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AFCB > SEC Filings for AFCB > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for ATHENS BANCSHARES CORP

Form 10-Q for ATHENS BANCSHARES CORP


9-May-2014

Quarterly Report


Item 2. Management's 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 Company's 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 Company's 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, 2013 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, 2014, there was no significant change in the Company's critical accounting policies or the application of critical accounting policies as disclosed in the Company's audited consolidated financial statements and related footnotes for the year ended December 31, 2013 included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

Comparison of Financial Condition at March 31, 2014 and December 31, 2013

Assets. Total assets increased from $294.8 million at December 31, 2013 to $303.9 million at March 31, 2014.

Cash and Cash Equivalents. Total cash and cash equivalents increased $9.8 million, or 64.7%, from $15.1 million at December 31, 2013 to $24.9 million at March 31, 2014. This is due primarily to a $10.6 million increase in deposits and a $921,000 decrease in securities, partially offset by repurchases of Company common stock in the amount of $1.7 million.

Securities. Securities decreased $921,000, or 2.9%, from $31.6 million at December 31, 2013 to $30.7 million at March 31, 2014, primarily as a result of $622,000 of principal payments on mortgage-backed securities and $399,000 of sales of municipal securities. The remaining change in securities was due primarily to amortization and mark-to-market adjustments.

Loans. Net loans receivable increased $704,000, or 0.3%, from $226.2 million at December 31, 2013 to $226.9 million at March 31, 2014, primarily as a result of $1.3 million, $798,000, and $206,000 increases in construction and land loans, commercial loans, and commercial real estate and multifamily loans, respectively. These increases were partially offset by decreases in residential 1-4 family real estate loans and consumer and equity lines of credit of $884,000 and $770,000, respectively. The increase in construction and land loans was due primarily to draws on a $2.6 million construction line of credit secured by a hotel.

Deposits. Total deposits increased $10.6 million, or 4.3%, from $248.2 million at December 31, 2013 to $258.8 million at March 31, 2014. The primary reason for the increase in deposits was a $10.9 million increase in demand and NOW accounts, primarily due to an increase in non-personal NOW accounts relating to three public entities, an overall increase in the number of accounts, and an increase in the average balance of accounts due predominately to tax refunds. The remaining change in deposits was attributable to a $1.6 million increase in savings deposit accounts and decreases in money market accounts and certificates of deposit of $1.1 million and $749,000, respectively.


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Borrowings. As of March 31, 2014 and December 31, 2013, no Federal Home Loan Bank or other borrowings were outstanding.

Stockholders' Equity. Stockholders' equity decreased $878,000, or 2.1%, from $41.1 million at December 31, 2013 to $40.2 million at March 31, 2014. The primary reasons for the decrease include $1.7 million in repurchased and retired common stock and $86,000 in dividends declared and paid on outstanding shares (other than unallocated ESOP shares). These decreases were partially offset by net income for the first three months of 2014 of $660,000, an unrealized gain on securities available for sale (net of taxes) of $150,000, and an $88,000 increase in additional paid-in capital related to stock compensation expense for the period.

Results of Operations for the Three Months Ended March 31, 2014 and 2013

Overview. The Company reported net income of $660,000, or $0.39 basic earnings per share, for the three-month period ended March 31, 2014, compared to net income of $556,000, or $0.27 basic earnings per share, for the same period in 2013.

Net Interest Income. Net interest income after provision for loan losses increased $107,000, or 3.8%, to $2.9 million for the three months ended March 31, 2014 compared to the same period in 2013.

Total interest income decreased $95,000, or 2.7%, from $3.5 million for the three months ended March 31, 2013 to $3.4 million for the three months ended March 31, 2014. The decrease was primarily the result of a $93,000 decrease in interest on loans as well as a $2,000 decrease in dividend income. The decrease in interest on loans was due primarily to a decrease in market interest rates.

Total interest expense decreased $94,000, or 16.4%, from $568,000 for the three months ended March 31, 2013 to $474,000 for the three months ended March 31, 2014. The decrease was primarily a result of a $62,000 decrease in interest on deposits as well as a $32,000 decrease in interest on Federal Home Loan Bank advances. The primary reason for the decrease in interest on deposits was a reduction in market interest rates. The decrease in interest on Federal Home Loan Bank advances was due to the payoff of maturing advances.

Provision for Loan Losses. The provision for loan losses was $26,000 for the three months ended March 31, 2014 compared to $135,000 for the same period in 2013.

Non-performing loans increased $133,000 from $4.1 million at December 31, 2013 to $4.2 million at March 31, 2014. Non-performing commercial real estate and multifamily loans and consumer loans increased $237,000 and $48,000, respectively, while nonperforming residential mortgage loans and construction and land loans decreased $117,000 and $35,000, respectively. The balance of non-performing loans at March 31, 2014 includes nonaccrual loans of $4.2 million. Residential mortgage loans of $20,000 were over 90 days past due but still accruing interest at March 31, 2014. The balance of nonaccrual loans at March 31, 2014 consists of $2.3 million in residential mortgage loans, $1.4 million in construction and land loans, $333,000 in commercial real estate and multifamily, $122,000 in consumer loans, and $47,000 in commercial loans.

Net charge-offs (recoveries) were $68,000 for the three months ended March 31, 2014 compared to $61,000 for the same period in 2013. Charge-offs totaling $83,000 were recorded during the quarter ended March 31, 2014 in connection with residential mortgage loans ($27,000) and consumer loans ($56,000).

The allowance for loan losses was $4.4 million at March 31, 2014. 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.

Non-interest Income. Non-interest income decreased $19,000, or 1.5%, to $1.2 million for the three months ended March 31, 2014 compared to the same period in 2013, primarily due to decreases in fees related to the origination, sale and servicing of mortgage loans on the secondary market and a reduction in income from Valley Title Services, LLC of $83,000 and $18,000, respectively. These decreases were partially offset by a $56,000 increase in investment sales commissions and a $27,000 increase in other deposit related fees. All other non-interest income decreased $1,000, net.


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The decrease in fees related to the origination, sale and servicing of mortgage loans on the secondary market is primarily due to decreased volume of these loans during the three months ended March 31, 2014 as compared to the same period in 2013. The decreased volume is primarily a result of an increase in market rates period over period. The reduction in income from Valley Title Services, LLC is primarily due to a decrease in mortgage volumes period over period. Income from investment sales commissions increased primarily due to increased sales of investment products resulting from a partial recovery of investment markets and customers seeking higher yielding investment alternatives in the continued low rate environment. Income from other deposit related fees increased primarily due to a restructuring of deposit account fees.

Non-interest Expense. Non-interest expense decreased $74,000, or 2.3%, to $3.2 million for the three months ended March 31, 2014 compared to the same period in 2013. The primary factors effecting the change were decreases in advertising and other operating expenses and data processing expenses totaling $72,000 and $51,000, respectively. These decreases were partially offset by a $41,000 increase in occupancy and equipment expenses and an $11,000 increase in salary and benefits expenses. All other non-interest expense decreased $4,000, net.

The decreases in operating and data processing expenses were the result of certain one-time costs from the Bank's conversion to a new core processing system incurred in 2013, which were not repeated in 2014. The primary reason for the increase in occupancy and equipment expense was additional depreciation expense on computer hardware and software due to purchases. Salary and benefits expenses increased primarily because of cost of living adjustments.

Income Tax Expense. The Company had income tax expense of $336,000 for the three month period ended March 31, 2014 as compared to $278,000 for the same period in 2013. The increase in income tax expense was due primarily to the increase in taxable income period over period.

Total Comprehensive Income. Total comprehensive income for the periods presented consists of net income and the change in unrealized gains (losses) on securities available for sale, net of tax. Total comprehensive income was $810,000 for the three month period ended March 31, 2014 compared to total comprehensive income of $504,000 for the three month period ended March 31, 2013. The increase was primarily a result of a positive change of $202,000 in unrealized gains and losses on securities available for sale, net of tax and an increase in net income period over period of $104,000.

Liquidity and Capital Resources

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Bank's 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 its investments in liquid assets based upon an 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 Bank's most liquid assets are cash and cash equivalents and interest-bearing deposits. The level of these assets depends on the Bank's operating, financing, lending and investing activities during any given period. At March 31, 2014, cash and cash equivalents totaled $24.9 million. At March 31, 2014, securities classified as available-for-sale, which amounted to $30.7 million, provide an additional source of liquidity. In addition, at March 31, 2014, the Bank had the ability to borrow a total of approximately $40.8 million from the Federal Home Loan Bank of Cincinnati. At March 31, 2014, the Bank had $11.8 million in letters of credit with the Federal Home Loan Bank to secure public funds deposits.


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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.

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 Company also seeks liquidity to fund any repurchases of its common stock. The Company's 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 the Comptroller of the Currency but with prior notice to the Office of the Comptroller of the Currency, 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 $5.4 million at March 31, 2014.

Capital Management. The Bank is required to maintain specific amounts of capital pursuant to federal regulatory requirements. As of March 31, 2014, the Bank was in compliance with all regulatory capital requirements, which were effective as of such date, with tangible, core, tier 1 risk-based capital, and total risk-based capital ratios of 10.8%, 10.8 %, 15.8%, and 17.0%, respectively. The regulatory requirements at that date were 1.5%, 4.0%, 4.0%, and 8.0%, respectively. At March 31, 2014, the Bank was considered "well-capitalized" under applicable regulatory guidelines.

Dividends. The Board of Directors of the Company declared and paid dividends on the Company's common stock of $86,000 during the three months ended March 31, 2014. The dividend payout ratio for the first three months of 2014, representing dividends per share divided by diluted earnings per share, was 13.5%. 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, 2014, the Company did not engage in any off-balance sheet transactions reasonably likely to have a material effect on the Company's financial condition, results of operations or cash flows.

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