

Multi-family

     —          —          —          —          —    

Construction

     —          —          —          —          —    

Land

     —          —          —          5,008        —    

Farmland

     325        325        17        244        —    

Non-residential real estate

     20        20        2        110        2  

Consumer loans

     144        144        36        255        —    

Commercial loans

     499        499        267        464        16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     988        988        322        6,081        18  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,217        11,217        322        22,929        453  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

Impaired loans by classification type and the related valuation allowance amounts at December 31, 2016 were as follows:

 

     At December 31, 2016      For the year ended
December 31, 2016
 
     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

   $ 1,253        1,253        —          1,470        67  

Home equity line of credit

     550        550        —          390        24  

Junior liens

     11        11        —          13        1  

Multi-family

     3,004        3,004        —          3,005        172  

Construction

     —          —          —          —          —    

Land

     1,553        2,513        —          7,868        38  

Farmland

     2,290        2,290        —          1,563        120  

Non-residential real estate

     10,542        10,542        —          9,363        485  

Consumer loans

     —          —          —          21        1  

Commercial loans

     2,865        2,865        —          3,168        112  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     22,068        23,028        —          26,861        1,020  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Impaired loans with a specific allowance

              

One-to-four family mortgages

        —          —          452        —    

Home equity line of credit

     —          —          —          —          —    

Junior liens

     —          —          —          —          —    

Multi-family

     —          —          —          910        —    

Construction

     —          —          —          —          —    

Land

     6,671        6,671        1,036        1,811        485  

Farmland

     —          —          —          533        —    

Non-residential real estate

     —          —          —          —          —    

Consumer loans

     335        335        84        273        —    

Commercial loans

     265        265        28        754        24  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7,271        7,271        1,148        4,733        509  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 29,339        30,299        1,148        31,594        1,529  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

On a periodic basis, the Bank may modify the terms of certain loans. At December 31, 2016, the Company had eight loans, representing three lending relationships, classified as performing TDR. During the nine month period ended September 30, 2017, the Company removed one lending relationship from TDR status and one lending relationship had three loans to pay off. One non-residential real estate loan relationship, with two loans representing $2.2 million, has paid as agreed based on the original terms of their note for a period of at least six months. For the nine month period ended September 30, 2017, no loans were added to TDR classification and all loans currently classified as TDR are current based on their revised terms.

The following table provides the number of loans remaining in each category as of September 30, 2017 and December 31, 2016 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
 

September 30, 2017

        

Non-residential real estate

     3      $ 3,371,435        3,371,435  

December 31, 2016

        

Multi-family

     3      $ 815,273        815,273  

Non-residential real estate

     5        5,646,223        5,646,223  

There were no loans as of September 30, 2017 that have been modified as TDRs and that subsequently defaulted within twelve months on their modified terms. At September 30, 2017, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a TDR.

 

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Table of Contents
(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.

At September 30, 2017 and December 31, 2016, the Company had balances in foreclosed assets consisting of the following:

 

     September 30, 2017      December 31, 2016  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 1,025        135  

Home equity line of credit

     —          28  

Multi-family real estate

     750        1,775  

Land

     3,200        —    

Non-residential real estate

     —          459  
  

 

 

    

 

 

 

Total other assets owned

   $ 4,975        2,397  
  

 

 

    

 

 

 

For the nine month period ended September 30, 2017, the Company’s activity in foreclosed property included the following:

 

            Activity During 2017                    
     Balance                   Reduction     Gain (Loss)     Balance  
     12/31/2016      Foreclosure      Sales     in Values     on Sale     9/30/2017  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 135        1,025        (147     —         12     $ 1,025  

HELOC

     28        —          (18     (10     —         —    

Multi-family

     1,775        —          (1,001     —         (24     750  

Land

     —          3,200        —         —         —         3,200  

Non-residential real estate

     459        43        (500     —         (2     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,397        4,268        (1,666     (10     (14   $ 4,975  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The Company’s activity in foreclosed assets for the nine month period ended September 30, 2016 is as follows:

 

            Activity During 2016                     
     Balance                   Reduction      Gain (Loss)     Balance  
     12/31/2015      Foreclosure      Sales     in Values      on Sale     9/30/2016  
     (Dollars in Thousands)  

One-to-four family mortgages

   $ 55        —          (43     —          (12     —    

Home equity line of credit

     —          68        —         —          —         68  

Multi-family

     —          141        —         —          —         141  

Land

     943        130        (987     —          (13     73  

Non-residential real estate

     738        —          (270     —          (9     459  

Consumer

     —          15        (19     —          4       —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 1,736        354        (1,319     —          (30   $ 741  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(6) FAIR VALUE OF ASSETS AND LIABILITIES

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

 

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

 

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

 

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

 

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Table of Contents

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.

 

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Table of Contents

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.

 

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Table of Contents

Assets and Liabilities Measured on a Recurring Basis

The assets and liabilities measured at fair value on a recurring basis at September 30, 2017 are summarized below:

 

Description

   Total carrying
value in the
consolidated
balance sheet at
9/30/2017
     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            

Securities available for sale

           

U.S. Agency securities

   $ 89,829        —          89,829        —    

Taxable municipals

     1,285        —          1,285        —    

Tax-free municipals

     28,231        —          28,231        —    

Trust preferred securities

     1,717        —          —          1,717  

Mortgage backed securities

     71,225        —          71,225        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 192,287        —          190,570        1,717  
  

 

 

    

 

 

    

 

 

    

 

 

 

The assets and liabilities measured at fair value on a recurring basis at December 31, 2016 are summarized below:

 

     Total carrying
value in the
consolidated
balance sheet at
     Quoted Prices
In Active
Markets for
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 

Description

   12/31/2016      (Level 1)      (Level 2)      (Level 3)  
     (Dollars in Thousands)  
Assets            

Securities available for sale

           

U.S. Treasury securities

   $ 2,001        2,001        —          —    

U.S. Agency securities

     84,012        —          84,012        —    

Taxable municipals

     2,727        —          2,727        —    

Tax-free municipals

     33,911        —          33,911        —    

Trust preferred securities

     1,817        —          —          1,817  

Mortgage backed securities

     85,012        —          85,012        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

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

 

 

    

 

 

    

 

 

    

 

 

 

 

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The assets and liabilities measured at fair value on a non-recurring basis are summarized below for September 30, 2017:

 

     Total carrying
value in the
consolidated
balance sheet at
    

Quoted Prices

In Active
Markets for
Identical Assets

     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 

Description

   September 30, 2017      (Level 1)      (Level 2)      (Level 3)  
     (Dollars in Thousands)  
Assets   

Foreclosed assets

   $ 4,975        —          —        $ 4,975  

Impaired loans, net of allowance

   $ 666        —          —        $ 666  

The assets and liabilities measured at fair value on a non-recurring basis are summarized below for December 31, 2016:

 

     Total carrying
value in the
consolidated
balance sheet at
     Quoted Prices
In Active
Markets for
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
 

Description

   December 31, 2016      (Level 1)      (Level 2)      (Level 3)  
     (Dollars in Thousands)  
Assets   

Foreclosed assets

   $ 2,397        —          —        $ 2,397  

Impaired loans, net of allowance

   $ 6,123        —          —        $ 6,123  

 

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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 September 30, 2017 and December 31, 2016:

 

     Level 3 Significant Unobservable Input
Assumptions
 
     Fair
Value
     Valuation
Technique
     Unobservable
Input
     Quantitative Range
of Unobservable
Inputs
 
     (Dollars in Thousand)         

September 30, 2017

           

Assets measured on a non-recurring basis

           

Foreclosed assets

   $ 4,975       
Discount to appraised value
of collateral. Auction results
 
 
    
Appraisal comparability
adjustments
 
 
     5% to 10%  

Impaired loans

     666       

Discount to appraised

value of collateral

 

 

    
Appraisal comparability
adjustments
 
 
     10% to 25%  

Asset measured on a recurring basis

           

Trust preferred securities

     1,717       
Discounted cash flow
Spread to Libor swap curve
 
 
    
Compare to quotes for
sale when available
 
 
    
One month
libor 5% to 8%
 
 

December 31, 2016

           

Assets measured on a non-recurring basis

           

Foreclosed assets

   $ 2,397       

Discount to appraised

value of collateral

 

 

    
Appraisal comparability
adjustments
 
 
     30% to 55%  

Impaired loans

     6,123       

Discount to appraised

value of collateral

 

 

    
Appraisal comparability
adjustments
 
 
     10% to 15%  

Asset measured on a recurring basis

           

Trust preferred securities

     1,817       
Discounted cash flow
Spread to Libor swap curve
 
 
    
Compare to quotes for
sale when available
 
 
    
One month libor
4% to 6%
 
 

 

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Table of Contents

Foreclosed assets and impaired loans are valued at fair value, less cost to sell. Fair value of a foreclosed asset is determined by an appraised value of the underlying collateral to which a discount is applied. Management establishes the discount or adjustments based on recent sales and any unique features the collateral may possess. Management also considers the anticipated selling cost associated with the collateral when establishing the discounted percentage. Management may adjust the discounts based on the most recent sales of comparable collateral.     

The Company bases the value of its trust preferred security on a quarterly review of SEC filings by the issuer to ascertain overall financial strength. Based on the analysis, the Company then reviews the Libor swap curve to analyze the overall yield of our investment compared to long-term swap rates. On rare occasions, the Company may receive an offer from a broker to purchase similar type instruments and the Company will analyze these offerings compared to our investment.

The table below includes a roll-forward of the consolidated condensed statement of financial condition items for the nine month periods ended September 30, 2017 and September 30, 2016, (including the change in fair value) for assets and liabilities classified by HopFed Bancorp, Inc. within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify an asset or liability within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 assets and liabilities typically include, in addition to the unobservable or level 3 components, observable components (that is components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

 

     2017     2016  

Nine month period ended September 30,

   Other Assets     Other Assets  
     (Dollars in Thousands)  

Fair value, January 1

   $ 1,817       1,865  

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

     (113     105  

Accretion of previously discounted amounts

     13       13  
  

 

 

   

 

 

 

Fair value, September 30

   $ 1,717       1,983  
  

 

 

   

 

 

 

 

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The estimated fair values of financial instruments were as follows at September 30, 2017:

 

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

Financial Assets:

              

Cash and due from banks

   $ 23,469        23,469        23,469        —          —    

Interest-bearing deposits

     9,842        9,842        9,842        —          —    

Securities available for sale

     192,287        192,287        —          190,570        1,717  

Federal Home Loan Bank stock

     4,428        4,428        —          —          4,428  

Loans held for sale

     1,749        1,749        —          1,749        —    

Loans receivable

     625,403        608,134        —          —          608,134  

Accrued interest receivable

     3,414        3,414        —          —          3,414  

Financial liabilities:

              

Deposits

     731,229        731,960        —          731,960        —    

Advances from borrowers for taxes and insurance

     1,188        1,188        —          1,188        —    

Advances from Federal Home Loan Bank

     31,000        31,069        —          31,069        —    

Repurchase agreements

     37,829        37,829        —          37,829        —    

Subordinated debentures

     10,310        10,099        —          —          10,099  

 

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The estimated fair values of financial instruments were as follows at December 31, 2016:

 

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

Financial Assets:

  

Cash and due from banks

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

Interest-bearing deposits

     3,970        3,970        3,970        —          —    

Securities available for sale

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

Federal Home Loan Bank stock

     4,428        4,428        —          —          4,428  

Loans held for sale

     1,094        1,094        —          1,094        —    

Loans receivable

     604,286        593,257        —          —          593,257  

Accrued interest receivable

     3,799        3,799        —          —          3,799  

Financial liabilities:

              

Deposits

     732,882        732,942        —          732,942        —    

Advances from borrowers for taxes and insurance

     766        766        —          766        —    

Advances from Federal Home Loan Bank

     11,000        10,979        —          10,979        —    

Repurchase agreements

     47,655        47,655        —          47,655        —    

Subordinated debentures

     10,310        10,099        —          —          10,099  

 

(7) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued new guidance related to “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 has agreed to a one-year deferral of the effective date to December 15, 2017. Management is currently evaluating the impact that this ASU will have on the Company’s consolidated financial statements.

 

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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 will be effective on January 1, 2018. Management is currently evaluating the impact that this ASU will have 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 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. Management is currently evaluating the potential impact of ASU 2016-02 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 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. Write-downs will be based on historical information, current business conditions, and forecasts, and it expects the forecasts are expected to improve the loss estimates on financial assets that are losing value. The techniques that are employed today to write down loans and other instruments can still be used, although the variables for calculating the losses are expected 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. Management is currently evaluating the potential impact of this ASU on the Company’s consolidated financial statements.

 

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Table of Contents

ASU 2016-15 “Statement of Cash Flows (Topic 230)” 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 was permitted with retrospective application. Management is evaluating the impact that the adoption of ASU 2016-15 will have on the Company’s consolidated financial statements.

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

 

(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 effective tax rate differs from the statutory federal rate of 35% and Tennessee excise rate of 6.5% due to investments in qualified municipal securities, Bank owned life insurance, income apportioned to Kentucky and certain non-deductible expenses. The Company’s effective federal income tax rate varies significantly from our federal statutory tax rate for a variety of factors, including:

The Company’s investment in Fort Webb LP, LLC generates tax credits and depreciation expense that the Company can use to offset taxable income. At September 30, 2017 and December 31, 2016, the Company’s balance sheet did not include any equity investment in Fort Webb. The Company has other investments that produce both tax credits and depreciation expense that may be used to offset net income.

At September 30, 2017, the Company has $10.3 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. For the nine month period ended September 30, 2017, the Company received additional income of approximately $160,000 from the net proceeds of a life insurance policy.

At September 30, 2017, the Company’s investment portfolio includes $28.2 million of tax free municipal bonds. Interest income on this portfolio, after netting out a disallowance for interest expense attributable to this portfolio, is tax exempt.

 

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Table of Contents
(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 second ESOP loan payment in December 2016. At September 30, 2017 and December 31, 2016, shares held by the ESOP were as follows:

 

     September 30, 2017      December 31, 2016  

Accrued for allocation to participants

     32,465        —    

Earned ESOP shares

     101,654        101,654  

Unearned ESOP shares

     465,881        498,346  
  

 

 

    

 

 

 

Total ESOP shares

     600,000        600,000  
  

 

 

    

 

 

 

Fair value of unearned shares

   $ 6,731,980      $ 6,707,737  
  

 

 

    

 

 

 

 

(10) COMMITMENTS AND CONTINGENCIES

At September 30, 2017, the Bank had $33.3 million in outstanding commitments on revolving home equity lines of credit, $16.0 million in outstanding commitments on revolving personal lines of credit and $50.9 million in commitments to originate loans and undisbursed commitments on commercial lines of credit of $62.9 million. At September 30, 2017, the Company had $140,000 in standby letters of credit outstanding.

At September 30, 2017, the Company has $38.3 million in time deposits greater than $100,000 but less than $250,000 that are schedule to mature in one year and $73.0 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 September 30, 2017 and December 31, 2016, the Bank has pledged all eligible 1-4 family first mortgages. At September 30, 2017, the Bank has outstanding borrowings of $31.0 million from the FHLB. A schedule of FHLB borrowings at September 30, 2017 is provided below:

 

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Table of Contents

Outstanding

Balance

  

Rate

 

Maturity

(Dollars in Thousands, Except Percentages)                                
$      8,000    1.27%   Overnight
        5,000    0.88%   10/06/2017
        6,000    1.18%   07/06/2018
        7,000    1.55%   01/10/2019
        5,000    1.73%   01/10/2020

 

  

 

 
$    31,000    1.33%  

 

  

 

 

A schedule of FHLB borrowings at December 31, 2016 is provided below:

 

Outstanding

Balance

  

Rate

   

Maturity

(Dollars in Thousands, Except Percentages)                                
$      5,000      0.88   10/06/2017
        6,000      1.18   07/06/2018

 

  

 

 

   
$    11,000      1.04  

 

  

 

 

   

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 September 30, 2017, 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.

 

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Table of Contents
(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 2017, the capital conservation buffer is 1.25%. 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 September 30, 2017 and December 31, 2016 based on the phase-in provisions of Basel III Capital Rules. Management believes, as of September 30, 2017 and December 31, 2016, that the Bank meets all capital adequacy requirements to which it is subject.

The Company’s consolidated capital ratios and the Bank’s actual capital amounts and ratios as of September 30, 2017 and December 31, 2016 are presented below:

 

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Table of Contents
     Actual            Minimum Capital
Required – Basel III
Phase-In Schedule
           To be Well
Capitalized for
Prompt Corrective
Action Provisions
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
     (Dollars in Thousands, Except Percentages)  
As of September 30, 2017                

Tier 1 leverage capital to adjusted total assets

               

Company

   $ 96,428        10.9   $ 36,273        4.0   $ 45,341        5.0

Bank

   $ 94,196        10.6   $ 35,461        4.0   $ 44,326        5.0

Total capital to risk weighted assets

               

Company

   $ 101,228        16.3   $ 57,354        9.25   $ 62,005        10.0

Bank

   $ 98,995        16.0   $ 57,225        9.25   $ 61,865        10.0

Tier 1 capital to risk weighted assets

               

Company

   $ 96,428        15.6   $ 44,953        7.25   $ 49,604        8.0

Bank

   $ 94,196        15.2   $ 44,852        7.25   $ 49,492        8.0

Common equity tier 1 capital to risk weighted assets

               

Company

   $ 96,428        15.6   $ 35,653        5.75     n/a        n/a  

Bank

   $ 94,196        15.2   $ 35,573        5.75   $ 40,213        6.5

As of December 31, 2016

               

Tier 1 leverage capital to adjusted total assets

               

Company

   $ 92,803        10.8   $ 34,392        4.0   $ 42,990        5.0

Bank

   $ 91,617        10.7   $ 34,315        4.0   $ 42,894        5.0

Total capital to risk weighted assets

               

Company

   $ 98,915        16.2   $ 52,682        8.625   $ 61,080        10.0

Bank

   $ 97,729        16.0   $ 52,561        8.625   $ 60,941        10.0

Tier 1 capital to risk weighted assets

               

Company

   $ 92,803        15.2   $ 40,466        6.625   $ 48,864        8.0

Bank

   $ 91,617        15.0   $ 40,373        6.625   $ 48,753        8.0

Common equity tier 1 capital to risk weighted assets

               

Company

   $ 92,803        15.2   $ 31,304        5.125     n/a        n/a  

Bank

   $ 91,617        15.0   $ 31,232        5.125   $ 39,611        6.5

 

(12) Subsequent Event

On May 4, 2017, the Company, its directors, and a former director, were named as defendants in a lawsuit filed in the Court of Chancery in the State of Delaware by Company stockholders, Stilwell Associates, L.P., Stilwell Activist Fund, L.P. and Stilwell Activist Investments, L.P. (collectively, the “Plaintiffs”), concerning the adoption of Article III, Section 13 of the Company’s Amended and Restated Bylaws. The Bylaw concerns qualifications for individuals to serve on the Company’s Board of Directors. The Plaintiffs sought a declaration that the Bylaw was invalid or, in the alternative, a declaration that the Bylaw may not be applied to disqualify an otherwise qualified nominee or Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs. The Plaintiffs also sought an injunction enjoining the application of the Bylaw to disqualify an otherwise qualified nominee of Plaintiffs on the basis of said nominee being part of a group acting in concert with one of the Plaintiffs and an order declaring that all but one of the Defendants breached their fiduciary duties in adopting the Bylaw. The Plaintiffs did not seek damages. See Part II, Item 1 of the Company’s Quarterly Report on Form 10-Q filed on August 9, 2017, which is incorporated herein by reference.

On October 3, 2017, upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors adopted amendments to Article III, Section 13 of the Bylaws. See the Company’s Current Report on Form 8-K filed on October 4, 2017, which is incorporated herein by reference.

On October 25, 2017, the Court of Chancery granted the parties’ stipulation regarding dismissal of the lawsuit and dismissed the lawsuit without prejudice, subject to possible consideration of a Fee and Expense Application by the Plaintiffs. On October 26, 2017, the Company disclosed the dismissal in a press release and filing of an SEC Form 8-K.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

The preparation of the Company’s 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 Company’s 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 Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.

The emphasis of this discussion is a comparison of assets, liabilities and stockholders’ equity as of September 30, 2017 to December 31, 2016, while comparing income and expenses for the three and nine month periods ended September 30, 2017 and September 30, 2016.

All information should be read in conjunction with the Company’s unaudited interim consolidated condensed financial statements and related notes appearing elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2016.

Comparison of Financial Condition at September 30, 2016, and December 31, 2016

At September 30, 2017, total assets were $904.1 million, an increase of $12.6 million compared to December 31, 2016. For the nine month period ended September 30, 2017, the Company’s net loan portfolio has increased $21.1 million, to $625.4 million. To fund the Company’s loan growth, the Company has utilized a combination of FHLB borrowings and the cash flow from our investment portfolio.

At September 30, 2017, deposits declined by $1.7 million to $731.2 million. The decline in deposit accounts is the result of lower levels of both interest bearing checking accounts and non-interest bearing checking accounts. At September 30, 2017, non-interest checking account balances are $128.2 million, representing a decline of $3.0 million compared to December 31, 2016. At September 31, 2017, interest bearing checking accounts totaled $196.3 million, a decline of $13.0 million compared to December 31, 2016. The decline in transaction account balances appears to be the result of increases in short term interest rates, with depositors having more attractive options with other investment products. In response to the decline in transaction accounts, the Company increased its balances of FHLB borrowings and brokered deposits. At September 30, 2017, other time deposits increased $15.7 million to $308.8 million. At September 30, 2017, the balance of FHLB borrowings and brokered deposits were $31.1 million and $60.3 million, respectively, compared to $11.0 million and $33.4 million, respectively at December 31, 2016.

Management anticipates that future loan growth will be funded largely by the recruitment of local time deposits and brokered time deposits. The Company’s investment portfolio may provide additional liquidity. However, a significant portion of the investment portfolio is pledged to municipalities to secure deposits, limiting the Company’s ability to significantly increase our loan to deposit ratio above the current level of 85.5% at September 30, 2017.    

 

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Comparison of Operating Results for the Nine Month Periods Ended September 30, 2017 and September 30, 2016.

The Company’s net income was $3.5 million for the nine month period ended September 30, 2017, compared to net income of $1.8 million for the nine month period ended September 30, 2016. The improved level of income is largely the result of growth in the average balance of loans, a reduction in the Company’s provision for loan loss expense and a reduction in non-interest expenses. On the last day of September, the Company experienced approximately $13.0 million in payoffs on loans. However, we have made commitments to fund construction loans that are in process that should allow the Company to continue to experience loan growth at current levels in the near future.

The Company’s total interest income for the nine month period ended September 30, 2017 was $25.2 million, compared to $23.8 million for the nine month period ended September 30, 2016. The increase in interest income for the nine month period ended September 30, 2017 compared to September 30, 2016 was largely the result of a $63.3 million increase in the average balance of loans outstanding. The growth in loan balances has occurred due to favorable results in Nashville, Tennessee and in the Kentucky counties of Christian and Fulton. For the nine month period ended September 30, 2017, total interest income on loans was $21.0 million, an increase of $1.8 million compared to the nine month period ended September 30, 2016.

For the nine month period ended September 30, 2017, the Company’s loan growth has largely occurred as a result of an increase in residential and non-residential real estate loans. The growth in residential real estate loans includes both variable and fixed rate loans while the growth in non-residential real estate loans is largely focused on non-owner occupied commercial real estate. At September 30, 2017, approximately 56% of the Company’s non-residential real estate loan portfolio was non-owner occupied. At December 31, 2016, approximately 57.0% of the Company’s non-residential real estate portfolio was non-owner occupied.

 

     9/30/2017      12/31/2016      Growth  
     (Dollars in Thousands)  

One to four family first mortgages

   $ 165,926      $ 147,962      $ 17,964  

Non-residential real estate

   $ 216,056      $ 182,940      $ 33,116  

For the nine month period ended September 30, 2017, the Company’s fully tax equivalent yield on loans was 4.47%, a decline from 4.55% for the nine month period ended September 30, 2016. The long term trend of decline in loan yields appears to be moderating as loans priced with indexes tied to the Wall Street Journal Prime Rate and One year constant maturity treasury rate begin to reset higher due to rising short term rates. The pricing of new loans remains highly competitive and is not likely to result in a material increase to our loan yields in the near future.

For the nine month period ended September 30, 2017, the improved level of interest income has been partially offset by an increase in interest expense. For the nine month period ended September 30, 2017, the Company’s interest expense on deposits was $3.6 million, representing an increase of $424,000 compared to the nine month period ended September 30, 2016. This increase is largely the result of an increase in the average balances of interest bearing deposits. For the nine month period ended September 30, 2017, the average balance of interest bearing deposits was $622.1 million, representing an increase of $26.2 million compared to the average balance of interest bearing deposits for the nine month period ended September 30, 2016. The total cost of average deposits was 0.64% for the nine month period ended September 30, 2017 and 0.58% for the nine month period ended September 30, 2016. As the Company seeks to continue trends for additional loan growth, we anticipate that we will experience further increases to our deposit expenses largely due to competitive pressures and the anticipated continued increases in short term interest rates.

The average balance of repurchase agreements declined from $44.2 million for the nine months ended September 30, 2016 to $39.6 million for the nine month period ended September 30, 2017. The average balance of FHLB borrowings increased from $12.9 million for the nine months ended September 30, 2016 to $17.2 million for the nine month period ended September 30, 2017.

 

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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 nine month periods ended September 30, 2017 and September 30, 2016. 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 nine month periods.

 

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Average balances for loans include loans classified as non-accrual, net of the allowance for loan losses. The table adjusts tax-free investment income by $394,000 for the nine month period ended September 30, 2017 and $506,000 for the nine month period ended September 30, 2016, for a tax equivalent rate using a cost of funds rate of 0.85% for the nine month period ended September 30, 2017 and 0.80% for the nine month period ended September 30, 2016. The table adjusts tax-free loan income by $40,000 for the nine month period ended September 30, 2017 and $20,000 for the nine month period ended September 30, 2016, for a tax equivalent rate using the same cost of funds rate:

 

     Average
Balance
09/30/2017
     Income &
Expense
09/30/2017
    Average
Rates
09/30/2017
    Average
Balance
09/30/2016
     Income &
Expense
09/30/2016
    Average
Rates
09/30/2016
 
     (Dollars in Thousands, Except Percentages)  

Loans

   $ 626,123      $ 20,999       4.47   $ 562,870      $ 19,195       4.55

Taxable AFS securities

     175,891        3,397       2.58     194,657        3,544       2.43

Non-taxable AFS securities

     31,941        1,190       4.97     40,283        1,525       5.05

Other interest bearing deposits in banks

     6,490        62       1.27     8,168        38       0.62
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total interest earning assets

     840,445        25,648       4.07     805,978        24,302       4.02
     

 

 

   

 

 

      

 

 

   

 

 

 

Other assets

     67,884            74,212       
  

 

 

             

Total assets

   $ 908,329          $ 880,190       
  

 

 

        

 

 

      

Retail time deposits

   $ 255,675        2,032       1.06   $ 257,790        1,835       0.95

Brokered deposits

     49,913        454       1.21     35,853        294       1.09

Interest bearing checking accounts

     217,320        960       0.59     203,736        888       0.58

MMDA and savings accounts

     99,160        124       0.17     98,510        129       0.17

FHLB borrowings

     17,222        151       1.17     12,876        134       1.39

Repurchase agreements

     39,638        352       1.18     44,186        421       1.27

Subordinated debentures

     10,310        324       4.19     10,310        287       3.71
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total interest bearing liabilities

     689,238        4,397       0.85     663,261        3,988       0.80
     

 

 

   

 

 

      

 

 

   

 

 

 

Non-interest bearing deposits

     126,973            124,788       

Other non-interest bearing liabilities

     4,257            3,501       

Stockholders’ equity

     87,861            88,640       
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 908,329          $ 880,190       
  

 

 

        

 

 

      

Net interest income

      $ 21,251          $ 20,314    
     

 

 

        

 

 

   

Interest rate spread

          3.22          3.22
       

 

 

        

 

 

 

Net interest margin

        3.37          3.36  
     

 

 

        

 

 

   

 

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Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management’s 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 $421,000 in provision for loan loss was required for the nine month period ended September 30, 2017 compared to a $1.2 million provision for loan loss expense for the nine month period ended September 30, 2016. The lower level of required provision expense for the nine month period ended September 30, 2017 compared to September 30, 2016 is the result of $1.3 million in recoveries on previously charged off loans during the nine month period ended September 30, 2017, a significant decline in the Company’s non-accrual loans and reduced amounts of loans classified as substandard. The Company anticipates a minimal level of provision expense in the next few quarters given the reduction in both non-accrual loans and loan relationships classified as substandard.

Income Taxes. The effective tax rate for the nine month periods ending September 30, 2017 was 22.1% compared to 5.4% for the nine month period ended September 30, 2016. The increase in the Company’s tax rate is due to an increase in taxable net interest income. The Company’s tax rate remains well below the statutory tax rate of 34% due to the relatively high level of tax free income from $31.9 million in tax free municipal bonds and an increase in income from Bank owned life insurance resulting from the receipt of approximately $160,000 in proceeds from the death benefit of a life insurance policy.

Comparison of Operating Results for the Three Month Periods Ended September 30, 2017 and September 30, 2016.

The Company’s net income was $1.4 million for the three month period ended September 30, 2017, compared to net income of $985,000 for the three month period ended September 30, 2016. The improved level of net income for the three month period ended September 30, 2017 compared to the three month period ended September 30, 2016 was largely the result of growth in the average balance of loans, an $185,000 reduction in non-interest expenses and a $184,000 decline in the Company’s provision for loan loss expense.

The Company’s total interest income for the three month period ended September 30, 2017 was $8.6 million, compared to $8.0 million for the three month period ended September 30, 2016. The increase in net interest income for the three month period ended September 30, 2017 compared to September 30, 2016 was largely due to the $61.9 million increase in the average balance of loans outstanding.

For the three month period ended September 30, 2017, total interest expense was $1.5 million compared to $1.3 million for the three month period ended September 30, 2016. The increase in interest expense is largely the result of a $27.5 million increase in the average balance of interest bearing deposits used to fund current period loan growth. For the three month period ended September 30, 2017, the cost of average total deposits was 0.65% compared to 0.59% for the three month period ended September 30, 2016.

For the three month period ended September 30, 2017, the Company’s FHLB borrowing expense was $89,000 compared to $33,000 for the three month period ended September 30, 2016 due to a $12.9 million increase in the average balances of FHLB loans outstanding. For the three month periods ended September 30, 2017 and September 30, 2016, the Company’s cost of interest bearing liabilities was 0.89% and 0.80%, respectively. For the three month periods ended September 30, 2017 and September 30, 2016, the Company’s net interest margin was 3.43% and 3.41%, respectively.

The Company anticipates that the current trends in the marketplace, tighter liquidity levels and higher deposit cost, will require the Company to incur higher cost to fund our balance sheet. The immediate benefit of an increase in the New York Prime rate is beneficial. However, we may relinquish a portion of net income improvement to fund our balance sheet.

 

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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 September 30, 2017 and September 30, 2016. 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.

 

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Average balances for loans include loans classified as non-accrual, net of the allowance for loan losses. The table adjusts tax-free investment income by $115,000 for the three month period ended September 30, 2017 and $162,000 for the three month period ended September 30, 2016, for a tax equivalent rate using a cost of funds rate of 0.89% for the three month period ended September 30, 2017 and 0.80% for the three month period ended September 30, 2016. The table adjusts tax-free loan income by $17,000 for the three month period ended September 30, 2017 and $6,000 for the three month period ended September 30, 2016, for a tax equivalent rate using the same cost of funds rate (Dollars in thousands):

 

     Average
Balance
09/30/2017
     Income &
Expense
09/30/2017
    Average
Rates
09/30/2017
    Average
Balance
09/30/2016
     Income &
Expense
09/30/2016
    Average
Rates
09/30/2016
 
     (Dollars in Thousands, Except Percentages)  

Loans

   $ 636,955      $ 7,277       4.57   $ 575,083      $ 6,575       4.57

Taxable AFS securities

     173,624        1,124       2.59     185,812        1,099       2.37

Non-taxable AFS securities

     29,090        348       4.78     38,467        488       5.07

Other interest bearing deposits in banks

     4,351        18       1.65     5,517        10       0.73
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total interest earning assets

     844,020        8,767       4.15     804,879        8,172       4.06
     

 

 

   

 

 

      

 

 

   

 

 

 

Other assets

     64,913            69,248       
  

 

 

        

 

 

      

Total assets

   $ 908,933          $ 874,127       
  

 

 

        

 

 

      

Retail time deposits

   $ 250,083        690       1.10   $ 255,840        617       0.96

Brokered deposits

     54,767        174       1.27     38,574        107       1.11

Interest bearing checking accounts

     208,940        300       0.57     191,721        278       0.58

MMDA and savings accounts

     98,895        42       0.17     99,077        42       0.17

FHLB borrowings

     26,909        89       1.32     14,022        33       0.94

Repurchase agreements

     37,978        130       1.37     46,282        139       1.20

Subordinated debentures

     10,310        112       4.35     10,310        99       3.84
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total interest bearing liabilities

     687,852        1,537       0.89     655,826        1,315       0.80
     

 

 

   

 

 

      

 

 

   

 

 

 

Non-interest bearing deposits

     126,039            125,598       

Other non-interest bearing liabilities

     5,628            3,781       

Stockholders’ equity

     89,214            88,922       
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 908,933          $ 874,127       
  

 

 

        

 

 

      

Net interest income

      $ 7,230          $ 6,857    
     

 

 

        

 

 

   

Interest rate spread

          3.26          3.26
       

 

 

        

 

 

 

Net int