Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - Athens Bancshares Corp | c17212exv31w1.htm |
EX-32.0 - EXHIBIT 32.0 - Athens Bancshares Corp | c17212exv32w0.htm |
EX-31.2 - EXHIBIT 31.2 - Athens Bancshares Corp | c17212exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-34534
ATHENS BANCSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Tennessee | 27-0920126 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
106 Washington Avenue, Athens, Tennessee | 37303 | |
(Address of principal executive offices) | (Zip Code) |
(423) 745-1111
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of May 5, 2011, the number of shares of common stock outstanding was 2,777,250.
ATHENS BANCSHARES CORPORATION
Table of Contents
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.0 |
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited) | ||||||||
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and due from banks |
$ | 2,427,298 | $ | 2,422,881 | ||||
Federal funds sold |
2,250,000 | 4,825,000 | ||||||
Interest-bearing deposits in banks |
7,580,311 | 7,068,418 | ||||||
Total cash and cash equivalents |
12,257,609 | 14,316,299 | ||||||
Interest-bearing time deposits in banks |
747,000 | 747,000 | ||||||
Securities available for sale |
47,056,693 | 41,537,586 | ||||||
Securities held to maturity (fair value approximates $16 and
$26 at March 31, 2011 and December 31, 2010, respectively) |
16 | 25 | ||||||
Federal Home Loan Bank stock, at cost |
2,898,800 | 2,898,800 | ||||||
Loans, net of allowance for loan losses of $3,911,953 and $3,965,395
at March 31, 2011 and December 31, 2010, respectively |
201,515,532 | 199,386,478 | ||||||
Premises and equipment, net |
4,638,197 | 4,701,660 | ||||||
Accrued interest receivable |
1,313,130 | 1,111,043 | ||||||
Cash surrender value of bank owned life insurance |
8,999,966 | 8,924,120 | ||||||
Foreclosed real estate |
1,064,015 | 1,102,527 | ||||||
Other assets |
3,157,416 | 3,289,029 | ||||||
Total assets |
$ | 283,648,374 | $ | 278,014,567 | ||||
LIABILITIES AND EQUITY |
||||||||
LIABILITIES |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 12,269,511 | $ | 10,808,127 | ||||
Interest-bearing |
207,987,510 | 204,879,217 | ||||||
Total deposits |
220,257,021 | 215,687,344 | ||||||
Accrued interest payable |
219,016 | 224,890 | ||||||
Securities sold under agreements to repurchase |
1,779,755 | 794,732 | ||||||
Federal Home Loan Bank advances |
8,185,596 | 8,213,861 | ||||||
Accrued expenses and other liabilities |
3,398,107 | 3,516,545 | ||||||
Total liabilities |
233,839,495 | 228,437,372 | ||||||
COMMITMENTS AND CONTINGENCIES |
||||||||
STOCKHOLDERS EQUITY |
||||||||
Preferred stock, $0.01 par value; authorized 10,000,000; none issued |
| | ||||||
Common stock, $0.01 par value; 50,000,000 shares authorized;
2,777,250 shares issued and 2,553,218 outstanding at March 31, 2011
and 2,475,082 outstanding at December 31, 2010 |
27,773 | 27,773 | ||||||
Additional paid-in capital |
26,514,507 | 26,494,832 | ||||||
Common stock acquired by benefit plans: |
||||||||
Restricted stock |
(1,257,144 | ) | (1,085,423 | ) | ||||
Unallocated common stock held by: |
||||||||
Employee Stock Ownership Plan Trust |
(2,073,680 | ) | (2,073,680 | ) | ||||
Retained earnings |
26,472,094 | 26,086,719 | ||||||
Accumulated other comprehensive income |
125,329 | 126,974 | ||||||
Total stockholders equity |
49,808,879 | 49,577,195 | ||||||
Total liabilities and stockholders equity |
$ | 283,648,374 | $ | 278,014,567 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Interest and dividend income: |
||||||||
Loans, including fees |
$ | 3,285,566 | $ | 3,238,929 | ||||
Dividends |
32,880 | 32,880 | ||||||
Securities and interest-bearing deposits in other banks |
338,516 | 284,560 | ||||||
Total interest income |
3,656,962 | 3,556,369 | ||||||
Interest expense: |
||||||||
Deposits |
786,932 | 1,059,298 | ||||||
Federal funds purchased and securities sold under
agreements to repurchase |
362 | 1,536 | ||||||
Federal Home Loan Bank advances |
88,033 | 94,746 | ||||||
Total interest expense |
875,327 | 1,155,580 | ||||||
Net interest income |
2,781,635 | 2,400,789 | ||||||
Provision for loan losses |
211,445 | 209,776 | ||||||
Net interest income after provision for loan losses |
2,570,190 | 2,191,013 | ||||||
Noninterest income: |
||||||||
Customer service fees |
417,842 | 397,770 | ||||||
Other charges and fees |
370,918 | 334,305 | ||||||
Investment sales commissions |
110,085 | 66,431 | ||||||
Increase in cash surrender value of life insurance |
86,964 | 63,438 | ||||||
Other noninterest income |
81,765 | 82,117 | ||||||
Total noninterest income |
1,067,574 | 944,061 | ||||||
Noninterest expenses: |
||||||||
Salaries and employee benefits |
1,563,570 | 1,527,559 | ||||||
Occupancy and equipment |
312,651 | 336,891 | ||||||
Federal deposit insurance premiums |
63,260 | 96,386 | ||||||
Data processing |
161,264 | 159,732 | ||||||
Advertising |
44,184 | 38,479 | ||||||
Other operating expenses |
695,585 | 1,691,944 | ||||||
Total noninterest expenses |
2,840,514 | 3,850,991 | ||||||
Income (loss) before income taxes |
797,250 | (715,917 | ) | |||||
Income tax expense (benefit) |
283,381 | (309,972 | ) | |||||
Net income (loss) |
$ | 513,869 | $ | (405,945 | ) | |||
Earnings (loss) per common share: |
||||||||
Basic |
$ | 0.20 | $ | (0.15 | ) | |||
Diluted |
$ | 0.20 | (0.15 | ) | ||||
Dividends per common share |
$ | 0.05 | N/A |
The accompanying notes are an integral part of these consolidated financial statements.
2
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Three Months Ended March 31, 2011
(Unaudited)
Three Months Ended March 31, 2011
(Unaudited)
Common | Accumulated | |||||||||||||||||||||||||||
Additional | Stock | Other | ||||||||||||||||||||||||||
Comprehensive | Common | Paid-In | Retained | Acquired By | Comprehensive | |||||||||||||||||||||||
Income (Loss) | Stock | Capital | Earnings | Benefit Plans | Income | Total | ||||||||||||||||||||||
Balance, December 31, 2010 |
$ | 27,773 | $ | 26,494,832 | $ | 26,086,719 | $ | (3,159,103 | ) | $ | 126,974 | $ | 49,577,195 | |||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net income |
$ | 513,869 | | | 513,869 | | | 513,869 | ||||||||||||||||||||
Other comprehensive income, net
of tax: |
||||||||||||||||||||||||||||
Change in unrealized gains
(losses) on securities
available for sale, net of
tax effect of $1,009 |
(1,645 | ) | | | | | (1,645 | ) | (1,645 | ) | ||||||||||||||||||
Total comprehensive income |
$ | 512,224 | ||||||||||||||||||||||||||
Dividends $0.05 per share |
| | (128,494 | ) | | | (128,494 | ) | ||||||||||||||||||||
Purchase and release of restricted
stock plan shares |
| 19,675 | | (171,721 | ) | | (152,046 | ) | ||||||||||||||||||||
Balance, March 31, 2011 |
$ | 27,773 | $ | 26,514,507 | $ | 26,472,094 | $ | (3,330,824 | ) | $ | 125,329 | $ | 49,808,879 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Unaudited)
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income (loss) |
$ | 513,869 | $ | (405,945 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Depreciation |
105,415 | 130,969 | ||||||
Amortization of securities and other assets |
90,493 | 53,463 | ||||||
Provision for loan losses |
211,445 | 209,776 | ||||||
Deferred income taxes |
84,874 | 121,829 | ||||||
Other gains and losses, net |
(13,337 | ) | 21,520 | |||||
Stock compensation expense |
73,734 | | ||||||
Net change in: |
||||||||
Cash surrender value of life insurance |
(75,846 | ) | (53,003 | ) | ||||
Loans held for sale |
71,900 | (199,250 | ) | |||||
Accrued interest receivable |
(202,087 | ) | (90,138 | ) | ||||
Accrued interest payable |
(5,874 | ) | (1,089 | ) | ||||
Prepaid FDIC assessment |
63,737 | 81,612 | ||||||
Other assets and liabilities |
(153,420 | ) | 185,147 | |||||
Net cash provided by operating activities |
764,903 | 54,891 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Securities available for sale: |
||||||||
Purchases |
(9,592,669 | ) | (9,335,300 | ) | ||||
Maturities, prepayments and calls |
3,999,407 | 1,137,073 | ||||||
Securities held to maturity: |
||||||||
Principal repayments received |
9 | 11 | ||||||
Loan originations and principal collections, net |
(2,883,846 | ) | (3,973,008 | ) | ||||
Purchases of premises and equipment |
(41,952 | ) | (92,190 | ) | ||||
Proceeds from sale of foreclosed real estate |
523,297 | 353,930 | ||||||
Net cash used in investing activities |
(7,995,754 | ) | (11,909,484 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net increase (decrease) in deposits |
4,569,677 | (23,119,547 | ) | |||||
Net increase in securities sold under agreements to repurchase |
985,023 | 283,142 | ||||||
Repayment of Federal Home Loan Bank advances |
(28,265 | ) | (2,027,177 | ) | ||||
Proceeds from issuance of common stock |
| 24,285,400 | ||||||
Dividends paid |
(128,494 | ) | | |||||
Stock purchased by restricted stock trust |
(225,780 | ) | | |||||
Net cash provided by (used in) financing activities |
5,172,161 | (578,182 | ) | |||||
NET DECREASE IN CASH AND
CASH EQUIVALENTS |
(2,058,690 | ) | (12,432,775 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
14,316,299 | 40,707,334 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 12,257,609 | $ | 28,274,559 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
||||||||
Interest paid on deposits and borrowed funds |
$ | 881,201 | $ | 1,156,669 | ||||
Income taxes paid |
49,150 | 69,909 | ||||||
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES: |
||||||||
Acquisition of real estate acquired through foreclosure |
$ | 507,574 | $ | 832,100 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. | Summary of Significant Accounting Policies |
The accounting and reporting policies of Athens Bancshares Corporation (the Company)
and subsidiary conform with United States generally accepted accounting principles
(GAAP) and practices within the banking industry. The Financial Accounting Standards
Board (FASB) has adopted the FASB Accounting Standards Codification (ASC) as the
single source of authoritative nongovernmental GAAP. Rules and interpretive releases
of the Securities and Exchange Commission (the SEC) are also sources of authoritative
GAAP for SEC registrants.
The policies that materially affect financial position and results of operations are
summarized as follows:
Interim Financial Information (Unaudited)
The accompanying unaudited consolidated financial statements have been prepared in
accordance with GAAP for interim financial information and in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the SEC.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the financial
position and results of operations for the periods presented have been included.
Operating results for the interim periods are not necessarily indicative of the results
that may be expected for the full year or any other period. For further information,
refer to the Companys consolidated financial statements and notes thereto included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The Company has evaluated events and transactions for potential recognition and
disclosure through the date the financial statements were issued.
Nature of operations
The Company is a holding company whose principal activity is the ownership and
management of its wholly owned subsidiary, Athens Federal Community Bank (the Bank).
The Bank provides a variety of financial services to individuals and corporate
customers through its seven branches located in Athens, Sweetwater, Etowah,
Madisonville, and Cleveland, Tennessee. The Banks primary deposit products include
checking, savings, certificates of deposit, and IRA accounts. Its primary lending
products are one-to-four family residential, commercial real estate, and consumer
loans. Southland Finance, Inc. (Southland) is a consumer finance company with one
branch located in Athens, Tennessee. Ti-Serv, Inc. maintains the Banks investment in
Valley Title Services, LLC and provides title insurance services.
5
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. | Summary of Significant Accounting Policies (Continued) |
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses, the valuation of
deferred tax assets, other-than-temporary impairment of securities, and the fair value
of financial statements.
Recent Accounting Pronouncements
In January 2011, the FASB issued Accounting Standards Update 2011-01, Deferral of the
Effective Date of Disclosures about Troubled Debt Restructurings in ASU 2010-20. This
update defers the effective date of reporting troubled debt restructuring (TDR)
credit quality disclosures until the additional guidance is issued that clarifies what
constitutes a TDR.
In April 2011, the FASB issued Accounting Standards Update 2011-02, The Creditors
Determination of Whether a Restructuring is a Troubled Debt Restructuring. This update
provides additional guidance in determining what is considered a TDR. The update
clarifies the two criteria that are required in determining a TDR. The update is
effective for interim or annual periods beginning after June 15, 2011. We are
currently evaluating the impact of this update to our consolidated financial
statements.
Other than disclosures contained within these statements, the Company has determined
that all other recently issued accounting pronouncements will not have a material
impact on its consolidated financial statements or do not apply to its operations.
6
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. | Summary of Significant Accounting Policies (Continued) |
Earnings Per Common Share
When presented, basic earnings per share are computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the Company.
The following is a summary of the basic and diluted earnings per share for the three
month periods ended March 31, 2011 and 2010.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Basic earnings/(loss) per share calculation: |
||||||||
Numerator: Net income/(loss) available to
common shareholders |
$ | 513,869 | $ | (405,945 | ) | |||
Denominator: Weighted average common
shares outstanding |
2,545,034 | 2,777,250 | ||||||
Effect of dilutive stock options |
29,865 | | ||||||
Diluted shares |
2,574,899 | 2,777,250 | ||||||
Basic earnings/(loss) per share |
$ | 0.20 | $ | (0.15 | ) | |||
Diluted earnings/(loss) per share |
$ | 0.20 | $ | (0.15 | ) | |||
7
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. Securities
The amortized cost and estimated fair value of securities classified as available for
sale and held to maturity at March 31, 2011 and December 31, 2010 are as follows:
March 31, 2011 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities Available for Sale: |
||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 32,866,576 | $ | 197,960 | $ | (257,076 | ) | $ | 32,807,460 | |||||||
Mortgage-backed and
related securities (1) |
8,614,532 | 369,435 | (17,911 | ) | 8,966,056 | |||||||||||
State and municipal
securities |
5,373,442 | 10,280 | (100,545 | ) | 5,283,177 | |||||||||||
$ | 46,854,550 | $ | 577,675 | $ | (375,532 | ) | $ | 47,056,693 | ||||||||
Securities Held to Maturity: |
||||||||||||||||
Mortgage-backed and
related securities (1) |
$ | 16 | $ | | $ | | $ | 16 | ||||||||
December 31, 2010 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
Securities Available for Sale: |
||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 29,389,077 | $ | 206,789 | $ | (257,160 | ) | $ | 29,338,706 | |||||||
Mortgage-backed and
related securities (1) |
6,269,479 | 402,284 | (624 | ) | 6,671,139 | |||||||||||
State and municipal
securities |
5,674,233 | 443 | (146,935 | ) | 5,527,741 | |||||||||||
$ | 41,332,789 | $ | 609,516 | $ | (404,719 | ) | $ | 41,537,586 | ||||||||
Securities Held to Maturity: |
||||||||||||||||
Mortgage-backed and
related securities (1) |
$ | 25 | $ | 1 | $ | | $ | 26 | ||||||||
(1) | Collateralized by residential mortgages and guaranteed by U.S. Government
sponsored entities. |
8
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. | Securities (Continued) |
The amortized cost and estimated market value of securities at March 31, 2011 and
December 31, 2010, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
March 31, 2011 | ||||||||||||||||
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Due in one year or less |
$ | 2,039,193 | $ | 2,051,141 | $ | | $ | | ||||||||
Due after one year through
five years |
29,288,944 | 29,206,672 | | | ||||||||||||
Due five years to ten years |
3,216,301 | 3,186,978 | | | ||||||||||||
Due after ten years |
3,695,580 | 3,645,846 | | | ||||||||||||
Mortgage-backed securities |
8,614,532 | 8,966,056 | 16 | 16 | ||||||||||||
Total |
$ | 46,854,550 | $ | 47,056,693 | $ | 16 | $ | 16 | ||||||||
December 31, 2010 | ||||||||||||||||
Securities Available for Sale | Securities Held to Maturity | |||||||||||||||
Amortized | Fair | Amortized | Fair | |||||||||||||
Cost | Value | Cost | Value | |||||||||||||
Due in one year or less |
$ | 7,376,700 | $ | 7,356,405 | $ | | $ | | ||||||||
Due after one year through
five years |
20,774,132 | 20,715,338 | | | ||||||||||||
Due five years to ten years |
3,217,241 | 3,179,863 | | | ||||||||||||
Due after ten years |
3,695,237 | 3,614,841 | | | ||||||||||||
Mortgage-backed securities |
6,269,479 | 6,671,139 | 25 | 26 | ||||||||||||
Total |
$ | 41,332,789 | $ | 41,537,586 | $ | 25 | $ | 26 | ||||||||
No realized gains or losses were recognized for the three-month period ended March
31, 2011, or for the year ended December 31, 2010.
The Company has pledged securities with carrying values of approximately $17,338,000
and $18,177,000 (which approximates fair values) to secure deposits of public and
private funds as of March 31, 2011 and December 31, 2010, respectively.
9
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. | Securities (Continued) |
Securities with gross unrealized losses at March 31, 2011 and December 31, 2010,
aggregated by investment category and length of time that individual securities have
been in a continuous loss position, are as follows:
March 31, 2011 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Securities Available for Sale: |
||||||||||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 15,058 | $ | (257 | ) | $ | | $ | | $ | 15,058 | $ | (257 | ) | ||||||||||
Mortgage-backed and
related securities |
2,910 | (18 | ) | 46 | | 2,956 | (18 | ) | ||||||||||||||||
State and municipal
securities |
3,426 | (59 | ) | 334 | (42 | ) | 3,760 | (101 | ) | |||||||||||||||
$ | 21,394 | $ | (334 | ) | $ | 380 | $ | (42 | ) | $ | 21,774 | $ | (376 | ) | ||||||||||
December 31, 2010 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Securities Available for Sale: |
||||||||||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 12,803 | $ | (257 | ) | $ | | $ | | $ | 12,803 | $ | (257 | ) | ||||||||||
Mortgage-backed and
related securities |
46 | (1 | ) | 53 | | 99 | (1 | ) | ||||||||||||||||
State and municipal
securities |
4,896 | (102 | ) | 332 | (45 | ) | 5,228 | (147 | ) | |||||||||||||||
$ | 17,745 | $ | (360 | ) | $ | 385 | $ | (45 | ) | $ | 18,130 | $ | (405 | ) | ||||||||||
Management performs periodic reviews for impairment in accordance with ASC Topic
320, Investment Debt and Equity Securities.
10
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. | Securities (Continued) |
At March 31, 2011, the 21 securities with unrealized losses have depreciated 1.70
percent from the Companys amortized cost basis. At December 31, 2010, the 19
securities with unrealized losses have depreciated 2.19 percent from the Companys
amortized cost basis. Most of these securities are guaranteed by either U.S. government
corporations or agencies or had investment grade ratings upon purchase. Further, the
issuers of these securities have not established any cause for default. The unrealized
losses associated with these investment securities are primarily driven by changes in
interest rates and are not due to the credit quality of the securities. These
securities will continue to be monitored as a part of the Companys ongoing impairment
analysis, but are expected to perform even if the rating agencies reduce the credit
rating of the bond insurers. Management evaluates the financial performance of each
issuer on a quarterly basis to determine if it is probable that the issuers can make all
contractual principal and interest payments.
ASC Topic 320 requires an entity to assess whether the entity has the intent to sell the
debt security or more likely than not will be required to sell the debt security before
its anticipated recovery. Management does not intend to sell these securities and it is
not more likely than not that management will be required to sell the securities before
the recovery of its amortized cost basis. In making this determination, management has
considered the Companys cash flow and liquidity requirements, capital requirements,
economic factors, and contractual and regulatory obligations for indication that these
securities will be required to be sold before a forecasted recovery occurs. Therefore,
in managements opinion, all securities that have been in a continuous unrealized loss
position for the past 12 months or longer as of March 31, 2011 are not
other-than-temporarily impaired, and therefore, no impairment charges as of March 31,
2011 are warranted.
Note 3. | Loans and Allowances for Loan Losses |
The Bank and Southland provide mortgage, consumer, and commercial lending services to
individuals and businesses primarily in the East Tennessee area.
11
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
The Companys loans consist of the following at March 31, 2011 and December 31, 2010:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Mortgage loans on real estate: |
||||||||
Residential 1-4 family |
$ | 80,126,574 | $ | 79,373,610 | ||||
Residential multifamily (5 or more units) |
20,816,306 | 20,851,097 | ||||||
Commercial |
46,271,708 | 43,733,879 | ||||||
Construction and land |
19,480,730 | 19,837,210 | ||||||
166,695,318 | 163,795,796 | |||||||
Commercial loans |
11,868,047 | 12,765,618 | ||||||
Consumer and equity lines of credit |
27,456,236 | 27,335,361 | ||||||
Total loans |
206,019,601 | 203,896,775 | ||||||
Less: Allowance for loan losses |
(3,911,953 | ) | (3,965,395 | ) | ||||
Unearned interest and fees |
(365,929 | ) | (323,515 | ) | ||||
Net deferred loan origination fees |
(226,187 | ) | (221,387 | ) | ||||
Loans, net |
$ | 201,515,532 | $ | 199,386,478 | ||||
The following presents activity in the allowance for loan losses for the three months
ended March 31, 2011 and the year ended December 31, 2010:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Beginning balance |
$ | 3,965,395 | $ | 3,412,963 | ||||
Provision for loan losses |
211,444 | 1,711,030 | ||||||
Loans charged-off |
(287,375 | ) | (1,272,953 | ) | ||||
Recoveries |
22,489 | 114,355 | ||||||
Ending balance |
$ | 3,911,953 | $ | 3,965,395 | ||||
Loan impairment and any related valuation allowance is determined under the provisions
established by ASC Topic 310. For all periods presented above, impaired loans without a
valuation allowance represent loans for which management believes that the collateral
value of the loan is higher than the carrying value of that loan.
12
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
The allocation of the allowance for loan losses and recorded
investment in loans by portfolio segment at March 31, 2011 and
December 31, 2010 are as follows:
March 31, 2011 | ||||||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||
Residential | and Multi- | Construction | Consumer | |||||||||||||||||||||||||
Commercial | 1-4 Family | Family | and Land | and Other | Unallocated | Total | ||||||||||||||||||||||
Specified reserves-
impaired loans |
$ | 420,671 | $ | 520,654 | $ | 122,651 | $ | 551,997 | $ | 159,704 | $ | | $ | 1,775,677 | ||||||||||||||
General reserves |
168,601 | 595,147 | 814,574 | 201,584 | 337,093 | 19,277 | 2,136,276 | |||||||||||||||||||||
Total reserves |
$ | 589,272 | $ | 1,115,801 | $ | 937,225 | $ | 753,581 | $ | 496,797 | $ | 19,277 | $ | 3,911,953 | ||||||||||||||
Loans individually
evaluated for
impairment |
$ | 2,369,222 | $ | 6,515,236 | $ | 2,504,430 | $ | 1,642,613 | $ | 722,822 | $ | 13,754,323 | ||||||||||||||||
Loans collectively
evaluated for
impairment |
9,498,825 | 73,611,338 | 64,583,584 | 17,838,117 | 26,733,414 | 192,265,278 | ||||||||||||||||||||||
Total |
$ | 11,868,047 | $ | 80,126,574 | $ | 67,088,014 | $ | 19,480,730 | $ | 27,456,236 | $ | 206,019,601 | ||||||||||||||||
December 31, 2010 | ||||||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||
Residential | and Multi- | Construction | Consumer | |||||||||||||||||||||||||
Commercial | 1-4 Family | Family | and Land | and Other | Unallocated | Total | ||||||||||||||||||||||
Specified reserves-
impaired loans |
$ | 317,562 | $ | 321,604 | $ | 492,369 | $ | 534,737 | $ | 93,462 | $ | | $ | 1,759,734 | ||||||||||||||
General reserves |
206,428 | 742,610 | 807,249 | 198,709 | 225,809 | 24,856 | 2,205,661 | |||||||||||||||||||||
Total reserves |
$ | 523,990 | $ | 1,064,214 | $ | 1,299,618 | $ | 733,446 | $ | 319,271 | $ | 24,856 | $ | 3,965,395 | ||||||||||||||
Loans individually
evaluated for
impairment |
$ | 2,641,736 | $ | 2,445,307 | $ | 2,648,507 | $ | 1,701,657 | $ | 241,627 | $ | 9,678,834 | ||||||||||||||||
Loans collectively
evaluated for
impairment |
10,123,882 | 76,928,303 | 61,936,469 | 18,135,553 | 27,093,734 | 194,217,941 | ||||||||||||||||||||||
Total |
$ | 12,765,618 | $ | 79,373,610 | $ | 64,584,976 | $ | 19,837,210 | $ | 27,335,361 | $ | 203,896,775 | ||||||||||||||||
13
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
The following table details the changes in the allowance for loan
losses during the three months ended March 31, 2011 by class of
loan:
Commercial | ||||||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||||||
Residential | and Multi- | Construction | Consumer | |||||||||||||||||||||||||
Commercial | 1-4 Family | Family | and Land | and Other | Unallocated | Total | ||||||||||||||||||||||
Balance, December 31, 2010 |
$ | 523,990 | $ | 1,064,214 | $ | 1,299,618 | $ | 733,446 | $ | 319,271 | $ | 24,856 | $ | 3,965,395 | ||||||||||||||
Charge-offs |
| | (244,051 | ) | | (43,324 | ) | | (287,375 | ) | ||||||||||||||||||
Recoveries |
700 | 44 | | | 21,745 | | 22,489 | |||||||||||||||||||||
Provision charged to
operations |
64,582 | 51,543 | (118,342 | ) | 20,135 | 199,105 | (5,579 | ) | 211,444 | |||||||||||||||||||
Balance, March 31, 2011 |
$ | 589,272 | $ | 1,115,801 | $ | 937,225 | $ | 753,581 | $ | 496,797 | $ | 19,277 | $ | 3,911,953 | ||||||||||||||
The following table presents loans individually evaluated for impairment by class
of loans as of March 31, 2011 and December 31, 2010:
March 31, 2011 | ||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||
Residential | and Multi- | Construction | Consumer | |||||||||||||||||||||
Commercial | 1-4 Family | Family | and Land | and Other | Total | |||||||||||||||||||
Loans individually
evaluated for impairment: |
||||||||||||||||||||||||
Without a valuation allowance |
$ | | $ | 1,001,835 | $ | 1,239,579 | $ | 61,181 | $ | 136,322 | $ | 2,438,917 | ||||||||||||
With a valuation allowance |
2,369,222 | 5,513,401 | 1,264,851 | 1,581,432 | 586,500 | 11,315,406 | ||||||||||||||||||
Total impaired loans |
$ | 2,369,222 | $ | 6,515,236 | $ | 2,504,430 | $ | 1,642,613 | $ | 722,822 | $ | 13,754,323 | ||||||||||||
Valuation allowance related to
impaired loans |
$ | 420,671 | $ | 520,654 | $ | 122,651 | $ | 551,997 | $ | 159,704 | $ | 1,775,677 | ||||||||||||
Average investment in
impaired loans |
$ | 2,618,516 | $ | 3,617,631 | $ | 2,702,389 | $ | 1,645,822 | $ | 549,019 | $ | 11,133,377 | ||||||||||||
Interest income recognized on
impaired
loans |
$ | 29,615 | $ | 28,081 | $ | 24,689 | $ | 3,451 | $ | 3,873 | $ | 89,709 | ||||||||||||
14
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
December 31, 2010 | ||||||||||||||||||||||||
Commercial | ||||||||||||||||||||||||
Real Estate | ||||||||||||||||||||||||
Residential | and Multi- | Construction | Consumer | |||||||||||||||||||||
Commercial | 1-4 Family | Family | and Land | and Other | Total | |||||||||||||||||||
Loans individually
evaluated for impairment: |
||||||||||||||||||||||||
Without a valuation allowance |
$ | 29,662 | $ | 807,616 | $ | 729,037 | $ | 154,035 | $ | | $ | 1,720,350 | ||||||||||||
With a valuation allowance |
2,612,074 | 1,637,691 | 1,919,470 | 1,547,622 | 241,627 | 7,958,484 | ||||||||||||||||||
Total impaired loans |
$ | 2,641,736 | $ | 2,445,307 | $ | 2,648,507 | $ | 1,701,657 | $ | 241,627 | $ | 9,678,834 | ||||||||||||
Valuation allowance related to
impaired loans |
$ | 317,562 | $ | 321,604 | $ | 492,369 | $ | 534,737 | $ | 93,462 | $ | 1,759,734 | ||||||||||||
The following is a summary of information pertaining to average investment and
interest income recognized on impaired loans as of December 31, 2010:
Average investment in impaired loans: |
$ | 9,022,095 | ||
Interest income recognized on impaired loans: |
$ | 600,000 | ||
The following presents an aged analysis of past due loans as of March 31, 2011 and December
31, 2010:
March 31, 2011 | ||||||||||||||||||||||||
Greater Than | Recorded | |||||||||||||||||||||||
90 Days | Investment ³ 90 | |||||||||||||||||||||||
30-89 Days | Past Due And | Total | Days and | |||||||||||||||||||||
Past Due | Non-accrual | Past Due | Current Loans | Total Loans | Accruing | |||||||||||||||||||
Residential 1-4 family |
$ | 786,027 | $ | 136,841 | $ | 922,868 | $ | 79,203,706 | $ | 80,126,574 | $ | | ||||||||||||
Commercial real estate and
multifamily |
| | | 67,088,014 | 67,088,014 | | ||||||||||||||||||
Construction and land |
| 1,010,223 | 1,010,223 | 18,470,507 | 19,480,730 | | ||||||||||||||||||
Commercial |
| 38,000 | 38,000 | 11,830,047 | 11,868,047 | | ||||||||||||||||||
Consumer and other |
111,561 | 57,058 | 168,619 | 27,287,617 | 27,456,236 | 12,735 | ||||||||||||||||||
Total |
$ | 897,588 | $ | 1,242,122 | $ | 2,139,710 | $ | 203,879,891 | $ | 206,019,601 | $ | 12,735 | ||||||||||||
15
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
December 31, 2010 | ||||||||||||||||||||||||
Greater Than | Recorded | |||||||||||||||||||||||
90 Days | Investment ³ 90 | |||||||||||||||||||||||
30-89 Days | Past Due And | Total | Days and | |||||||||||||||||||||
Past Due | Non-accrual | Past Due | Current Loans | Total Loans | Accruing | |||||||||||||||||||
Residential 1-4 family |
$ | 689,195 | $ | 632,421 | $ | 1,321,616 | $ | 78,051,994 | $ | 79,373,610 | $ | 63,740 | ||||||||||||
Commercial real estate and
multifamily |
131,849 | 326,635 | 458,484 | 64,126,492 | 64,584,976 | 53,515 | ||||||||||||||||||
Construction and land |
| 974,445 | 974,445 | 18,862,765 | 19,837,210 | | ||||||||||||||||||
Commercial |
6,618 | 38,000 | 44,618 | 12,721,000 | 12,765,618 | | ||||||||||||||||||
Consumer and other |
164,427 | 67,509 | 231,936 | 27,103,425 | 27,335,361 | 9,490 | ||||||||||||||||||
Total |
$ | 992,089 | $ | 2,039,010 | $ | 3,031,099 | $ | 200,865,676 | $ | 203,896,775 | $ | 126,745 | ||||||||||||
Credit quality indicators:
Federal regulations require us to review and classify our assets on a regular basis.
There are three classifications for problem assets: substandard, doubtful, and loss.
Substandard assets must have one or more defined weaknesses and are characterized by
the distinct possibility that we will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and there is
a high possibility of loss. An asset classified loss is considered uncollectible and
of such little value that continuance as an asset of the institution, without
establishment of a specific valuation allowance or charge-off, is not warranted. The
regulations also provide for a special mention category, described as assets which do
not currently expose an institution to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses deserving
close attention. When we classify an asset as substandard or doubtful, we may establish
a specific allowance for loan losses.
The following outlines the amount of each loan classification and the amount categorized
into each risk rating class as of March 31, 2011 and December 31, 2010:
March 31, 2011 | ||||||||||||||||||||||||
Special | ||||||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Residential 1-4 family |
$ | 72,109,334 | $ | 1,502,004 | $ | 6,507,673 | $ | | $ | 7,563 | $ | 80,126,574 | ||||||||||||
Commercial real estate and
multifamily |
64,583,584 | | 2,504,430 | | | 67,088,014 | ||||||||||||||||||
Construction and land |
17,389,436 | 448,681 | 1,642,613 | | | 19,480,730 | ||||||||||||||||||
Commercial |
9,496,783 | 2,043 | 2,126,446 | | 242,775 | 11,868,047 | ||||||||||||||||||
Consumer and other |
26,542,275 | 191,138 | 695,600 | | 27,223 | 27,456,236 | ||||||||||||||||||
Total |
$ | 190,121,412 | $ | 2,143,866 | $ | 13,476,762 | $ | | $ | 277,561 | $ | 206,019,601 | ||||||||||||
16
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. | Loans and Allowances for Loan Losses (Continued) |
December 31, 2010 | ||||||||||||||||||||||||
Special | ||||||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Loss | Total | |||||||||||||||||||
Residential 1-4 family |
$ | 74,953,467 | $ | 1,974,836 | $ | 2,445,307 | $ | | $ | | $ | 79,373,610 | ||||||||||||
Commercial real estate and
multifamily |
61,936,469 | | 2,648,507 | | | 64,584,976 | ||||||||||||||||||
Construction and land |
17,714,246 | 421,307 | 1,701,657 | | | 19,837,210 | ||||||||||||||||||
Commercial |
10,104,402 | 19,481 | 2,431,504 | | 210,231 | 12,765,618 | ||||||||||||||||||
Consumer and other |
26,982,454 | 111,279 | 226,622 | | 15,006 | 27,335,361 | ||||||||||||||||||
Total |
$ | 191,691,038 | $ | 2,526,903 | $ | 9,453,597 | $ | | $ | 225,237 | $ | 203,896,775 | ||||||||||||
At March 31, 2011 and December 31, 2010, the Company had loans of
$5,677,000 and $6,057,000, respectively, that were modified in
trouble debt restructuring and impaired.
Note 4. | Fair Value Disclosures |
The Company uses fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures. In accordance with the
ASC Topic 820, Fair Value Measurements and Disclosures, the fair value of a financial
instrument is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
Fair value is best determined based upon quoted market prices. In cases where quoted
market prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate settlement of
the instrument.
ASC Topic 820 provides a consistent definition of fair value, which focuses on exit
price in an orderly transaction between market participants at the measurement date
under current market conditions. If there has been a significant decrease in the volume
and level of activity for the asset or liability, a change in valuation technique or the
use of multiple valuation techniques may be appropriate. In such instances, determining
the price at which willing market participants would transact at the measurement date
under current market conditions depends on the facts and circumstances and requires the
use of significant judgment. The fair value is a reasonable point within the range that
is most representative of fair value under current market conditions.
17
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. | Fair Value Disclosures (Continued) |
ASC Topic 820 also establishes a three-tier fair value which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value, as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access.
Level 2 Significant other observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities in active markets, quoted prices in
markets that are not active and other inputs that are observable or can be
corroborated by observable market data.
Level 3 Significant unobservable inputs that reflect a companys own assumptions
about the assumptions that market participants would use in pricing an asset or
liability.
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. There have
been no changes in the methodologies used at March 31, 2011 and December 31, 2010.
The following methods and assumptions were used by the Company in estimating fair value
disclosures for financial instruments.
Cash, cash equivalents, and interest-bearing deposits in banks:
The carrying amounts of cash, cash equivalents, and interest-bearing deposits in banks
approximate fair values based on the short-term nature of the assets.
Securities:
Fair values are estimated using pricing models and discounted cash flows that consider
standard input factors such as observable market data, benchmark yields, interest rate
volatilities, broker/dealer quotes, and credit spreads. Securities classified as
available for sale are reported at fair value utilizing Level 2 inputs.
Federal Home Loan Bank stock, at cost:
The carrying value of FHLB stock approximates fair value based on the redemption
provisions of the FHLB.
18
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. | Fair Value Disclosures (Continued) |
Loans:
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on
carrying values. Fair value for fixed-rate loans are estimated using discounted cash flow analyses, using market
interest rates for comparable loans. The Company does not record loans at fair value on a recurring basis. However,
from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it
is probable that payment of interest and principal will not be made in accordance with the contractual terms of the
loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures
impairment in accordance with ASC Topic 310, Receivables. The fair value of impaired loans is estimated using several
methods including collateral value, liquidation value and discounted cash flows. Those impaired loans not requiring an
allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded
investments in such loans. At March 31, 2011, substantially all of the total impaired loans were evaluated based on
the fair value of collateral. In accordance with ASC Topic 310, impaired loans where an allowance is established based
on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the
collateral is based on the observable market price or a current, independent appraised value, the Company records the
impaired loan as nonrecurring Level 2. The Company records the impaired loan as nonrecurring Level 3 when management
has become aware of events that have significantly impacted the condition or marketability of the collateral since the
most recent appraisal. In this case, management will reduce the appraisal value based on factors determined by their
judgment and collective knowledge of the collateral and market conditions.
Cash surrender value of bank owned life insurance:
The carrying amounts of cash surrender value of bank owned life insurance approximate their fair value. The carrying
amount is based on information received from the insurance carriers indicating the financial performance of the
policies and the amount the Company would receive should the policies be surrendered. The Company reflects these
assets within Level 2 of the valuation hierarchy.
Foreclosed real estate:
Foreclosed real estate consisting of properties obtained through foreclosure or in satisfaction of loans is initially
recorded at fair value, determined on the basis of current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources, adjusted for estimated selling costs. At the time of foreclosure, any
excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the
allowance for loan losses. Gains or losses on sale and any subsequent adjustments to the fair value are recorded as a
component of foreclosed real estate expense. Other real estate is included in Level 2 of the valuation hierarchy.
19
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. | Fair Value Disclosures (Continued) |
Deposits:
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits and NOW, money market,
and savings accounts, is equal to the amount payable on demand at the reporting date. The fair value of time deposits
is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Securities sold under agreements to repurchase:
The estimated fair value of these liabilities, which are extremely short term, approximates their carrying value.
Federal Home Loan Bank advances:
Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the
fair value of existing debt.
Accrued interest:
The carrying amounts of accrued interest approximate fair value.
Commitments to extend credit, letters of credit and lines of credit:
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the
committed rates.
20
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. | Fair Value Disclosures (Continued) |
The tables below present the recorded amount of assets and liabilities measured at fair
value on a recurring basis:
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
Balance as of | for Identical | Observable | Unobservable | |||||||||||||
March 31, | Assets | Inputs | Inputs | |||||||||||||
2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Securities available
for sale: |
||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 32,807,460 | $ | | $ | 32,807,460 | $ | | ||||||||
Mortgage-backed
securities |
8,966,056 | | 8,966,056 | | ||||||||||||
State and municipal
securities |
5,283,177 | | 5,283,177 | | ||||||||||||
Total securities
available for sale |
$ | 47,056,693 | $ | | $ | 47,056,693 | $ | | ||||||||
Cash surrender value
of bank owned life
insurance |
$ | 8,999,966 | $ | | $ | 8,999,966 | $ | | ||||||||
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
Balance as of | for Identical | Observable | Unobservable | |||||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Securities available
for sale: |
||||||||||||||||
Securities of U.S.
Government agencies
and corporations |
$ | 29,338,706 | $ | | $ | 29,338,706 | $ | | ||||||||
Mortgage-backed
securities |
6,671,139 | | 6,671,139 | | ||||||||||||
State and municipal
securities |
5,527,741 | | 5,527,741 | | ||||||||||||
Total securities
available for sale |
$ | 41,537,586 | $ | | $ | 41,537,586 | $ | | ||||||||
Cash surrender value
of bank owned life
insurance |
$ | 8,924,120 | $ | | $ | 8,924,120 | $ | | ||||||||
21
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. | Fair Value Disclosures (Continued) |
The tables below present information about assets and liabilities for which a
nonrecurring change in fair value was recorded:
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
Balance as of | for Identical | Observable | Unobservable | |||||||||||||
March 31, | Assets | Inputs | Inputs | |||||||||||||
2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans |
$ | 9,539,729 | $ | | $ | 9,501,729 | $ | 38,000 | ||||||||
Foreclosed real estate |
1,064,015 | | 1,064,015 | |
Quoted Prices in | Significant | Significant | ||||||||||||||
Active Markets | Other | Other | ||||||||||||||
Balance as of | for Identical | Observable | Unobservable | |||||||||||||
December 31, | Assets | Inputs | Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Impaired loans |
$ | 6,198,750 | $ | | $ | 6,126,747 | $ | 72,003 | ||||||||
Foreclosed real estate |
1,102,527 | | 1,102,527 | |
The carrying amount and estimated fair value of the Companys financial
instruments at March 31, 2011 and December 31, 2010 are as follows (in thousands):
2011 | 2010 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 12,258 | $ | 12,258 | $ | 14,316 | $ | 14,316 | ||||||||
Interest-bearing time deposits in banks |
747 | 747 | 747 | 747 | ||||||||||||
Securities |
47,057 | 47,057 | 41,538 | 41,538 | ||||||||||||
Federal Home Loan Bank stock, at cost |
2,899 | 2,899 | 2,899 | 2,899 | ||||||||||||
Loans, net |
201,516 | 204,029 | 199,386 | 201,211 | ||||||||||||
Cash surrender value of bank
owned life insurance |
9,000 | 9,000 | 8,924 | 8,924 | ||||||||||||
Accrued interest receivable |
1,313 | 1,313 | 1,111 | 1,111 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
220,257 | 227,892 | 215,687 | 223,788 | ||||||||||||
Securities sold under agreements
to repurchase |
1,780 | 1,780 | 795 | 795 | ||||||||||||
Federal Home Loan Bank advances |
8,186 | 8,413 | 8,214 | 8,486 | ||||||||||||
Accrued interest payable |
219 | 219 | 225 | 225 | ||||||||||||
Unrecognized financial
instruments (net of contract amount): |
||||||||||||||||
Commitments to extend credit |
| | | | ||||||||||||
Letter of credit |
| | | | ||||||||||||
Lines of credit |
| | | |
22
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ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. | Stock Options, ESOP, and Restricted Shares |
2010 Equity Incentive Plan
The Athens Bancshares Corporation 2010 Equity Incentive Plan (the 2010 Plan) was
approved by the Companys stockholders at the annual meeting of stockholders held on
July 14, 2010. Under the terms of the 2010 Plan, the Company may grant restricted stock
awards and stock options to its employees, officers, and directors. The purpose of the
2010 Plan is to promote the success of the Company by linking the personal interests of
its employees, officers, and directors to the interest of the Companys shareholders,
and by providing participants with an incentive for remarkable performance. All of the
Companys employees, officers, and directors are eligible to participate in the 2010
Plan.
Under terms of the 2010 Plan, the Company is authorized to issue up to 277,725 stock
options and up to 111,090 shares of restricted stock.
The Company granted stock options to its directors, officers, and employees on December
15, 2010. Both incentive stock options and non-qualified stock options were granted
under the 2010 Plan. The exercise price for each option was equal to the market price
of the Companys stock on the date of grant and the maximum term of each option is ten
years. The vesting period for all options is five years from the date of grant. The
Company recognizes compensation expense over the vesting period, based on the grant-date
fair value of the options granted. The fair value of each option granted is estimated
on the date of grant using the Black-Scholes option-pricing model. For the three months
ended March 31, 2011 and 2010, the Company recorded stock compensation expense of
$13,537 and $0, respectively. At March 31, 2011, the total remaining compensation cost
to be recognized on non-vested options is approximately $257,000.
A summary of the activity in the 2010 Plan as of March 31, 2011, is presented in the
following table:
Three Months Ended March 31, 2011 | ||||||||||||
Average | Aggregate | |||||||||||
Exercise | Intrinsic | |||||||||||
Shares | Price | Value (1) | ||||||||||
Outstanding at beginning of year |
236,062 | $ | 11.50 | |||||||||
Granted |
| N/A | ||||||||||
Exercised |
| N/A | ||||||||||
Forfeited |
| N/A | ||||||||||
Outstanding at March 31, 2011 |
236,062 | 11.50 | $ | 483,927 | ||||||||
Options exercisable at March 31, 2011 |
| N/A | | |||||||||
23
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. | Stock Options, ESOP, and Restricted Shares (Continued) |
2010 Equity Incentive Plan (Continued)
(1) The aggregate intrinsic value of a stock option in the table above represents the
total pre-tax intrinsic value (the amount by which the current market value of the
underlying stock exceeds the exercise price of the option) that would have been received
by the option holders had all option holders exercised their options on March 31, 2011.
This amount changes based on changes in the market value of the Companys stock.
Other information regarding options outstanding and exercisable as of March 31, 2011, is
as follows:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | ||||||||||||||||||||
Weighted- | Remaining | Weighted- | ||||||||||||||||||
Number | Average | Contractual | Number | Average | ||||||||||||||||
Exercise | of | Exercise | Life | of | Exercise | |||||||||||||||
Price | Shares | Price | In Years | Shares | Price | |||||||||||||||
$11.50 |
236,062 | $ | 11.50 | 9.75 | | $ | |
Information pertaining to non-vested options for the year ended March 31, 2011, is as
follows:
Weighted Average | ||||||||
Grant Date Fair | ||||||||
Number of Shares | Value | |||||||
Non-vested options, December 31,
2010 |
236,062 | $ | 1.27 | |||||
Granted |
| | ||||||
Vested |
| | ||||||
Forfeited |
| | ||||||
Non-vested options, March 31, 2011 |
236,062 | $ | 1.27 | |||||
24
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. | Stock Options, ESOP, and Restricted Shares (Continued) |
2010 Equity Incentive Plan (Continued)
On January 19, 2011, the Company awarded 94,426 shares of restricted stock to its
directors, officers and employees pursuant to the terms of the 2010 Plan. Compensation
expense associated with the performance-based share awards is recognized over the time
period that the restrictions associated with the awards lapse based on the total cost of
the award, which is the fair market value of the stock on the date of the grant. The
closing price on the date of the grants issued on January 19, 2011 was $12.75 per share.
For the three months ended March 31, 2011, the Company recognized $60,197 in
compensation expense attributable to the 94,426 shares that have been awarded.
A summary of activity for unvested restricted awards for the three months ended March
31, 2011 is as follows:
Grant Date Weighted- | ||||||||
Number | Average Cost | |||||||
Unvested at January 1, 2011 |
| $ | | |||||
Shares awarded |
94,426 | 12.75 | ||||||
Restrictions lapsed and shares
released |
| | ||||||
Shares forfeited |
| | ||||||
Unvested at March 31, 2011 |
94,426 | $ | 12.75 | |||||
Employee Stock Ownership Plan (ESOP)
The Company sponsors a leveraged employee stock ownership plan (ESOP) that covers
substantially all employees who meet certain age and eligibility requirements. As part
of the Companys initial public offering, the ESOP purchased 222,180 shares, or
approximately 8% of the 2,777,250 shares issued, with the proceeds of a 15 year loan
from the Company which is payable in annual installments and bears interest at 3.25%.
The Bank has committed to make contributions to the ESOP sufficient to support the debt
service of the loan. The loan is secured by the unallocated shares, which are held in a
suspense account, and are allocated among the participants as the loan is repaid. Cash
dividends paid on allocated shares are distributed to the participant and cash dividends
paid on unallocated shares are used to repay the outstanding debt of the ESOP.
ESOP shares are held by the plan trustee in a suspense account until allocated to
participant accounts. Shares released from the suspense account are allocated to
participants on the basis of their relative compensation in the year of allocation.
Participants become vested in the allocated shares upon four years of employment
with the Company. Any forfeited shares are allocated to other
participants in the same proportion as contributions.
25
Table of Contents
ATHENS BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. | Stock Options, ESOP, and Restricted Shares (Continued) |
Employee Stock Ownership Plan (ESOP) (Continued)
As ESOP shares are allocated to participants, the Company recognizes
compensation expense equal to the fair value of the earned ESOP
shares. No compensation expense has been recorded for the three
months ended March 31, 2011. A detail of ESOP shares as of March 31,
2011, is as follows:
Allocated shares |
14,812 | |||
Unallocated shares |
207,368 | |||
Total ESOP shares |
222,180 | |||
Fair value of unreleased shares at March 31, 2011 |
$ | 2,809,836 | ||
26
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operation |
Safe Harbor Statement for Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the federal
securities laws. These statements are not historical facts; rather they are statements based on the
Companys current expectations regarding its business strategies and their intended results and its
future performance. Forward-looking statements are preceded by terms such as expects, believes,
anticipates, intends and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous risks and
uncertainties could cause or contribute to the Companys actual results, performance and
achievements being materially different from those expressed or implied by the forward-looking
statements. Factors that may cause or contribute to these differences include, without limitation,
general economic conditions, including changes in market interest rates and changes in monetary and
fiscal policies of the federal government; legislative and regulatory changes; the quality and
composition of the loan and investment securities portfolio; loan demand; deposit flows;
competition; and changes in accounting principles and guidelines. Additional factors that may
affect our results are discussed in our Annual Report on Form 10-K for the year ended December 31,
2010 under Item 1A. Risk Factors. These factors should be considered in evaluating the
forward-looking statements and undue reliance should not be placed on such statements. Except as
required by applicable law or regulation, the Company assumes no obligation and disclaims any
obligation to update any forward-looking statements.
Critical Accounting Policies
During the three-month period ended March 31, 2011, there was no significant change in the
Companys critical accounting policies or the application of critical accounting policies as
disclosed in the Companys audited consolidated financial statements and related footnotes for the
year ended December 31, 2010 included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2010.
Comparison of Financial Condition at March 31, 2011 and December 31, 2010
Assets. Total assets increased from $278.0 million at December 31, 2010 to $283.6 million at
March 31, 2011.
Cash and Cash Equivalents. Total cash and cash equivalents decreased $2.0 million, or 14.0%
from $14.3 million at December 31, 2010 to $12.3 million at March 31, 2011 due primarily to
increases in loans and securities in order to improve yield.
Loans. Net loans receivable increased $2.1 million, or 1.1% from $199.4 million at December
31, 2010 to $201.5 million at March 31, 2011, primarily as a result of the funding of a $5.0
million loan to purchase an assisted living facility in Lake Wells, Florida and the subsequent
repayment of $3.9 million of this loan to the prior owner. The Bank maintained a participation
interest on the prior loan on this facility with another bank.
Securities. Total securities increased $5.6 million, or 13.5% from $41.5 million at December
31, 2010 to $47.1 million at March 31, 2011, primarily as a result of $9.5 million in purchases of
agency securities, partially offset by the $3.0 million call of an agency security and the $300,000
call of a municipal security during the period. The purchases were funded from available cash.
Deposits. Total deposits increased $4.6 million, or 2.1% from $215.7 million at December 31,
2010 to $220.3 million at March 31, 2011. The primary reason for the increase in deposits was a
$5.6 million increase in demand and NOW accounts primarily due to a $4.5 million increase in
non-personal NOW accounts relating to two public entities. Other increases were in non-interest
bearing demand deposits of $1.5 million and savings deposit accounts of $1.2 million, partially
offset by decreases of $594,000 and $3.1 million in money market accounts and certificates of
deposit, respectively.
27
Table of Contents
Borrowings. Federal Home Loan Bank borrowings decreased $28,000 from $8.2 million at December
31, 2010 to $8.2 million at March 31, 2011. The slight decrease was due to principal payments on
an amortizing advance.
Stockholders Equity. Stockholders equity increased $232,000 or 0.5% from $49.6 million at
December 31, 2010 to $49.8 million at March 31, 2011. The primary reasons for the increase include
net income for the first quarter of $514,000, dividends declared and paid on outstanding shares
(other than unallocated ESOP shares) in the first quarter of $128,000, additional open market
purchases of stock to be available for restricted stock grants under the 2010 Plan of $226,000
partially offset by a $74,000 increase related to expense for the period on grants of options and
restricted stock.
Results of Operations for the Three Months Ended March 31, 2011 and 2010
Overview. The Company reported net income of $514,000, or $0.20 basic earnings per share, for
the three-month period ended March 31, 2011, compared to a net loss of ($406,000) or ($0.15) basic
earnings per share, for the same period in 2010. The net loss in 2010 was primarily a result of
the $1.1 million contribution to the Athens Federal Foundation in connection with the closing of
the Banks stock conversion.
Net Interest Income. Net interest income after provision for loan losses increased $379,000
or 17.3% for the three months ended March 31, 2011 compared to the same period in 2010, primarily
as a result of a decrease in interest expense on deposits.
Total interest income increased $101,000 or 2.8%, from $3.6 million for the three
months ended March 31, 2010 to $3.7 million for the three months ended March 31, 2011. The
increase was primarily the result of a $47,000 increase in interest income on loans and a $54,000
increase in interest on securities and interest bearing deposits in other banks. The increases
were primarily due to the combined effect of increases in average balances partially offset by a
decrease in market interest rates.
Total interest expense decreased $280,000 or 24.3% from $1.2 million for the three
months ended March 31, 2010 to $875,000 for the three months ended March 31, 2011. The decrease
was primarily a result of a $272,000 decrease in interest on deposits and a $7,000 decrease in
interest on Federal Home Loan Bank borrowings. The primary reason for the decrease in interest on
deposits was movement of maturing certificates of deposits to money market and checking accounts
and a reduction in market interest rates. The decrease in the interest paid on Federal Home Loan
Bank borrowings was due to a decrease in the average balance of advances outstanding.
Provision for Loan Losses. The provision for loan losses was $211,000 for the three
months ended March 31, 2011 compared to $210,000 for the same period in 2010.
Non-performing loans net of specific valuation allowances, decreased $784,000 from
$2.0 million at December 31, 2010 to $1.3 million at March 31, 2011. Non-performing residential
mortgage loans and commercial mortgage loans decreased $496,000 and $291,000 respectively, while
non-performing consumer loans increased $3,000. The balance of non-performing loans, net of
specific valuation allowances at March 31, 2011, includes nonaccrual loans of $1.2 million. There
were no residential mortgage loans that were over 90 days past due but still accruing interest at
March 31, 2011. The balance of nonaccrual loans, net of specific valuation allowances, at March
31, 2011 consists of $137,000 in residential mortgage loans, $1.0 million in commercial mortgage
loans, $38,000 in commercial business loans and $57,000 in consumer loans.
Net charge-offs were $265,000 for the three months ended March 31, 2011 compared to
$619,000 for the same period in 2010. Charge-offs totaling ($287,000) were recorded during the
quarter ended March 31, 2011 in connection with commercial mortgage loans ($244,000) and consumer
loans ($43,000).
The allowance for loan losses was $3.9 million at March 31, 2011. Management has
deemed this amount as adequate at that date based on its best estimate of probable known and
inherent loan losses at that date. The consistent application of managements allowance for loan
losses methodology resulted in a decrease in the level of the allowance for loan losses consistent
with the decrease in non-performing loans.
28
Table of Contents
Non-interest Income. Non-interest income increased $124,000, or 13.1%, to $1.1
million for the three months ended March 31, 2011 compared to $944,000 for the same period in 2010,
primarily due to increases in income related to investment sales commissions. Income from
investment sales commissions increased $44,000,
primarily due to increased sales of investment products as a result of partial recovery of
investment markets. Loan fees related to consumer and commercial loan servicing and origination
increased $20,000 primarily due to an increase in the volume of loan originations. Income related
to the origination, sale and servicing of mortgage loans on the secondary market increased $7,000
while income from TiServ and Valley Title Services, LLC increased $8,500, primarily due to
increased volume of mortgage loan originations during the quarter ended March 31, 2011 as compared
to the same period in 2010. The increased volume is primarily a result of continued stable market
interest rates. Income from the increase in cash value of life insurance increased $24,000
primarily due to the purchase of $2.0 million of additional bank owned life insurance in the second
quarter of 2010. Income related to debit card usage increased $39,000 primarily due to increased
levels of checking accounts with debit cards in use and efforts to promote increased debit card
usage as opposed to checks, which was partially offset by a $19,000 decrease in other deposit
related fees, primary due to a reduction in non-sufficient funds charges on deposit accounts.
Non-interest Expense. Non-interest expense decreased $1.0 million, or 26.2%, to $2.8 million
for the 2011 period compared to $3.9 million for the same period in 2010. The primary reason for
the decrease in non-interest expense was the contribution of $1.1 million in stock and cash to the
Athens Federal Foundation upon completion of the Banks mutual to stock conversion in January 2010.
Other changes in non-interest expense include a $36,000 increase in salary and employee benefits
expense primarily due to expense related to the 2010 Plan, a $24,000 decrease in occupancy and
equipment expense primarily related to reductions in depreciation expense, a $33,000 reduction in
federal deposit insurance premiums due to a decrease in the level of insured deposits and increases
in data processing and advertising expenses of $2,000 and $6,000 respectively.
Income tax Expense. The Company had an income tax expense of $283,000 for the three month
period ended March 31, 2011 as compared to an income tax benefit of ($310,000) for the same period
in 2010. The primary reason for the change was the tax benefit received from the contribution to
the Athens Federal Foundation during 2010.
Total Comprehensive Income (Loss). Total comprehensive income (loss) for the periods
presented consists of the net income (loss) and the change in unrealized gains (losses) on
securities available for sale, net of tax. Total comprehensive income was $512,000 for the period
ended March 31, 2011 compared to comprehensive loss of ($295,000) for the period ended March 31,
2010. The increase was primarily a result of the $920,000 increase in net income period over
period.
Liquidity and Capital Resources
Liquidity Management. Liquidity is the ability to meet current and future financial
obligations of a short-term nature. The Banks primary sources of funds consist of deposit
inflows, loan repayments, maturities and sales of investment securities and borrowings from the
Federal Home Loan Bank of Cincinnati. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank regularly adjusts our investments in liquid assets based upon our assessment of (i)
expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning
deposits and securities and (iv) the objectives of its asset/liability management policy.
The Banks most liquid assets are cash and cash equivalents and interest-bearing time
deposits. The level of these assets depends on the Banks operating, financing, lending and
investing activities during any given period. At March 31, 2011, cash and cash equivalents totaled
$12.3 million. Securities classified as available-for-sale, amounting to $47.1 million and
interest-bearing time deposits in banks of $747,000 at March 31, 2011, provide additional sources
of liquidity. In addition, at March 31, 2011, the Bank had the ability to borrow a total of
approximately $24.3 million from the Federal Home Loan Bank of Cincinnati. At March 31, 2011, the
Bank had $8.2 million in Federal Home Loan Bank advances outstanding and $11.8 million in letters
of credit to secure public funds deposits.
The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient
funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take
advantage of investment opportunities. Historically, the Bank has been able to retain a significant
amount of its deposits as they mature.
29
Table of Contents
The Company is a separate legal entity from the Bank and must provide for its own liquidity.
In addition to its operating expenses, the Company, on a stand-alone basis, is responsible for
paying any dividends declared to its shareholders. The Companys primary source of income is
dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the
Company in any calendar year, without the receipt of prior approval from the Office of Thrift
Supervision but with prior notice to the Office of Thrift Supervision, cannot exceed net income for
that year to date plus retained net income (as defined) for the preceding two calendar years. On a
stand-alone basis, the Company had liquid assets of $8.5 million at March 31, 2011.
Capital Management. The Bank is required to maintain specific amounts of capital pursuant to
OTS regulatory requirements. As of March 31, 2011, the Bank was in compliance with all regulatory
capital requirements, which were effective as of such date, with tangible, core and risk-based
capital ratios of 13.5%, 13.5% and 19.6%, respectively. The regulatory requirements at that date
were 1.5%, 3.0% and 8.0%, respectively. At March 31, 2011, the Bank was considered
well-capitalized under applicable regulatory guidelines.
Dividends. The Board of Directors of the Company declared and paid dividends per common share
of $128,000 during the three months ended March 31, 2011. The dividend payout ratio for the first
three months of 2011, representing dividends per share divided by diluted earnings per share, was
25.0%. The dividend payout is continually reviewed by management and the Board of Directors.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in
accordance with generally accepted accounting principles are not recorded in our financial
statements. These transactions involve, to varying degrees, elements of credit, interest rate and
liquidity risk. Such transactions are used primarily to manage customers requests for funding and
take the form of loan commitments, unused lines of credit and letters of credit.
For the three months ended March 31, 2011, the Company did not engage in any off-balance sheet
transactions reasonably likely to have a material effect on the Companys financial condition,
results of operations or cash flows.
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
Qualitative Aspects of Market Risk
We manage the interest rate sensitivity of our interest-bearing liabilities and
interest-earning assets in an effort to minimize the adverse effects of changes in the interest
rate environment. Deposit accounts typically react more quickly to changes in market interest
rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp
increases in interest rates may adversely affect our earnings while decreases in interest rates may
beneficially affect our earnings. To reduce the potential volatility of our earnings, we have
sought to improve the match between asset and liability maturities and rates, while maintaining an
acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes:
adjusting the maturities of borrowings; adjusting the investment portfolio mix and duration and
generally selling in the secondary market substantially all newly originated fixed rate
one-to-four-family residential real estate loans. We currently do not participate in hedging
programs, interest rate swaps or other activities involving the use of derivative financial
instruments.
We have an Asset/Liability Management Committee, which includes members of management selected
by the board of directors, to communicate, coordinate and control all aspects involving
asset/liability management. The committee establishes and monitors the volume, maturities, pricing
and mix of assets and funding sources with the objective of managing assets and funding sources to
provide results that are consistent with liquidity, growth, risk limits and profitability goals.
Our goal is to manage asset and liability positions to moderate the effects of interest rate
fluctuations on net interest and net income.
We believe that, at March 31, 2011, there has not been any material change in the disclosure
regarding this item as set forth in our Annual Report on Form 10-K for the year ended December 31,
2010, as filed with the SEC on March 18, 2011.
30
Table of Contents
Item 4. | Controls and Procedures |
The Companys management, including the Companys principal executive officer and principal
financial officer, have evaluated the effectiveness of the Companys disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended, (the Exchange Act). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the end of the period
covered by this report, the Companys disclosure controls and procedures were effective for the
purpose of ensuring that the information required to be disclosed in the reports that the Company
files or submits under the Exchange Act with the Securities and Exchange Commission (the SEC) (1)
is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms, and (2) is accumulated and communicated to the Companys management, including its
principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. In addition, based on that evaluation, no change in the Companys
internal control over financial reporting occurred during the quarter ended March 31, 2011 that has
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
The Company is not involved in any pending legal proceedings. The Bank is not involved in any
pending legal proceedings other than routine legal proceedings occurring in the ordinary course of
business. The Banks management believes that such routine legal proceedings, in the aggregate,
are immaterial to the Banks financial condition and results of operations.
Item 1A. | Risk Factors |
For information regarding the Companys risk factors, see Risk Factors in the Companys
Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and
Exchange Commission on March 18, 2011. As of March 31, 2011, the risk factors of the Company have
not changed materially from those disclosed in the Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information. |
Not applicable.
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Item 6. | Exhibits |
No. | Description | |||
3.1 | Amended and Restated Charter of Athens Bancshares Corporation (1) |
|||
3.2 | Amended and Restated Bylaws of Athens Bancshares Corporation (2) |
|||
4.1 | Specimen Stock Certificate of Athens Bancshares Corporation (3) |
|||
10.1 | Employment Agreement between Athens Federal Community Bank and
Jeffrey L. Cunningham* (4) |
|||
10.2 | Employment Agreement between Athens Federal Community Bank and Michael R. Hutsell* (4) |
|||
10.3 | Employment Agreement between Athens Federal Community Bank and Jay Leggett, Jr*(5) |
|||
10.4 | Employment Agreement between Athens Bancshares Corporation and Jeffrey L. Cunningham* (4) |
|||
10.5 | Employment Agreement between Athens Bancshares Corporation and Michael R. Hutsell* (4) |
|||
10.6 | Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and
Jeffrey L. Cunningham* (4) |
|||
10.7 | Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and
Michael R. Hutsell*(5) |
|||
10.8 | Supplemental Executive Retirement Plan Agreement between Athens Federal Community Bank and Jay
Leggett, Jr*(5) |
|||
10.9 | 2010 Equity Incentive Plan (6) |
|||
31.1 | Rule 13a-14(a)/15d-14(a) Certificate of Chief Executive Officer |
|||
31.2 | Rule 13a-14(a)/15d-14(a) Certificate of Chief Financial Officer |
|||
32.0 | Section 1350 Certificate of Chief Executive Officer and Chief Financial Officer |
* | Management contract or compensatory plan, contract or arrangement |
|
(1) | Incorporated herein by reference to the exhibit to the Companys Current Report on Form
8-K filed with the Securities and Exchange Commission on December 10, 2009. |
|
(2) | Incorporated herein by reference to the exhibit to the Companys Current Report on Form
8-K filed with the Securities and Exchange Commission on November 23, 2009. |
|
(3) | Incorporated herein by reference to the exhibits to the Companys Registration Statement
on Form S-1 (File No. 333-144454), as amended, initially filed with the Securities and
Exchange Commission on September 17, 2009. |
|
(4) | Incorporated herein by reference to the exhibits to the Companys Current Report on Form
8-K filed with the Securities and Exchange Commission on April 6, 2010. |
|
(5) | Incorporated herein by reference to the exhibits of the Companys Current Report on Form
8-K filed with the Securities and Exchange Commission on July 27, 2010. |
|
(6) | Incorporated herein by reference to the Companys Definitive Proxy Statement filed with
the Securities and Exchange Commission on June 7, 2010. |
32
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ATHENS BANCSHARES CORPORATION |
||||
Dated: May 12, 2011 | By: | /s/ Jeffrey L. Cunningham | ||
Jeffrey L. Cunningham | ||||
President and Chief Executive Officer (principal executive officer) |
||||
Dated: May 12, 2011 | By: | /s/ Michael R. Hutsell | ||
Michael R. Hutsell | ||||
Treasurer and Chief Financial Officer (principal accounting and financial officer) |
33