CapStar Financial Holdings, Inc. - FORM 8-K/A - EX-99.2

Attached files

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EX-99.4 - EX-99.4 - CapStar Financial Holdings, Inc.	d646837dex994.htm
EX-23.1 - EX-23.1 - CapStar Financial Holdings, Inc.	d646837dex231.htm
8-K/A - FORM 8-K/A - CapStar Financial Holdings, Inc.	d646837d8ka.htm

Exhibit 99.2

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	June 30,			December 31,
	2018			2017
ASSETS
Cash and due from banks	$	21,699,339		$	28,464,600
Federal funds sold		11,283,000			8,027,000
Interest-bearing deposits in banks		17,228			17,121

Total cash and cash equivalents		32,999,567			36,508,721
Securities available for sale		69,482,585			76,807,971
Investments, at cost		4,720,200			4,479,750
Loans, net of allowance for loan losses of $4,018,837 and $3,961,107 at June 30, 2018 and December 31, 2017, respectively		338,168,253			319,228,764
Premises and equipment, net		7,823,106			7,511,829
Accrued interest receivable		1,380,433			1,363,208
Cash surrender value of bank owned life insurance		12,206,221			12,043,319
Foreclosed real estate		988,148			914,100
Core Deposit Intangible		2,848,669			3,030,499
Other assets		3,443,301			2,861,436

Total assets	$	474,060,483		$	464,749,597

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	60,376,803		$	56,997,824
Interest-bearing		351,892,395			346,024,515

Total deposits		412,269,198			403,022,339
Accrued interest payable		201,703			236,028
Securities sold under agreements to repurchase		940,547			1,750,921
Note payable to bank		—			1,382,849
Accrued expenses and other liabilities		5,967,367			5,813,476

Total liabilities		419,378,815			412,205,613

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized; 2,777,250 shares issued and 1,831,747 outstanding at June 30, 2018 and 1,806,084 outstanding at December 31, 2017		18,317			18,061
Additional paid-in capital		19,115,448			18,799,708
Common stock acquired by benefit plans:
Unallocated common stock held by: Employee Stock Ownership Plan Trust		(1,036,840	)		(1,036,840	)
Retained earnings		37,870,035			34,906,082
Accumulated other comprehensive loss		(1,285,292	)		(143,027	)

Total stockholders’ equity		54,681,668			52,543,984

Total liabilities and stockholders’ equity	$	474,060,483		$	464,749,597

The Notes to Consolidated Financial Statements are an integral part of these statements

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Interest and dividend income:
Loans, including fees	$	4,485,233	$	3,842,408	$	8,813,537	$	7,564,858
Dividends		131,662		126,125		178,439		164,611
Securities and interest-bearing deposits in other banks		575,831		486,132		1,177,644		924,251

Total interest and dividend income		5,192,726		4,454,665		10,169,620		8,653,720

Interest expense:
Deposits		471,644		435,594		919,282		858,018
Fed funds purchased and securities sold under agreements to repurchase		241		241		634		602
Note payable to bank		—		54,455		8,733		117,941

Total interest expense		471,885		490,290		928,649		976,561

Net interest income		4,720,841		3,964,375		9,240,971		7,677,159
Provision for loan losses		63,669		94,487		89,653		276,014

Net interest income after provision for loan losses		4,657,172		3,869,888		9,151,318		7,401,145

Noninterest income:
Customer service fees		671,864		641,570		1,292,725		1,229,959
Other charges and fees		748,489		504,705		1,266,802		1,030,864
Investment sales commissions		158,159		81,984		301,315		229,181
Increase in cash surrender value of life insurance		102,709		105,438		204,462		200,284
Other noninterest income		206,102		160,025		391,573		749,610

Total noninterest income		1,887,323		1,493,722		3,456,877		3,439,898

Noninterest expenses:
Salaries and employee benefits		2,153,187		2,035,481		4,290,414		4,064,278
Occupancy and equipment		566,190		482,558		1,088,275		989,526
Federal deposit insurance premiums		48,000		52,300		83,000		89,950
Data processing		386,251		360,030		751,431		706,048
Advertising		94,476		71,039		171,145		144,590
Other operating expenses		1,199,311		888,091		2,125,633		1,754,138

Total noninterest expenses		4,447,415		3,889,499		8,509,898		7,748,530

Income before income taxes		2,097,080		1,474,111		4,098,297		3,092,513
Income tax expense		491,714		509,943		963,329		1,087,731

Net income	$	1,605,366	$	964,168	$	3,134,968	$	2,004,782

Earnings per common share
Basic	$	0.93	$	0.58	$	1.83	$	1.20
Diluted	$	0.86	$	0.53	$	1.69	$	1.10
Dividends per common share	$	0.05	$	0.05	$	0.10	$	0.10

The Notes to Consolidated Financial Statements are an integral part of these statements

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net income	$	1,605,366		$	964,168		$	3,134,968		$	2,004,782
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) on securities available for sale		(10,891	)		660,004			(1,546,527	)		799,898
Income tax benefit (expense) related to other comprehensive income items		2,847			(250,801	)		404,262			(303,961	)

Other comprehensive income (loss), net of tax		(8,044	)		409,203			(1,142,265	)		495,937

Comprehensive income	$	1,597,322		$	1,373,371		$	1,992,703		$	2,500,719

The Notes to Consolidated Financial Statements are an integral part of these statements

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2018

(Unaudited)


										Common			Accumulated
	Shares of				Additional					Stock			Other
	Common		Common		Paid-In		Retained			Acquired By			Comprehensive
	Stock		Stock		Capital		Earnings			Benefit Plans			(Loss)			Total

Balance, December 31, 2017		1,806,084	$	18,061	$	18,799,708	$	34,906,082		$	(1,036,840	)	$	(143,027	)	$	52,543,984
Net income		—		—		—		3,134,968			—			—			3,134,968
Other comprehensive loss		—		—		—		—			—			(1,142,265	)		(1,142,265	)
Dividends - $0.10 per share		—		—		—		(171,015	)		—			—			(171,015	)
Stock compensation expense		—		—		20,871		—			—			—			20,871
Issuance of Company common stock		25,663		256		294,869		—			—			—			295,125

Balance, June 30, 2018		1,831,747	$	18,317	$	19,115,448	$	37,870,035		$	(1,036,840	)	$	(1,285,292	)	$	54,681,668

The Notes to Consolidated Financial Statements are an integral part of these statements

ATHENS BANCSHARES CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30,			June 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,134,968		$	2,004,782
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		392,052			381,271
Amortization of securities and other assets		327,115			336,907
Provision for loan losses		89,653			276,014
Other gains and losses, net		(2,023	)		(464,780	)
Stock compensation expense		20,871			48,617
Net change in:
Cash surrender value of life insurance, net		(162,902	)		(161,049	)
Accrued interest receivable		(17,225	)		(31,526	)
Accrued interest payable		(34,325	)		(32,836	)
Other assets and liabilities		357,137			67,207

Net cash provided by operating activities		4,105,321			2,424,607

CASH FLOWS FROM INVESTING ACTIVITIES:
Securities available for sale:
Purchases		—			(12,409,962	)
Maturities, prepayments and calls		5,633,575			5,064,088
Investments at cost:
Purchases		(240,450	)		(9,450	)
Loan originations and principal collections, net		(19,482,017	)		(17,641,174	)
Purchases of premises and equipment		(703,329	)		(153,126	)
Purchase of life insurance		—			(1,075,000	)
Proceeds from sale of foreclosed real estate		—			65,000

Net cash used in investing activities		(14,792,221	)		(26,159,624	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		9,246,859			19,853,379
Net decrease in securities sold under agreements to repurchase		(810,374	)		(560,433	)
Net decrease in note payable to bank		(1,382,849	)		(2,250,000	)
Issuance of Company common stock		295,125			—
Dividends paid		(171,015	)		(166,884	)

Net cash provided by provided by financing activities		7,177,746			16,876,062

NET DECREASE IN CASH AND CASH EQUIVALENTS		(3,509,154	)		(6,858,955	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		36,508,721			58,624,749

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	32,999,567		$	51,765,794

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid on deposits and borrowed funds	$	962,974		$	1,009,397
Income taxes paid		1,195,000			1,130,000

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Acquisition of real estate acquired through foreclosure	$	74,048		$	65,000
Financed sales of foreclosed real estate		—			—

The Notes to Consolidated Financial Statements are an integral part of these statements

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 8 of Regulation S-X as promulgated by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation of the financial condition and results of operations for the periods presented have been included. Operating results for the six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the full year or in any other period.

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, National Association (the “Bank”). The Bank provides a variety of financial services to individuals and corporate customers through its ten branches located in Athens, Sweetwater, Etowah, Madisonville, Cleveland and Lenoir City, Tennessee. The Bank’s 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 and one branch located in Cleveland, Tennessee. Ti-Serv, Inc. (“Ti-Serv”) maintains the Bank’s investment in Valley Title Services, LLC (“Valley Title”). Southland and Ti-Serv are wholly-owned subsidiaries of the Bank. Valley Title is a wholly-owned subsidiary of Ti-Serv. Athens Muni Corp (“AMC”) is a wholly-owned subsidiary of the Bank.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. 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 instruments.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted EPS is computed in a manner similar to that of basic EPS except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury stock method) that would have been outstanding if all potentially dilutive common stock equivalents such as stock options were vested during the period.

NOTE 2.

SECURITIES

The amortized cost and estimated fair value of securities classified as available for sale at June 30, 2018 and December 31, 2017, are as follows:


	June 30, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities of U.S. Government agencies and corporations	$	1,261,639	$	—	$	(4,664	)	$	1,256,975
Mortgage-backed and related securities (1)		47,635,452		47,087		(1,968,248	)		45,714,291
State and municipal securities		22,325,667		250,168		(64,516	)		22,511,319

	$	71,222,758	$	297,255	$	(2,037,428	)	$	69,482,585


	December 31, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Securities of U.S. Government agencies and corporations	$	1,331,281	$	—	$	(2,506	)	$	1,328,775
Mortgage-backed and related securities (1)		51,204,769		68,364		(948,415	)		50,324,718
State and municipal securities		24,465,566		696,627		(7,715	)		25,154,478

	$	77,001,616	$	764,991	$	(958,636	)	$	76,807,971

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.

SECURITIES (Continued)

(1) Collateralized by residential mortgages and guaranteed by U.S. Government sponsored entities.

As of June 30, 2018 and December 31, 2017, the Company did not have any securities classified as held-to-maturity.

The amortized cost and estimated fair value of securities at June 30, 2018, 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.


	June 30, 2018
	Amortized		Fair
	Cost		Value
Due in one year or less	$	1,212,995	$	1,209,753
Due after one year through five years		5,666,151		5,729,164
Due five years to ten years		12,978,160		13,109,934
Due after ten years		3,730,000		3,719,443
Mortgage-backed securities		47,635,452		45,714,291

Total	$	71,222,758	$	69,482,585

The Company had no realized gains or losses for the six month periods ended June 30, 2018 or 2017.

The Company has pledged securities with carrying values of approximately $41,615,000 and $33,532,000 (which approximates market values) to secure deposits of public and private funds as of June 30, 2018 and December 31, 2017, respectively.

Securities with gross unrealized losses at June 30, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are as follows:


	June 30, 2018
	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 of U.S. Government agencies and corporations	$	1,253	$	(5	)	$	—	$	—		$	1,253	$	(5	)
Mortgage-backed and related securities		10,283		(406	)		32,350		(1,561	)		42,633		(1,967	)
State and municipal securities		7,520		(60	)		695		(5	)		8,215		(65	)

	$	19,056	$	(471	)	$	33,045	$	(1,566	)	$	52,101	$	(2,037	)

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.

SECURITIES (Continued)


	December 31, 2017
	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
						(dollars in thousands)
Securities of U.S.
Government agencies and corporations	$	1,283	$	(3	)	$	—	$	—		$	1,283	$	(3	)
Mortgage-backed and related securities		13,382		(109	)		33,170		(839	)		46,552		(948	)
State and municipal securities		756		(4	)		697		(4	)		1,453		(8	)

	$	15,421	$	(116	)	$	33,867	$	(843	)	$	49,288	$	(959	)

Management performs periodic reviews for impairment in accordance with ASC Topic 320, Investments – Debt and Equity Securities.

At June 30, 2018, the 42 securities with unrealized losses had depreciated 3.76 percent from the Company’s amortized cost basis. At December 31, 2017, the 34 securities with unrealized losses had depreciated 1.91 percent from the Company’s 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 issuers. These securities will continue to be monitored as a part of the Company’s 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.

Upon acquisition of a security, the Company determines the appropriate impairment model that is applicable. If the security is a beneficial interest in securitized financial assets, the Company uses the beneficial interests in securitized financial assets impairment model. If the security is not a beneficial interest in securitized financial assets, the Company uses the debt and equity securities impairment model. The Company conducts periodic reviews to evaluate each security to determine whether an other-than-temporary impairment has occurred. The Company did not have any securities that were classified as other-than-temporarily-impaired at June 30, 2018.

NOTE 3.

INVESTMENTS, AT COST

The Bank carries the following investments at cost because they are not readily marketable and there is no established market price for the investments. These investments are normally redeemed by the issuer at par value and may carry call or put options under certain circumstances. Investments carried at cost at June 30, 2018 and December 31, 2017, consist of:


	June 30,		December 31,
	2018		2017
Federal Home Loan Bank of Cincinnati common stock	$	2,549,000	$	2,549,000
Federal Reserve Bank stock		671,200		655,750
Resolute Capital Partners Fund III L.P., F.K.A.
Tenth Street Fund III, L.P. investment		1,275,000		1,275,000
Resolute Capital Partners Fund IV L.P.		225,000		—

	$	4,720,200	$	4,479,750

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.

INVESTMENTS, AT COST (Continued)

The Bank, as a member of the Federal Home Loan Bank (“FHLB”) of Cincinnati, is required to maintain an investment in capital stock of the FHLB. Based on redemption provisions of the FHLB, the stock has no quoted market value and is carried at cost. Management reviews for impairment based on the ultimate recoverability of the cost basis in the FHLB stock.

The Bank also maintains an investment in the capital stock of the Federal Reserve Bank. This investment is carried at cost which approximates the fair value of such stock. The amount of Federal Reserve Bank stock required to be held by the Bank is adjusted quarterly based on a determination made by the Federal Reserve Bank.

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Portfolio Segmentation

The Company’s loans consist of the following at June 30, 2018 and December 31, 2017 (in thousands).


	June 30,			December 31,
	2018			2017
Mortgage loans on real estate:
Residential 1-4 family	$	108,608		$	105,397
Commercial real estate and multi-family (5 or more units)		118,582			116,387
Construction and land		43,411			31,590

		270,601			253,374
Commercial loans		26,615			26,827
Consumer and other		46,211			44,139

Total loans		343,427			324,340
Less: Allowance for loan losses		(4,019	)		(3,961	)
Unearned interest and fees		(680	)		(569	)
Net deferred loan origination fees		(560	)		(581	)

Loans, net	$	338,168		$	319,229

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include residential 1-4 family, commercial real estate and multi-family, construction and land, commercial loans, and consumer and other.

The following describe the risk characteristics relevant to each of the portfolio segments:

Residential 1-4 Family: Residential 1-4 family loans include real estate loans secured by 1-4 family first mortgage loans, second liens, or open end real estate loans, such as home equity lines. These are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Loans within this portfolio segment are particularly sensitive to unemployment factors and valuation of real estate.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Portfolio Segmentation (Continued)

Commercial Real Estate and Multi-Family: Commercial real estate and multi-family loans include owner-occupied commercial real estate loans, owner-occupied construction loans for commercial businesses, and loans secured by income producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. Owner-occupied construction loans for a commercial business are for the development of land or construction of a building. Both of these loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as apartment buildings, office and industrial buildings, and retail shopping centers are repaid from rent income derived from the properties. Loans within this segment are particularly sensitive to the valuation of real estate.

Construction and Land: Loans for real estate construction and land development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio segment includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral. Loans within this portfolio segment are particularly sensitive to the valuation of real estate.

Commercial: The commercial loan portfolio segment includes commercial and financial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the customers’ business operations.

Consumer and Other: The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans, and educational loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Credit Risk Management

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by credit policies that provide for a consistent and prudent approach to underwriting and approval of credits. Within the Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lie in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios, including a third party review of the largest credits on an annual basis or more frequently as needed. Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Directors Loan Committee.

The allowance for loan losses is a valuation reserve allowance established through provisions for loan losses charged against income. The allowance for loan losses, which is evaluated quarterly, is maintained at a level that management deems sufficient to absorb probable losses inherent in the loan portfolio. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses. The allowance for loan losses is comprised of specific valuation allowances for loans evaluated individually for impairment, general allocations for pools of homogeneous loans with similar risk characteristics and trends, and an unallocated component that reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Risk Management (Continued)

The allowance for loan losses related to specific loans is based on management’s estimate of potential losses on impaired loans as determined by (1) the present value of expected future cash flows; (2) the fair value of collateral if the loan is determined to be collateral dependent or (3) the loan’s observable market price. The Company’s homogeneous loan pools include residential 1-4 family loans, commercial real estate and multi-family loans, construction and land loans, commercial loans, and consumer and other loans. The general allocations to these loan pools are based on the historical loss rates for specific loan types and the internal risk grade, if applicable, adjusted for both internal and external qualitative risk factors. The qualitative factors considered by management include, among other factors, (1) changes in local and national economic conditions; (2) changes in asset quality; (3) changes in loan portfolio volume; (4) the composition and concentrations of credit; (5) the impact of competition on loan structuring and pricing; (6) the impact of interest rate changes on portfolio risk and (7) effectiveness of the Company’s loan policies, procedures and internal controls. The total allowance established for each homogeneous loan pool represents the product of the historical loss ratio and the total dollar amount of the loans in the pool.

The following tables detail activity in the allowance for loan losses by portfolio segment for the periods ended June 30, 2018 and December 31, 2017 (in thousands). Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.



	Residential			Commercial Real Estate			Construction
	1-4			and			and						Consumer
	Family			Multi-Family			Land			Commercial			and Other			Unallocated			Total
Balance, December 31, 2016	$	1,114		$	1,485		$	298		$	544		$	676		$	32		$	4,149
Provision (reallocation) for loan losses		(103	)		(152	)		(92	)		(90	)		203			252			18
Loans charged-off		—			—			—			—			(317	)		—			(317	)
Recoveries		—			—			—			20			91			—			111

Balance, December 31, 2017		1,011			1,333			206			474			653			284			3,961
Provision (reallocation) for loan losses		41			49			33			(27	)		70			(76	)		90
Loans charged-off		—			—			—			—			(116	)		—			(116	)
Recoveries		11			20			—			—			53			—			84

Balance, June 30, 2018	$	1,063		$	1,402		$	239		$	447		$	660		$	208		$	4,019

The composition of loans by primary loan classification as well as impaired and performing loan status at June 30, 2018 and December 31, 2017, is summarized in the tables below (in thousands):


	Year Ending June 30, 2018
			Commercial
	Residential		Real Estate		Construction
	1-4		and		and				Consumer
	Family		Multi-Family		Land		Commercial		and Other		Unallocated		Total
Specified reserves – impaired loans	$	270	$	67	$	5	$	44	$	33	$	—	$	419
General reserves		793		1,335		234		403		627		208		3,600

Total reserves	$	1,063	$	1,402	$	239	$	447	$	660	$	208	$	4,019

Impaired loans	$	2,770	$	183	$	41	$	1,520	$	171	$	—	$	4,685
Performing loans		105,838		118,399		43,370		25,095		46,040		—		338,742

Total loans	$	108,608	$	118,582	$	43,411	$	26,615	$	46,211	$	—	$	343,427

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Risk Management (Continued)


	Year Ending December 31, 2017
			Commercial
	Residential		Real Estate		Construction
	1-4		and		and				Consumer
	Family		Multi-Family		Land		Commercial		and Other		Unallocated		Total
Specified reserves – impaired loans	$	256	$	69	$	9	$	67	$	60	$	—	$	461
General reserves		755		1,264		197		407		593		284		3,500

Total reserves	$	1,011	$	1,333	$	206	$	474	$	653	$	284	$	3,961

Impaired loans	$	2,702	$	242	$	58	$	1,568	$	242	$	—	$	4,812
Performing loans		102,695		116,145		31,532		25,259		43,897		—		319,528

Total loans	$	105,397	$	116,387	$	31,590	$	26,827	$	44,139	$	—	$	324,340

A description of the general characteristics of the risk grades used by the Company is as follows:

Pass: Loans in this risk category include borrowers of acceptable to strong credit quality and risk who have the apparent ability to satisfy their loan obligations. Loans in this risk grade would possess sufficient mitigating factors, such as adequate collateral or strong guarantors possessing the capacity to repay the debt if required, for any weakness that may exist.

Special Mention: Loans in this risk grade are the equivalent of the regulatory definition of “Other Assets Especially Mentioned” classification. Loans in this category possess some credit deficiency or potential weakness, which requires a high level of management attention. Potential weaknesses include declining trends in operating earnings and cash flows and/or reliance on the secondary source of repayment. If left uncorrected, these potential weaknesses may result in noticeable deterioration of the repayment prospects for the asset or in the Company’s credit position.

Substandard: Loans in this risk grade are inadequately protected by the borrower’s current financial condition and payment capability or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans in this risk grade have all weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimated loss is deferred until its more exact status may be determined.

Loss: Loans in this risk grade are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Charge-offs against the allowance for loan losses are taken in the period in which the loan becomes uncollectible. Consequently, the Company typically does not maintain a recorded investment in loans within this category.

When the Company classifies an asset as substandard or doubtful, a specific allowance for loan losses may be established.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Risk Management (Continued)

The following tables outline the amount of each loan classification and the amount categorized into each risk rating as of June 30, 2018 and December 31, 2017 (in thousands):


	Period Ending June 30, 2018
			Commercial
	Residential		Real Estate		Construction
	1-4		and		and				Consumer
	Family		Multi-Family		Land		Commercial		and Other		Total
Pass	$	104,387	$	118,209	$	43,317	$	25,095	$	45,816	$	336,824
Special mention		1,451		190		53		—		224		1,918
Substandard		2,770		183		41		1,520		171		4,685

Total	$	108,608	$	118,582	$	43,411	$	26,615	$	46,211	$	343,427


	Year Ending December 31, 2017
			Commercial
	Residential		Real Estate		Construction
	1-4		and		and				Consumer
	Family		Multi-Family		Land		Commercial		and Other		Total
Pass	$	101,099	$	115,939	$	31,476	$	25,259	$	43,710	$	317,483
Special mention		1,596		206		56		—		187		2,045
Substandard		2,702		242		58		1,568		242		4,812

Total	$	105,397	$	116,387	$	31,590	$	26,827	$	44,139	$	324,340

Past Due Loans

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places loans on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 120 days past due. The following tables present the aging of the recorded investment in loans as of June 30, 2018 and December 31, 2017 (in thousands):


	Period Ending June 30, 2018
			Past Due
	Past Due		90 Days
	30-89 Days		or More
	and		and				Total		Current		Total
	Accruing		Accruing		Nonaccrual		Past Due		Loans		Loans
Residential 1-4 family	$	79	$	—	$	854	$	933	$	107,675	$	108,608
Commercial real estate and multi-family		—		—		—		—		118,582		118,582
Construction and land		—		—		22		22		43,389		43,411
Commercial		—		—		—		—		26,615		26,615
Consumer and other		45		—		65		110		46,101		46,211

Total	$	124	$	—	$	941	$	1,065	$	342,362	$	343,427

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Credit Risk Management (Continued)


	Year Ending December 31, 2017
			Past Due
	Past Due		90 Days
	30-89 Days		or More
	and		and				Total		Current		Total
	Accruing		Accruing		Nonaccrual		Past Due		Loans		Loans
Residential 1-4 family	$	362	$	129	$	837	$	1,328	$	104,069	$	105,397
Commercial real estate and multi-family		—		—		56		56		116,331		116,387
Construction and land		21		—		24		45		31,545		31,590
Commercial		—		—		—		—		26,827		26,827
Consumer and other		139		—		23		162		43,977		44,139

Total	$	522	$	129	$	940	$	1,591	$	322,749	$	324,340

Impaired Loans

A loan held for investment is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail impaired loans, by portfolio segment as of June 30, 2018 and December 31, 2017 (in thousands):


	As of June 30, 2018						For the Period Ended June 30, 2018
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Residential 1-4 family	$	1,184	$	1,184	$	—	$	1,196	$	9
Commercial real estate and multi-family		—		—		—		—		—
Construction and land		22		22		—		22		—
Commercial		9		9		—		10		—
Consumer and other		17		17		—		46		—

Total		1,232		1,232		—		1,274		9

Impaired loans with a valuation allowance:
Residential 1-4 family		1,586		1,586		270		1,578		58
Commercial real estate and multi-family		183		183		67		184		7
Construction and land		19		19		5		26		1
Commercial		1,511		1,511		44		1,513		38
Consumer and other		154		154		33		175		2

Total		3,453		3,453		419		3,476		106

Total impaired loans	$	4,685	$	4,685	$	419	$	4,750	$	115

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired Loans (Continued)


	As of December 31, 2017						For the Year Ended December 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans without a valuation allowance:
Residential 1-4 family	$	1,200	$	1,200	$	—	$	1,168	$	140
Commercial real estate and multi-family		56		56		—		62		—
Construction and land		24		24		—		26		2
Commercial		11		11		—		13		3
Consumer and other		26		26		—		41		8

Total		1,317		1,317		—		1,310		153

Impaired loans with a valuation allowance:
Residential 1-4 family		1,502		1,502		256		1,458		—
Commercial real estate and multi-family		186		186		69		221		13
Construction and land		34		34		9		25		—
Commercial		1,557		1,557		67		1,580		79
Consumer and other		216		216		60		208		—

Total		3,495		3,495		461		3,492		92

Total impaired loans	$	4,812	$	4,812	$	461	$	4,802	$	245

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

Impaired Loans (Continued)

Troubled Debt Restructurings

At June 30, 2018 and December 31, 2017, impaired loans included loans that were classified as Troubled Debt Restructurings (“TDRs”). The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

The following tables present a summary of loans that were modified as troubled debt restructurings during the six months ended June 30, 2018 and year ended December 31, 2017 (in thousands):


	Six Months Ended June 30, 2018
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Residential 1-4 family	1	$52	$52
Consumer and other	2	9	9

	Year Ended December 31, 2017
	Number of Loans	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
Consumer and other	5	$14	$14

The Company did not have any loans that were modified as troubled debt restructurings during the twelve months ended June 30, 2018 and 2017, for which there was a subsequent payment default during the year.

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 Company’s 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 Company’s shareholders, and by providing participants with an incentive for remarkable performance. All of the Company’s 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.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

STOCK OPTIONS, ESOP AND RESTRICTED SHARES (Continued)

Stock Options:

The Company granted stock options to its directors, officers, and employees on December 15, 2010 and December 17, 2014. 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 Company’s 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, pro rata, 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 each of the six months ended June 30, 2018 and 2017, the Company recorded stock compensation expense of $20,871 and $20,871. At June 30, 2018, the total remaining compensation cost to be recognized on non-vested options is approximately $62,614.

A summary of the activity in the 2010 Plan for the six months ended June 30, 2018, is presented in the following table:


	Six months ended June 30, 2018
	Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year		217,024		$	14.12
Options exercised		(25,663	)		11.50


Outstanding at end of period		191,361		$	14.47


Option exercisable at end of period		174,696		$	13.46

The aggregate intrinsic value of options outstanding at June 30, 2018, is $7,209,291.

Other information regarding options outstanding and exercisable as of June 30, 2018, is as follows:


	Options Outstanding					Options Exercisable
Exercise Prices	Number Outstanding		Weighted Average Remaining Life	Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$11.50		149,698	2.50 Years	$	11.50		149,698	$	11.50
25.17		41,663	6.50 Years		25.17		24,998		25.17

Outstanding at end of period		191,361

Information pertaining to non-vested options for the six months ended June 30, 2018, is as follows:


			Weighted Average
	Number		Grant Date Fair
	of Shares		Value
Non-vested options, December 31, 2017		16,665	$	5.57
Vested		—		—

Non-vested options, June 30, 2018		16,665	$	5.57

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

STOCK OPTIONS, ESOP AND RESTRICTED SHARES (Continued)

Restricted Stock:

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.

On December 19, 2012, the Company awarded 16,664 shares of restricted stock to its officers and employees pursuant to the terms of the 2010 Plan. The closing price on the date of the grants issued on December 19, 2012, was $16.65.

The Company recognized no in compensation expense attributable to shares that have been awarded for the six months ended June 30, 2018 and $27,746 for the six months ended June 30, 2017. There is no total remaining compensation cost to be recognized on non-vested restricted stock.

Employee Stock Ownership Plan (ESOP)

The Bank sponsors a leveraged ESOP that covers substantially all employees who meet certain age and eligibility requirements. The ESOP purchased 222,180 shares with the proceeds of a 15 year loan from the Company which is payable in annual installments and bears interest at 3.25% per annum.

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 Bank. Any forfeited shares are allocated to other participants in the same proportion as contributions.

As ESOP shares are allocated to participants, the Bank recognizes compensation expense equal to the fair value of the earned ESOP shares. No compensation expense has been recorded for the six months ended June 30, 2018 or 2017.

A detail of ESOP shares is as follows:


	June 30,		December 31,
	2018		2017
Allocated shares		118,496		118,496
Unallocated shares		103,684		103,684

Total ESOP Shares		222,180		222,180

Fair value of unreleased shares	$	5,401,936	$	3,991,834

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

FAIR VALUE DISCLOSURES

Determination of Fair Value

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 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.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) 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.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 - Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 - Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

A financial instrument’s 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 December 31, 2017 and June 30, 2018.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents approximate fair values based on the short-term nature of the assets.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

FAIR VALUE DISCLOSURES (Continued)

Fair Value Hierarchy (Continued)

Securities Available for Sale: 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.

Investments, at Cost: The carrying value of investments at cost is a reasonable estimate of fair value.

Accrued Interest: The carrying amounts of accrued interest approximate fair value.

Loans: The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates, adjusted for credit risk and servicing costs. The estimate of maturity is based on the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. 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, Accounting by Creditors for Impairment of a Loan.

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 carrying value of these liabilities, which are extremely short term, approximates their fair value.

Note Payable to Bank: Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.

Assets Measured at Fair Value on a Recurring Basis: Assets measured at fair value on a recurring basis are summarized below (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Securities available for sale:
Securities of U.S. Government agencies and corporations	$	1,257	$	—	$	1,257	$	—
Mortgage-backed and related securities		45,714		—		45,714		—
State and municipal securities		22,512		—		22,512		—

Total securities available for sale	$	69,483	$	—	$	69,483	$	—

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

FAIR VALUE DISCLOSURES (Continued)

Fair Value Hierarchy (Continued)


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2017		(Level 1)		(Level 2)		(Level 3)
Securities available for sale:
Securities of U.S. Government agencies and corporations	$	1,329	$	—	$	1,329	$	—
Mortgage-backed and related securities		50,325		—		50,325		—
State and municipal securities		25,154		—		25,154		—

Total securities available for sale	$	76,808	$	—	$	76,808	$	—

The Company has no assets or liabilities whose fair values are measured on a recurring basis using Level 3 inputs.

Assets Measured at Fair Value on a Nonrecurring Basis: Under certain circumstances management makes adjustments to fair value for assets and liabilities although they are not measured at fair value on an ongoing basis. The following tables present the financial instruments carried on the consolidated balance sheets by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded (in thousands):


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs
	2018		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	3,034	$	—	$	1,568	$	1,466
Foreclosed real estate		988		—		—		988


			Quoted Prices in		Significant		Significant
			Active Markets		Other		Other
	Balance as of		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2017		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	3,034	$	—	$	1,560	$	1,474
Foreclosed real estate		914		—		—		914

Impaired Loans: Loans considered impaired under ASC 310-10-35, Receivables, are loans for which, based on current information and events, 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. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable.

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

FAIR VALUE DISCLOSURES (Continued)

Fair Value Hierarchy (Continued)

The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Foreclosed Assets: Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is initially recorded at fair value less estimated costs to sell upon transfer of the loan to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less cost to sell, a loss is recognized in noninterest expense.

The carrying amount and estimated fair value of the Company’s financial instruments at June 30, 2018 and December 31, 2017, are as follows (in thousands):


	June 30, 2018				December 31, 2017
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
Assets:
Cash and cash equivalents	$	33,000	$	33,000	$	36,509	$	36,509
Securities available for sale		69,483		69,483		76,808		76,808
Investments, at cost		4,720		4,720		4,480		4,480
Loans, net		338,168		336,136		319,229		319,526
Accrued interest receivable		1,380		1,380		1,363		1,363
Liabilities:
Deposits		412,269		414,628		403,022		405,342
Securities sold under agreements to repurchase		941		941		1,751		1,751
Note payable to bank		—		—		1,383		1,383
Accrued interest payable		202		202		236		236

ATHENS BANCSHARES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.

EARNINGS PER COMMON SHARE

The following is a summary of the basic and diluted earnings per share for the three months ended June 30, 2018 and 2017:


	2018		2017
Basic earnings per share calculation:
Numerator: Net income	$	1,605,366	$	964,168

Denominator: Weighted average common shares outstanding		1,721,799		1,672,748
Effect of dilutive stock options		134,842		148,412

Diluted shares		1,856,641		1,821,160

Basic earnings per share	$	0.93	$	0.58

Diluted earnings per share	$	0.86	$	0.53

The following is a summary of the basic and diluted earnings per share for the six months ended June 30, 2018 and 2017:


	2018		2017
Basic earnings per share calculation:
Numerator: Net income	$	3,134,969	$	2,004,782

Denominator: Weighted average common shares outstanding		1,714,639		1,669,682
Effect of dilutive stock options		135,174		146,685

Diluted shares		1,849,813		1,816,367

Basic earnings per share	$	1.83	$	1.20

Diluted earnings per share	$	1.69	$	1.10

CapStar Financial Holdings, Inc. - FORM 8-K/A - EX-99.2 - October 31, 2018

Attached files

CapStar Financial Holdings, Inc. Reports